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Non-Discrimination Statement 

The U.S. Department of Agriculture (USDA) prohibits discrimination against its customers, 

employees, and applicants for employment on the bases of race, color, national origin, age, 

disability, sex, gender identity, religion, reprisal, and where applicable, political beliefs, marital 

status, familial or parental status, sexual orientation, or all or part of an individual's income is 

derived from any public assistance program, or protected genetic information in employment or 

in any program or activity conducted or funded by the Department. (Not all prohibited bases will 

apply to all programs and/or employment activities.) 

To File an Employment Complaint 

If you wish to file an employment complaint, you must contact your agency's Equal Employment 

Opportunity (EEO) Counselor within 45 days of the date of the alleged discriminatory act, event, 

or in the case of a personnel action. Additional information can be found online at 

http://www.ascr.usda.gov/complaint_filing_file.html. 

To File a Program Complaint 

If you wish to file a Civil Rights program complaint of discrimination, complete the USDA 

Program Discrimination Complaint Form, found online at 

http://www.ascr.usda.gov/complaint_filing_cust.html, or at any USDA office, or call 

(866) 632-9992 to request the form. You may also write a letter containing all of the information 

requested in the form. Send your completed complaint form or letter to us at U.S. Department of 

Agriculture, Director, Office of Adjudication, 1400 Independence Avenue, S.W., Washington, 

D.C. 20250-9410, by fax (202) 690-7442, or by email at program.intake@usda.gov. 
About This Report 

The U.S. Department of Agriculture (USDA) has chosen to produce both an Agency Financial 

Report (AFR) and an Annual Performance Report (APR). USDA will include its fiscal year 

(FY) 2014 APR with its Congressional Budget Justification and will post it on the Department’s 

Web site at USDA Performance when published.

This AFR provides financial and high-level performance information to the President, the 

Congress, and the American people. USDA’s end-of-fiscal-year financial position includes, but 

is not limited to, financial statements, notes to the financial statements, and a report of the 

independent auditors.

The APR is a detailed report on USDA’s progress toward achieving the goals and objectives 

described in the agency’s Strategic Plan and Annual Performance Plan, including progress on the 

strategic objectives, performance goals, and Agency Priority Goals. The report will be delivered 

to Congress with the budget. 

This report is to be posted on these Web sites: Performance.gov and USDA Performance.

Previous reports are posted as well. 
Table of Contents 

Message from the Secretary ....................................................................................................... i

SECTION I: MANAGEMENT’S DISCUSSION AND ANALYSIS ................................... 1

USDA Overview ......................................................................................................................... 1

USDA Organization Chart ...................................................................................................... 2

Mission Areas and Departmental Management ..................................................................... 3

Strategic Plan and Program Performance .............................................................................. 7

Future Demands, Risks, Uncertainties, Events, Conditions, and Trends ............................ 9

Analysis of Financial Information and Highlights................................................................ 10

Financial Statement Highlights ............................................................................................. 10

Analysis of Systems, Controls, and Legal Compliance......................................................... 17

Management Assurances ....................................................................................................... 17

Federal Manager’s Financial Integrity Act Report on Management Control ....................... 19

Compliance with Laws and Regulations ............................................................................... 23

Federal Financial Management Improvement Act Report on 

Financial Management Systems ............................................................................................ 30

Financial Management Systems Strategy .............................................................................. 32

Other Management Information, Initiatives, and Issues ..................................................... 34

Eliminating Improper Payments ............................................................................................ 34

Limitations of the Financial Statements ................................................................................ 35

SECTION II: FINANCIAL INFORMATION...................................................................... 36

Message from the Chief Financial Officer ............................................................................. 36

Independent Auditors Report ................................................................................................. 37

Consolidated Financial Statements ........................................................................................ 66

Notes to the Consolidated Financial Statements ................................................................... 71

Required Supplementary Stewardship Information ............................................................ 148

Required Supplementary Information ................................................................................. 158
SECTION III: OTHER INFORMATION ......................................................................... 171

Schedule of Spending ............................................................................................................. 171

Response to Management Challenges .................................................................................. 173

Summary of Financial Statement Audit and Management Assurances ........................... 196

Improper Payments ............................................................................................................... 198

Inspector General Act Amendments of 1988: 

Management’s Report on Audit Follow-Up ........................................................................ 274

Freeze the Footprint .............................................................................................................. 284

Acronyms ................................................................................................................................ 285
MESSAGE FROM THE SECRETARY 

Fiscal Year 2014 Agency Financial Report | i 

Message from the Secretary 

In fulfillment of our duty to the people, the President, and Congress, the 

U.S. Department of Agriculture (USDA) respectfully submits the fiscal year 

(FY) 2014 Agency Financial Report. 

This year has marked another period of historic accomplishments at USDA. 

We have innovated and collaborated with partners across the Nation to 

support a strong American agricultural sector; bolstered agricultural trade; 

safeguarded the Nation’s food supply; supported record soil and water 

conservation; grown the biobased economy; and expanded opportunity for 

farmers, ranchers, and rural communities nationwide. New tools and resources in the 2014 Farm 

Bill, passed earlier this year, will allow us to stretch the impact of our investments in rural 

America even further. 

USDA has accomplished these results in a time of significant uncertainty. Federal budget 

reductions have challenged USDA leadership and employees alike to find new strategies for 

delivering modern, efficient service. In FY 2014, USDA enhanced our modernization and 

streamlining efforts, known as the Blueprint for Stronger Service, by focusing on better 

management of space resources and workers compensation cases. Overall, these activities have 

enabled USDA to better adapt to a constrained resource environment. In total, the Department 

has achieved over $1.2 billion in savings and cost avoidance as a result of Blueprint activities, 

while better serving the public through more efficient and effective operations. 

The fact that we were able to continue accomplishing admirable results across all areas of the 

Department is a testament to nearly 100,000 USDA employees stationed in Washington, D.C., 

across the Nation, and around the world. Often, Americans do not have a chance to work directly 

with these dedicated public servants—but the impact of their work is felt from our smallest 

towns to our biggest cities. 

In 2014, USDA took a multitude of steps to provide innovative assistance for America’s farmers 

and ranchers. For example, as a result of the 2014 Farm Bill, USDA was able to begin offering 

disaster assistance to producers who suffered livestock and grazing losses between October 2011 

and passage of the 2014 Farm Bill. USDA had the program ready to serve producers within a 

record 60 days of the Farm Bill signing. As of October 15, 2014, USDA had provided critical 

disaster assistance to nearly 379,000 producers impacted by drought and severe weather. 

USDA has also supported a Federal crop insurance program that has matured into the Nation’s 

primary farm safety net. For some farming and ranching families, crop insurance is the 

difference between staying in business and going out of business after a natural disaster. When 

farmers and ranchers suffer covered losses, indemnity payments can replace lost income, which 

helps local rural communities remain economically viable. USDA’s Risk Management Agency 

(RMA) has worked to ensure that crop insurance is available and meets the needs of as many 
Managing for Results in Performing Its Many Vital Public Functions

ii | Fiscal Year 2014 Agency Financial Report 

USDA

producers as possible. Furthermore, producer education remains a priority so producers know 

how to access information about these products and how they work. 

Since the 2014 Farm Bill was signed, RMA has been working to ensure that the programs 

authorized in the bill are available to producers as soon as possible. Specifically, the Actual 

Production History Yield Exclusion, Supplemental Coverage Option, Stacked Income Protection 

for Producers of Upland Cotton, Whole Farm Revenue Protection, and Beginning Farmer and 

Rancher Provisions for crop insurance were implemented after the signing of the 2014 Farm Bill. 

In FY 2014, USDA also continued our strong support for markets for products grown and made 

in rural America. U.S. agricultural exports are forecast to reach $152.5 billion in FY 2014, the 

highest on record. Since 2009, USDA has helped approximately 70 U.S. agricultural producer 

organizations, each representing hundreds or thousands of producers, expand commercial export 

markets for their goods. And, working across the Federal Government, we continued efforts that 

have, since 2009, broken down hundreds of unfair barriers to U.S. farm and ranch exports. 

USDA has also helped to expand new markets for agricultural products here at home. For 

example, consumer demand for locally-produced food is strong and growing, and farmers and 

ranchers are positioning their businesses to meet that demand. Under the 2014 Farm Bill, 

USDA has awarded approximately $30 million in grants through the Farmers Market and Local 

Food Promotion Program to support new markets for farm and ranch products. In August 2014, 

we announced that the USDA's National Farmers Market Directory now lists 8,268 markets, an 

increase of 76 percent since 2008. 

In FY 2014, USDA also continued supporting farmers’ conservation work through technical 

assistance and conservation programs—applying the most effective programs in the best places 

to achieve the best possible result. The 2014 Farm Bill consolidated 23 existing conservation 

programs into 13 programs while strengthening tools to protect and conserve land, water, and 

wildlife. 

USDA’s Natural Resources Conservation Service (NRCS) appropriately focused its initial Farm 

Bill implementation efforts to minimizing disruption to agricultural producers. To accomplish 

this transition, NRCS expedited the policy development, training, and business tool deployment 

necessary for an unprecedented mid-year Conservation Title program delivery concurrent with 

its longer-term program implementation efforts. This expedited implementation enabled NRCS 

to process approximately 53,000 applications and obligate nearly $900 million in financial 

assistance funds for producers to implement conservation practices through the Environmental 

Quality Incentives Program. Additionally, NRCS enrolled around 9.6 million acres in the 

Conservation Stewardship Program, obligated almost $250 million for watershed rehabilitation 

projects, and accepted applications in Agricultural Conservation Easement Program (ACEP) to 

protect an estimated 129,000 acres of farmland, grassland, and wetlands. 

The Department also launched another 2014 Farm Bill program, the Regional Conservation 

Partnership Program, a way for private companies, tribes, local communities and nongovernment partners to collaborate and invest in cleaner water and air, healthier soil, and 

enhanced wildlife habitat. Nearly 5,000 organizations partnered together to submit nearly 
MESSAGE FROM THE SECRETARY 

Fiscal Year 2014 Agency Financial Report | iii 

600 pre-proposals by the July 2014 deadline. We look forward to working with those 

organizations invited to move on to the next step in the process and submit full proposals. 

Meanwhile, in America’s national forests and grasslands, USDA is hard at work to improve 

resilience, reduce the risk of devastating wildfire, and improve soil and water quality. In 2014, 

the Forest Service has proposed a new funding strategy based on the recognition that catastrophic 

wildfires are like other disasters and should be funded accordingly. We have proposed 

discretionary funding for fire suppression at a level sufficient to suppress 99 percent of the 

wildfires we fight; a disaster funding cap adjustment would meet suppression needs above the 

base appropriation. This strategy provides increased certainty in addressing growing fire 

suppression needs and protects funding for other critical programs. 

We continued our multipronged, multiyear approach to protect producers from the negative 

impacts of climate change and provide them with tools and techniques to protect their bottom 

line and ensure the future food security of our Nation. In 2014, we established seven regional 

Climate Hubs and three sub-hubs to serve as a source of regional data and information for hazard 

and adaptation planning in the agriculture and forest sectors. 

USDA continues to lead the way for renewable energy by supporting the infrastructure we will 

need in a new energy economy. In FY 2014, more than 500 new awards under the Rural Energy 

for America Program helped USDA to reach a milestone of more than 8,000 projects around the 

country that are helping producers and rural businesses save energy and grow their bottom line. 

Meanwhile, we took new steps to support biobased product manufacturing that promises to 

create new jobs across rural America. We added and approved new categories of qualified 

biobased products for Federal procurement and Federal Acquisition Regulation on reporting by 

Federal contractors of biobased product purchases through the Sustainable Acquisition 

Management system. The Department also began the implementation of the energy title of the 

2014 Farm Bill. 

The Department also continued its record level of investment in rural America and the rural 

communities that millions call home by investing in community facilities, providing loans for 

rural small business, helping rural families buy or repair a home, and helping to ensure 

communities have access to critical infrastructure. Since 2009, for example, USDA has provided 

nearly 19,000 grants and loans to help approximately 78,000 rural small businesses grow, 

creating or saving more than 390,000 jobs. In addition, we have helped more than 900,000 

families achieve the dream of homeownership. 

USDA has also continued its delivery of critical nutrition assistance to millions of Americans 

who are working hard but struggling to put food on the table, including nutritious meals to about 

30 million children each school day. We continued to work with schools across the Nation to 

implement the healthier meals standards authorized under the Healthy, Hunger-Free Kids Act of 

2010, and to implement new steps to ensure that snack foods are healthier during the school 

day—supporting the efforts of parents and teachers to improve children’s eating habits and 

reduce obesity. We also developed a program of grants for award next year to improve the 
Managing for Results in Performing Its Many Vital Public Functions

iv | Fiscal Year 2014 Agency Financial Report 

USDA

Supplemental Nutrition Assistance Program’s ability to promote work among its participants as 

it provides critical nutrition support. 

In addition, we placed a special focus on expanding access to meals for low-income children 

during the summer months when school meals are not widely available. In 2014, we set an 

aggressive goal to serve 10 million more meals than we served in 2013. Our preliminary data 

shows that the availability of summer meals increased significantly. The number of summer 

sponsors—those organizations administering the meal programs—increased by a national 

average of 107 percent of our goal. Summer sites—those locations where meals were served—

increased by a national average of 121 percent of our goal. These increases represent significant 

progress towards closing the summer nutrition gap for children who depend on free and reduced 

price meals when they are in school. 

This year, USDA’s support for critical agricultural research remained strong. USDA researchers 

have partnered with others, including universities and private industry, across the country to 

develop the next generation of solutions to some of America’s greatest scientific challenges. For 

example, scientists at the Agricultural Research Service have been working diligently to combat 

citrus greening, a disease that threatens the citrus industry in Florida. USDA researchers recently 

released five new citrus rootstocks with tolerance to citrus greening. In FY 2014, we also created 

a new Foundation for Food and Agricultural Research. The new foundation will leverage public 

and private resources to increase the scientific and technological research, innovation, and 

partnerships critical to boosting America's agricultural economy. 

In addition to conducting innovative research, USDA has also taken measures to share findings 

and data with the research community. In FY 2014, 47 new Cooperative Research and 

Development Agreements were executed, 109 patent applications were filed, 78 patents were 

received, and 28 new license agreements were executed. We also successfully launched a new 

PubAg system that provides open access to scholarly publications arising from unclassified 

research and programs funded in whole or in part by USDA. This system was designed to 

implement the Office of Science and Technology Policy’s memo titled “Increasing Access to the 

Results of Federally Funded Scientific Research” dated February 22, 2013, Office of 

Management and Budget’s memo titled “Open Data Policy” dated May 9, 2013, and the America 

COMPETES Reauthorization Act of 2010. 

USDA has contributed the technical skills of its employees and university partners and program 

funding to support the Administration’s Feed the Future Initiative, which strives to improve food 

security around the world. Over the past year, USDA agencies have assisted in the 

implementation of projects to improve food safety, help subsistence farmers, develop markets, 

and conduct agricultural research. USDA also provided more than $300 million of funding 

through the Food for Progress and McGovern-Dole programs to address short-term food needs 

and to support rural development and education projects in partner countries. USDA has also led 

the charge against livestock disease by completing missions in 10 countries to train and deploy 

an effective global biosurveillance workforce: Tanzania, Kenya, Uganda, South Africa, Georgia, 

Russia, Kazakhstan, Ukraine, China, and Vietnam. 
MESSAGE FROM THE SECRETARY 

Fiscal Year 2014 Agency Financial Report | v 

The Department ensures a safe food supply through its network of Federal inspectors in more 

than 6,000 locations nationwide. In the past year, USDA’s Food Safety and Inspection Service 

(FSIS) has implemented a number of actions to further protect the food supply. To combat 

Salmonella, FSIS implemented the Salmonella Action Plan (SAP), which focuses on reducing 

the number of foodborne Salmonella illnesses associated with FSIS-regulated products. The SAP 

includes actions with aggressive 2014 timelines, such as enhancing Salmonella sampling and 

testing programs, developing new strategies for inspection, and focusing the agency’s education 

and outreach tools on Salmonella.

Another way FSIS is accomplishing the actions in the SAP is through the implementation of the 

New Poultry Inspection System, an updated, science-based inspection system that positions food 

safety inspectors throughout poultry facilities in a smarter way. Changes include moving some 

inspectors away from quality assurance tasks—namely checking carcasses for non-food safetyrelated defects like bruises and feathers—to focus on food safety tasks, such as ensuring 

sanitation standards are being met and verifying testing and antimicrobial process controls. This 

science-based approach means our highly-trained inspectors will spend less time looking for 

obvious physical defects that do not impact public health and more time making sure steps that 

poultry processing facilities take to prevent contamination and to better control invisible food 

safety hazards posed by harmful bacteria are working effectively. Estimates show that this 

modernization of inspection activities is likely to result in a reduction of 5,000 Salmonella and 

Campylobacter foodborne illnesses per year in the United States. 

On March 19, 2014, the Government Accountability Office (GAO) initiated its most recent 

engagement of the High-Risk Series Update to review executive branch progress in addressing 

fragmentation in Federal oversight of food safety. Since GAO made its initial High-Risk Series 

recommendations, the U.S. Department of Health and Human Services and USDA have taken 

steps to implement the GPRA Modernization Act of 2010 requirements for addressing 

crosscutting efforts in strategic and performance planning. USDA promotes joint efforts to 

enhance food safety and has established goals and objectives requiring collaboration with the 

Centers for Disease Control and Prevention, the Food and Drug Administration (FDA), and other 

agencies that address food safety. In addition, numerous collaborative mechanisms have been 

established involving FDA and FSIS that enhance food safety, such as the Interagency Food 

Safety Analytics Collaboration, the Interagency Foodborne Outbreak Response Collaboration, 

the Interagency Risk Assessment Consortium, Healthy People 2020, the Foodborne Diseases 

Active Surveillance Network, the National Antimicrobial Resistance Monitoring System, and the 

Food Emergency Response Network. This interagency coordination has served the community 

well—mechanisms and processes have been put in place to allow for scientific collaboration and 

information exchange that occurs on a regular basis. 

On May 2, 2014, Office of Management and Budget (OMB) and the U.S. Department of the 

Treasury designated USDA’s National Finance Center (NFC) as a Federal Shared Service 

Provider. The designation allows NFC to provide financial management services to Federal 

agencies. 
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vi | Fiscal Year 2014 Agency Financial Report 

USDA

The Department’s management team continues to oversee USDA’s assessment of internal 

control over its programs, operations, financial systems, and financial reporting. The 

Department’s work is consistent with the provisions of the Federal Managers’ Financial Integrity 

Act (FMFIA) and the Federal Financial Management Improvement Act (FFMIA). USDA’s 

continuous monitoring and remediation efforts allow us to provide taxpayers with reasonable 

assurance that this report is based on sound, accurate data. 

Nevertheless, continued improvement is needed to remediate USDA’s existing material 

weakness and financial system noncompliance. To accomplish this goal, management continues 

to implement corrective action plan activities. Therefore, I provide qualified assurance that, 

except for the areas in need of improvement as described in the Management Assurances section 

of this report, USDA’s internal control over operations, financial systems, and financial reporting 

meets the objectives of FMFIA and FFMIA. The financial and performance information 

presented herein is complete and accurate, and is in accordance with law and Office of 

Management and Budget guidance. 

While every year brings unique challenges and 2014 was no different, I am truly proud of USDA 

employees across the Nation. They have stepped up to get the job done on behalf of Americans, 

and in so doing they continue to grow our economy and create new jobs in rural communities. 

I know that together we can continue to deliver efficient service while finding more ways to 

serve as efficient stewards of taxpayer dollars. 

Thank you for your interest in the Department. 

Thomas J. Vilsack 

Secretary of Agriculture 

December 18, 2014 
MANAGEMENT’S DISCUSSION AND ANALYSIS

Fiscal Year 2014 Agency Financial Report | 1 

SECTION I

Section I: Management’s Discussion and 

Analysis 

USDA Overview 

The U.S. Department of Agriculture (USDA) was founded by President Abraham Lincoln in 

1862, when more than half of the Nation’s population lived and worked on farms. The 

population has increased approximately tenfold and now exceeds 319 million people, the vast 

majority of whom do not live on farms or in rural areas. 

Today, USDA improves the Nation’s economy and quality of life by touching the lives of almost 

every person in America, every day. Nearly 100,000 employees deliver more than $144 billion in 

public services through the Department’s more than 300 programs worldwide. 

Because America’s food and fiber producers operate in a global, technologically advanced, 

rapidly diversifying, and highly competitive business environment, USDA is constantly helping 

agricultural producers meet the needs of the Nation and of the world. 

Mission Statement 

We provide leadership on food, agriculture, natural resources, rural development, nutrition, and 

related issues based on sound public policy, the best available science, and efficient 

management.

Vision Statement 

To expand economic opportunity through innovation, helping rural America to thrive; to 

promote agriculture production sustainability that better nourishes Americans while also helping 

feed others throughout the world; and to preserve and conserve our Nation’s natural resources 

through restored forests, improved watersheds, and healthy private working lands. 
Managing for Results in Performing Its Many Vital Public Functions

2 | Fiscal Year 2014 Agency Financial Report 

USDA 

USDA Organization Chart 

Exhibit 1: Organization Chart 

Source: USDA’s Web site, October 22, 2014 

This image displays the U.S. Department of Agriculture’s (USDA) Headquarters Organization, 

including the Secretary, Chief Officers, Under Secretaries, and Assistant Secretaries for various 

agencies within USDA. In addition to its Headquarters Organization, USDA has a network of 

offices, facilities, and laboratories across the country and overseas. 
MANAGEMENT’S DISCUSSION AND ANALYSIS

Fiscal Year 2014 Agency Financial Report | 3 

SECTION I

Mission Areas and Departmental 

Management 

The U.S. Department of Agriculture’s (USDA) work is organized by mission areas, which are 

collections of agencies that work together to achieve USDA’s strategic goals. Descriptions of 

USDA’s seven mission areas and Departmental Management follow. 

Farm and Foreign Agricultural Services 

The Farm and Foreign Agricultural Services (FFAS) mission area does the following: 

1) supports a strong financial safety net including providing access to credit for farmers and 

ranchers who are temporarily unable to obtain commercial credit; 2) promotes the vitality of 

rural America by improving access to international markets, stimulating U.S. farm exports to 

spur the creation of jobs at home; and 3) supports industry efforts to develop new markets. Also, 

in support of ensuring private working lands are preserved, the FFAS area protects watershed 

health to ensure clean and abundant water; and enhances soil quality to maintain productive 

working cropland. Finally, in support of agricultural production, FFAS promotes the 

international acceptance of new technologies, and promotes sustainable, productive agricultural 

systems and trade in developing countries to enhance global food security. 

This mission area is comprised of the Farm Service Agency (FSA), the Foreign Agricultural 

Service (FAS), and the Risk Management Agency (RMA). FSA ensures the well-being of 

American agriculture, the environment, and the American public through the administration of 

farm commodity programs, farm ownership, farm operating and emergency loans; conservation 

and environmental programs; emergency and disaster assistance; and domestic and international 

food assistance. FSA programs are delivered and serviced through an extensive network of field 

offices in approximately 2,200 USDA FSA County Office Service Centers and 51 State Offices.

FSA also provides administrative support for the Commodity Credit Corporation (CCC). The 

CCC is a Government-owned entity that provides funding for commodity programs administered 

by FSA and many Farm Bill programs such as the conservation programs administered by FSA 

and the Natural Resources Conservation Service (NRCS), and export programs administered by 

FAS. FAS works to improve international market access for U.S. products, build new markets, 

improve the competitive position of domestic agriculture in the global marketplace, and provide 

food aid and technical assistance to other countries. RMA helps producers manage their business 

risks through effective, market-based, risk-management solutions. In addition, RMA manages 

the Federal Crop Insurance Corporation to improve the economic stability of agriculture through 

a sound system of crop insurance. 
Managing for Results in Performing Its Many Vital Public Functions

4 | Fiscal Year 2014 Agency Financial Report 

USDA

Food, Nutrition and Consumer Services 

The Food, Nutrition and Consumer Services (FNCS) mission area works to harness the Nation’s 

agricultural abundance to reduce hunger and improve health in the United States.

FNCS is comprised of the Food and Nutrition Service (FNS) and the Center for Nutrition Policy 

and Promotion (CNPP). FNS administers USDA’s domestic nutrition assistance programs. The 

mission of FNS is to increase food security and reduce hunger, working in partnership with State 

agencies and other cooperating organizations, to help ensure children and low-income people 

have access to food, a healthful diet, and nutrition education in a manner that supports American 

agriculture and inspires public confidence. In addition to providing access to nutritious food, 

FNS works to empower program participants with the knowledge to eat healthy diets and engage 

in physical activity. The mission of CNPP is to improve the health of Americans by developing 

and promoting dietary guidance that links the best evidence-based, scientific research to the 

nutrition needs of Americans. 

Food Safety 

The Food Safety mission area is the public health mission area of USDA that is responsible for 

ensuring that the Nation’s commercial supply of meat, poultry and processed egg products is 

safe, wholesome, and properly labeled and packaged. This includes products produced 

domestically in Federally inspected establishments, as well as products imported from foreign 

countries. It also plays a key role in the President’s Food Safety Working Group, a coordinated 

Governmentwide initiative to ensure a safe food supply for the American people for the 

21st century. USDA’s partners in the working group include the U.S. Department of Health and 

Human Services, the U.S. Environmental Protection Agency, and a number of other Government 

agencies. The Food Safety mission area is comprised of a single agency, the Food Safety and 

Inspection Service, which provides Federal inspection of meat, poultry, and processed egg 

products establishments; support for similar establishments under State inspection programs; 

development and implementation of the Public Health Information System to enhance sciencebased, data-driven inspections; and determination of international equivalence of foreign 

systems. 

Marketing and Regulatory Programs 

The mission of Marketing and Regulatory Programs (MRP) is to facilitate and expand the 

domestic and international marketing of U.S. agricultural products, to help protect the 

agricultural sector from plant and animal health threats, and to ensure humane care and treatment 

of certain animals. MRP conducts oversight activities to protect producers from unfair 

competition and unfair business practices, and partners with the Department of Justice to help 
MANAGEMENT’S DISCUSSION AND ANALYSIS

Fiscal Year 2014 Agency Financial Report | 5 

SECTION I

prevent anti-competitive behaviors for regulated entities. MRP also assists producers in 

management and marketing by providing market trend analysis and business and marketing 

tools.

MRP is made up of the Animal and Plant Health Inspection Service (APHIS), the Agricultural 

Marketing Service (AMS), and the Grain Inspection, Packers, and Stockyards Administration 

(GIPSA). APHIS is responsible for protecting and promoting U.S. agricultural health, regulating 

genetically engineered organisms, administering the Animal Welfare Act, and carrying out 

wildlife damage management activities. APHIS works cooperatively with State and local 

agencies, private groups, and foreign governments to protect the safety of the Nation’s 

agriculture. AMS strives to facilitate the competitive and efficient marketing of agricultural 

products in domestic and international markets, while ensuring fair trading practices. AMS 

programs benefit producers, traders, and consumers of U.S. food and fiber products by 

promoting a strategic marketing perspective that adapts product and marketing decisions to the 

following: consumer demands, changing domestic and international marketing practices, and 

new technology. GIPSA helps USDA enhance international competitiveness of American 

agriculture and the economic viability and sustainability of rural and farm economies. GIPSA 

establishes the official U.S. standards and quality assessment methods for grain and related 

products, regulates handling practices to ensure compliance with the U.S. Grain Standards Act 

and Agricultural Marketing Act of 1946, and manages a network of Federal, State, and private 

laboratories that provide impartial, user-fee funded official inspection and weighing services. 

Natural Resources and Environment 

The Natural Resources and Environment (NRE) mission area promotes the conservation and 

sustainable use of natural resources on the Nation’s private lands and sustains production of all 

the goods and services that the public demands of the national forests and grasslands. 

The mission area includes two agencies: NRCS and the Forest Service (FS). NRCS and FS 

continue to expand public access to Federal and private lands for hunting, fishing, and other 

outdoor recreational opportunities. This is accomplished through a variety of programs aimed at 

preserving and restoring our public and private lands, mitigating the effects of climate change, 

and making the landscape more resilient to wildfire. Both NRE agencies excel in delivering sitespecific and landscape-scale solutions and accelerate their efforts through partnering with Tribal, 

Federal, State, and local governments, and community-related groups to protect soils, 

watersheds, and ecosystems. NRCS partners with private landowners to provide technical and 

financial assistance to help protect farm and ranchlands and private forestland. FS partners with 

State and local government agencies to support the management of the forest lands. 
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6 | Fiscal Year 2014 Agency Financial Report 

USDA

Research, Education, and Economics 

The Research, Education, and Economics (REE) mission area provides Federal leadership for the 

discovery, application, and dissemination of information and technologies spanning the 

biological, physical, and social sciences through agricultural research, education, and extension 

activities and economic research and statistics. 

REE is comprised of the Agricultural Research Service (ARS), the Economic Research Service 

(ERS), the National Agricultural Statistics Service (NASS), and the National Institute of Food 

and Agriculture (NIFA). ARS conducts intramural research in the area of natural and biological 

sciences. ARS includes the National Agricultural Library, which is the Nation’s major 

information resource on food, agriculture, and natural resource sciences. ERS performs 

intramural economic and social science research. NASS conducts the Census of Agriculture and 

provides the official, current statistics on agricultural production and indicators of the economic 

and environmental welfare of the farm sector. NIFA partners with land grant and non-land grant 

colleges and universities in carrying out extramural research, higher education, and extension 

activities.

Rural Development 

USDA, as a leading advocate for rural America, is at the forefront of developing the technology 

and tools necessary to transform rural America to take advantage of new opportunities. The 

mission of Rural Development (RD) programs is to assist rural communities to create prosperity 

by providing financial and technical assistance to rural residents, businesses, and private and 

public entities for a broad range of purposes that bring prosperity and better living to Rural 

America. These programs are grouped within three agencies: (1) the Rural Business and 

Cooperative Service (RBS), which provides assistance for the development of business and 

industry, including small businesses, and renewable energy and energy improvement projects; 

(2) the Rural Utilities Service (RUS), which provides assistance for water and waste disposal, 

rural electricity and telecommunications, including broadband access; and (3) the Rural Housing 

Service (RHS), which provides assistance for homeownership, multi-family housing, and 

essential community facilities such as health and public safety infrastructure. 

Departmental Offices 

Department-level offices provide centralized leadership, coordination, and support for USDA’s 

policy and administrative functions. Their efforts maximize the energy and resources agencies 

devote to the delivery of services to USDA customers and stakeholders. 
MANAGEMENT’S DISCUSSION AND ANALYSIS

Fiscal Year 2014 Agency Financial Report | 7 

SECTION I

Strategic Plan and Program Performance 

The U.S. Department of Agriculture’s (USDA) mission is to provide leadership on food, 

agriculture, natural resources, rural development, nutrition, and related issues based on sound 

public policy, the best available science, and efficient management. Through implementing our 

mission, the Department aspires to achieve five strategic goals as reflected in USDA’s 2014-2018 

Strategic Plan: 

 Assist rural communities to create prosperity so they are self-sustaining, re-populating, and 

economically thriving; 

 Ensure our national forests and private working lands are conserved, restored, and made 

more resilient to climate change, while enhancing our water resources; 

 Help America promote agricultural production and biotechnology exports as America works 

to increase food security; 

 Ensure that all of America’s children have access to safe, nutritious, and balanced meals; 

and 

 Create a USDA for the 21st century that is high performing, efficient, and adaptable. 

USDA has also established three Agency Priority Goals (APGs) for fiscal years (FY) 2014 

and 2015 that identify near-term goals to help USDA progress toward meeting our longer term 

strategic goals and objectives. USDA’s APGs are: 

 Create new economic opportunities; 

 Improve soil health; and 

 Reduce foodborne illnesses. 

In addition, the Department utilizes annual key performance indicators as a mechanism to 

analyze USDA’s year-over-year progress in achieving priorities, goals, and strategic objectives. 

In FY 2014, USDA had 40 key performance indicators, as reflected in the Department’s 

FY 2014 Annual Performance Plan (http://www.obpa.usda.gov/budsum/FY14budsum.pdf). 

The following provides a high-level description of key focus areas for the Department that are 

being tracked and managed through USDA’s performance management process in alignment 

with the Department’s strategic goals and objectives. 

Rural Prosperity: A vibrant American economy depends on a prosperous rural America. Our 

four primary pillars of economic opportunity in agriculture are: exports, local food systems,

conservation and outdoor recreation, and enhancing the biobased economy. USDA is making an 

impact on persistent poverty, out-migration, and rural income through increases in the number of 

homeownership opportunities provided in rural communities and the percentage of direct and 

guaranteed lending to beginning farmers. 
Managing for Results in Performing Its Many Vital Public Functions

8 | Fiscal Year 2014 Agency Financial Report 

USDA

Resource Conservation, Restoration, and Resiliency: A healthy and prosperous America relies 

on the health of our natural resources, and particularly our forests and agricultural working lands.

Forests and other lands absorb approximately 14 percent of emissions. To help improve the 

health of our natural resources USDA has worked to increase the annual acres of public and 

private forest lands restored or enhanced and to increase the percentage of national forests and 

grasslands in compliance with a climate change adaption and mitigation strategy. 

Increased Exports and Global Food Security: Working with other Federal partners, the 

Department is working towards reducing global food insecurity and increasing agriculture-led 

economic growth in developing countries. The Department continues to seek new trade 

opportunities for American agricultural producers and is also striving to bring products of new 

and emerging technologies to the worldwide marketplace. In addition, USDA is focused on 

improving efforts to reduce food insecurity across the world by providing technical assistance to 

people in food insecure countries.

Safe and Nutritious Food: A plentiful supply of safe and nutritious food is essential to the 

healthy development of every child in America and to the well-being and productivity of every 

family. In FY 2014, USDA has seen improvements in the reduction of foodborne Salmonella

illnesses that are associated with USDA’s Food Safety and Inspection Service-regulated 

products—meat, poultry, and processed egg products. Over the past 3 years, USDA’s food 

assistance programs have contributed to the steady decrease seen in the prevalence of food 

insecurity in households with children.

Departmental Modernization: Through its Blueprint for Stronger Service, USDA is: building a 

modern workforce, implementing a modern workplace, and exercising good stewardship of the 

resources entrusted to the Department. During FY 2014, USDA implemented policies to achieve 

a more efficient use of funds through decreases in the amount of leased office and warehouse 

space controlled by USDA and to build a more effective workforce through process 

improvements and increased use of telework.

A detailed discussion of results for the Department’s FY 2014 performance goals, assessment 

methodologies, metrics, external reviews, and documentation of performance data will be 

presented in the FY 2014 USDA Annual Performance Report, which will be released with the 

Department’s FY 2016 budget. USDA’s plans and reports are available at Performance.gov and 

USDA Performance.
MANAGEMENT’S DISCUSSION AND ANALYSIS

Fiscal Year 2014 Agency Financial Report | 9 

SECTION I

Future Demands, Risks, Uncertainties, 

Events, Conditions, and Trends 

Farmers and ranchers operate in highly competitive markets, both domestically and 

internationally. Rapid shifts in consumer demands associated with quality, convenience, taste, 

and nutrition dictate that farming, ranching, and marketing infrastructures become more fluid and 

responsive.

National security is a significant, ongoing priority for the Department. The U.S. Department of 

Agriculture (USDA) is working with the U.S. Department of Homeland Security to help protect 

agriculture from intentional and accidental acts that might impact America’s food supply or 

natural resources. 

External factors that challenge USDA’s ability to achieve its goals include the following: 

 Weather-related hardships, including disasters related to the increasing intensity and 

duration of extreme weather and climate change, both domestically and abroad; 

 The risk of catastrophic fire, depending on weather, drought conditions, and the expanding 

number of communities in the wildland-urban interface. 

 Non weather-related hardships and other uncontrollable events, both domestically and 

abroad; 

 Domestic and international macroeconomic factors, including consumer purchasing power, 

the strength of the U.S. dollar, and political changes abroad that could impact domestic and 

global markets greatly at any time; 

 Sharp fluctuations in farm prices, interest rates, and unemployment that could impact the 

ability of farmers, other rural residents, communities, and businesses to qualify for credit 

and manage their debts; 

 The impact of future economic conditions and actions by a variety of Federal, State, and 

local Governments that could influence the sustainability of rural infrastructure; 

 The increased movement of people and goods, which provides the opportunity for crop and 

animal pests and diseases to move quickly across domestic and international boundaries; 

and 

 Potential exposure to hazardous substances, which may threaten human health and the 

environment, and the ability of the public and private sectors to collaborate effectively on 

food safety, security, and related emergency preparedness efforts. 
Managing for Results in Performing Its Many Vital Public Functions

10 | Fiscal Year 2014 Agency Financial Report 

USDA 

Analysis of Financial Information and 

Highlights 

Financial Statement Highlights 

Budgetary Resources 

The U.S. Department of Agriculture (USDA) receives most of its funding from appropriations 

authorized by Congress and administered by the U.S. Department of the Treasury. Total 

budgetary resources consist of the balance at the beginning of the year, appropriations received 

during the year, spending authority from offsetting collections, and other budgetary resources. 

The following exhibit presents fiscal year (FY) 2014 total budgetary resources by mission area. 

Exhibit 2: Total Budgetary Resources by Mission Area (In Billions) 

57%

17%

14%

7%

2%

2% 1%

Food Nutrition and Consumer Services - $134 0%

Farm and Foreign Agriculture Services - $40

Rural Development - $34

Natural Resources and Environment - $16

Research, Education and Economics - $4

Marketing and Regulatory Programs - $4

Departmental Offices - $2

Food Safety -$1

Total budgetary resources were $235 billion for FY 2014 compared to $243 billion in FY 2013, a 

decrease of $8 billion, or -3 percent. 
MANAGEMENT’S DISCUSSION AND ANALYSIS

Fiscal Year 2014 Agency Financial Report | 11

SECTION I 

The following exhibit presents significant changes in total budgetary resources by mission area. 

Exhibit 3: Significant Changes in Total Budgetary Resources by Mission Area (In Billions) 

Obligations Incurred 

Obligations incurred were $180 billion for FY 2014, compared to $201 billion in FY 2013, a 

decrease of $21 billion, or -10 percent. The following exhibit presents significant changes in 

obligations incurred.

Exhibit 4: Significant Changes in Obligations Incurred (In Billions) 

-$8

-$7

-$6

-$5

-$4

-$3

-$2

-$1

$0

Risk

Management

Agency

Food and

Nutrition

Service

Commodity

Credit

Corporation

Farm Service

Agency

Rural

Development

-$8

-$5 -$4

-$2 -$2

There were decreases at Risk Management Agency (RMA) for Crop Insurance; at Food and 

Nutrition Service (FNS) for Supplemental Nutrition Assistance (SNAP) and Child Nutrition 

(CN); at Commodity Credit Coporation (CCC) for Direct and Counter Cyclical Payments; at

Farm Service Agency (FSA) for Disaster Relief Trust; and at Rural Development (RD) for Rural 

Electric and Telecommunications.

-$14

-$12

-$10

-$8

-$6

-$4

-$2

$0

$2

$4

Farm and Foreign

Agriculture Services

Research, Education

and Economics

Natural Resources

and Environment

Food Nutrition and

Consumer Services

-$14

$1 $1

$4
Managing for Results in Performing Its Many Vital Public Functions

12 | Fiscal Year 2014 Agency Financial Report 

USDA 

Net Outlays 

Net Outlays were $144 billion for FY 2014, compared to $159 billion in FY 2013, a decrease of 

$15 billion or -9 percent. The following exhibit presents significant changes in net outlays. 

Exhibit 5: Significant Changes in Net Outlays (In Billions) 

-$7

-$6

-$5

-$4

-$3

-$2

-$1

$0

$1

$2

Food and

Nutrition

Service

Risk

Management

Agency

Rural

Development

Farm Service

Agency

Commodity

Credit

Corporation

-$7

-$5

-$3

-$2

$2

There were decreases at FNS for SNAP and CN; at RMA for Crop Insurance; at RD for Rural 

Electric; at FSA for Disaster Relief Trust and Pigford II; and an increase at CCC for Marketing 

Assistance Loans. 

Balance Sheet 

Total Assets

Total assets for FY 2014 were $208 billion, compared to $194 billion for FY 2013, an increase 

of $14 billion, or 7 percent. The following exhibit presents FY 2014 total assets. 

Exhibit 6: Total Assets (In Billions) 

49%

49%

1% 1%

Fund Balance with Treasury - $102

Direct Loan and Loan Guarantees, Net - $101

General Property, Plant and Equipment, Net - $3

Accounts Receivable, Net - $2
MANAGEMENT’S DISCUSSION AND ANALYSIS

Fiscal Year 2014 Agency Financial Report | 13

SECTION I 

Direct Loan and Loan Guarantees, Net, is one of the largest assets on the USDA Balance Sheet. RD 

offers both direct and guaranteed loan products for rural housing and rural business infrastructure. 

These products represent 89 percent of the total Department loan programs. Loan programs 

administered by FSA represent 8 percent of the total. FSA supports farmers who are temporarily 

unable to obtain private, commercial credit. The remaining 3 percent represents commodity loans 

and credit programs administered by the CCC. Their loans are used to improve economic stability 

and provide an adequate supply of agricultural commodities. CCC credit programs provide 

international food assistance, expand international markets, and provide domestic low-cost financing 

to protect farm income and prices. The following exhibit presents significant changes in total assets. 

Exhibit 7: Significant Changes in Assets (In Billions) 

Total Liabilities

Total liabilities for FY 2014 were $159 billion, compared to $151 billion for FY 2013, an increase of 

$8 billion, or 5 percent. The following exhibit presents FY 2014 total liabilities.

Exhibit 8: Total Liabilities (In Billions) 

72%

21%

3% 2% 1% 1%

Debt $114

Other $33

Loan Guarantee Liability $5

Benefits Due and Payable $4

Accounts Payable $2

Federal Employee and Veteran $1

Benefits

Debt is the single largest liability on USDA’s balance sheet. It represents amounts owed primarily 

to Treasury by CCC and RD. For CCC, the debt primarily represents financing to support direct 

and counter-cyclical, crop disaster, and loan deficiency programs. For RD, the debt primarily 

-5

0

5

10

15

Accounts Receivable Fund Balance with Treasury

-$1

$15
Managing for Results in Performing Its Many Vital Public Functions

14 | Fiscal Year 2014 Agency Financial Report 

USDA 

represents financing to support electric and housing loan programs. The following exhibit presents 

significant changes in total liabilities. 

Exhibit 9: Significant Changes in Total Liabilities (In Billions) 

-$2

$0

$2

$4

$6

$8

$10

$12

Other Liabilities Debt

-$1

$9

Net Cost of Operations

Net cost of operations for FY 2014 was $145 billion, compared to $144 billion for FY 2013, an 

increase of $1 billion, or 1 percent. The following exhibit presents FY 2014 net cost of operations 

by strategic goal.

Exhibit 10: Net Cost of Operations by Strategic Goals (In Billions) 

17%

8%

1%

73%

1%

Goal 1 - $24

Goal 2 - $11

Goal 3 - $2

Goal 4 - $107

Goal 5- $1

Goal 1: Assist Rural Communities to Create Prosperity so They are Self-Sustaining, 

Repopulating, and Economically Thriving. 

Goal 2: Ensure Our National Forests and Private Working Lands are Conserved, Restored, and 

Made More Resilient to Climate Change, While Enhancing Our Water Resources. 

Goal 3: Help America Promote Agricultural Production and Biotechnology Exports as America 

Works to Increase Food Security. 
MANAGEMENT’S DISCUSSION AND ANALYSIS

Fiscal Year 2014 Agency Financial Report | 15

SECTION I 

Goal 4: Ensure That All of America’s Children Have Access to Safe, Nutritious, and Balanced 

Meals. 

Goal 5: Create a USDA for the 21st Century That Is High Performing, Efficient, and Adaptable. 

The following exhibit presents significant changes in net cost of operations. 

Exhibit 11: Significant Changes in Net Cost of Operations (In Billions) 

-$5

-$4

-$3

-$2

-$1

$0

$1

$2

$3

Food and

Nutrition

Service

Farm Service

Agency

Commodity

Credit

Corporation

Rural

Development

Risk

Management

Agency

-$5

-$2

$2

$3 $3

There were decreases at FNS for SNAP and CN; at FSA for Disaster Relief Trust, and increases 

at CCC for Supplemental Agricultural Disaster Assistance; at RD for Multi Family Housing; and 

at RMA for Crop Insurance. 
Managing for Results in Performing Its Many Vital Public Functions

16 | Fiscal Year 2014 Agency Financial Report 

USDA 

Stewardship Investments 

Stewardship investments are substantial investments made by the Federal Government for the 

benefit of the Nation but are not physical assets owned by the Federal Government. When 

incurred, they are treated as expenses in determining the net cost of operations. However, these 

items merit special treatment so that users of Federal financial reports know the extent of 

investments that are made for long-term benefit. Such investments are measured in terms of 

expenses incurred for non-Federal physical property, human capital, and research and 

development. The following exhibit presents a comparison of stewardship investments. 

Exhibit 12: Comparison of Stewardship Investments (In Millions)

$0

$500

$1,000

$1,500

$2,000

$2,500

Non-Federal Physical

Property Human Capital

Research and

Development

$44 

$612 

$2,202 

$56 

$615 

$1,987 FY2014

FY2013
MANAGEMENT’S DISCUSSION AND ANALYSIS

Fiscal Year 2014 Agency Financial Report | 17

SECTION I

Analysis of Systems, Controls, and Legal 

Compliance 

Management Assurances 

Statement of Assurance 

The U.S. Department of Agriculture (USDA) is providing qualified 

assurance that USDA’s systems of internal control comply with the Federal 

Managers’ Financial Integrity Act (FMFIA) objectives. USDA’s systems of 

internal control meet the objectives of the FMFIA and the Federal Financial 

Management Improvement Act (FFMIA), with the exception of two 

material weaknesses in internal control, one financial system 

non-conformance, and noncompliance with two laws and regulations. 

Management is providing reasonable assurance that the internal controls over operations are

effective. The details of the exceptions are provided in the FMFIA, FFMIA, and Summary of 

Financial Statement Audit and Management Assurances sections of this report. 

USDA assessed its financial management systems and internal controls over the effectiveness 

and efficiency of operations and compliance with applicable laws and regulations as of 

September 30, 2014, and financial reporting as of June 30, 2014. The assessment included the 

safeguarding of assets and compliance with applicable laws and regulations, in accordance with 

the requirements of Office of Management and Budget Circular (OMB) No. A-123, 

Management’s Responsibility for Internal Control.” 

The Forest Service (FS) identified an Antideficiency Act (ADA) violation under 31 U.S.C. 

§1517(a). The Energy Policy Act of 2005, Public Law 109-58, required the Secretary of the 

Interior to create a pilot project to improve Federal permit coordination. The Bureau of Land 

Management (BLM) transferred funds to FS to participate in the pilot. FS reported 

obligations/expenditures in excess of the balance of the fund transferred from the BLM as of 

December 31, 2012. FS spent $6,781.90 in excess of the $72,000.00 carried over from fiscal year 

(FY) 2012. Although several actions had transpired to obtain the funding needed for FY 2013, 

the warrant with additional funding was not received by FS until January 31, 2013. The ADA 

violation is in the process of being reported to Congress and the President. 

The Farm Service Agency (FSA) identified an ADA violation under 31 U.S.C. §1517(a). In 

September 2013, OMB approved an apportionment request for $1,000,000.00 from FSA for the 

purchase of guaranteed loans in FY 2014. On February 25, 2014, FSA made several loan 

purchases, obligating $1,302,823.57, thus exceeding the apportionment for such purchases. On 

March 7, 2014, FSA requested another apportionment to cover the deficiency. OMB approved 

the request and apportioned funds on March 31, 2014. FSA’s Farm Loan Operations Office is 

taking corrective actions to ensure future payments are obligated only within approved 
Managing for Results in Performing Its Many Vital Public Functions

18 | Fiscal Year 2014 Agency Financial Report 

USDA 

apportionment limits. The ADA violation is in the process of being reported to Congress and the 

President. 

The Office of Advocacy and Outreach (OAO) identified an ADA violation for FY 2011 under 31 

U.S.C. §1517(a). The Food, Conservation, and Energy Act of 2008, Public Law 110-234 (Farm 

Bill of 2008) permitted OAO to award up to $19,000,000.00 in FY 2011 for Outreach and 

Assistance for Socially Disadvantaged and Veteran Farmers and Ranchers (Section 2501) 

Grants. OAO exceeded the amount available. The ADA violation is in the process of being 

reported to Congress and the President. 

There may also be an ADA violation associated with the StrikeForce Initiative funded through 

transfers from USDA agencies for FY 2010 and FY 2011. This matter is under review by the 

Office of the General Counsel. 

The Foreign Agricultural Service (FAS) identified a violation of the ADA that may have 

occurred in its FY 2009 appropriation. However, FAS has not completed its investigation to 

determine whether a violation has occurred or not. 

No other material weaknesses were found in the design or operation of the internal control over 

(1) the effectiveness and efficiency of operations and compliance with applicable laws and 

regulations as of September 30, 2014, and (2) financial reporting as of June 30, 2014.

Thomas J. Vilsack 

Secretary of Agriculture 

December 18, 2014 
MANAGEMENT’S DISCUSSION AND ANALYSIS

Fiscal Year 2014 Agency Financial Report | 19

SECTION I

Federal Manager’s Financial Integrity Act Report on 

Management Control 

Background 

The Federal Managers’ Financial Integrity Act (FMFIA) requires ongoing evaluations of internal 

controls and financial management systems. These evaluations lead to an annual statement of 

assurance that: 

 Obligations and costs comply with applicable laws and regulations; 

 Federal assets are safeguarded against fraud, waste, abuse, and mismanagement; 

 Transactions are accounted for and properly recorded; and 

 Financial management systems conform to standards, principles, and other requirements to 

ensure that Federal managers have timely, relevant, and consistent financial information for 

decision-making purposes. 

The U.S. Department of Agriculture (USDA) annually evaluates its internal controls in

accordance with Office of Management and Budget (OMB) Circular No. A-123, “Management’s 

Responsibility for Internal Control.

The Department operates a comprehensive internal control program. This program ensures 

compliance with the requirements of FMFIA and other laws, and OMB Circular No. A-123, 

Appendices A through D. All USDA managers must ensure that their programs operate efficiently 

and effectively, and comply with relevant laws. They must also ensure that financial management 

systems conform to applicable laws, standards, principles, and related requirements. In conjunction 

with the Office of Inspector General and the Government Accountability Office, USDA’s 

management works aggressively to determine the root causes of its material weaknesses so that it 

can direct resources to focus on their remediation.

USDA remains committed to reducing and eliminating the risks associated with its deficiencies.

It also strives to efficiently and effectively operate its programs in compliance with FMFIA and 

other applicable laws and regulations. 

Fiscal Year 2014 Results 

The Department has two existing material weaknesses in internal control over financial reporting 

for Information Technology, and Estimated Losses on Insurance Claims Calculations and one 

existing system non-conformance related to Funds Control Management. Remediation activities 

are continuing for the Commodity Credit Corporation (CCC) and the Natural Resources 

Conservation Service (NRCS) to resolve the non-conformance by the end of FY 2017. The 

material weakness first reported in the FY 2013 AFR for Estimated Losses on Insurance Claims 

Calculations in the Risk Management Agency/Federal Crop Insurance Corporation (RMA/FCIC) 

has not yet been remediated. 
Managing for Results in Performing Its Many Vital Public Functions

20 | Fiscal Year 2014 Agency Financial Report 

USDA 

The FS remediated and resolved its noncompliance with laws and regulations related to the 

Grants Management Program. The Food and Nutrition Service, RMA, FSA, and NRCS are 

noncompliant with laws and regulations related to the Improper Payments Information Act of 

2002, as amended by the Improper Payments Elimination and Recovery Act of 2010 and the 

Improper Payments Elimination and Recovery Improvement Act of 2012. 

Thus, the Secretary’s Statement of Assurance provides qualified assurance that USDA’s system 

of internal control complies with FMFIA objectives. For additional details on the results reported 

in USDA’s Consolidated Financial Statements Audit Report, see the Summary of Financial 

Statement Audit and Management Assurances section of this report. 

Summary of Outstanding Material Weaknesses

The following exhibit provides FY 2014 accomplishments and FY 2015 planned actions toward 

resolving the outstanding material weaknesses. 

Exhibit 13: Summary of Outstanding Material Weaknesses

Material Weaknesses

Existing 

1. USDA Information 

Technology (IT) 

Overall Estimated Completion Date 

FY 2016 

Pervasive internal control design and operating effectiveness deficiencies occurred in 

two areas: logical access control/personnel security and configuration management. 

These deficiencies represent an overall IT material weakness. (Department) 

FY 2014 Accomplishments: FY 2015 Planned Actions: 

Office of the Chief Information Officer (OCIO): 

 Implemented the Operational Security 

Assessment project to analyze component 

agencies’ information architecture and related 

processes to develop a threat profile. 

Additionally, the assessment will examine and 

evaluate the agency’s operational security 

policies, procedures, and systems through the 

performance of technological reviews; 

 Completed necessary application changes to fully 

support the eAuth 2.0 transition and 

decommissioning of the eAuth 1.0 environment; 

 Achieved 67 percent utilization of the PIV/HSPD 

(Personal Identity Verification/Homeland 

Security Presidential Directive)-12 credential for 

logical access to all USDA systems; and 

 Monitored security controls in the following 

areas: 

o Vulnerability management; 

o Configuration management; 

o Patch management; 

o Malware detection; and 

o Asset management 

OCIO will: 

 Continue transitioning Web applications from eAuth 1.0 

to eAuth 2.0: 

o Require agencies to create Plan of Action Milestones 

(POA&Ms) for each Web application not migrated 

after September 26, 2014. All new applications must 

be integrated within the eAuth 2.0 platform; and 

o Continue decommissioning effort of eAuth 1.0 as Web 

applications are migrated to the new environment. 

 Continue to monitor POA&Ms identified as part of the 

IT Material Weakness. Track and report on progress 

weekly to USDA leadership, and ensure proper and full 

remediation of weaknesses across the USDA enterprise; 

 Continue to perform the Operational Security 

Assessment project to analyze component agencies’ 

information architecture and related processes to 

develop a threat profile; 

 Perform penetration testing of agencies that were 

assessed in FY 2013 to evaluate any changes in their 

security posture resulting from assessment findings and 

recommendations; and 

 Expand use of PIV/HSPD-12 credential for logical 

access by implementing technical mandatory controls 
MANAGEMENT’S DISCUSSION AND ANALYSIS

Fiscal Year 2014 Agency Financial Report | 21

SECTION I 

Material Weaknesses

Existing 

2. Estimated Losses on 

Insurance Claims 

Calculations 

Overall Estimated Completion Date 

FY 2015 

Lack of adequate analysis, retention of supporting evidence, and properly designed 

internal controls over the agency’s significant estimates could result in material 

misstatements to the financial statements. (Risk Management Agency/Federal Crop 

Insurance Corporation, or RMA/FCIC) 

FY 2014 Accomplishments: FY 2015 Planned Actions: 

RMA/FCIC: 

 Implemented procedures to ensure that manual 

processes of the indemnity projection model were 

performed and subsequently reviewed by 

FCIC/RMA management; and 

 Ensured that documentation over the review 

process is maintained and reviewed. 

RMA/FCIC will: 

 Implement procedures to formally verify completeness 

and accuracy of underlying data and assumptions used to 

develop significant year-end estimates; 

 Perform an Independent Verification and Validation 

review of the indemnity projection model every year in 

which a new model is implemented, or when a model 

has been substantially enhanced; 

 Perform parallel calculations between prior and current 

year estimation models to ensure the reasonableness of 

assumptions and methodology of newly implemented 

models; 

 Retain documentation to provide a detailed audit trail of 

all relevant computations and related data files used; and 

 Perform additional risk assessments on the indemnity 

calculation aimed at the processes that have the greater 

risk of errors in the calculations. 

Summary of Outstanding System Non-conformance 

The funds control management non-conformance is also reported as a system noncompliance, 

and included in the FFMIA Report on Financial Management Systems (Exhibit 17). The 

weakness involves component agency-specific deficiencies for CCC and NRCS.

The following exhibit provides FY 2014 accomplishments and FY 2015 planned actions toward 

resolving the Department’s outstanding system non-conformances. 
Managing for Results in Performing Its Many Vital Public Functions

22 | Fiscal Year 2014 Agency Financial Report 

USDA 

Exhibit 14: Summary of Outstanding System Non-Conformance 

System NonConformance 

Existing 

1. Funds Control 

Management 

Overall Estimated Completion Date 

FY 2017 

System improvements needed in recording obligations at the transactions level. 

(Commodity Credit Corporation, or CCC) 

Noncompliance with Federal Financial Management Improvement Act of 1996. 

(CCC and Natural Resources Conservation Service, or NRCS)

FY 2014 Accomplishments: FY 2015 Planned Actions: 

CCC:

 Established reconciliation processes to ensure 

obligation transactions are timely and accurately 

recorded in the general ledger system; 

 Established a new reconciliation process to reconcile 

the Statement of Budgetary Resources (SBR) status of 

funds to the CCC general ledger Core accounting 

system (CORE) by program; 

 Developed an automated report that summarizes the 

amounts allotted and obligated by fund and by 

program. The report supports the approved Standard 

Form-132;

 Implemented Fund Status Report process 

improvements to ensure undelivered orders, payables, 

and disbursements for all programs and treasury 

account symbols are reported and reconciled to the 

CORE General Ledger Trial Balance; 

 Completed the Funds Control/Obligations 

requirements document that describes the obligation 

life cycle for all business events (includes: obligation 

establishments and related triggers; liquidations, 

cancellations; and upward and downward 

adjustments);

 Completed the assessment of program application 

compliance with the Obligation Life Cycle Business 

Events; 

 Developed a system concept for a new Obligation 

Framework that will ensure compliance for funds 

control for CCC programs; and 

 Updated an inventory list of all program application 

systems and their status of compliance with the 

Obligation Life Cycle. 

CCC will: 

 Implement reconciliation processes to ensure 

obligation transactions are timely and accurately 

recorded in the general ledger system; 

 Implement the new reconciliation process to 

reconcile the SBR status of funds to the CCC 

general ledger CORE by program; 

 Revise the reconciliation report to re-categorize the 

status of funds control and the percentage (%) of 

full funds control compliance (obligations at the 

transaction level); 

 Modify the existing quarterly review and 

certification of CCC unliquidated obligations 

(ULOs) process to include the certification of all 

prior year ULOs; 

 Establish tentative dates for the New Obligation 

Establishment shared service process, using “Gross 

Contract Model.” Phases I through III will bring the 

financial portion of the Electronic Funds 

Management System (eFMS) Obligation 

Framework functionality into full compliance; and 

 Target legacy program applications to use the new 

obligations framework the third quarter of 2015, but 

may be extended through 2016. 
MANAGEMENT’S DISCUSSION AND ANALYSIS

Fiscal Year 2014 Agency Financial Report | 23

SECTION I 

System NonConformance 

Existing 

1. Funds Control 

Management 

Overall Estimated Completion Date 

FY 2017 

System improvements needed in recording obligations at the transactions level. 

(Commodity Credit Corporation, or CCC) 

Noncompliance with Federal Financial Management Improvement Act of 1996. 

(CCC and Natural Resources Conservation Service, or NRCS)

FY 2014 Accomplishments: FY 2015 Planned Actions: 

NRCS: 

 Worked with the Department to update the posting 

models for prior year obligations paid and unpaid and 

nonproduction costs; 

 Put in place enhanced processes to review recoveries 

of prior year obligations; 

 Completed a review of accruals to ensure accuracy 

and adequate supporting documentation; 

 Completed and passed A-123 testing related to 

accruals; 

 Completed quarterly reviews of unliquidated 

obligations to ensure accuracy and adequate 

supporting documentation; 

 Developed and shared job aids and training materials 

with States financial management personnel; 

 Created a new SharePoint site to house the 

documentation related to revenue, accounts 

receivables, and unfilled customer orders; 

 Created a checklist of documentation required to 

ensure all documentation is included in the files; 

 Transitioned Unfilled Customer Order workload to the 

National Accounts Receivable Servicing Team to 

increase efficiency and effectiveness; and 

 Developed template to track any revenue recognized 

in the current fiscal year that represents expenses 

incurred in the prior fiscal year. This is to assist in 

ensuring the accuracy of Changes in Net Position. 

NRCS will: 

 Continue to complete a more robust data analysis of 

abnormal balances, invalid entries, etc. to ensure 

that NRCS’ financial statements are complete and 

accurate; 

 Conduct an annual review of NRCS’ financial 

reporting guidelines to ensure compliance; 

 Enhance the design of management review of 

journal entries to include the proper use of 

appropriate posting models and inspecting 

supporting documentation based on transaction type; 

 Perform internal sampling of expenses to ensure 

proper supporting documentation is being 

maintained and/provided by responsible offices; 

 Develop a monthly scorecard to monitor 

completeness of material amounts and provide 

oversight for accrued expenses; 

 Continue quarterly reviews of unliquidated 

obligations to ensure accuracy and adequate 

supporting documentation; 

 Perform internal testing and monitor upward and 

downward adjustments; 

 Continue to review and reconcile the unfilled 

customer order balances to ensure only valid orders 

are included; and 

 Continue to research and review revenue and 

expenses to ensure revenue is recognized in the 

correct fiscal year. 

Compliance with Laws and Regulations 

USDA resolved one of the three noncompliances with laws and regulations in FY 2014. 

In 2012, the FS identified a material deficiency in the Grants Management Program during 

management’s review of internal controls. Results of evaluations and audits of the program 

concluded that material deficiencies existed in the award and recipient management processes. 

To achieve compliance, FS needed to ensure that grantees’ financial systems comply with 

applicable standards and that disbursements are allowable, accurate, and fully supported. 
Managing for Results in Performing Its Many Vital Public Functions

24 | Fiscal Year 2014 Agency Financial Report 

USDA

In FY 2013, internal and external audit teams were established to review the partners’ external 

grantees financial management systems. These teams are responsible for providing training and 

education and remediate gaps identified in the internal FS process. 

In August 2013, a pilot branch was created, now known as the Financial Compliance Oversight 

Branch. The branch covers all facets of grant and agreement management and has implemented 

several key initiatives in order to provide oversight and compliance. To date over 38 audits and 

126 single audit act reviews have occurred. Training has been completed on “Cost Principles, 

and Administrative Uniformed Requirements,” along with A-133 Single Audit specific training 

for FS and our external partners. Policies and procedures have been updated in conjunction with 

audit questionnaires that the program managers can use as tools and also risk assessments on 

how work is to be completed. Continued robust training and multiple financial reviews occur 

monthly and/or quarterly throughout the agency. This function is a permanent part of the audit 

and assurance organization and will continue to provide financial grants and agreements 

oversight and training on requirements, such as training for implementation of 2 CFR 200.

In FY 2013, FS identified an ADA under 31 U.S.C. §1517(a). The ADA violation is in the 

process of being reported to Congress and the President.

FS has reviewed and strengthened the normal controls of monitoring account balances to ensure 

that an ADA violation does not occur in the future. In the Budget Execution branch, each 

treasury symbol account now has an account manager who is responsible for monitoring daily 

account balances within the financial system, escalating any concerns to management for 

follow-up, and reviewing spending rates and balances with respective program managers. If 

budget authority is not available, program managers are notified and directed to cease spending 

until additional funding becomes available. In addition, program managers, budget analysts, and 

financial analysts are responsible for tracking spending on a daily basis outside of the financial 

system, so as not to overspend in any account. These controls were either established or 

reinstituted immediately upon identification of the ADA violation. 

FSA identified an ADA violation under 31 U.S.C. §1517(a). In September 2013, the OMB 

approved an apportionment request for $1,000,000.00 from FSA for the purchase of guaranteed 

loans in FY2014. On February 25, 2014, FSA made several loan purchases, obligating 

$1,302,823.57, thus exceeding the apportionment for such purchases. On March 7, 2014, FSA 

requested another apportionment to cover the deficiency. OMB approved the request and 

apportioned funds on March 31, 2014. FSA’s Farm Loan Operations Office is taking corrective 

action to ensure future payments are obligated only within approved apportionment limits. The 

ADA violation is in the process of being reported to Congress and the President.

The Office of Advocacy and Outreach (OAO) identified an ADA violation for FY 2011 under 31 

U.S.C. §1517(a). The Food, Conservation, and Energy Act of 2008, Public Law 110-234 (Farm 

Bill of 2008) permitted OAO to award up to $19,000,000.00 in FY 2011 for Outreach and 

Assistance for Socially Disadvantaged and Veteran Farmers and Ranchers (Section 2501) 

Grants. OAO exceeded the amount available. The ADA violation is in the process of being 

reported to Congress and the President.
MANAGEMENT’S DISCUSSION AND ANALYSIS

Fiscal Year 2014 Agency Financial Report | 25

SECTION I 

The following exhibit provides a summary of agency programs not compliant with the Improper 

Payments Act.

Exhibit 15: Outstanding Initiative to Achieve Compliance 

Initiative Section of Noncompliance Agency/Program 

Target 

Completion 

Date 

Improper Payments 

Elimination and 

Recovery Act of 2010 

(IPERA) 

Publish improper payment estimates for all 

high-risk programs and activities 

Food and Nutrition 

Service (FNS)/Child 

and Adult Care Food 

Program 

12/2020 

Publish and meet annual reduction targets 

for each program assessed to be at risk and 

measured for improper payments 

Risk Management 

Agency 

(RMA)/Federal Crop 

Insurance Corporation 

(FCIC) Program Fund 

05/2015 

Natural Resources 

Conservation Service 

(NRCS)/Farm 

Security and Rural 

Investment Act 

Programs 

06/2015 

FNS/School Breakfast 

Program (SBP) 

09/2015 

FNS/Special 

Supplemental 

Nutrition Program for 

Women, Infants and 

Children (WIC) 

09/2015 

Farm Service Agency 

(FSA)/Direct and 

Counter-Cyclical 

Payments 

N/A1

FSA/Loan Deficiency 

Payments (LDP) 

N/A2

Report a gross improper payment rate of 

less than 10 percent for each program and 

activity for which an improper payment 

estimate was obtained and published in the 

Performance and Accountability Report 

(PAR) or Agency Financial Report 

FNS/National School 

Lunch Program and 

SBP 

12/2020 

NRCS/Farm Security 

and Rural Investment 

Act Programs 

06/2016 

FSA/LDP N/A2

 

1

This program was repealed by the Agricultural Act of 2014. 

2

In FY 2013, 50 payments were reviewed from the FY 2009-2010 LDP program. Errors were found for three payments. LDP 

payments were not issued for crop years 2011 through 2014. However, the Agricultural Act of 2014 authorizes LDPs for 2014 

through 2018 if the current local price in a county is below the applicable county loan rate. 
Managing for Results in Performing Its Many Vital Public Functions

26 | Fiscal Year 2014 Agency Financial Report 

USDA 

The following exhibit provides information on the status of corrective actions already completed 

and FY 2015 planned corrective actions related to the deficiency. 

Exhibit 16: Summary of Corrective Actions/Noncompliance With Laws And Regulations 

Improper Payments 

Elimination and Recovery 

Act of 2010 (IPERA) 

Summary of Corrective Actions 

for Noncompliances with Laws and Regulations 

Overall Estimated 

Completion Date: 

 FY 2021 

IPERA noncompliance issues. (Food and Nutrition Service (FNS), Farm Service 

Agency (FSA), Natural Resources Conservation Service (NRCS), and Risk 

Management Agency (RMA) ) 

FY 2014 Accomplishments: FY 2015 Planned Actions: 

FNS: FNS will: 

 Implemented and supported a unified State monitoring 

process for compliance with school meal requirements; 

 Implemented the Community Eligibility in all States 

and conducted outreach, education, and promotion 

efforts; 

 Proposed professional standards for school food service 

personnel, requiring professional education and training 

standards for certification of local school food service 

directors and staff, and criteria and standards for the 

selection of State Directors (the proposed rule was 

published on February 4, 2014); 

 Strengthened local requirements for review of second 

applications (published final rule for second review for 

high-risk Local Educational Agencies (LEA)); 

 Developed a system to provide State administering 

agencies and sponsoring organizations with the names 

of institutions, day care home providers and individuals 

that have been terminated or otherwise disqualified 

from participating in the Child and Adult Care Food 

Program (CACFP); 

 Reported a FY 2014 improper payment rate of 

1.05 percent for the CACFP, which met the reduction 

target of 1.48 percent; 

 Held a series of seven regional Webinars in FY 2014, 

which provided training and technical assistance on the 

Income Eligibility Guidance and addressed specific 

questions and circumstances raised by WIC State 

agencies; 

 Updated the FY 2014 notice was issued to the field 

offices WIC State Plan guidance for consistency with 

the Income Eligibility policy memorandum; and 

 Created a WIC Program Integrity and Monitoring 

Branch responsible for vendor management oversight 

policy. 

 Continue to implement direct certification with 

Medicaid in the fourth year; 

 Develop reauthorization proposals to improve 

program operations and reduce error; 

 Continue to implement and promote the expansion 

of the Community Eligibility Provision; 

 Continue to strengthen and improve the direct 

certification process; 

 Implement professional standards for hiring State 

and local staff as well as standards for training and 

certification requirements for food service 

personnel; 

 Fund technological improvements through 

Administrative Review and Training Grants; 

 Obtain updated error estimates for program’s 

Access, Participation, Eligibility, and Certification 

(APEC) II study; 

 Begin work on study to measure the levels and 

rates of improper payments in CACFPparticipating child care centers due to certification 

and non-certification errors; 

 Begin a new round of work on study to develop 

and test a reliable methodology to measure 

improper payments due to meal claim error in 

CACFP family day care homes; 

 Conduct Management Evaluation (ME) Reviews in 

Certification/Eligibility for all 90 WIC States 

agencies during FYs 2015 and 2016; and 

 Continue to work with WIC State agencies to 

strengthen vendor management policies, to address 

vendor management findings identified in the ME 

reviews. 
MANAGEMENT’S DISCUSSION AND ANALYSIS

Fiscal Year 2014 Agency Financial Report | 27

SECTION I 

Improper Payments 

Elimination and Recovery 

Act of 2010 (IPERA) 

Summary of Corrective Actions 

for Noncompliances with Laws and Regulations 

Overall Estimated 

Completion Date: 

FY 2021 

IPERA noncompliance issues. (Food and Nutrition Service (FNS), Farm 

Service Agency (FSA), Natural Resources Conservation Service (NRCS), and 

Risk Management Agency (RMA) ) 

FY 2014 Accomplishments: FY 2015 Planned Actions: 

FSA: FSA will: 

 Executed enhancement to the Web-based software 

initiatives on the Noninsured Crop Disaster Assistance 

payment software; 

 Issued additional notices and handbook amendments to 

field offices strengthening and reinforcing program 

policies and procedures; 

 Established statistically valid procedures to conduct 

targeted audits of persons or legal entities likely to 

exceed the Adjusted Gross Income limitations; 

 Enhanced the Noninsured Crop Disaster Assistance 

Program payment software to retrieve acres from the 

automated acreage reporting data files; 

 Issued a notice to remind field offices of policy 

regarding the applicable Marketing Assistance Loan 

rate. A handbook amendment directive was issued 

reminding State and County offices of the importance 

of second-party reviews; 

 Issued a national notice that emphasized reviewing 

requirements of second-party review to help prevent 

improper payments. A Video Teleconference was held 

with all State Agencies (SAs) pertaining to data load 

errors; 

 Supplied a Notice to State and County Offices 

providing the detailed findings discovered during the 

FY 2013 Milk Income Loss Contract Program review 

including referencing established policy and procedure 

for each finding; 

 A notice was issued to the field offices on August 11, 

2014, listing the specific eligibility requirements for 

LDPs; and 

 A follow-up notice with additional eligibility 

requirements for this program was issued October 6, 

2014. A table was included listing the applicable forms 

for each requirement. 

 The Direct and Counter Cyclical Payments 

Program was repealed so no further action is 

planned for this program; and 

 A notice will be issued to the field offices listing 

the results of the 50 samples reviewed in the LDP 

Program highlighting the cause of the improper 

payments found. Handbook paragraphs with the 

correct procedure will be referenced for each 

cause. 
Managing for Results in Performing Its Many Vital Public Functions

28 | Fiscal Year 2014 Agency Financial Report 

USDA 

Improper Payments 

Elimination and Recovery 

Act of 2010 (IPERA) 

Summary of Corrective Actions 

for Noncompliances with Laws and Regulations 

Overall Estimated 

Completion Date: 

 FY 2021 

IPERA noncompliance issues. (Food and Nutrition Service (FNS), Farm 

Service Agency (FSA), Natural Resources Conservation Service (NRCS), and 

Risk Management Agency (RMA) ) 

FY 2014 Accomplishments: FY 2015 Planned Actions: 

NRCS: NRCS will:

 Provided the SAM.gov fact sheet to entity participants 

with broken internet links corrected. Completed August 

2013;

 Provided regular reminders of appraisal policy by the 

National Appraiser. Completed November 2013; 

 Added requirement for entity registration in SAM.gov 

to the practice reminder letter that is sent to all 

participants annually. Completed December 2013; 

 Added language to the program application reminding 

entity participants of the requirement to register to 

SAM.gov. Completed February 2014; 

 Tracked land ownership requirement in the National 

Easement Staging Tool (NEST) as a required data 

element for the Wetlands Reserve Program (WRP). The 

new Agricultural Conservation Easement Program 

(ACEP) wetland reserve easement enrollment option 

reduced the ownership requirement from 7 years to 

24 months. Completed February 2014; 

 Provided reminder about SAM.gov registration 

requirement for entities at May video teleconference 

for program personnel. Completed May 2014; 

 Issued a National Bulletin to instruct program 

personnel to verify that entity participants have 

registered in SAM.gov prior to making obligations and 

payments. Completed August 2014; 

 Issued a National Bulletin regarding the new ACEP, 

enacted under the new farm bill. The bulletin included 

guidance and a reminder about the SAM.gov 

registration requirement for entities. Completed July 

2014; and 

 Sent a State specific letter regarding the easement 

payment that was improperly made without the national 

headquarters (NHQ) national appraiser’s approval—the 

NHQ easement program division reminded easement 

program personnel of the appraisal review 

requirements. Additionally, the NHQ appraiser 

reviewed the appraisal that was not approved before the 

easement payment was made. Completed 

September 2014.

 Reinforce policies regarding appraisal review 

requirements and preliminary title opinions during 

an Easement Program Division net conference. 

Target date is December 2014; 

 Deploy payment functionality in the National 

Easement Staging Tool (NEST) that will provide 

additional controls related to payment type through 

cross referencing of programmatic and financial 

data. Target date is December 2014; 

 Implement a pre-payment checklist for easement 

acquisition transactions. Target date is December 

2014; and 

 Implement recommendations from NRCS’ 

cross-functional working group. These 

recommendations are currently under 

consideration by NRCS management. Target date 

is December 2014. 
MANAGEMENT’S DISCUSSION AND ANALYSIS

Fiscal Year 2014 Agency Financial Report | 29

SECTION I 

Improper Payments 

Elimination and Recovery 

Act of 2010 (IPERA) 

Summary of Corrective Actions 

for Noncompliances with Laws and Regulations 

Overall Estimated 

Completion Date: 

FY 2021 

IPERA noncompliance issues. (Food and Nutrition Service (FNS), Farm 

Service Agency (FSA), Natural Resources Conservation Service (NRCS), and 

Risk Management Agency (RMA) ) 

FY 2014 Accomplishments: FY 2015 Planned Actions: 

RMA: 

Was party to an information exchange agreement 

between the Social Security Administration and the U.S. 

Department of Agriculture for the Death Master File. 

Completed May 2014. 

RMA will: 

 Design, develop and implement an improper 

payments program that is Improper Payments 

Information Act (IPIA) compliant for the FY 2016 

reporting period; 

 Implement Section 11021 of the 2014 Farm Bill by 

hiring in FY 2015 the following staff to improve 

program integrity efforts: 

o 6 field employees to conduct additional Large 

Claim Reviews and to review new program 

applicant reviews as well as additional 

operation evaluation and review of current 

Approved Insurance Providers; 

o 18 compliance field employees to conduct 

increased field compliance activities; and 

o 5 headquarters employees to improve improper 

payment sampling, reduce improper payments 

and audits; 

 A headquarters and field person to provide one 

additional special investigator to the field and a 

coordinator in headquarters; and 

 A contractor to re-design and implement the 

review process of partner company activity 

including: testing of payments; evaluation and 

testing of internal controls; and performance 

reporting. Study improper payments sampling 

method and design and deploy program. 
Managing for Results in Performing Its Many Vital Public Functions

30 | Fiscal Year 2014 Agency Financial Report 

USDA 

Federal Financial Management Improvement Act Report on 

Financial Management Systems 

Background 

The FFMIA is designed to improve financial and program managers’ accountability, provide 

better information for decision making, and improve the efficiency and effectiveness of Federal 

programs. FFMIA requires that financial management systems provide reliable, consistent 

disclosure of financial data in accordance with generally accepted accounting principles and 

standards. These systems must also comply substantially with (1) Federal Financial Management 

System (FFMS) requirements; (2) applicable Federal accounting standards; and (3) the U.S. 

Standard General Ledger (USSGL) at the transaction level. 

Additionally, the Federal Information Security Management Act (FISMA) requires that there be 

no significant weaknesses in information security policies, procedures, or practices to be 

substantially compliant with FFMIA. The information technology noncompliance is also 

reported as a material weakness and included in the Federal Managers’ Financial Integrity Act 

(FMFIA) Report on Management Control (Exhibit 13). This weakness is comprised of two major 

issues: logical access controls/personnel security and configuration management. More detailed 

information on the status of corrective actions planned and to be completed to comply with 

FISMA is also provided in the Response to Management Challenges section of this report, 

Challenge 3: Information Technology Security Needs Continuing Improvement.

The following exhibit contains the outstanding initiatives to achieve compliance. 

Exhibit 17: Initiatives to Be Completed 

Outstanding Initiatives to Achieve FFMIA Compliance 

Initiative Section of Noncompliance Agency 

Target 

Completion Date 

Information Technology 

Federal Financial Management System 

(FFMS) requirements, and Information 

security policies, procedures, and/or 

practices. 

Multiple 9/30/2016 

Funds Control Management 

Federal accounting standards, and U.S. 

Standard General Ledger (USSGL) at the 

transaction level. 

NRCS 9/30/2016 

USSGL at the transaction level. CCC 9/30/2017 
MANAGEMENT’S DISCUSSION AND ANALYSIS

Fiscal Year 2014 Agency Financial Report | 31

SECTION I

Fiscal Year 2014 Results 

During FY 2014, USDA evaluated its financial management systems to assess substantial 

compliance with FFMIA. In assessing FFMIA compliance, the Department considered auditors’ 

opinions on component agencies’ financial statements, and progress made in addressing the 

material weaknesses identified in the Fiscal Year 2013 Agency Financial Report. Due to the 

CCC’s inability to record obligations at the transaction level in their program feeder system and 

NRCS’ beginning balances, current activity, and accounting for obligations and revenue, the 

Department is not compliant with Federal accounting standards and the USSGL at the 

transaction level. Additionally, as reported in the FMFIA section of this report, USDA continues 

to have weaknesses in information technology controls and Federal Financial Management 

Systems requirement that result in noncompliance with the FISMA requirement. As part of its 

financial systems strategy, USDA agencies continue working to meet FFMIA and FISMA 

objectives.

Commodity Credit Corporation (CCC) 

CCC is not in substantial compliance with Funds Control Management. The development of a 

fully integrated funds control system, the Electronic Funds Management System (eFMS), within 

the CCC core financial management system has been completed. This system is integrated with 

CCC’s general ledger system at the transaction level. eFMS provides management with timely 

information to monitor and control the status of budgetary resources recorded in the general 

ledger. Work continues to implement programs into eFMS for full funds control at the 

transaction level. 

Natural Resources Conservation Service (NRCS)

NRCS had disclosed instances where its financial management systems did not substantially 

comply with applicable Federal accounting standards and the USSGL at the transaction level. 

NRCS continues working to mitigate auditor-identified deficiencies and substantially comply 

with FFMIA. The following deficiencies were found: 

 Applicable Federal accounting standards: The following areas were not properly recorded 

and include beginning net position balances; current year activity; obligations incurred; 

undelivered orders; unpaid obligations, accrued expenses, recoveries of prior year; advance 

to others, accounts receivables, accrued revenues, and unfilled customer orders. 

 USSGL at the transaction level: USSGL appropriate posting models were not used for 

recoveries of prior year obligations paid and unpaid, and nonproduction costs. 
Managing for Results in Performing Its Many Vital Public Functions

32 | Fiscal Year 2014 Agency Financial Report 

USDA

Financial Management Systems Strategy 

On May 2, 2014, the Office of Management and Budget (OMB) and the U.S. Department of the 

Treasury designated USDA’s National Finance Center (NFC) as a Federal Shared Service 

Provider (FSSP). 

USDA is supporting OMB Memorandum M-13-08 Improving Financials through Shared 

Services, which directs agencies to: 

 Move from agency-specific financial systems to FSSP; 

 Consolidate financial management systems; and 

 Use existing FSSP operations and maintenance teams to support system and infrastructures. 

The designation allows NFC to provide financial management services to Federal agencies. 

NFC’s mission is to provide reliable, cost-effective, employee-centric systems and services to 

Federal organizations, thus allowing our customers to focus on serving this great Nation through 

their mission delivery. NFC’s goal is to provide the necessary activities for executing the 

Financial Management Line of Business vision. The three key components are communication, 

governance, and operations. By executing these components, USDA will deliver a successful 

shared service offering. 

NFC’s activities are focused on financial management services. The list of financial management 

services includes: 

 Budget execution; 

 General ledger accounting; 

 Financial reporting; 

 Audit support; 

 Payroll accounting; 

 Investment accounting; 

 Commercial vendor payments; 

 Temporary duty travel payments; 

 Permanent change of station employee relocation payments; 

 Grant payments; 

 Purchase card payments; 

 Lease accounting; 

 Intragovernmental payments; 

 Intragovernmental collections; 

 Receivable management; and 

 Property accounting 
MANAGEMENT’S DISCUSSION AND ANALYSIS

Fiscal Year 2014 Agency Financial Report | 33

SECTION I

USDA’s primary objectives from this NFC shared services effort are to provide the following: 

 An enterprise financial management service that allows customers to reap the benefits in 

less time and less money with less risk and increased service quality as compared to starting 

from scratch with a new Enterprise Resource Planning or financial management 

implementation. By offering a solution that is already proven and operating, and which 

meets all compliance requirements, a customer is jump-started in coming online with a 

state-of-the-art, fully financially configured ERP solution; 

 Integration with NFC payroll processing services; 

 A complete audit compliant financial solution with full documentation meeting financial 

requirements; 

 Continuous process improvements, operational and organizational improvement, for those 

shared services retained in the future state portfolio; 

 More powerful and flexible financial management and reporting; 

 Administrative payments, collections, and certifications; 

 Editing/auditing capabilities that are 100-percent computerized; and 

 The best possible customer-focused service and support. 

Future Roadmap

The Office of the Associate Chief Financial Officer for Financial Systems (ACFO-FS) will 

continue to provide operations and maintenance support to the new financial systems. Inclusive 

with the support, ACFO-FS will provide support to the corporate interfaces as well as address 

agency-specific requests for enhancements to the current financial system to address customer 

needs. During FY 2015, USDA plans the migration of the Financial Statement Data Warehouse 

(FSDW) from the legacy mainframe environment to private cloud computing in order to avoid 

cost increases. 

Projected FY 2015 and FY 2016 planned releases and upgrades include the following: 

 Systems, Applications, and Products (SAP) software release; 

 General Financial Management Modernization Initiative enhancements; 

 Grants.Gov integration; 

 HANA business warehouse; and 

 FSDW migration. 
Managing for Results in Performing Its Many Vital Public Functions

34 | Fiscal Year 2014 Agency Financial Report 

USDA

Other Management Information, Initiatives, 

and Issues 

Eliminating Improper Payments 

In fiscal year (FY) 2014: 

 The U.S. Department of Agriculture (USDA) improper payment rate was 5.52 percent, an 

increase from the 5.36 percent improper payment rate reported for FY 2013. 

 Eight USDA high-risk programs reported improper payment rates in FY 2014 that met the 

programs’ reduction targets for FY 2014. 

Significant actions taken by USDA during FY 2014 to address improper payments include: 

 Determined that the Conservation Reserve Program and Marketing Assistance Loans have 

consistently reduced their improper payments to the point that they are no longer at highrisk for making improper payments. With concurrence from the Office of Inspector General 

and Office of Management and Budget (OMB), USDA has removed them from the list of 

programs at high-risk of improper payments. 

 Improved the timeliness of the High-Dollar Overpayment Quarterly Report. While 

additional work needs to be done, improvements were noted in both the Office of Inspector 

General’s Executive Order 13520, Reducing Improper Payments, High Dollar Report 

Review and USDA Management Challenges report. USDA implemented detailed 

second-party reviews to ensure that agency submissions are accurate. 

 Conducted a study to evaluate the source of improper payments in the crop insurance 

program to more accurately test and report improper payment results. 

 Launched an outreach campaign to inform USDA staff involved with programs and 

activities susceptible to improper payments about remedies available through the 

Department’s recovery auditing contract. 

 Implemented a system with the Department of Treasury to check all USDA payments 

against the Death Master File to verify payments. USDA and Treasury also implemented a 

new system that allows USDA to check multiple databases in the “Do Not Pay” Portal at the 

time of authorization as a preventative tool to prevent improper payments from occurring. 

USDA’s FY 2015 goals are to further strengthen the quality review process for accurate and 

complete agency information in the Improper Payments section of the Agency Financial Report 

(AFR). We will continue to improve the timeliness of the High-Dollar Overpayment Quarterly 

Report. USDA will seek ways to maximize the recovery of improper payments and accurately 

report the results of recovery efforts. USDA will implement updated guidance from OMB on 
MANAGEMENT’S DISCUSSION AND ANALYSIS

Fiscal Year 2014 Agency Financial Report | 35

SECTION I

evaluating, testing, and reducing improper payments. USDA will also expand agency use of 

USDA’s program payments recovery auditing contract. 

Detailed improper payment results and corrective actions are provided in Section III, Other 

Information, of this report. 

Limitations of the Financial Statements 

The principal financial statements have been prepared to report the financial position and results 

of operations of the entity, pursuant to the requirements of 31 U.S.C. 3515(b), “Financial 

Statements of Agencies.” 

While the statements have been prepared from the books and records of the entity in accordance 

with generally accepted accounting principles for Federal entities and with the formats 

prescribed by the Office of Management and Budget, the statements are in addition to the 

financial reports used to monitor and control budgetary resources, which are prepared from the 

same books and records. 

The statements should be read with the realization that they are for a component of the 

U.S. Government, a sovereign entity. 
Managing for Results in Performing Its Many Vital Public Functions

36 | Fiscal Year 2014 Agency Financial Report 

USDA

Section II: Financial Information 

Message from the Chief Financial Officer 

As Chief Financial Officer for the U.S. Department of Agriculture (USDA), I am pleased to 

present our Agency Financial Report (AFR) for fiscal year (FY) 2014. This report shows the 

progress made to provide fiscally sound, cost-effective program delivery. 

Because we are accountable to the American taxpayer, we strive for peak performance in all 

facets of our work. Through the collaborative efforts of USDA managers, employees, business 

partners, and stakeholders, we have made significant strides in advancing the Department’s 

impressive record of excellence in financial management during FY 2014. Highlights of this 

progress include: 

 Received another clean financial audit opinion; 

 Designated Federal Shared Service Provider by the Office of Management and Budget and 

the U.S. Department of the Treasury. This designation allows USDA’s National Finance 

Center to provide financial management services to Federal agencies; and 

 Reduced administrative costs by approximately $192.5 million below FY 2010 levels, in 

accordance with Executive Order, Promoting Efficient Spending in the Federal 

Government. 

Though we are continually making progress in financial management, we cannot yet give 

unqualified assurance of compliance with the Federal Managers’ Financial Integrity Act, or with 

the financial systems requirements of the Federal Financial Management Improvement Act. We 

will continue to focus on these efforts in the coming year. 

We are proud of the accomplishments of our hard-working employees at USDA. All of us are 

committed to the sound management of resources under our stewardship. We remain steadfast 

and committed to making greater financial management improvements in FY 2015. Ultimately 

our efforts will result in setting the highest achievable standard of excellence in managing 

taxpayers’ dollars. 

Jon M. Holladay 

Chief Financial Officer 

December 18, 2014 
FINANCIAL INFORMATION

Fiscal Year 2014 Agency Financial Report | 37

SECTION II

Independent Auditors Report 
Managing for Results in Performing Its Many Vital Public Functions

38 | Fiscal Year 2014 Agency Financial Report 

USDA
FINANCIAL INFORMATION

Fiscal Year 2014 Agency Financial Report | 39

SECTION II
Managing for Results in Performing Its Many Vital Public Functions

40 | Fiscal Year 2014 Agency Financial Report 

USDA
FINANCIAL INFORMATION

Fiscal Year 2014 Agency Financial Report | 41

SECTION II
Managing for Results in Performing Its Many Vital Public Functions

42 | Fiscal Year 2014 Agency Financial Report 

USDA
FINANCIAL INFORMATION

Fiscal Year 2014 Agency Financial Report | 43

SECTION II
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Consolidated Balance Sheet 

As of September 30, 2014 and 2013 

(In Millions) 

The accompanying notes are an integral part of these statements. 

2014 2013

Assets (Note 2):

Intragovernmental:

Fund Balance with Treasury (Note 3) $ 101,717 $ 86,570

Investments (Note 5) 150 139

Accounts Receivable, Net (Note 6) 107 125

Other (Note 11) 3 6

Total Intragovernmental 101,977 86,840

Cash and Other Monetary Assets (Note 4) 173 316

Investments (Note 5) 3 3

Accounts Receivable, Net (Note 6) 1,377 2,578

Direct Loan and Loan Guarantees, Net (Note 7) 101,243 100,710

Inventory and Related Property, Net (Note 8) 38 69

General Property, Plant, and Equipment, Net (Note 9) 2,841 2,925

Other (Note 11) 189 198

Total Assets 207,841 193,639

Stewardship PP&E (Note 10)

Liabilities (Note 12):

Intragovernmental:

Accounts Payable 4 16

Debt (Note 13) 114,102 105,040

Other (Note 15) 12,394 14,116

Total Intragovernmental 126,500 119,172

Accounts Payable 2,277 2,112

Loan Guarantee Liability (Note 7) 5,373 4,866

Federal Employee and Veteran Benefits 955 986

Environmental and Disposal Liabilities (Note 14) 196 176

Benefits Due and Payable 4,362 4,041

Other (Notes 15 & 16) 19,672 19,989

Total Liabilities 159,335 151,342

Commitments and Contingencies (Note 17)

Net Position:

Unexpended Appropriations - Funds From Dedicated Collections (Note 18) 120 107

Unexpended Appropriations - All Other Funds 43,232 33,738

Cumulative Results of Operations - Funds From Dedicated Collections(Note 18) 2,315 1,575

Cumulative Results of Operations - All Other Funds 2,839 6,877

Total Net Position 48,506 42,297

Total Liabilities and Net Position $ 207,841 $ 193,639
FINANCIAL INFORMATION

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SECTION II 

Consolidated Statement of Net Cost 

For the Years Ended September 30, 2014 and 2013 

(In Millions) 

The accompanying notes are an integral part of these statements. 

2014 2013

Assist Rural Communities to Create Prosperity so They Are

Self-Sustaining, Repopulating, and Economically Thriving:

Gross Costs $ 31,969 $ 23,104

Less: Earned Revenue 8,284 6,442

Net Costs 23,685 16,662

Ensure Our National Forests and Private Working Lands Are

Conserved, Restored, and Made More Resilient to Climate Change,

While Enhancing Our Water Resources:

Gross Costs 12,311 12,821

Less: Earned Revenue 912 902

Net Costs 11,399 11,919

Help America Promote Agricultural Production and 

Biotechnology Exports as America Works to Increase Food Security:

Gross Costs 2,494 3,040

Less: Earned Revenue 197 227

Net Costs 2,297 2,813

Ensure that All of America's Children Have Access

to Safe, Nutritious, and Balanced Meals:

Gross Costs 107,417 112,506

Less: Earned Revenue 993 998

Net Costs 106,424 111,508

 Create a USDA for the 21st Century That Is High Performing,

 Efficient, and Adaptable:

Gross Costs 1,265 1,390

Less: Earned Revenue 177 154

 Net Costs 1,088 1,236

Total Gross Costs 155,456 152,861

Less: Total Earned Revenue 10,563 8,723

Net Cost of Operations (Note 19) $ 144,893 $ 144,138
Managing for Results in Performing Its Many Vital Public Functions

68 | Fiscal Year 2014 Agency Financial Report 

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Consolidated Statement of Changes in Net Position 

For The Year Ended September 30, 2014 

(In Millions) 

The accompanying notes are an integral part of these statements. 

Funds From

Dedicated

Collections All Other Consolidated

(Note 18) Funds Eliminations Total

Cumulative Results of Operations:

Beginning Balances $ 1,575 $ 6,877 $ - $ 8,452

Adjustments:

Changes in Accounting Principles (Note 31) - - - -

Beginning Balance, as Adjusted 1,575 6,877 - 8,452

 Budgetary Financing Sources:

Other Adjustments (recissions, etc.) (1) (479) - (480)

Appropriations Used (1) 133,351 - 133,350

Non-exchange Revenue - 9 - 9

Donations and Forfeitures of Cash and Equivalents 1 - - 1

Transfers In (Out) without Reimbursement 901 8,506 233 9,640

 Other Financing Sources (Non-Exchange):

Donations and Forfeitures of Property - - - -

Transfers In (Out) without Reimbursement (64) 231 (233) (66)

Imputed Financing 48 3,260 (2,457) 851

Other 90 (1,800) - (1,710)

Total Financing Sources 974 143,078 (2,457) 141,595

Net Cost of Operations (234) (147,116) 2,457 (144,893)

Net Change 740 (4,038) - (3,298)

 Cumulative Results of Operations 2,315 2,839 - 5,154

Unexpended Appropriations:

Beginning Balances 107 33,738 - 33,845

 Budgetary Financing Sources:

 Appropriations Received 12 150,627 - 150,639

 Appropriations Transferred In (Out) - 4 - 4

 Other Adjustments - (7,786) - (7,786)

 Appropriations Used 1 (133,351) - (133,350)

Total Budgetary Financing Sources 13 9,494 - 9,507

Unexpended Appropriations 120 43,232 - 43,352

Net Position $ 2,435 $ 46,071 $ - $ 48,506
FINANCIAL INFORMATION

Fiscal Year 2014 Agency Financial Report | 69

SECTION II 

Consolidated Statement of Changes in Net Position 

For The Year Ended September 30, 2013 

(In Millions) 

The accompanying notes are an integral part of these statements. 

Funds From

Dedicated

Collections All Other Consolidated

(Note 18) Funds Eliminations Total

Cumulative Results of Operations:

Beginning Balances $ 944 $ 3,629 $ - $ 4,573

Adjustments:

Changes in Accounting Principles (Note 31) 878 (1,043) - (165)

Beginning Balance, as Adjusted 1,822 2,586 - 4,408

 Budgetary Financing Sources:

Other Adjustments (recissions, etc.) - (381) - (381)

Appropriations Used 2 144,027 - 144,029

Non-exchange Revenue - 6 - 6

Donations and Forfeitures of Cash and Equivalents 1 - - 1

Transfers In (Out) without Reimbursement 505 4,366 4,282 9,153

 Other Financing Sources (Non-Exchange):

Donations and Forfeitures of Property - 1 - 1

Transfers In (Out) without Reimbursement (188) 4,283 (4,282) (187)

Imputed Financing 51 3,554 (2,760) 845

Other 81 (5,366) - (5,285)

Total Financing Sources 452 150,490 (2,760) 148,182

Net Cost of Operations (699) (146,199) 2,760 (144,138)

Net Change (247) 4,291 - 4,044

 Cumulative Results of Operations 1,575 6,877 - 8,452

Unexpended Appropriations:

Beginning Balances 97 34,925 - 35,022

 Budgetary Financing Sources:

 Appropriations Received 12 150,495 - 150,507

 Appropriations Transferred In (Out) - 23 - 23

 Other Adjustments - (7,678) - (7,678)

 Appropriations Used (2) (144,027) - (144,029)

Total Budgetary Financing Sources 10 (1,187) - (1,177)

Unexpended Appropriations 107 33,738 - 33,845

Net Position $ 1,682 $ 40,615 $ - $ 42,297
Managing for Results in Performing Its Many Vital Public Functions

70 | Fiscal Year 2014 Agency Financial Report 

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Combined Statement of Budgetary Resources 

For The Years Ended September 30, 2014 and 2013 

(In Millions) 

The accompanying notes are an integral part of these statements. 

2014 2013

Non-Budgetary Non-Budgetary

Credit Reform Credit Reform

Financing Financing

Budgetary Accounts Budgetary Accounts

Budgetary Resources:

Unobligated balance, brought forward, October 1: $ 33,731 $ 8,758 $ 33,326 $ 5,154

Recoveries of prior year unpaid obligations 2,655

 

1,266

 

2,575

 

939

Other changes in unobligated balance (+ or -) (2,520)

 

(4,812)

 

(1,722)

 

(2,266)

Unobligated balance from prior year budget authority, net 33,866

 

5,212

 

34,179

 

3,827

 Appropriations (discretionary and mandatory) 151,153

 

21

 

148,775

 

-

 Borrowing authority (discretionary and mandatory) 14,648

 

10,704

 

17,623

 

11,356

 Spending authority from offsetting collections (discretionary and mandatory) 10,501

 

8,490

 

17,093

 

10,344

Total budgetary resources 210,168 

 

24,427

 

217,670

 

25,527

 

Status of Budgetary Resources:

Obligations Incurred (Note 23) 165,234

 

14,806

 

183,939

 

16,769

Unobligated balance, end of year: 

Apportioned 19,966

 

5,522

 

11,280

 

4,764

 Exempt from apportionment 195

 

8

 

303

 

8

Unapportioned 24,773

 

4,091

 

22,148

 

3,986

 Total unobligated balance, end of year 44,934

 

9,621

 

33,731

 

8,758

Total budgetary resources 210,168

 

24,427

 

217,670

 

25,527

 

Change in Obligated Balance:

Unpaid obligations:

Unpaid obligations, brought forward, October 1 36,260

 

25,009

 

39,816

 

26,270

Obligations incurred 165,234

 

14,806

 

183,939

 

16,769

Outlays (gross) (-) (161,433)

 

(15,484)

 

(184,920)

 

(17,091)

Recoveries of prior year unpaid obligations (-) (2,655)

 

(1,266)

 

(2,575)

 

(939)

Unpaid obligations, end of year 37,406

 

23,065

 

36,260

 

25,009

Uncollected payments: 

Uncollected customer payments from Federal sources, brought forward, October 1 (-) (2,167)

 

(912)

 

(2,576)

 

(1,075)

Change in uncollected customer payments from Federal sources (+ or -) 28

 

257

 

409

 

163

Uncollected payments, Federal sources, end of year (-) (2,139)

 

(655)

 

(2,167)

 

(912)

Memorandum (non-add) entries: 

Obligated balance, start of year (+ or -) 34,093

 

24,097

 

37,240

 

25,195

Obligated balance, end of year (+ or -) 35,267

 

22,410

 

34,093

 

24,097

 

Budget Authority and Outlays, Net:

Budget authority, gross (discretionary and mandatory) 176,302

 

19,215

 

183,491

 

21,700

 Actual offsetting collections (discretionary and mandatory) (-) (17,079)

 

(13,142)

 

(26,741)

 

(13,821)

Change in uncollected customer payments from Federal sources 28

 

257

 

409

 

163

 

 (discretionary and mandatory)(+ or -) -

 

-

 

-

 

-

 Anticipated offsetting collections (discretionary and mandatory) (+ or -) -

 

-

 

-

 

-

Budget authority, net (discretionary and mandatory) 159,251

 

6,330

 

157,159

 

8,042

 

Outlays, gross (discretionary and mandatory) 161,433

 

15,484

 

184,920

 

17,091

 Actual offsetting collections (discretionary and mandatory) (-) (17,079)

 

(13,142)

 

(26,741)

 

(13,821)

Outlays, net (discretionary and mandatory) 144,354

 

2,342

 

158,179

 

3,270

Distributed offsetting receipts (-) (911)

 

(1,622)

 

(914)

 

(1,363)

Agency outlays, net (discretionary and mandatory) $ 143,443 $ 720 $ 157,265 $ 1,907
FINANCIAL INFORMATION

Fiscal Year 2014 Agency Financial Report | 71

SECTION II

Notes to the Consolidated Financial 

Statements 

As of September 30, 2014 and 2013 (In Millions) 

Note 1. Significant Accounting Policies 

Organization 

The Department of Agriculture (USDA) provides a wide variety of services in the United States 

and around the world. USDA is organized into seven distinct mission areas and their agencies 

that execute these missions. 

Listed below are the missions and the agencies within each mission including three 

Government corporations: 

Farm and Foreign Agricultural Services (FFAS) 

 Farm Service Agency (FSA) 

◌ Commodity Credit Corporation (CCC) 

 Foreign Agricultural Service (FAS) 

 Risk Management Agency (RMA) 

◌ Federal Crop Insurance Corporation (FCIC) 

Food, Nutrition, and Consumer Services (FNCS) 

Food and Nutrition Service (FNS) 

Food Safety 

Food Safety and Inspection Service (FSIS) 

Marketing and Regulatory Programs (MRP) 

 Agricultural Marketing Service (AMS) 

 Animal and Plant Health Inspection Service (APHIS) 

 Grain Inspection, Packers and Stockyards Administration (GIPSA) 
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Natural Resources and Environment (NRE) 

 Forest Service (FS) 

 Natural Resources Conservation Service (NRCS) 

Research, Education, and Economics (REE) 

 Agricultural Research Service (ARS) 

 National Institute of Food and Agriculture (NIFA)

 Economic Research Service (ERS) 

 National Agricultural Statistics Service (NASS) 

Rural Development 

 Rural Development (RD) 

◌ Alternative Agricultural Research and Commercialization Corporation (AARC) 

Consolidation 

The financial statements consolidate all the agencies’ results. The effects of intradepartmental 

activity and balances are eliminated, except for the Statement of Budgetary Resources that is 

presented on a combined basis. The financial statements are prepared in accordance with 

generally accepted accounting principles for the Federal Government. 

Reclassifications 

The Statement of Net Cost, Note 19, and Schedule of Spending were reclassified to align with 

the strategic goals presented in the USDA Strategic Plan for FY 2014 – 2018. A new goal was 

added to create a USDA for the 21st century that is high performing, efficient, and adaptable. 

Interest related to technical reestimates was reclassified from interest rate reestimates in Note 7 - 

Table 2, Table 3, Table 7, and Table 8. Foreclosed property and loans acquired and claim 

payments to lenders were reclassified from other adjustments in Note 7 - Table 7. 

Note 15 was reclassified to align with the USSGL crosswalk for other liabilities and to move the 

non-current portion of unfunded FECA liability and underwriting gains on crop insurance from 

current. 

In FY 2013, the Combined Statement of Budgetary Resources was reclassified to better align 

with the new SF-133, Report on Budget Execution and Budgetary Resources. 
FINANCIAL INFORMATION

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SECTION II

Use of Estimates 

The preparation of financial statements requires management to make estimates and assumptions 

that affect the amounts reported in the financial statements and accompanying notes. Actual 

results could differ from those estimates. 

Revenue and Other Financing Sources 

Revenue from exchange transactions is recognized when persuasive evidence of an arrangement 

exists, delivery has occurred or services have been rendered, sales price is fixed or determinable, 

and collection is reasonably assured. In certain cases, the prices charged by the Department are 

set by law or regulation, which for program and other reasons may not represent full cost. Prices 

set for products and services offered through the Department’s working capital funds are 

intended to recover the full costs incurred by these activities. Revenue from non-exchange 

transactions is recognized when a specifically identifiable, legally enforceable claim to resources 

arises, to the extent that collection is probable and the amount is reasonably estimable. 

Appropriations are recognized as a financing source when used. An imputed financing source is 

recognized for costs subsidized by other Government entities. 

Investments 

The Department is authorized to invest certain funds in excess of its immediate needs in 

Treasury securities. Investments in non-marketable par value Treasury securities are classified as 

held to maturity and are carried at cost. Investments in market-based Treasury securities are 

classified as held to maturity and are carried at amortized cost. The amortized cost of securities is 

based on the purchase price adjusted for amortization of premiums and accretion of discounts 

using the straight-line method over the term of the securities. 

Accounts Receivable 

Accounts receivable are reduced to net realizable value by an allowance for uncollectible 

accounts. The adequacy of the allowance is determined based on past experience and age of 

outstanding balances. 

Direct Loans and Loan Guarantees 

Direct loans obligated and loan guarantees committed after fiscal 1991 are reported based on the 

present value of the net cash-flows estimated over the life of the loan or guarantee. The 

difference between the outstanding principal of the loans and the present value of their net cash 

inflows is recognized as a subsidy cost allowance; the present value of estimated net cash 

outflows of the loan guarantees is recognized as a liability for loan guarantees. The subsidy 

expense for direct or guaranteed loans disbursed during the year is the present value of estimated 
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74 | Fiscal Year 2014 Agency Financial Report 

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net cash outflows for those loans or guarantees. A subsidy expense also is recognized for 

modifications made during the year to loans and guarantees outstanding and for reestimates 

made as of the end of the year to the subsidy allowances or loan guarantee liability for loans and 

guarantees outstanding. 

Direct loans obligated and loan guarantees committed before fiscal 1992 are valued using either 

the present-value or net realizable methods. Under the present-value method, the outstanding 

principal of direct loans is reduced by an allowance equal to the difference between the 

outstanding principal and the present value of the expected net cash flows. The liability for loan 

guarantees is the present value of expected net cash outflows due to the loan guarantees. Under 

the net realizable value method, the average rate of the last five years of write-offs is used. 

Inventories and Related Property

Inventories to be consumed in the production of goods for sale or in the provision of services for 

a fee are valued on the basis of historical cost using a first-in, first-out method. Commodities are 

valued at the lower of cost or net realizable value using a weighted average method. Barter 

Delivery Obligations (BDO) are valued at the net sales proceeds. BDO are exchanged for food 

products to be utilized in domestic and export food programs. 

Property, Plant and Equipment 

Property, plant and equipment (PP&E) are stated at cost less accumulated depreciation. 

Depreciation is determined using the straight-line method over the estimated useful lives of the 

assets. Useful lives for PP&E are disclosed in Note 9. Capitalization thresholds for personal 

property and real property are $25,000 and $100,000 for internal use software. There are no 

restrictions on the use or convertibility of PP&E. 

Pension and Other Retirement Benefits 

Pension and other retirement benefits (primarily retirement health care benefits) expense is 

recognized at the time the employees’ services are rendered. The expense is equal to the actuarial 

present value of benefits attributed by the pension plan’s benefit formula, less the amount 

contributed by the employees. An imputed cost is recognized for the difference between the 

expense and contributions made by and for employees. 

Other Post-employment Benefits 

Other post-employment benefits expense for former or inactive (but not retired) employees is 

recognized when a future outflow or other sacrifice of resources is probable and measurable on 

the basis of events occurring on or before the reporting date. The liability for long-term other 

post-employment benefits is the present value of future payments. 
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SECTION II

Funds from Dedicated Collections 

In accordance with SFFAS 43, Funds from Dedicated Collections, the Department has reported 

the funds from dedicated collections for which it has program management responsibility when 

the following three criteria are met: (1) a statute committing the federal government to use 

specifically identified revenues and/or other financing sources that are originally provided to the 

federal government by a non-federal source only for designated activities, benefits or purposes; 

(2) explicit authority for the fund to retain revenues and/or other financing sources not used in 

the current period for future use to finance the designated activities, benefits, or purposes; and 

(3) a requirement to account for and report on the receipt, use, and retention of the revenues 

and/or other financing sources that distinguishes the fund from the federal government’s general 

revenues. 

Contingencies 

Contingent liabilities are recognized when a past event or exchange transaction has occurred, a 

future outflow or other sacrifice of resources is probable, and the future outflow or sacrifice of 

resources is measurable. 

Allocation Transfers 

The Department is a party to allocation transfers with other federal agencies as both a 

transferring (parent) entity and/or a receiving (child) entity. Allocation transfers are legal 

delegations by one department of its authority to obligate budget authority and outlay funds to 

another department. A separate fund account (allocation account) is created in the U.S. Treasury 

as a subset of the parent fund account for tracking and reporting purposes. All allocation 

transfers of balances are credited to this account, and subsequent obligations and outlays incurred 

by the child entity are charged to this allocation account as they execute the delegated activity on 

behalf of the parent entity. 

The Department allocates funds, as the parent, to the Department of the Interior, Department of 

Defense, Department of Housing and Urban Development, U.S. Agency for International 

Development and the Small Business Administration. The Department receives allocation 

transfers, as the child, from the Department of Labor, Department of Transportation, Department 

of the Interior, Economic Development Administration, Appalachian Regional Commission and 

the Delta Regional Authority. 

Inter-Entity Costs 

Each entity’s full cost should incorporate the full cost of goods and services that it receives from 

other entities. The entity providing the goods or services has the responsibility to provide the 

receiving entity with information on the full cost of such goods or services either through billing 

or other advice. 
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Recognition of inter-entity costs that are not fully reimbursed is limited to material items that (1) 

are significant to the receiving entity, (2) form an integral or necessary part of the receiving 

entity’s output, and (3) can be identified or matched to the receiving entity with reasonable 

precision. Broad and general support services provided by an entity to all or most other entities 

should not be recognized unless such services form a vital and integral part of the operations or 

output of the receiving entity. 

Fiduciary Activities 

Fiduciary activities are the collection or receipt, and the management, protection, accounting, 

investment and disposition by the Federal Government of cash or other assets in which nonFederal individuals or entities have an ownership interest that the Federal Government must 

uphold. Fiduciary assets are not assets of the Federal Government and are not recognized on the 

balance sheet. 

Asbestos-Related Cleanup Costs 

Effective October 1, 2012, Technical Bulletin (TB) 2006-1, Recognition and Measurement of 

Asbestos-Related Cleanup Costs, as amended, requires an estimate of both friable and nonfriable asbestos-related cleanup costs; recognition of a liability and related expense for those 

costs that are both probable and reasonably estimable; and disclosure of information related to 

friable and non friable asbestos-related cleanup costs that are probable but not reasonably 

estimable in a note to the financial statements. 
FINANCIAL INFORMATION

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SECTION II 

Note 2. Non-Entity Assets 

Non-entity assets include proceeds from the sale of timber payable to Treasury, timber contract 

performance bonds, employer contributions and payroll taxes withheld for agencies serviced by 

the National Finance Center, rural housing escrow, interest, fines and penalties. 

FY 2014 FY 2013

Intragovernmental:

Fund balance with Treasury $ 190 $ 1,055

Accounts Receivable 546 247 

Subtotal Intragovernmental 736 1,302 

With the Public:

Accounts receivable 123 104 

Subtotal With the Public 123 104 

Total non-entity assets 859 1,406 

Total entity assets 206,982 192,233 

Total Assets $ 207,841 $ 193,639
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78 | Fiscal Year 2014 Agency Financial Report 

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Note 3. Fund Balance with Treasury 

Other Fund Types include deposit and clearing accounts. Borrowing Authority not yet Converted 

to Fund Balance represents un-obligated and obligated amounts recorded at year-end that will be 

funded by future borrowings. Non-Budgetary Fund Balance with Treasury includes special fund 

receipt accounts; and clearing and suspense account balances awaiting disposition or 

reclassification. Unprocessed Intragovernmental Payment and Collection (IPAC) transactions 

were not reported to Treasury at the end of FY 2013 because the proper Treasury Account 

Symbol was unknown which reduced Fund Balance with Treasury by $12 million. 

Note 4. Cash and Other Monetary Assets 

In FY 2014 and FY 2013, cash mostly consists of Federal crop insurance escrow amounts of 

$148 million and $316 million, respectively. In FY 2014, there were $24 million deposits in 

transit. 

FY 2014 FY 2013

Fund Balances:

 Trust Funds $ 796 $ 547

 Special Funds 21,075

 

19,298

 

 Revolving Funds 20,066

 

17,594

 

 General Funds 59,608

 

48,096

 

 Other Fund Types 172

 

1,035

 

Total 101,717

 

86,570

 

Status of Fund Balance with Treasury:

Unobligated Balance:

 Available 25,691

 

16,355

 

 Unavailable 28,870

 

26,137

 

Obligated Balance not yet Disbursed 57,527

 

57,874

 

Borrowing Authority not yet Converted to Fund Balance (30,279)

 

(33,413)

 

Non-Budgetary Fund Balance with Treasury 19,908

 

19,617

 

Total $ 101,717 $ 86,570

FY 2014 FY 2013

Cash $ 173 $ 316
FINANCIAL INFORMATION

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SECTION II 

Note 5. Investments 

Note 6. Accounts Receivable, Net 

FY 2014 Amortized Market

Amortization (Premium) Interest Investments, Value

Method Cost Discount Receivable Net Disclosure

Intragovernmental:

Non-marketable

Par value $ - $ - $ - $ - $ -

Market-based Straight Line 150

 

(1)

 

1

 

150

 

150

 

Total $ 150 $ (1) $ 1 $ 150 $ 150

With the Public:

AARC $ 3 $ - $ - $ 3 $ 3

Total $ 3 $ - $ - $ 3 $ 3

FY 2013 Amortized Market

Amortization (Premium) Interest Investments, Value

Method Cost Discount Receivable Net Disclosure

Intragovernmental:

Non-marketable

Par value $ - $ - $ - $ - $ -

Market-based Straight Line 139

 

(1)

 

1

 

139

 

139

 

Total $ 139 $ (1) $ 1 $ 139 $ 139

With the Public:

AARC $ 3 $ - $ - $ 3 $ 3

Total $ 3 $ - $ - $ 3 $ 3

FY 2014

Accounts 

Receivable, 

Gross

Allowance for 

Uncollectible 

Accounts

Accounts 

Receivable, 

Net

Intragovernmental $ 107 $ - $ 107

With the Public 1,438 (61)

 

1,377 

Total $ 1,545 $ (61) $ 1,484

FY 2013

Accounts 

Receivable, 

Gross

Allowance for 

Uncollectible 

Accounts

Accounts 

Receivable, 

Net

Intragovernmental $ 125 $ - $ 125

With the Public 2,635 (57)

 

2,578 

Total $ 2,760 $ (57) $ 2,703
Managing for Results in Performing Its Many Vital Public Functions

80 | Fiscal Year 2014 Agency Financial Report 

USDA

Note 7. Direct Loans and Guarantees, Non-Federal 

Borrowers 

Direct Loans 

Direct loan obligations or loan guarantee commitments made pre-1992 and the resulting direct 

loans or loan guarantees are reported at either net present value or net realizable value. 

For FY 2013, RD reported direct loans made pre-1992 at net realizable value. This is a change 

from the previous valuation method, for which RD received concurrence from the Office of 

Management and Budget. The effect of this change resulted in a decrease to the allowance of 

approximately $3.8 billion. 

During FY 2013, RD analyzed the performance of pre-1992 direct loans receivable. The 

previous allowance method reduced direct loans by the difference between the nominal amount 

and the present value of the expected net cash flows. The net present value, at any given time, 

was the amount of loans receivable less the net present value of future cash flows discounted 

using RD’s borrowing rate for liquidating loans. Due to the large difference between the net 

present value and the nominal amount of the loans, using a net realizable value approach, based 

on the last five years of write-offs, more accurately presents the value of the pre-1992 loans. 

The majority of the reduction in the allowance for loss can be attributed to the Multi-Family 

Housing program. The reduction in the allowance increased Direct Loan and Loan Guarantees, 

Net, and reduced Gross Costs in the Statement of Net Cost by $3.8 billion. The change in 

valuation had corresponding increases to Other Liabilities on the accompanying Consolidated 

Balance Sheet and Other Financing Sources on the Consolidated Statement of Changes in Net 

Position. It also had corresponding effects on multiple lines on the Reconciliation of Budgetary 

Resources Obligated to Net Cost of Operations (Note 30). 

Direct loan obligations or loan guarantee commitments made post-1991, and the Federal Credit 

Reform Act of 1990 as amended governs the resulting direct loan or loan guarantees. The Act 

requires agencies to estimate the cost of direct loans and loan guarantees at present value for the 

budget. Additionally, the present value of the subsidy costs (i.e. interest rate differentials, interest 

subsidies, delinquencies and defaults, fee offsets and other cash flows) associated with direct 

loans and loan guarantees are recognized as a cost in the year the loan or loan guarantee is 

disbursed. The net present value of loans or defaulted guaranteed loans receivable at any point in 

time is the amount of the gross loan or defaulted guaranteed loans receivable less the present 

value of the subsidy at that time. 

The net present value of Direct Loan and Loan Guarantees, Net is not necessarily representative 

of the proceeds that might be expected if these loans were sold on the open market. 
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Direct Loan and Loan Guarantees, Net at the end of FY 2014 was $101,243 million compared to 

$100,710 million at the end of FY 2013. Loans exempt from the Federal Credit Reform Act of 

1990 represent $208 million of the total compared to $338 million in FY 2013. Table 1 illustrates 

the overall composition of the Department’s credit program balance sheet portfolio by mission 

area and credit program for FY 2014 and FY 2013. 

Beginning in FY 2012, advance payments surpassed the loans receivable balance in the Rural 

Utilities Liquidating Fund. This was due to an increased volume in advance payments and a 

normal reduction to the Liquidating Portfolio. The Omnibus Budget Act of 1987, section 313, 

authorized the accumulation of Cushion of Credit (CoC) in the Revolving Fund. Borrowers may 

make advance payments up to their liquidating and financing total Rural Utilities Service debt. 

To accurately represent the value of Electric and Telecommunication assets, RD reports the CoC 

amounts as a separate line item in Table 1. 

During the fiscal year, the gross outstanding balance of the direct loans obligated post-1991 is 

adjusted by the value of the subsidy cost allowance held against those loans. Current year 

subsidy expense, modifications and reestimates all contribute to the change of the subsidy cost 

allowance throughout the year. The subsidy cost allowance moved from $6,477 million to $6,461 

million during FY 2014, a decrease of $16 million. Table 2 shows the reconciliation of subsidy 

cost allowance balances from FY 2013 to FY 2014. 

Total direct loan subsidy expense is a combination of subsidy expense for new direct loans 

disbursed in the current year, modifications to existing loans, and interest rate and technical 

reestimates to existing loans. Total direct loan subsidy expense in FY 2014 was $224 million 

compared to $755 million in FY 2013. Table 3 illustrates the breakdown of total subsidy expense 

for FY 2014 and FY 2013 by program. 

Direct loan volume decreased from $10,437 million in FY 2013 to $8,956 million in FY 2014. 

Volume distribution between mission area and program is shown in Table 4. 

Guaranteed Loans 

Guaranteed loans are administered in coordination with conventional agricultural lenders for up 

to 95 percent of the principal loan amount. Under the guaranteed loan programs, the lender is 

responsible for servicing the borrower’s account for the life of the loan. The Department, 

however, is responsible for ensuring borrowers meet certain qualifying criteria to be eligible and 

monitoring the lender’s servicing activities. Borrowers interested in guaranteed loans must apply 

to a conventional lender, which then arranges for the guarantee with a Department agency. 

Estimated losses on loan and foreign credit guarantees are reported at net present value as Loan 

Guarantee Liability. Defaulted guaranteed loans are reported at net present value as Loans 

Receivable and Related Foreclosed Property, Net. 

Guaranteed loans outstanding at the end of FY 2014 were $ 126,400 million in outstanding 

principal and $113,086 million in outstanding principal guaranteed, compared to $115,527 
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million and $104,772 million, respectively at the end of FY 2013. Table 5 shows the outstanding 

balances by credit program. 

During the fiscal year, the value of the guaranteed loans is adjusted by the value of the loan 

guarantee liability held against those loans. Current year subsidy expense, modification and 

reestimates all contribute to the change of the loan guarantee liability through the year. The loan 

guarantee liability is a combination of the liability for losses on pre-1992 guarantees and post1991 guarantees. Table 6 shows that total liability moved from $4,866 million to $5,373 million 

during FY 2014, an increase of $507 million. Table 7 shows the reconciliation of total loan 

guarantee liability. 

Total guaranteed loan subsidy expense is a combination of subsidy expense for new guaranteed 

loans disbursed in the current year, modifications to existing loans, and interest rate and technical 

reestimates to existing loans. Total guaranteed loan subsidy expense in FY 2014 was $561 

million compared to $575 million in FY 2013. Table 8 illustrates the breakdown of total subsidy 

expense for FY 2014 and FY 2013 by program. 

Guaranteed loan volume decreased from $29,035 million in FY 2013 to $24,806 million in FY 

2014. Volume distribution between mission area and program is shown in Table 9. 

Administrative Expenses 

Consistent with the Federal Credit Reform Act of 1990 as amended, subsidy cash flows exclude 

direct Federal administrative expenses. Administrative expenses for FY 2014 and FY 2013 are 

shown in Table 10. 

Subsidy Rates 

Subsidy rates are used to compute each year’s subsidy expenses. The subsidy rates disclosed in 

Tables 11 and 12 pertain only to the FY 2014 cohorts. These rates cannot be applied to the direct 

and guaranteed loans disbursed during the current reporting year to yield the subsidy expense. 

The subsidy expense for new loans reported in the current year could result from disbursements 

of loans from both current year cohorts and prior-year cohorts. The subsidy expense reported in 

the current year also includes reestimates. 

Credit Program Discussion and Descriptions 

The Department offers direct and guaranteed loans through credit programs in the FFAS mission 

area through the FSA and the CCC, and in the RD mission area. 
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The Farm and Foreign Agricultural Services Mission Area 

The FFAS mission area helps keep America’s farmers and ranchers in business as they face the 

uncertainties of weather and markets. FFAS delivers commodity, credit, conservation, disaster 

and emergency assistance programs that help strengthen and stabilize the agricultural economy. 

FFAS contributes to the vitality of the farm sector with programs that encourage the expansion 

of export markets for U.S. agriculture. 

FSA offers direct and guaranteed loans to farmers who are temporarily unable to obtain private, 

commercial credit and nonprofit entities that are engaged in the improvement of the nation’s 

agricultural community. Often, FSA borrowers are beginning farmers who cannot qualify for 

conventional loans due to insufficient financial resources. Additionally, the agency helps 

established farmers who have suffered financial setbacks from natural disasters, or have limited 

resources to maintain profitable farming operations. FSA officials also provide borrowers with 

supervision and credit counseling. 

FSA’s mission is to provide supervised credit. FSA works with each borrower to identify 

specific strengths and weaknesses in farm production and management, and provides alternatives 

to address weaknesses. FSA is able to provide certain loan servicing options to assist borrowers 

whose accounts are distressed or delinquent. These options include reamortization, restructuring, 

loan deferral, lowering interest rate, acceptance of easements, and debt write-downs. The 

eventual goal of FSA’s farm credit programs is to graduate its borrowers to commercial credit. 

CCC’s foreign programs provide economic stimulus to both the U.S. and foreign markets, while 

also giving humanitarian assistance to the most-needy people throughout the world. CCC offers 

both credit guarantee and direct credit programs for buyers of U.S. exports, suppliers, and 

sovereign countries in need of food assistance. 

CCC permits debtor nations to reschedule debt under the aegis of the Paris Club (The Club). The 

Club is an internationally recognized organization under the leadership of the French Ministry of 

Economics and Finance. Its sole purpose is to assess, on a case-by-case basis, liquidity problems 

faced by economically disadvantaged countries. The general premise of the Club’s activities is to 

provide disadvantaged nations short-term liquidity relief to enable them to re-establish their 

credit worthiness. The Departments of State and Treasury lead the U.S. Delegation and 

negotiations for all U.S. Agencies. 

CCC also provides loans for Farm and Sugar Storage Facilities (FSFL). FSFL provides lowinterest financing for producers to build or upgrade farm storage and handling facilities. The 

2008 Farm Bill added hay and renewable biomass as eligible FSFL commodities, extended the 

maximum loan term to 12 years and increased the maximum loan amount to $500,000. 
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Farm and Foreign Agricultural Service List of Programs 

Farm Service Agency Commodity Credit Corporation 

Direct Farm Ownership 

Direct Farm Operating 

Direct Emergency Loans 

Direct Indian Land Acquisition 

Direct Boll Weevil Eradication 

Direct Seed Loans to Producers 

Direct Conservation 

Guaranteed Farm Operating 

Subsidized/Unsubsidized 

Guaranteed Farm Ownership Unsubsidized 

Guaranteed Conservation 

American Recovery and Reinvestment 

Fund 

General Sales Manager Export Credit 

Guarantee Program 

Facility Program Guarantee 

P.L. 480 Title 1 Program 

Direct Farm Storage Facility 

Direct Sugar Storage Facilities

The Rural Development Mission Area 

Each year, RD programs create or preserve tens of thousands of rural jobs and provide or 

improve the quality of rural housing. To leverage the impact of its programs, RD is working with 

State, local and Indian tribal Governments, as well as private and not-for-profit organizations and 

user-owned cooperatives. 

Through its rural housing loan and grant programs, RD provides affordable housing and essential 

community facilities to rural communities. Rural housing programs help finance new or 

improved housing for moderate, low, and very low-income families each year. The programs 

also help rural communities finance, construct, enlarge or improve fire stations, libraries, 

hospitals and medical clinics, industrial parks, and other community facilities. 

The Rural Business Program goal is to promote a dynamic business environment in rural 

America. RD partners with the private sector and community-based organizations to provide 

financial assistance and business planning. It also provides technical assistance to rural 

businesses and cooperatives, conducts research into rural economic issues, and provides 

cooperative educational materials to the public. 

The Rural Utilities Program helps to improve the quality of life in rural America through a 

variety of loan programs for electric energy, telecommunications, and water and environmental 

projects. This program leverages scarce Federal funds with private capital for investing in rural 

infrastructure, technology and development of human resources. 
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RD programs provide certain loan servicing options to borrowers whose accounts are distressed 

or delinquent. These options include re-amortization, restructuring, loan deferral, lowering 

interest rate, acceptance of easements and debt write-downs. The choice of servicing options 

depends on the loan program and the individual borrower. 

Rural Development List of Programs 

Rural Housing Program Rural Business Program Rural Utilities Program 

Single Family Housing Direct 

Loans 

Single Family Housing Guaranteed 

Loans 

Self Help Housing Direct Loans 

Single Family Housing Credit Sales 

Farm Labor Housing Direct Loans 

Multi-Family Housing Direct 

Loans 

Multi-Family Housing Guaranteed 

Loans 

Multi-Family Housing-Credit Sales 

Multi-Family Housing Relending 

Program 

Multi-Family Housing 

Revitalization Program 

Community Facilities Direct Loans 

Community Facilities Guaranteed 

Loans 

Business and Industry Direct Loans 

Business and Industry Guaranteed 

Loans 

Intermediary Relending Program 

Direct Loans 

Rural Economic Development 

Direct Loans 

Biorefinery Guaranteed Loans 

Renewable Energy Guaranteed 

Loans 

Rural Microenterprise Direct Loans 

Water and Environmental Direct 

Loans 

Water and Environmental 

Guaranteed Loans 

Electric Direct Loans 

Electric Guaranteed Loans 

Telecommunications Direct Loans 

Federal Financing Bank-Electric 

Federal Financing Bank-Telephone 

Distance Learning and 

Telemedicine Direct 

Broadband Telecommunications 

Services 
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Events and Changes Having a Significant and Measurable 

Effect on Subsidy Rates, Subsidy Expense, and 

Subsidy Re-estimates 

The Federal Credit Reform Act of 1990 as amended governs the proprietary and budgetary 

accounting treatment of direct and guaranteed loans. The long-term cost to the Government for 

direct loans or loan guarantees is referred to as “subsidy cost.” Under the act, subsidy costs for 

loans obligated beginning in FY 1992 are recognized at the net present value of projected 

lifetime costs in the year the loan is disbursed. Subsidy costs are revalued annually. Components 

of subsidy include interest subsidies, defaults, fee offsets, and other cash flows. 

The annual reestimate process updates the budget assumptions with actual portfolio performance, 

interest rates and updated estimates for future loan performance. The FY 2014 reestimate 

process resulted in a $181 million increase in the post 1991 estimated cost of the direct loan 

portfolio and a $513 million increase in the post 1991 estimated cost of the guaranteed loan 

portfolio, primarily comprised of the following programs: 

Direct Loans 

The “farm” category of loans is comprised of direct loans under the Agricultural Credit 

Insurance Fund (ACIF), along with four categories of direct loans under the auspices of CCC. 

The farm category had an overall downward reestimate of $281 million. ACIF comprised $273 

million of the total reestimate ($275 million current reestimate plus an accrual of $2 million for 

FY 2013 reestimates apportioned in FY 2014). CCC loans comprised the remaining $8 million. 

The total consisted of $72 million upward reestimate and $353 million downward reestimate. 

The majority of the reestimate was in the farm ownership and farm operating programs, 

comprising $308 million of the downward reestimate. Of that amount, $215 million is in cohorts 

2008 through 2014 for both programs. The downward reestimate is largely due to two items in 

particular. The first was a major change in the direct farm loan cash flow model that revised the 

amortization methodology, resulting in principal and interest schedules that are more heavily 

weighted in the outyears than in the previous model. This has the impact of reducing the present 

value of scheduled principal payments but at the same time increases interest scheduled over the 

life of the cohort. Updates to the econometric forecasts in the model also contributed to lower 

forecast defaults. The other item that had a significant impact was the change in the single 

effective rate methodology employed in FY 2014. This mainly affected only the more recent 

cohorts, those that are still disbursing. 

The direct farm ownership program had a total downward reestimate of $134 million, 92% of 

which was in the 2008 through 2014 cohorts as noted above. Changes in projected borrower 

cash flows are the most significant factor in the large current reestimates, as reflected in total 

reestimates of between $10.8 million and $31.6 million. First, the new amortization timing 
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shifted the timing of principal and interest inflows. Second, as a result of the econometric 

update, total write downs declined by between $19 million (72%) and $41 million (86%). Both 

changes drove downward reestimates for each cohort. 

The direct farm operating program had a total downward reestimate of $137 million, 66% of 

which was in the 2008 through 2014 cohorts. The large, downward total reestimates can be 

traced to two factors: substantial increases in scheduled interest and decreases in forecasted 

write downs. The new amortization timing led to increases of between $12 million and $84 

million in scheduled interest. At the same time, the econometric update reduced total forecasted 

write downs by between $4.1 million and $40 million. The impact of these changes was partially 

offset by increases of between $30 million and $177 million in interest lost from prepayments. 

It is also important to note that the financing account interest adjustment component of the 

reestimate across all direct farm loan programs was downward $60 million. That consisted of 

$74 million downward in ownership, emergency and credit sales; and $14 million upward in the 

operating and boll weevil loan categories. 

The Housing Programs had an overall net upward reestimate of $41 million. The majority of the 

$41 million upward reestimate is due to actual prepayments that were less than predicted 

prepayments for the Single Family Housing loans. As a result of lower actual prepayments, loans 

remain outstanding for longer periods; hence, borrowers receive more payment assistance. 

Therefore, lower prepayments produce higher interest rate assistance over the life of the cohort, 

which contributes to a higher subsidy rate. 

The Community Facility Programs had an overall upward reestimate of $143 million. The 

overall upward reestimate is attributed to an increase in actual principal written off. Additionally, 

for cohort years 2011-2013, which are still disbursing, the upward reestimate is a result of a true 

up of the actual SER to the formulation SER. 

The Direct Broadband Treasury Rate is not a material program but had a significant net upward 

reestimate of $119 million. The majority of the upward reestimate is in cohort year 2010, which 

accounts for $127 million of the overall reestimate. The forecasted principal write off for the 

Direct Broadband Program was increased to account for the expected increase in write-off 

activity. 

Guaranteed Loans 

Two cohorts in the Guaranteed Housing Programs contributed to an overall upward reestimate of 

$726 million. The Section 502-Purchase Program comprises loan guarantees for the purchase of 

single-family homes endorsed during FY 1992 through FY 2010, and the Section 502-Blended 

Program comprises loan guarantees for the purchase and refinance of single-family homes 

endorsed during FY 2011 through FY 2014. 

The Single Family Housing Section 502–Purchase Program had significant net upward 

reestimate of $810 million. The main causes for the upward reestimate were the increase in the 
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forecasted defaults and the increase of projected losses attributed to a backlog of losses, which 

are expected to be paid in FY 2015. 

The Single Family Housing Section 502–Blended Program had net downward reestimate of $72 

million. The liability for FY 2011 loan guarantees was adjusted upward by $138 million due to 

changes made to forecasted losses and the inclusion of the backlog of losses. FY 2012-2014 had 

a downward adjustment of $209 million due to actual losses that were lower than forecasted 

losses. Actual losses were lower than forecasted as a result of higher credit requirements for 

borrowers implemented by the Agency following the housing crisis. 

The Guaranteed Business and Industry Program had an overall downward reestimate of $122 

million. The majority of the downward reestimate falls within cohort years 2009 through 2013, 

which accounts for $120 million of the overall downward reestimate. The cohorts have the 

greatest changes due to: (1) actual loss settlement payments being lower than projected; and (2) 

actual default prepayments being lower than projected. 

Loan Modifications 

A modification is any Government action different from the baseline assumptions that affects the 

subsidy cost, such as a change in the terms of the loan contract. The cost of a modification is the 

difference between the present value of the cash flows before and after the modification. 

Multi-Family Housing direct loan modifications related to the revitalization program, which 

began in FY 2006, continued through FY 2014. In this program, Rural Development provides 

restructured loans and grants to development owners to revitalize multi-family housing 

development projects in order to extend the affordable use without displacing tenants due to the 

increased rent. 

 In FY 2014, two FFB borrowers were granted loan term extension modifications. No other 

terms of the original notes changed other than the final maturity dates. The first modification was 

an 18-year term extension of multiple advances from two pre-1992 notes. At the time of the 

modification, the liquidating fund was paid off and the advances were moved to the financing 

fund. The second modification extended the term for multiple advances from two post-1991 

notes. 

To determine the cost of the above modifications, the most recent President’s budget was used 

for the net present value discount factor for both the pre and post modification cash flows. An 

additional calculation was required on the second modification to account for the difference 

between the discount rate used to calculate the cost of the modification and the interest rate at 

which the cohort pays or earns interest. This calculation discounts the cash flows, at the net 

present value factor from the applicable cohort Single Effective Rate (SER). 

The Debt Reduction Fund is used to account for CCC’s “modified debt.” Debt is considered to 

be modified if the original debt has been reduced or the interest rate of the agreement changed. In 

contrast, when debt is "rescheduled," only the date of payment is changed. Rescheduled debt is 
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carried in the original fund until paid. With one exception, all outstanding CCC modified debt is 

carried in the Debt Reduction Fund and is governed by the Federal Credit Reform Act of 1990 as 

amended. 

Foreclosed Property 

Property is acquired largely through foreclosure and voluntary conveyance. Acquired properties 

associated with loans are reported at their market value at the time of acquisition. The projected 

future cash flows associated with acquired properties are used in determining the related 

allowance (at present value). 

As of September 30, 2014 and 2013, foreclosed property consisted of 1,667 and 1,547 rural 

single-family housing dwellings, with an average holding period of 15 months. As of September 

30, 2014 and 2013, FSA-Farm Loan Program properties consist primarily of 87 and 75 farms, 

respectively. The average holding period for these properties in inventory for FY 2014 and 

FY 2013 was 46 and 44 months, respectively. Certain properties can be leased to eligible 

individuals. 

Other Information 

Non-performing loans are defined as receivables that are in arrears by 90 or more days, or are on 

rescheduling agreements until such time two consecutive payments have been made following 

the rescheduling. When RD, FSA and CCC calculate loan interest income, however, the 

recognition of revenue is deferred. Late interest is accrued on arrears. 

Approximately $17,100 million and $17,900 million of RHS unpaid loan principal as of 

September 30, 2014, and 2013 were receiving interest credit, respectively. If those loans 

receiving interest credit had accrued interest at the full-unreduced rate, interest income would 

have been approximately $854 million and $892 million higher for FY 2014 and FY 2013 

respectively. 

At the end of FY 2014 and FY 2013, the RD portfolio contained approximately 64,300 and 

66,300 restructured loans, respectively with an outstanding unpaid principal balance of $2,800 

million in both years. At the end of FY 2014 and FY 2013, the farm loan portfolio contained 

approximately 17,368 and 18,038 restructured loans with an outstanding unpaid principal 

balance of $1,074 million and $1,093 million, respectively. Direct credit and credit guarantee 

principal receivables in the food aid and export programs under rescheduling agreements as of 

September 30, 2014 and 2013, were $1,742 million and $1,926 million, respectively. 

Reclassifications 

Interest related to technical reestimates was reclassified from interest rate reestimates in Table 2, 

Table 3, Table 7, and Table 8. Foreclosed property and loans acquired and claim payments to 

lenders were reclassified from other adjustments in Table 7.
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Table 1. Direct Loan and Loan Guarantees, Net 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
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Table 1. Direct Loan and Loan Guarantees, Net (cont’d)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

    

    

    

    

 

   

    

    

 

     

    

    

    

    

   

 

    

    

    

    

     

     

 

 

     

    

    

    

    

    

    

    

    

    

 

 

    

    

    

    

    

    

    

    

  

  

    

    

 

     

    

    

 
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Table 2. Schedule for Reconciling Subsidy Cost Allowance Balances 

(Post-1991) Direct Loans 

 

 

 

  

  

  

  

  

 

  

  

  

  

  

  

 

  

  

  

 
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Table 3. Subsidy Expense for Direct Loans by Program and Component 

 

 

 

 
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Table 4. Total Amount of Direct Loans Disbursed (Post-1991) 

 

 

 

  

  

  

  

  

  

  

  

 
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Table 5. Guaranteed Loans Outstanding 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
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Table 6. Liability for Loan Guarantees 

(Present Value Method for Pre-1992 Guarantees) 

 

 

 

 

 

   

   

   

   

   

   

   

   

 

 

 

 

 

 

   

   

   

   

   

   

   

   

 
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Table 7. Schedule for Reconciling Loan Guarantee Liability 

 

 

 

  

  

  

  

  

 

  

  

  

  

  

  

  

  

 

  

  

  

 
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Table 8. Subsidy Expense for Loan Guarantees by Program and Component 

 

 

 

 

 

          

          

     

     

          

          

          

         

 

          

 

 

 

 

 

 

          

          

       

   

          

          

          

          

          

 
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Table 9. Guaranteed Loans Disbursed 

Table 10. Administrative Expenses 

 

 

 
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Table 11. Subsidy Rates for Direct Loans (percentage) 

 

 

 

 

 

    

    

     

     

    

    

    

    

     

    

    

     

    

    

    

    

  

   

     

     

     

    

    

    

     

    

    

     

    
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Table 12. Subsidy Rates for Loan Guarantees (percentage) 

 

 

 

 

 

     

     

     

     

     

     

     

    

 

     

     

     

     
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Note 8. Inventory and Related Property, Net 

Commodity inventory is restricted for the purpose of alleviating distress caused by natural disasters, providing emergency food 

assistance in developing countries and providing price support and stabilization. 

 

 

 

      

            

            

      

      

            

            

            

 

           

            

            

       

     

            

            

 

 

 

 

 

 

 

       

            

            

      

      

            

            

            

 

           

            

            

       

     

            

            

 

 

 

 

 

 
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Note 9. General Property, Plant, and Equipment, Net 

Note 10. Stewardship PP&E 

Stewardship PP&E consist of assets whose physical properties resemble those of General PP&E 

that are traditionally capitalized in the financial statements. Due to the nature of these assets 

however, valuation would be difficult and matching costs with specific periods would not be 

meaningful. Stewardship PP&E include heritage assets and stewardship land. 

Heritage Assets 

Heritage assets are unique and are generally expected to be preserved indefinitely. Heritage 

assets may be unique because they have historical or natural significance, are of cultural, 

educational or artistic importance, or have significant architectural characteristics. The assets are 

reported in terms of physical units rather than cost, fair value, or other monetary values. No 

amounts are shown on the balance sheet for heritage assets, except for multi-use heritage assets 

in which the predominant use of the asset is in general government operations. The costs of 

acquisition, betterment, or reconstruction of multi-use heritage assets is capitalized as general 

PP&E and depreciated. The costs of acquiring, constructing, improving, reconstructing, or 

renovating heritage assets, other than multi-use is considered an expense in the period incurred 

 

 

 

 

   

  

  

  

  

  

  

  

  

 

 

 

 

   

  

  

  

  

  

  

  

  
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when determining the net cost of operations. Heritage assets consist of collection type, such as 

objects gathered and maintained for exhibition, for example library collections; and noncollection-type, such as memorials, monuments and buildings. 

National Forests, National Grasslands and Other Sites

FS manages its heritage assets by site. Sites include National Forests, National Grasslands, other 

Forest Service-managed sites, and non Forest Service- managed sites such as museums and 

university laboratories. The mission of the FS is to sustain the health, diversity, and productivity 

of the Nation’s forests and grasslands to meet the needs of present and future generations. The 

FS strives to achieve quality land management under the sustainable multiple-use management 

concept to deliver the necessary products and services that are essential for enhancing natural 

resource stewardship and to meet the diverse needs of people. 

Heritage Asset categories can include the following: 

Priority Heritage Assets (PHA): Heritage assets of distinct public value that are, or should be, 

actively maintained, and meet one or more of the following criteria: 

 The property is recognized through an official designation; such as a listing on the National 

Register of Historic Places, State register, etc. 

 The property is recognized through prior investment in preservation, interpretation, and use. 

Any improvement to a PHA that meets real property designation criteria is considered real 

property. 

 The property is recognized in an agency-approved management plan. 

 The property exhibits critical deferred maintenance needs, and those needs have been 

documented. 

Other Heritage Assets: Assets that may have potential important historical or cultural 

significance, but lack formal listing and the demonstrated need for active maintenance. 

Assemblage Assets: Any grouping of artifacts or archival materials aggregated through 

donation, agency events, site-specific or other field collection, other acquisition method, or 

combination therein. 

Research Centers

ARS conducts research at centers nationwide to develop and transfer solutions to agricultural 

problems of high national priority and provides information access and dissemination to ensure 

high-quality, safe food and other agricultural products; assess the nutritional needs of Americans; 

sustain a competitive agricultural economy; enhance the natural resource base and the 

environment; and provide economic opportunities for rural citizens, communities, and society as 

a whole. NRCS currently owns one heritage asset, the Tucson Plant Materials Center (TPMC) 

which is included in general PP&E as a multi-use asset. It was listed in the National Register of 

Historic Places (NRHP) on July 2, 1997. The TPMC develops and evaluates native plants and 

addresses an array of resource issues in the areas of rangeland, mined land, urban lands, cropland 
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riparian areas, and desert lands. The TPMC provides technical assistance to NRCS field offices, 

Resource Conservation and Development (RC&D) groups, conservation districts, Federal, State, 

and Tribal agencies, and private landowners through the greater Southwest. Research centers are 

considered heritage assets because one or more buildings or structures at these centers is on the 

National Register of Historic Places or have been identified as eligible for inclusion on the 

National Register. 

Library Collections

The National Agricultural Library (NAL) comprises one of the largest collections of materials 

devoted to agriculture in the world. The collections are in constant use to support the research 

activities of USDA, assist policymakers and answer inquiries from citizens such as writers, 

editors, historians, filmmakers, and university researchers. NAL houses and provides access to 

millions of books and periodicals. The majority of these items were published more than 25 

years ago and almost all of them are out-of-print. By statute, NAL is the primary depository of 

publications and information concerning the research and other activities of USDA. Included in 

the collection are government documents and many items that are unique and irreplaceable. 

NAL collects, preserves and provides access to manuscripts, rare books, photographs, posters, 

oral histories, agricultural objects and tools, and other unique materials. Collection 

concentrations include the fields of agriculture, forestry, horticulture, entomology, poultry 

science, animal science, nutrition, botany, natural history and agricultural history. Although 

focused primarily on American agriculture and related sciences, NAL holds numerous items of 

international origin. 

Acquisition and Withdrawal of Heritage Assets

The FS generally does not construct heritage assets, although in some circumstances important 

site-structural components may be rehabilitated or reconstructed into viable historic properties to 

provide forest visitors with use and interpretation. Heritage assets may be acquired through the 

procurement process, but this rarely occurs. Normally, heritage assets are part of the land 

acquisition and inventory process. Withdrawal occurs through land exchange or natural disasters. 

Most additions occur through inventory activities where previously undocumented sites are 

discovered and added to the total. 

Stewardship Land 

Stewardship land is land and land rights not acquired for or in connection with items of general 

PP&E. Land is defined as the solid surface of the earth, excluding natural resources. Stewardship 

land is valued for its environmental resources, recreational and scenic value, cultural and 

paleontological resources, vast open spaces, and resource commodities and revenue provided to 

the Federal government, states, and counties. These assets are reported in terms of physical units 

rather than cost, fair value, or other monetary values. No asset amount is shown on the balance 

sheet for stewardship land. The acquisition cost of stewardship land is considered an expense in 

the period acquired when determining the net cost of operations. Stewardship land consists 
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primarily of the national forests and grasslands owned by the FS and conservation easements 

purchased by NRCS.

National Forests

National forests are formally established and permanently set aside and reserved for national 

forest purposes, including National Wilderness, National Primitive, National Wild and Scenic 

River, National Recreation, National Scenic Research, National Game Refuges and Wildlife 

Preserve, and National Monument areas. 

National Grasslands

National grasslands are designated by the Secretary of Agriculture and permanently held by the 

USDA under Title III of the Bankhead-Jones Farm Tenant Act. 

Research and Experimental Areas

Research and experimental areas are reserved and dedicated by the Secretary of Agriculture for 

forest and range research experimentation. Areas reported are located outside the exterior 

boundaries of a national forest or national grassland. 

National Preserves and Other Areas

National preserves are units established to protect and preserve scientific, scenic, geologic, 

watershed, fish, wildlife, historic, cultural and recreational values; and provide for multiple use 

and sustained yield of its renewable resources. Other areas include areas administered by the FS 

that are not included in one of the above groups. 

Conservation Easements

NRCS’s mission objectives in administering the conservation easement programs are to provide 

landowners with financial and technical assistance in return for maintaining and improving high 

quality productive soils, clean and abundant water, healthy plant and animal communities, clean 

air, an adequate energy supply, and working farm and ranch land. 

NRCS’s objectives in managing, monitoring and enforcing the terms and conditions of easement 

deeds are to ensure that: (1) taxpayer investments are properly used in accordance with the 

intent of the program; (2) the agency is a good steward of the land; and (3) the land is properly 

maintained. 

Stewardship resources involve substantial investment in order to gain long-term benefits for the 

American public and help the Agency satisfy its mission. The purpose of purchasing easements 

is to restore or enhance wetlands, protect farmland, restore and protect grassland, restore and 

protect forest ecosystems, and restore, protect, maintain, and enhance the functions of 

floodplains. 

NRCS, on behalf of USDA, administers and owns conservation easements on private lands. 

Landowners are not allowed to withdraw from the program; however termination or expiration 
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may occur. For the purpose of stewardship asset reporting, all easements where NRCS is the 

grantee of the easement are included as stewardship land. Also included are easements that are 

administered by NRCS on behalf of other USDA agencies. 

Acquisition and Withdrawal of Stewardship Lands

The Land and Water Conservation Fund (L&WCF) Land Acquisition Program acquires land for 

the FS NFS. The program coordinates with a variety of partners, including State, local, and 

Tribal governments, and private landowners through statewide planning for development of a 

land-adjustment strategy. 

The Land Acquisition Program preserves, develops, and maintains access to NFS lands and 

waters for the public and provides permanent access to public lands for recreation, commodity 

production, resource management, public safety, and community economic viability. 

The L&WCF statutory authority specifically defines the purpose to also include protecting the 

quality of scientific, scenic, historical, ecological, environmental, air and atmospheric, water 

resource, archeological values, as well as food and habitat for fish and wildlife, and managing 

the public lands for minerals, food, timber and fiber. 

From these several allowable uses of program funding, the program concentrates on protecting 

habitat for priority species identified in the national forest and grassland’s Land Management 

Plans and enhancing recreational opportunities for areas with high demand for recreation. The 

program focuses acquisitions on inholdings and areas adjacent to existing NFS lands. 

 

 

   

   

   

   

   

   

 

   

   

   

   

   

   
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FY 2013 Additions Withdrawals FY 2012

Heritage Assets

National Forests 154 - - 154

National Grasslands 20 - - 20

Other Sites 168 7 (7) 168

Research Centers 34 - (2) 36

Library Collections 1 - - 1

Total 377 7 (9) 379

Stewardship Land

National Forests 154 - - 154

National Grasslands 20 - - 20

Research and Experimental Areas 3 - - 3

National Preserves and Other Areas 3 - - 3

Conservation Easements 16,253 1,517 - 14,736

Total 16,433 1,517 - 14,916

Note 11. Other Assets 

In FY 2014 and FY 2013, other assets include investments in trust for loan asset sales of $37 

million. 

FY 2014 FY 2013

Intragovernmental:

Advances to Others $ 3 $ 6

Subtotal Intragovernmental 3 6

With the Public:

Advances to Others 152 161

Other Assets 37 37

Total Other Assets $ 192 $ 204

Note 12. Liabilities Not Covered By Budgetary Resources 

In FY 2014 and FY 2013, other intragovernmental liabilities not covered by budgetary resources 

include accruals for Federal Employee Compensation Act (FECA) of $161 million and $167 

million, contract disputes claims payable to Treasury’s Judgment Fund of $25 million and $23 

million, unemployment compensation of $23 million and $21 million, and custodial of $3 

million and $3 million, respectively. 

In FY 2014 and FY 2013, other liabilities with the public not covered by budgetary resources 

include Tobacco Transition Payment Program of $50 million and $954 million, future funded 

indemnity costs of $4,749 million and $3,846 million, estimated underwriting gain on crop 

insurance of $1,955 million and $1,973 million, unfunded leave of $602 million and $596 

million, Payments to States of $78 million and $325 million, contingent liabilities of $66 million 

and $120 million, and credit programs of $9 million and $19 million, respectively. In FY 2014, 
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other liabilities with the public not covered by budgetary resources include Brazilian Cotton 

Producers of $300 million, disaster assistance of $15 million, clearing accounts of $6 million, 

and custodial of $3 million. In FY 2013, other liabilities with the public not covered by 

budgetary resources include crop insurance premium subsidy deficiency reserve of $1,040 

million and estimated program delivery costs to reinsurer of $11 million. 

 

 

 

  

 

  

  

  

  

  

  

  

 
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Note 13. Debt 

Note 14. Environmental and Disposal Liabilities 

The Department is subject to the Comprehensive Environmental Response, Compensation, and 

Liability Act, the Clean Water Act, and the Resource Conservation and Recovery Act for 

cleanup of hazardous waste. In FY 2014, CCC and FS estimate the liability for total cleanup 

costs for sites known to contain hazardous waste to be $8 million and $2 million, respectively, 

based on actual cleanup costs at similar sites. In FY 2013, the liability was $8 million and $3 

million, respectively. CCC estimates the range of potential future losses due to remedial actions 

to be between $12 million and $140 million. These estimates will change as new sites are 

discovered, remedy standards change and new technology is introduced. 

In FY 2014, ARS estimated the liability for cleanup of the Beltsville Agricultural Research 

Center (BARC) to be $20 million. ARS is evaluating and remediating areas of concern on BARC 

that are contaminated or threaten to contaminate ground and surface water with pesticides, 

solvents, metals, and other hazardous substances. 

The Department is also subject to Asbestos National Emissions Standards for Hazardous Air 

Pollutants. In FY 2014 and FY 2013, the Department estimated its liability for asbestos-related 

cleanup of real property to be $166 and $165 million, respectively. The liability is calculated 

using total square footage of real property expected to contain asbestos times a cost factor based 

on historical actual cleanup costs, adjusted for inflation, including any other identifiable costs, 

e.g. survey cost. As additional information becomes available, key assumptions will be 

 

 

 

 

 

   

   

 

   

 

 

 

 

 

 

   

   

 

   

 
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reevaluated, cost estimates will be revised, and necessary adjustments will be made to the 

liability recognition. 

Note 15. Other Liabilities 

The presentation of note 15 was reclassified to align with the USSGL crosswalk for other 

liabilities and to move the non-current portion of unfunded FECA liability and underwriting 

gains on crop insurance from current. 

In FY 2014, other liabilities with related budgetary obligations with the public include Disaster 

Assistance Program of $3,365 million, Grants, Subsidies, and Contributions of $3,280 million, 

Conservation Reserve Program of $1,684 million, estimated underwriting gains on crop 

insurance of $639 million, Cotton Transition Program of $342 million, indemnity payments not 

yet disbursed of $148 million, Direct and Counter Cyclical Program of $143 million, and other 

accrued liabilities of $798 million. Other liabilities without related budgetary obligations with 

the public include estimated underwriting gains on crop insurance of $1,955 million, Brazilian 

Cotton Industry of $300 million, Payments to States of $78 million, Tobacco Transition Payment 

Program of $50 million, and other accrued liabilities of $41 million. 

In FY 2013, other liabilities with related budgetary obligations with the public include Direct and 

Counter Cyclical Program of $4,290 million, Grants, Subsidies, and Contributions of $2,464 

million, Conservation Reserve Program of $1,507 million, other accrued liabilities of $1,022 

million, and indemnity payments not yet disbursed of $316 million. Other liabilities without 

related budgetary obligations with the public include estimated underwriting gains on crop 

insurance of $1,973 million, Tobacco Transition Payment Program of $954 million, Payments to 

States of $327 million, and other accrued liabilities of $52 million. 
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Note 16. Leases 

USDA activities based in the Washington D.C. area are located in General Services 

Administration (GSA) leased facilities, and USDA owned buildings. The USDA Headquarter 

complex (Whitten Building, and South Building) is a government owned facility, which is part of 

the GSA Federal Buildings Inventory. As the result of a 1998 Agreement between GSA and 

USDA, a moratorium was placed on the rental billings for the Headquarters complex beginning 

in FY 1999. 

At current market rate, the estimated yearly rental payment for the above mentioned space would 

be $65 million. This agreement is still in effect and as a result, USDA activities located in the 

Headquarter complex are not billed for rental costs. 

 

 

 

 

 

 

 

 Machinery & 

Equipment

Other Totals

 

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8

 

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Note 17. Commitments and Contingencies 

The Department is subject to various claims and contingencies related to lawsuits as well as 

commitments under contractual and other commercial obligations. 

For cases in which payment has been deemed probable and for which the amount of potential 

liability has been estimated, $65 million and $120 million has been accrued in the financial 

statements as of September 30, 2014 and 2013, respectively. 

No amounts have been accrued in the financial statements for claims where the amount is 

uncertain or where the probability of judgment against USDA is remote. The Department’s 

potential liability for claims where a judgment against the Department is reasonably possible 

ranges from $725 million to $1,511 million as of September 30, 2014, compared to $764 million 

to $1,704 million as of September 30, 2013. 

CRP rental payments are estimated to be $1,700 million annually through FY 2020. 

Commitments to extend loan guarantees are estimated to be $5,846 million and $5,430 million in 

FY 2014 and FY 2013, respectively. 

 

 

 

 

 

 

 

 

 

 

    

   

   

   

   

   

   

   

   

   

  

 

 

 

 

 

 

 

    

   

   

   

   

   
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Note 18. Funds from Dedicated Collections 

Funds from dedicated collections are financed by specifically identified revenues, often 

supplemented by other financing sources, which remain available over time. These specifically 

identified revenues and other financing sources are required by statute to be used for designated 

activities or purposes and must be accounted for separately from the Government’s general 

revenues. 

Financial information for all significant funds from dedicated collections follows the descriptions 

of each fund’s purpose shown below. 

Agricultural Marketing Service 

Funds for Strengthening Markets, Income, and Supply 

This fund is used to purchase commodities for schools and elderly feeding programs, to provide 

goods and other necessities in emergencies and disasters, and to purchase agricultural 

commodities to stabilize markets. The fund is permanently financed by statutory transfer of an 

amount equal to 30 percent of customs receipts collected during each calendar year and is 

automatically appropriated for expanding outlets for perishable, non-price supported 

commodities. An amount equal to 30 percent of receipts collected on fishery products is 

transferred to the Food and Nutrition Service and is used to purchase commodities under section 

6 of the National School Lunch Act and other authorities specified in the child nutrition 

appropriation. Funds are available under section 32 of the Act of August 24, 1935, as amended 

(7 U.S.C. 612c). 

Expenses and Refunds, Inspection and Grading of Farm Products 

The commodity grading programs provide grading, examination, and certification services for a 

wide variety of fresh and processed food commodities using federally approved grade standards 

and purchase specifications. This fund is financed by the collection of fees charged to producers 

of various food commodities who request, on a voluntary basis, inspection and grading of 

agricultural food commodities. This program is authorized by the Agricultural Marketing Act of 

1946 (7 U.S.C. 1621-1627). 

Animal Plant Health Inspection Service 

Agricultural Quarantine Inspection User Fee Account 

This fund is used to record and report expenditures and revenue associated with operating 

Agricultural Quarantine Inspection (AQI) activities at ports of entry. The Farm Bill of 1990, as 

amended by the Federal Agriculture Improvement and Reform Act of 1996, gave the Animal and 

Plant Health Inspection Service (APHIS) the authority to charge user fees for AQI services, and 

to use the revenue to fund AQI activities. In March of 2003, a portion of the AQI program was 
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transferred to the Department of Homeland Security (DHS); however, APHIS retained the 

authority to collect AQI revenue. APHIS transfers a portion of the revenue to DHS periodically 

throughout the year to fund their expenditures. The revenue in the fund is collected from airlines, 

air passengers, vessels, trucks, and railroad cars that are subject to AQI inspection at ports of 

entry. These user fees are an inflow of revenue from the public that is used to fund AQI 

inspections that are required by APHIS and DHS. The authority is codified in 21 U.S.C. 136(a). 

Forest Service 

Cooperative Work

Cooperative contributions are deposited for disbursement in compliance with the terms and 

provisions of the agreement between the cooperator and the Forest Service. Cooperators include 

timber purchasers, not-for-profit organizations, and local hunting and fishing clubs. The 

governing authorities are the Cooperative Funds Act of July 31, 1914 (16 U.S.C. 498), and the 

Knutson-Vandenberg Act. 

Land Acquisition 

Each fiscal year this fund receives a transfer of recreation user fees from the Department of the 

Interior’s Land and Water Conservation Fund, to be used for the acquisition of land or waters, or 

interest therein, including administrative expenses, to carry out the provisions of the Land and 

Water Conservation Fund Act of 1965, as amended (16 U.S.C. 460l-4-11), pertaining to the 

preservation of watersheds. The Land Acquisition program is authorized by the Interior and 

Related Agencies Appropriations Act of December 30, 1982 (96 Stat. 1983, Public Law 97-394).

Payments to States, National Forest Fund 

The Act of May 23, 1908, as amended (16 U.S.C. 500), commonly known as “Payments to 

States”, requires with a few exceptions, that 25 percent of all monies received from the national 

forests and deposited into the National Forest Fund during a fiscal year from timber, grazing, 

special-use permits, power and mineral leases, and admission and user fees be paid to the States 

in which the national forests are located, for public schools and public roads in the county or 

counties in which the national forests are situated. 

Timber Salvage Sales 

The Timber Salvage Sale Fund was established to facilitate the timely removal of timber 

damaged by fire, wind, insects, disease, or other events. Amounts collected from the sale of 

salvaged timber are used on other qualifying salvage sales to cover the cost of preparing and 

administering the sales. The Timber Salvage Sales program is authorized by 16 USC 472(a). 

Expenses, Brush Disposal 

Deposits from timber purchasers are used to cover the cost required to dispose of slash, brush, 

and other debris resulting from timber cutting operations and for supplemental protection of the 
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cutover areas in lieu of actual disposal. The Expenses, Brush Disposal program is authorized by 

16 U.S.C. 490-498.

State, Private, and International Forestry, Land and Water Conservation Fund 

The Fiscal Year 2004 Department of the Interior and Related Agencies Appropriation Act 

(Public Law 108-108) authorizes the Forest Service to receive a transfer of receipts from the 

Department of the Interior’s Land and Water Conservation Fund to finance the existing Forest 

Legacy Program, funded previously by State and Private Forestry general appropriation. To 

accommodate the new financing arrangement and at OMB’s request, the U.S. Department of 

Treasury established a new special fund, “State, Private and International Forestry Land and 

Water Conservation Fund”. The program expenditures include grants and an occasional land 

purchase, but no real property will be procured or constructed.

Recreation Fee Demonstration Program 

The Recreation Fee Demonstration Program fund receives deposits of recreation fees collected 

from projects that are part of the Recreation Fee Demonstration Program. These monies are 

retained and used for backlog repair and maintenance of recreation areas, sites or projects. These 

funds are also used for interpretation, signage, habitat or facility enhancement, resource 

preservation, annual operation, maintenance, and law enforcement related to public use of 

recreation areas and sites. The Recreation Fee Demonstration Program is authorized by 16 

U.S.C. 4601-6(a). 

National Forest Fund Receipts

The Act of May 23, 1908, as amended (16 U.S.C. 500), commonly known as “Payments to 

States”, requires with a few exceptions, that 25 percent of all monies received from the national 

forests and deposited into the National Forest Fund during a fiscal year from timber, grazing, 

special-use permits, power and mineral leases, and admission and user fees be paid to the States 

in which the national forests are located, for public schools and public roads in the county or 

counties in which the national forests are situated. 

Restoration of Forest Lands and Improvements

The Restoration of Forest Lands and Improvements Acts (16 U.S.C. 579(c)) states any monies 

received by the United States with respect to lands under the administration of the Forest Service 

(a) as a result of the forfeiture of a bond or deposit by a permittee or timber purchaser for failure 

to complete performance of improvement, protection, or rehabilitation work required under the 

permit or timber sale contract or (b) as a result of a judgment, compromise, or settlement of any 

claim, involving present or potential damage to lands or improvements, shall be deposited into 

the United States Treasury and are appropriated and made available until expended to cover the 

cost to the United States of any improvement, protection, or rehabilitation work on lands under 

the administration of the Forest Service rendered necessary by the action which led to the 

forfeiture, judgment, compromise, or settlement: Provided, that any portion of the monies 
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received in excess of the amount expended in performing the work necessitated by the action 

which led to their receipt shall be transferred to miscellaneous receipts. 

Payments to Counties, National Grasslands 

Payments to Counties, Title III, Bankhead-Jones Farm Tenant Act (Act) authorizes national 

grassland or land utilization project receipts to be shared through grants with local governments 

for the purposes stated in the Act. At the end of each calendar year twenty-five percent of the net 

revenues from each national grassland or land utilization project are paid to the counties in which 

such lands are located. These payments are not in lieu of taxes. Receipts from the Act designated 

as either national grasslands or land utilization projects are to be credited to a special account. 

Acquisition of Lands to Complete Land Exchanges

As authorized by 7 statutes, this program is funded annually by congressional appropriation 

action, with forest revenues generated by the occupancy of public land or from the sale of natural 

resources other than minerals. All funds appropriated that remain unobligated at the end of the 

fiscal year are returned to the receipts of the affected national forests. These funds are used to 

purchase land and for related expenditures such as title search, escrow, recording, and personnel 

costs when the purchase is considered necessary to minimize soil erosion and flood damage. This 

appropriation is available for land acquisition within the exterior boundaries of the national 

forests.

National Institute of Food and Agriculture (NIFA) 

Native American Institutions Endowment Fund 

The Native American Institutions Endowment Fund was authorized by Public Law 103-382, and 

provided an initial installment to establish an endowment to benefit the 1994 land grant 

institutions. The public law states that “This program will enhance educational opportunities for 

Native Americans by building educational capacity at these institutions in the areas of student 

recruitment and retention, curricula development, faculty preparation, instruction delivery 

systems, and scientific instrumentation for teaching.” While the principal (corpus) of the fund 

cannot be used, the interest that is earned on the endowment fund investments in Treasury 

instruments can be used for the purposes described above. After the close of a fiscal year, the 

income is distributed after making adjustments for the cost of administering the fund. 
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Other 

Financial information is summarized for all other funds from dedicated collections with total 

assets less than $50 million listed below. 

Agricultural Marketing Service

Perishable Agricultural Commodities Act 

Wool Research, Development and Promotion Trust Fund 

Animal Plant Health Inspection Service 

Miscellaneous Contributed Funds 

Forest Service

Roads and Trails for States, National Forest Fund 

Reforestation Trust Fund 

Timber Sales Pipeline Restoration Fund 

Operation and Maintenance of Forest Service Quarters 

Timber Roads, Purchaser Elections 

Range Betterment Fund 

Acquisition of Lands for National Forests, Special Acts 

Construction of Facilities or Land Acquisition 

Payment to Minnesota (Cook, Lake and Saint Louis Counties) 

Licensee Program 

Resource Management Timber Receipts 

Quinault Special Management Area 

MNP Rental Fee Account 

Land Between the Lakes Management Fund 

Administration of Rights-of-Way and Other Land Uses Fund 

Valles Caldera Fund 

Hardwood Technology Transfer and Applied Research Fund 

Stewardship Contracting Product Sales 

Gifts, Donations and Bequests for Forest and Rangeland Research 

Land Between the Lakes Trust Fund 

Gifts and Bequests 
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Natural Resources Conservation Service 

Miscellaneous Contributed Funds 

Agricultural Research Service

Concessions Fees and Volunteer Services 

Gifts and Bequests 

Miscellaneous Contributed Funds 

Rural Development

Alternative Agricultural Research and Commercialization Revolving Fund 

Foreign Agricultural Service

Miscellaneous Contributed Funds 

Gifts and Bequests 

Foreign Service National Separation Liability Trust Fund 

Grain Inspection, Packers and Stockyards Administration

Inspection and Weighing Services 

Food Safety and Inspection Service 

Expenses and Refunds, Inspection of Farm Products 

Office of the Inspector General

Inspector General Assets Forfeiture, Department of Justice 

Inspector General Assets Forfeiture, Department of Treasury 

National Agricultural Statistics Service

Miscellaneous Contributed Funds 

Economic Research Service 

Miscellaneous Contributed Funds 

Departmental Offices 

Gifts and Bequests 
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FS FS FS FS FS NIFA

Balance Sheet As of September 30, 2014

Recreation Fee 

Demonstration 

Program

National Forest 

Fund Receipts

Restoration of 

Forest Lands 

and 

Improvements

Payments to 

Counties, 

National 

Grasslands

Acquisition of 

Lands to 

Complete Land 

Exchanges

Native American 

Institutions 

Endowment 

Fund Other Total

12X5268 125008 12X5215 125896 12X5216 12X5205

Fund Balance with Treasury $ 74 $ 79 $ 238 $ 115 $ 37 $ 47 $ 302 $ 2,460

Investments - - - - - 144 8 152

Other Assets 5 10 3 1 45 1 34 350

Total Assets 79 89 241 116 82 192 344 2,962

Other Liabilities 4 - 1 17 - - 104 527

Total Liabilities 4 - 1 17 - - 104 527

Unexpended Appropriations - - - - - 119 1 120

Cumulative Results of Operations 75 89 240 99 82 73 239 2,315

Total Liabilities and Net Position 79 89 241 116 82 192 344 2,962

Statement of Net Cost For the Period

Ended September 30, 2014

Gross program costs 68 - 20 22 5 5 210 1,547

Less Earned Revenue 70 10 3 30 11 5 204 1,313

Net Cost of Operations (2) (10) 17 (8) (6) - 6 234

Statement of Changes in Net Position

For the period Ended September 30, 2014

Net Position Beginning of Period 73 79 74 65 76 180 175 1,682

Changes in Accounting Principles (Note 31) - - - - - - - -

Beginning Balance, as Adjusted 73 79 74 65 76 180 175 1,682

Other Financing Sources - - 183 26 - 12 71 987

Net Cost of Operations 2 10 (17) 8 6 - (6) (234)

Change in Net Position 2 10 166 34 6 12 65 753

Net Position End of Period $ 75 $ 89 $ 240 $ 99 $ 82 $ 192 $ 240 $ 2,435
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Funds from Dedicated Collections

FS FS FS FS FS NIFA FSA

Balance Sheet As of September 30, 2013

Recreation Fee 

Demonstration 

Program

National Forest 

Fund Receipts

Restoration of 

Forest Lands 

and 

Improvements

Payments to 

Counties, 

National 

Grasslands

Acquisition of 

Lands to 

Complete Land 

Exchanges

Native American 

Institutions 

Endowment 

Fund

Agricultural 

Disaster Relief 

Trust Fund Other Total

12X5268 125008 12X5215 125896 12X5216 12X5205 12X5531

Fund Balance with Treasury $ 71 $ 68 $ 74 $ 64 $ 35 $ 40 $ - $ 282 $ 1,702

Investments - - - - - 140 - 3 143

Other Assets 5 11 2 1 41 - - 29 534

Total Assets 76 79 76 65 76 180 - 314 2,379

Other Liabilities 3 - 2 - - - - 118 697

Total Liabilities 3 - 2 - - - - 118 697

Unexpended Appropriations - - - - - 107 - - 107

Cumulative Results of Operations 73 79 74 65 76 73 - 196 1,575

Total Liabilities and Net Position 76 79 76 65 76 180 - 314 2,379

Statement of Net Cost For the Period

Ended September 30, 2013

Gross program costs 65 - 20 - 4 - - 240 2,028

Less Earned Revenue 70 104 81 1 4 6 - 175 1,329

Net Cost of Operations (5) (104) (61) (1) - (6) - 65 699

Statement of Changes in Net Position

For the period Ended September 30, 2013

Net Position Beginning of Period 68 6 136 139 76 162 (895) 220 1,041

Changes in Accounting Principles (Note 31) - - - - - - 895 (17) 878

Beginning Balance, as Adjusted 68 6 136 139 76 162 - 203 1,919

Other Financing Sources - (31) (123) (75) - 12 - 58 462

Net Cost of Operations 5 104 61 1 - 6 (65) - (699)

Change in Net Position 5 73 (62) (74) - 18 - (7) (237)

Net Position End of Period $ 73 $ 79 $ 74 $ 65 $ 76 $ 180 $ - $ 196 $ 1,682
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Note 19. Sub-organization Program Costs/Program Costs by Segment 

 

 

 

 

      

     

 

      

     

     

 

   

   

     

     

 

 

      

     

     

 

 

      

 

    

     

 

     

     

 
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Note 20. Cost of Stewardship PP&E 

The acquisition cost of stewardship land in FY 2014 and FY 2013 was $358 million and $424 

million, respectively. 

Note 21. Terms of Borrowing Authority Used 

The Secretary of Agriculture has the authority to make and issue notes to the Secretary of 

Treasury for the purpose of discharging obligations for RD’s insurance funds and CCC’s 

nonreimbursed realized losses and debt related to foreign assistance programs. The permanent 

indefinite borrowing authority includes both interest bearing and non–interest bearing notes. 

These notes are drawn upon daily when disbursements exceed deposits. Notes payable under the 

permanent indefinite borrowing authority have a term of one year. On January 1 of each year, 

USDA refinances its outstanding borrowings, including accrued interest, at the January 

borrowing rate. 

In addition, USDA has permanent indefinite borrowing authority for the foreign assistance and 

export credit programs to finance disbursements on post-credit reform, direct credit obligations, 

and credit guarantees. In accordance with the Federal Credit Reform Act of 1990 as amended, 

USDA borrows from Treasury on October 1, for the entire fiscal year, based on annual estimates 

of the difference between the amount appropriated (subsidy) and the amount to be disbursed to 

the borrower. Repayment under this agreement may be, in whole or in part, prior to maturity by 

paying the principal amount of the borrowings plus accrued interest to the date of repayment. 

Interest is paid on these borrowings based on weighted average interest rates for the cohort, to 

which the borrowings are associated. Interest is earned on the daily balance of uninvested funds 

in the credit reform financing funds maintained at Treasury. The interest income is used to 

reduce interest expense on the underlying borrowings. 

USDA has authority to borrow from the Federal Financing Bank (FFB) in the form of 

Certificates of Beneficial Ownership (CBO) or loans executed directly between the borrower and 

FFB with an unconditional USDA repayment guarantee. CBO’s outstanding with the FFB are 

generally secured by unpaid loan principal balances. CBO’s outstanding are related to pre-credit 

reform loans and no longer are used for program financing. 

FFB’s CBO’s are repaid as they mature and are not related to any particular group of loans. 

Borrowings made to finance loans directly between the borrower and FFB mature and are repaid 

as the related group of loans become due. Interest rates on the related group of loans are equal to 

interest rates on FFB borrowings, except in those situations where an FFB funded loan is 

restructured and the terms of the loan are modified. 

Prepayments can be made on Treasury borrowings without a penalty; however, they cannot be 

made on FFB CBO’s, without a penalty. 
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Funds may also be borrowed from private lending agencies and others. USDA reserves a 

sufficient amount of its borrowing authority to purchase, at any time, all notes and other 

obligations evidencing loans made by agencies and others. All bonds, notes, debentures, and 

similar obligations issued by the Department are subject to approval by the Secretary of the 

Treasury. Reservation of borrowing authority for these purposes has not been required for many 

years. 

Note 22. Available Borrowing Authority, End of Period 

Available borrowing authority at September 30, 2014 and 2013 was $30,215 million and $33,411 

million, respectively. 

Note 23. Apportionment Categories of Obligations Incurred: 

Direct vs. Reimbursable Obligations 

Note 24. Undelivered Orders at the End of the Period 

Budgetary resources obligated for undelivered orders as of September 30, 2014 and 2013 was 

$43,574 million and $46,420 million, respectively. 

Note 25. Permanent Indefinite Appropriations 

USDA has permanent indefinite appropriations available to fund 1) subsidy costs incurred under 

credit reform programs, 2) certain costs of the crop insurance program, 3) certain commodity 

program costs and 4) certain costs associated with FS programs. 

 

 

 

   

   

 

 

 

 

   

   

 
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The permanent indefinite appropriations for credit reform are mainly available to finance any 

disbursements incurred under the liquidating accounts. These appropriations become available 

pursuant to standing provisions of law without further action by Congress after transmittal of the 

Budget for the year involved. They are treated as permanent the first year they become available, 

as well as in succeeding years. However, they are not stated as specific amounts but are determined 

by specified variable factors, such as cash needs for liquidating accounts, and information about 

the actual performance of a cohort or estimated changes in future cash flows of the cohort in the 

program accounts. 

The permanent indefinite appropriation for the crop insurance program is used to cover premium 

subsidy, delivery expenses, losses in excess of premiums and research and delivery costs. 

The permanent indefinite appropriation for commodity program costs is used to encourage the 

exportation of agricultural commodities and products, to encourage domestic consumption of 

agricultural products by diverting them, and to reestablish farmers’ purchasing power by making 

payments in connection with the normal production of any agricultural commodity for domestic 

consumption. 

The permanent indefinite appropriation for FS programs is used to fund Recreation Fee Collection 

Costs, Brush Disposal, License programs, Smokey Bear and Woodsy Owl, Restoration of Forest 

Lands and Improvements, Roads and Trails for States, National Forest Fund, Timber Roads, 

Purchaser Elections, Timber Salvage Sales and Operations, and Maintenance of Quarters. Each of 

these permanent indefinite appropriations is funded by receipts made available by law, and is 

available until expended. 

Note 26. Legal Arrangements Affecting Use of Unobligated 

Balances 

Unobligated budget authority is the difference between the obligated balance and the total 

unexpended balance. It represents that portion of the unexpended balance unencumbered by 

recorded obligations. Appropriations are provided on an annual, multi-year, and no-year basis. 

An appropriation expires on the last day of its period of availability and is no longer available for 

new obligations. Unobligated balances retain their fiscal-year identity in an expired account for 

an additional five fiscal years. The unobligated balance remains available to make legitimate 

obligation adjustments, i.e., to record previously unrecorded obligations and to make upward 

adjustments in previously underestimated obligations for five years. At the end of the fifth year, 

the authority is canceled. Thereafter, the authority is not available for any purpose. 

Any information about legal arrangements affecting the use of the unobligated balance of budget 

authority is specifically stated by program and fiscal year in the appropriation language or in the 

alternative provisions section at the end of the appropriations act. 
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Note 27. Explanation of Differences Between the SBR and 

the Budget of the US Government 

The differences between the FY 2013 Statement of Budgetary Resources and the FY 2013 actual 

numbers presented in the FY 2015 Budget of the United States Government (Budget) are 

summarized below. 

The Budget excludes expired accounts that are no longer available for new obligations. 

Adjustments were made prior to the Budget submission as follows: 

FAS and AMS, CCC, and Forest Service backdated advance refunds and receipts, respectively. 

The Budget includes the Milk Market Orders Assessment Fund since employees of the Milk 

Market Administrators participate in the Federal retirement system, though these funds are not 

available for use by the Department. 

A comparison between the FY 2014 Statement of Budgetary Resources and the FY 2014 actual 

numbers presented in the FY 2016 Budget cannot be performed as the FY 2016 Budget is not yet 

available. The FY 2016 Budget is expected to be published in February 2015 and will be 

available from the Government Printing Office. 

 

 

 

 

 

 

 

 

 

 

    

    

    

    

    

 
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Note 28. Incidental Custodial Collections 

Custodial collections represent collections on land leases for resource extraction, National Forest 

Fund receipts from the sale of timber and other forest products, miscellaneous general fund 

receipts such as collections on accounts receivable related to canceled year appropriations, civil 

monetary penalties and interest, and commercial fines and penalties. Custodial collection 

activities are considered immaterial and incidental to the mission of the Department. 

 

 

 

  

  

  

 

 

  

  

  

 
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Note 29. Fiduciary Activities 

Rural Housing Insurance Fund (RHIF) was established by Public Law 89-117 pursuant to section 

517 of title V of the Housing Act of 1949, which authorized RD to collect escrow payments on 

behalf of new and existing Single Family Housing borrowers. Other fiduciary activities by RD 

include but are not limited to collections from borrowers, interest paid on escrow accounts, 

payments to insurance agencies and taxing authorities. 

 

 

 

 

 

 

 

 

 

 

 

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 
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Note 30. Reconciliation of Budgetary Resources Obligated to 

Net Cost of Operations 

Budgetary and proprietary accounting information are inherently different because of the types 

of information and the timing of their recognition. The reconciliation of budgetary resources 

obligated and the net cost of operations provides a link between budgetary and proprietary 

accounting information. It serves not only to explain how information on net obligations relates 

to the net cost of operations but also to assure integrity between budgetary and proprietary 

accounting. 

Net obligations and the net cost of operations are different because (1) the net cost of operations 

may be financed by non-budgetary resources (e.g. imputed financing); (2) the budgetary and 

non-budgetary resources used may finance activities which are not components of the net cost of 

operations; and (3) the net cost of operations may contain components which do not use or 

generate resources in the current period. 
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Note 31. Changes in Accounting Principles 

Effective FY 2013, Statement of Federal Financial Accounting Standards 43: Funds from 

Dedicated Collections: Amending Statement of Federal Financial Accounting Standards 27, 

Identifying and Reporting Earmarked Funds modified the definition of a fund from dedicated 

collection clarifying that at least one source of funds external to the federal government must 

exist for a fund to qualify as a fund from dedicated collections. The Agricultural Disaster 

Transition Assistance Recovery Act Fund and the Agricultural Disaster Relief Trust Fund no 

longer meet this definition. Consequently, the total net position for these funds of $878 million 

was reclassified from funds from dedicated collections to other funds. 

Effective FY 2013, Technical Bulletin 2006-1: Recognition and Measurement of AsbestosRelated Cleanup Costs requires agencies to estimate both friable and non-friable asbestos-related 

cleanup costs; recognize a liability and related expense for those asbestos-related cleanup costs 

that are both probable and reasonably estimable in the financial statements; and disclose 

information related to friable and non-friable asbestos-related cleanup costs that are probable but 

not reasonably estimable in a note to the financial statements. Because the real property has 

been in service for a substantial portion of its estimated useful life, management elected to 

recognize the estimated total cleanup cost as a liability upon implementation. The offsetting 

charge of $165 million for asbestos-related cleanup costs was made to net position. 

Required Supplementary Stewardship Information 

Stewardship Investments (Unaudited) 

 

 

 

 

 

     

     

 

 

 

 

     

     

     
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Non-Federal Physical Property 

Food and Nutrition Service 

FNS’ non-Federal physical property consists of computer systems and other equipment obtained 

by State and local governments for the purpose of administering the SNAP. The total SNAP 

expense for ADP Equipment & Systems has been reported as of the date of FNS’ financial 

statements. FNS’ non-Federal physical property also consists of computer systems and other 

equipment obtained by the State and local governments for the purpose of administering the 

Special Supplemental Nutrition Program for Women, Infants and Children. 

National Institute of Food and Agriculture 

The Extension 1890 facilities program supports the renovation of existing buildings and the 

construction of new facilities as well as computers and equipment purchases that permit faculty, 

students, and communities to benefit fully from the partnership between USDA and the 1890 

Land-Grant Universities. 

Human Capital 

National Institute of Food and Agriculture 

The Higher Education programs include graduate fellowship grants, competitive challenge 

grants, Secondary/2-year Post Secondary grants, Hispanic serving institutions education grants, a 

multicultural scholars program, a Native American institutions program, a Native American 

institutions endowment fund, an Alaska Native Serving and Native Hawaiian Serving institutions 

program, a resident instruction grants and distance education grants for insular areas, and a 

capacity building program at the 1890 institutions. These programs enable universities to 

broaden their curricula, increase faculty development and student research projects, and increase 

the number of new scholars recruited in the food and agriculture sciences. NIFA also supports 

extension-related work at 1862 and 1890 land-grant institutions throughout the country through 

formula and competitive programs. 

Food and Nutrition Service 

FNS’ human capital consists of employment and training (E&T) for the SNAP. The E&T 

program requires recipients of SNAP benefits to participate in an employment and training 

program as a condition to SNAP eligibility. 
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Outcome data for the E&T program is only available through the third quarter. As of this period, 

FNS’ E&T program has placed 449,062 work registrants subject to the 3 - month SNAP 

participant limit and 1,451,012 work registrants not subject to the limit in either job-search, jobtraining, job-workfare, education, or work experience. 

Agricultural Research Service 

As the Nation’s primary source for agricultural information, the National Agricultural Library 

(NAL) has a mission to increase the availability and utilization of agricultural information for 

researchers, educators, policymakers, consumers of agricultural products, and the public. The 

NAL is one of the world’s largest and most accessible agricultural research libraries and plays a 

vital role in supporting research, education, and applied agriculture. 

The NAL was created as the departmental library for USDA in 1862 and became a national 

library in 1990. One of four national libraries of the U.S. (with the Library of Congress, the 

National Library of Medicine, and the National Library of Education), it is also the coordinator 

for a national network of State land-grant and USDA field libraries. In its international role, the 

NAL serves as the U.S. center for the international agricultural information system, coordinating 

and sharing resources and enhancing global access to agricultural data. The NAL collection of 

over 50 million items and its leadership role in information services and technology applications 

combine to make it the foremost agricultural library in the world. 

Risk Management Agency 

FCIC has formed partnerships with NIFA, the Commodity Futures Trading Commission, the 

USDA National Office of Outreach, the ERS, and private industry to leverage the Federal 

Government’s funding of its Risk Management Education (RME) program by using both public 

and private organizations to help educate their members in agricultural risk management. RME 

expanded State and Regional education partnerships; encouraged the development of information 

and technology-based decision aids; facilitated local crop insurance education and risk 

management training workshops throughout the nation through Cooperative Agreements with 

educational institutions and community-based outreach organizations. 

During fiscal years 2014 and 2013, the RME program worked toward its goals by funding risk 

management sessions, most of which directly target producers. The number of producers reached 

through these sessions is approximately 92,453 in fiscal year 2014 and 89,100 in fiscal year 

2013. In addition to reaching producers, some training sessions helped those who work with 

producers (such as lenders, agricultural educators, and other agricultural professionals) to better 

understand those areas of risk management with which they may be unfamiliar. Total RME 

obligations incurred by FCIC were approximately $9 million and $10 million in fiscal years 2014 

and 2013, respectively. 
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Research and Development 

Agricultural Research Service 

The Agricultural Research Service (ARS) mission is to conduct research to develop and transfer 

solutions to agricultural problems of high national priority and provide information access and 

dissemination to: ensure high quality, safe food, and other agricultural products; assess the 

nutritional needs of Americans; sustain a competitive agricultural economy; enhance the natural 

resource base and the environment; and provide economic opportunities for rural citizens, 

communities, and society as a whole. ARS’ programs are aligned under the Department’s 

priorities as follows: 

USDA Strategic Goal 1: Assist Rural Communities to Create Prosperity So They 

Are Self-Sustaining, Repopulating, and Economically Thriving. 

New Products/Product Quality/Value Added 

ARS has active research programs directed toward: improving the efficiency and reducing the 

cost for the conversion of agricultural products into biobased products and biofuels; developing 

new and improved products for domestic and foreign markets; and providing higher quality, 

healthy foods that satisfy consumer needs in the United States and abroad. Note: Some of ARS’ 

Livestock and Crop Production research is carried out under this Strategic Goal and Strategic 

Goal 3. 

National Agricultural Library

The Library, among the world’s largest libraries serving agriculture, delivered more than 50 

million page views and 2 million searches in FY 2014. 

Buildings and Facilities

ARS has approximately 96 laboratory locations, primarily located throughout the United States. 

ARS’ facilities programs are designed to meet the needs of its scientists and support personnel to 

accomplish the agency’s mission. 

USDA Strategic Goal 2: Ensure Our National Forests and Private Working Lands 

Are Conserved, Restored, and Made More Resilient to Climate Change, While 

Enhancing Our Water Resources. 

Environmental Stewardship

ARS’ research program emphasis is in developing technologies and systems that support 

sustainable production and enhance the Nation’s vast renewable natural resource base. The 

agency is currently developing the scientific knowledge and technologies needed to meet the 

challenges and opportunities facing U.S. agriculture in managing water resource quality and 

quantity under different climatic regimes, production systems, and environmental conditions. 

ARS’ research also focuses on developing measurement, prediction, and control technologies for 
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emissions of greenhouse gases, particulate matter, ammonia, hydrogen sulfide, and volatile 

organic compounds affecting air quality and land-surface climate interactions. The agency is a 

leader in developing measurement and modeling techniques for characterizing gaseous and 

particulate matter emissions from agriculture. In addition, ARS is evaluating strategies for 

enhancing the health and productivity of soils, including developing predictive tools to assess the 

sustainability of alternative land management practices. Finding mechanisms to aid agriculture in 

adapting to changes in atmospheric composition and climatic variations is also important 

components of this program. 

ARS’ range and grazing land research objectives include the conservation and restoration of the 

Nation’s range land and pasture ecosystems and agroecosystems through improved management 

of fire, invasive weeds, grazing, global change, and other agents of ecological change. The 

agency is currently developing improved grass and forage legume germplasm for livestock, 

conservation, bioenergy, and bioproduct systems as well as grazing-based livestock systems that 

reduce risk and increase profitability. In addition, ARS is developing whole system management 

strategies to reduce production costs and risks. 

USDA Strategic Goal 3: Help America Promote Agricultural Production and 

Biotechnology Exports As America Works to Increase Food Security. 

Livestock Production

ARS’ research program is directed toward fostering an abundant, safe, nutritionally wholesome, 

and competitively priced supply of animal products produced in a viable, competitive, and 

sustainable animal agriculture sector of the U.S. economy by: safeguarding and utilizing animal 

genetic resources, associated genetic and genomic databases, and bioinformatic tools; developing 

a basic understanding of food animal physiology to address priority issues related to animal 

production, animal well-being, and product quality and healthfulness; and developing 

information, best management practices, novel and innovative tools, and technologies that 

improve animal production systems, enhance human health, and ensure domestic food security. 

The research is heavily focused on the development and application of genomics technologies to 

increase the efficiency and product quality of beef, dairy, swine, poultry, aquaculture, and sheep 

systems. Areas of emphasis include increasing the efficiency of nutrient utilization, increasing 

animal well-being and reducing stress in production systems, increasing reproductive rates and 

breeding animal longevity, developing and evaluating non-traditional production systems (e.g., 

organic and natural), and evaluating and conserving animal genetic resources. 

Crop Production

ARS’ program focuses on developing and improving ways to reduce crop losses while protecting 

and ensuring a safe and affordable food supply. The program concentrates on production 

strategies that are environmentally friendly, safe to consumers, and compatible with sustainable 

and profitable crop production systems. Research activities are directed at safeguarding and 

utilizing plant genetic resources and their associated genetic, genomic, and bioinformatic 

databases that facilitate selection of varieties and/or germplasm with significantly improved 

traits. Research activities attempt to minimize the impacts of crop pests while maintaining 
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healthy crops and safe commodities that can be sold in markets throughout the world. The 

agency is conducting research to discover and exploit naturally occurring and engineered genetic 

mechanisms for plant pest control, develop agronomic germplasm with durable defensive traits, 

and transfer genetic resources for commercial use. ARS is also providing taxonomic information 

on invasive species that strengthens prevention techniques, aids in detection/identification of 

invasive pests, and increases control through management tactics that restore habitats and 

biological diversity. 

USDA Strategic Goal 4: Ensure that All of America’s Children Have Access to Safe, 

Nutritious, and Balanced Meals. 

Food Safety

ARS’ research program is designed to yield science-based knowledge on the safe production, 

storage, processing, and handling of plant and animal products, and on the detection and control 

of pathogenic bacteria and fungi, parasites, chemical contaminants, and plant toxins. All of 

ARS' research activities involve a high degree of cooperation and collaboration with USDA's 

Research, Education, and Economics agencies, as well as with the Food Safety and Inspection 

Service (FSIS), Animal and Plant Health Inspection Service (APHIS), Food and Drug 

Administration (FDA), Centers for Disease Control and Prevention (CDC), Department of 

Homeland Security (DHS), and the Environmental Protection Agency (EPA). The agency also 

collaborates in international research programs to address and resolve global food safety issues. 

Specific research efforts are directed toward developing new technologies that assist ARS 

stakeholders and customers, including regulatory agencies, industry, and commodity and 

consumer organizations in detecting, identifying, and controlling foodborne diseases that affect 

human health. 

Livestock Protection

ARS’ program is directed at protecting and ensuring the safety of the Nation's agriculture and 

food supply through improved disease detection, prevention, control, and treatment. Basic and 

applied research approaches are used to solve animal health problems of high national priority. 

Emphasis is given to methods and procedures to control animal diseases through the discovery 

and development of diagnostics, vaccines, biotherapeutics, animal genomics applications, 

disease management systems, animal disease models, and farm biosecurity measures. The 

research program has the following strategic objectives: establish ARS laboratories into a fluid, 

highly effective research network to maximize use of core competencies and resources; use 

specialized high containment facilities to study zoonotic and emerging diseases; develop an 

integrated animal and microbial genomics research program; establish core competencies in 

bovine, swine, ovine, and avian immunology; launch a biotherapeutic discovery program 

providing alternatives to animal drugs; build a technology driven vaccine and diagnostic 

discovery research program; develop core competencies in field epidemiology and predictive 

biology; establish a best-in-class training center for our Nation's veterinarians and scientists; and 

develop a model technology transfer program to achieve the full impact of ARS research 

discoveries. The ARS animal research program includes the following core components: 
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biodefense research, animal genomics and immunology, zoonotic diseases, respiratory diseases, 

reproductive and neonatal diseases, enteric diseases, parasitic diseases, and transmissible 

spongiform encephalopathies. 

Crop Protection

ARS’ Crop Protection research program is directed to protect crops from insect and disease loss 

through research to understand pest and disease transmission mechanisms, and to identify and 

apply new technologies that increase our understanding of virulence factors and host defense 

mechanisms. The program’s research priorities include: identification of genes that convey 

virulence traits in pathogens and pests; factors that modulate infectivity, gene functions, and 

mechanisms; genetic profiles that provide specified levels of disease and insect resistance under 

field conditions; and mechanisms that reduce the spread of pests and infectious diseases. ARS is 

developing new knowledge and integrated pest management approaches to control pest and 

disease outbreaks as they occur. Its research will improve the knowledge and understanding of 

the ecology, physiology, epidemiology, and molecular biology of emerging diseases and pests. 

This knowledge will be incorporated into pest risk assessments and management strategies to 

minimize chemical inputs and increase production. Strategies and approaches will be available 

to producers to control emerging crop diseases and pest outbreaks and to address quarantine 

issues. 

Human Nutrition

Maintenance of health throughout the lifespan along with prevention of obesity and chronic 

diseases via food-based recommendations are the major emphases of ARS’ human nutrition 

research program. These health-related goals are based on the knowledge that deficiency 

diseases are no longer the primary public health concerns in the U.S. Excessive consumption has 

become the primary nutrition problem in the American population. This is reflected by increased 

emphasis on prevention of obesity from basic science through intervention studies to assessments 

of large populations. The agency’s research program also studies essential nutrients and 

nonessential, health promoting components in foods. Four specific areas of research are 

emphasized: nutrition monitoring; the scientific basis for dietary recommendations; prevention of 

obesity and related diseases; and life stage nutrition and metabolism, in order to better define the 

role of nutrition in pregnancy and growth of children, and for healthier aging. 

National Institute of Food and Agriculture

NIFA participates in a nationwide land-grant university system of agriculture related research 

and program planning and coordination between State institutions and USDA. It assists in 

maintaining cooperation among the State institutions, and between the State institutions and their 

Federal research partners. NIFA administers competitive grants and capacity/formula payments 

to State institutions to leverage State and local funding for agriculture research. 
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Forest Service

Forest Service R&D has an integrated portfolio that supports achievement of the agency’s 

strategic goals. The Forest Service R&D structure has two components: Priority Research Areas 

and Strategic Program Areas (SPAs). 

The Priority Research Areas address urgent needs in seven areas: Forest Disturbances, Forest 

Inventory and Analysis, Watershed Management and Restoration, Bioenergy and Biobased 

Products, Urban Natural Resources Stewardship, Nanotechnology, and Localized Needs 

Research. 

The SPAs are the long-term programs from which Priority Research Areas are funded; the SPAs 

are: 

Wildland Fire and Fuels 

R&D provides managers with the knowledge and tools to reduce negative impacts, while 

enhancing the beneficial effects of wildland fire, as a natural process. This knowledge and these 

tools are critical to understanding the human process of fire and fuels management on society 

and the environment. 

Research focuses on understanding and modeling fundamental fire processes; interactions of fire 

with ecosystems; and the environmental, social, and economic aspects of fire, as well as 

evaluating the integrated management strategies and disturbance interactions at multiple scales 

and the application of fire research to address management problems. 

Invasive Species 

R&D provides the scientific information, methods, and technology to reduce or eliminate the 

introduction, spread, and impact of invasive species and to restore or improve the functionality of 

ecosystems affected by invasive species. 

Research focuses on non-native plants, animals, fish, insects, diseases, invertebrates, and other 

species whose introduction is likely to cause economic or environmental harm to an ecosystem. 

Water, Air, and Soil 

R&D enables the sustainable management of these essential resources by providing clear air and 

safe drinking water, by protecting lives and property from wildlife fire and smoke, and by 

adapting to climate variability and change. 

The program features ecosystem services with a high level of integration between water, air, and 

soil research, such as the effects of climate variability and change on water budgets or carbon 

sequestration metrics from an ecosystem perspective. 

Wildlife and Fish 

R&D relies upon interdisciplinary research to inform policy initiatives affecting wildlife and fish 

habitat on private and public lands, and the recovery of threatened or endangered species. 
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Scientists investigate the complex interactions among species, ecosystem dynamics and 

processes, land use and management, and any emerging broadscale threats, including global 

climate change, loss of open space, invasive species, and disease. 

Resource Management and Use 

R&D provides the scientific and technology base to sustainably manage and use forest resources 

and forest fiber-based products. 

Research focuses on the plant sciences, soil sciences, social sciences, silviculture, productivity, 

forest and range ecology management, harvesting and operations, forest and biomass products 

and utilization, economics, urban forestry, and climate change. 

Outdoor Recreation 

R&D promotes human and ecological sustainability by researching environmental management, 

activities, and experiences that connect people with the natural world. 

Research in outdoor recreation is interdisciplinary, focusing on nature-based recreation and the 

changing trends in American society; connections between recreation visitors, communities, and 

the environment; human benefits and consequences of recreation and nature contact; the 

effectiveness of recreation management and decision-making; and sustaining ecosystems 

affected by recreational use.

Inventory and Monitoring 

R&D provides the resource data, analysis, and tools needed to monitor vulnerable forest 

ecosystems to rapid change due to threats from fire, insects, disease, natural processes, or 

management actions. From their research, scientists determine the status and trend of the health 

of the Nation’s forests and grasslands, and the potential impact from climate change. 

Their research integrates the development and use of science, technology, and remotely sensed 

data to better understand the incidences of forest fragmentation over time from changes in land 

use or from insects, disease, fire, and extreme weather events. 

A representative summary of FY 2014 accomplishments include the following: 

 47 new interagency agreements and contracts 

 15 interagency agreements and contracts continued 

 2,019 articles published in journals 

 384 articles published in all other publications 

 4 patents granted 

 2 patent licenses executed 

Economic Research Service 

The Economic Research Service (ERS) provides economic and other social science research and 

analysis for public and private decisions on agriculture, food, natural resources, and rural 
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America. Research results and economic indicators on these important issues are fully 

disseminated through published and electronic reports and articles, special staff analyses, 

briefings, presentations and papers, databases, and individual contacts. ERS’ objective 

information and analysis helps public and private decision makers attain the goals that promote 

agricultural competitiveness, food safety and security, a well-nourished population, 

environmental quality, and a sustainable rural economy. 

National Agricultural Statistics Service

Research is conducted to improve the statistical methods and related technologies used to 

produce U.S. agricultural statistics. The research agenda has two primary areas of emphasis: the 

National Agricultural Statistics Service estimation program and the Census of Agriculture 

program. For each, the goal is the development of improved estimates at lower cost, with 

reduced respondent burden, and with valid measures of uncertainty. All facets of the estimation 

process are considered, from increasing efficiencies in sampling and data collection to enhancing 

the statistical methodology used to analyze the data. Two high priority items within the research 

effort are significance editing (cleaning of respondent data) and model-based estimates. 

Significance editing has the potential to enhance the quality of survey data and to reduce manual 

operations in preparing survey responses summaries. In the other, models are used to combine 

data from disparate sources, from sample surveys to remote sensing, resulting in improved 

estimates with valid measures of uncertainty. As we go forward, users of our services and 

products will be increasingly dependent upon methodological and technological efficiencies. 

Required Supplementary Information 

Deferred Maintenance and Repairs (Unaudited) 

Deferred maintenance and repairs is maintenance and repair activity that was not performed 

when it should have been or was scheduled to be and which is put off or delayed to a future 

period. 

Maintenance and repairs are activities directed toward keeping fixed assets in an acceptable 

condition. Activities include preventive maintenance; replacement of parts, systems, 

components; and other activities needed to preserve or maintain the asset. Maintenance and 

repairs, as distinguished from capital improvements, exclude activities directed towards 

expanding the capacity of an asset or otherwise upgrading it to serve needs different from, or 

significantly greater than, its current use. 
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Forest Service

Deferred Maintenance and Repairs (DM&R) is reported for general Property, Plant, and 

Equipment (PP&E); heritage assets; and stewardship assets. It is also reported separately for 

critical and noncritical amounts of maintenance needed to return each class of assets to its 

acceptable operating condition. 

Critical maintenance is defined as a serious threat to public health or safety, a natural resource, or 

the ability to carry out the mission of the organization. 

Noncritical maintenance is defined as a potential risk to the public or employee safety or health 

(e.g., compliance with codes, standards, or regulations) and potential adverse consequences to 

natural resources or mission accomplishment. 

 

 

 

 

 

 

 

 

   

   

   

   

   

   

   

   

   

   

   

 

  

   

 

 

 

 

 

 

 

 

 

   

   

   

   

   

   

   

   

  

 

   

   

   

   

 
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The Forest Service uses condition surveys to estimate DM&R on all major classes of its PP&E. 

Over the past decade, the Forest Service has implemented a national effort to collect detailed 

data on infrastructure condition and maintenance and improvement needs. No DM&R exists for 

fleet vehicles as they are managed through the agency’s working capital fund. Each fleet vehicle 

is maintained according to schedule. The cost of maintaining the remaining classes of equipment 

is expensed. 

The agency is committed to sustaining a manageable level of infrastructure—disinvesting in 

infrastructure that can no longer be managed to appropriate standards, rightsizing its asset 

portfolio, and eliminating the substantial backlog of deferred maintenance. 

DM&R estimates for most assets—except bridges—are based on condition surveys performed 

on a 5-year maximum revolving schedule. The bridge class is on a 2-year maximum revolving 

schedule. To date, surveys of all administrative buildings, dams, bridges, roads open to passenger 

cars, and recreation sites have been accomplished. The agency’s DM&R for National Forest 

System (NFS) roads is determined annually from random sample surveys, providing an 80-

percent level of confidence. 

The overall condition of major asset classes ranges from poor to good depending on the location, 

age, and type of property. The standards for acceptable operating condition for various classes of 

general PP&E, stewardship, and heritage assets are as follows. 

Conditions of roads and bridges within the NFS road system are measured by various standards: 

 Federal Highway Administration regulations for the Federal Highway Safety Act. 

 Best management practices for the nonpoint source provisions of the Clean Water Act from 

U.S. Environmental Protection Agency and States. 

 Road management objectives developed through the National Forest Management Act forest 

planning process. 

 Forest Service directives—Forest Service Manual (FSM) 7730, Operation and Maintenance 

(August 25, 2005, amendment was superseded with October 1, 2008, revision); Forest 

Service Handbook (FSH) 7709.56a, Road Preconstruction, and FSH 7709.56b, 

Transportation Structures Handbook. 

Dams shall be managed according to FSM 7500, Water Storage and Transmission, and FSH 

7509.11, Dams Management Handbook. The condition of a dam is acceptable when the dam 

meets current design standards and does not have any deficiencies that threaten the safety of the 

structure or public. For dams to be rated in acceptable condition, the agency needs to restore the 

dams to the original functional purpose, correct unsightly conditions, or prevent more costly 

repairs. 

Buildings shall comply with the International Family of Building and Related Codes, the 

National Fire Protection Association Life Safety Code, the Forest Service Health and Safety 

Handbook, and the Occupational Safety Health Administration as determined by condition 

surveys and safety inspections. These requirements are found in FSM 7310, Buildings and 
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Related Facilities, revised November 19, 2004. The condition of administrative facilities ranges 

from poor to good, with approximately 39 percent needing major repairs or renovations, 

approximately 11 percent in fair condition, and 50 percent of the facilities in good condition. 

The agency is currently developing an integrated strategy to realign its administrative facility 

infrastructure to meet current organizational structure and to reduce the maintenance liability for 

unneeded buildings, free up land for use by local communities and private enterprise, and 

provide added funds for infrastructure maintenance and development. Forest Service optimizes 

benefits from a combination of appropriations, facility conveyance receipts, and 

decommissioning of unneeded facilities. 

Recreation facilities are located within recreation sites that range from highly developed sites to 

general forest areas such as campgrounds, trailheads, trails, water and wastewater systems, 

interpretive facilities, and visitor centers. These components are included in several asset classes 

of the deferred maintenance exhibit. Recreation sites are managed in accordance with Federal 

laws and regulations (Code of Federal Regulations (CFR) 36). 

Detailed management guidelines are contained in FSM 2330, Publicly Managed Recreation 

Opportunities, and forest- and regional-level user guides. Quality standards for developed 

recreation sites were established as Meaningful Measures for health and cleanliness, settings, 

safety and security, responsiveness, and the condition of the facility. 

The condition assessment for range structures (fences and stock handling facilities) is based on 

(1) a determination by knowledgeable range specialists or other district personnel of whether the 

structure would perform the originally intended function and (2) a determination through the use 

of a protocol system to assess conditions based on age. A long-standing range methodology is 

used to gather this data. 

Heritage assets include archaeological sites that require determinations of National Register of 

Historic Places status, National Historic Landmarks, and significant historic properties. Some 

heritage assets may have historical significance, but their primary function in the agency is as 

visitation or recreation sites and, therefore, may not fall under the management responsibility of 

the heritage program. 

Trails and trail bridges are managed according to Federal law and regulations (CFR 36). More 

specific direction is contained in FSM 2350, Trail, River, and Similar Recreation Opportunities, 

and the FSH 2309.18, Trails Management Handbook. 

DM&R of structures for wildlife, fish, and threatened and endangered species is determined by 

field biologists using their professional judgment. The DM&R is considered critical if resource 

damage or species endangerment would likely occur if maintenance were deferred much longer. 
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Condition of Heritage Assets and Stewardship Lands

Heritage Assets 

Heritage professionals are responsible for documenting and maintaining cultural resource 

condition assessments to standard. Periodic monitoring and condition assessments are the basis 

for applying protective measures and treatments to vulnerable, deteriorating, or threatened 

cultural resources. The condition of heritage assets depends on the type of asset and varies from 

poor to fair. 

Stewardship Land 

The condition of NFS lands varies by purpose and location. The FS monitors the condition of its 

stewardship lands based on information compiled by two national inventory and monitoring 

programs—Forest Inventory and Analysis and Forest Health Monitoring. 

Although most of the estimated 193 million acres of stewardship lands continue to produce 

valuable benefits – clean air and water, habitat for wildlife, and products for human use – 

significant portions are at risk to pest outbreaks or catastrophic fires. 

In FY 2013, the FS developed the Invasive Species Framework to provide a vision for future 

agency policies and management strategies for all invasive species. Invasive species of insects, 

diseases, and plants continue to affect our native ecosystems by causing mortality to, or 

displacement of, native vegetation. The agency also released the next iteration of the National 

Insect and Disease Risk Map in FY 2013, providing a comprehensive public online database 

containing 750 forest pest hazard and risk models to support forest management across all 

landscapes. This key resource is used by not only the FS, but State and academic partners across 

the country. 

The FY 2014 year-to-date accomplishments on NFS and State and Private Forestry lands include 

treatment of 550,000 acres for invasive and 90,000 acres for native pests. These numbers should 

be considered preliminary, with final amounts of acres treated for invasive and native pests on 

NFS lands available in February 2015 at http://www.fs.fed.us. 

Agricultural Research Service 

Deferred Maintenance (DM) includes work needed to meet laws, regulations, codes and other 

legal direction as long as the original intent or purpose of the fixed asset is not changed. Also 

includes work performed to restore an asset to the originally intended design, capacity, 

efficiency, or capability; or correction of safety problems. Critical DM is DM that is identified 

 

 

 

 

 

 
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for critical systems including HVAC, electrical, roofing, and plumbing tasks. Non-critical DM is 

all other systems. DM is reported for buildings, structures and heritage assets. 

Executive Order (EO) 13327 requires all Federal agencies to assess the condition of their 

facilities and plan for their full life cycle management. The Condition Index (CI) is a general 

measure of the constructed asset’s condition at a specific point in time. It is calculated as the 

ration of repair needs, or DM, to plant replacement value (PRV). PRV can be calculated 

systematically and without much effort. The condition of the constructed asset is a more difficult 

figure to determine. A repair need is the amount necessary to ensure a constructed asset is 

restored to a condition substantially equivalent to the originally intended and designed capacity, 

efficiency or capability. Ideally, with enough money and time, repair needs would be determined 

for each asset by inspection, evaluation of the repairs required, and consistent estimating of the 

repairs throughout ARS. ARS does not have available manpower in- house to complete this type 

of inspection and estimating, nor the funding to contract. ARS looked at approaches to model 

ARS assets and evaluate the results for management purposes. 

Whitestone Research is a company that estimates DM based on the age and condition of the 

facility, geographic location, typical major components and size of the structure. Whitestone first 

inspected a sample of 1,107 buildings from 38 ARS sites and used parametric models to estimate 

DM and PRV. The Whitestone Report only addresses Existing Active – Real Property and 

excludes excess and inactive property. The results were generalized to the entire population of 

ARS facilities. Assuming a PRV of $4 billion, the CI ratio (1 - $DM/PRV) is 91.9 percent, an 

outcome commonly classified as “adequate”.

Natural Resources Conservation Service 

Deferred maintenance estimates for assets are based on condition surveys performed on a five 

year maximum revolving schedule. Private sector professionals, under GSA and NRCS 

guidance, conducted condition surveys of all NRCS owned facilities and structures from 

September 2011 through May 2013. NRCS maintains an inventory and description of all owned 

facilities and structures in USDA’s Corporate Property Automated Information System (CPAIS). 

NRCS uses AssetCALC, a third party software, to maintain detailed information on asset 

components and maintenance schedules and costs. AssetCALC data is the basis for computing 

the cost to return assets requiring maintenance to an acceptable condition, as showing in the 

following table. NRCS reviews information in both data bases annually for accuracy and 

completeness. NRCS estimates deferred maintenance and repair costs for all accountable owned 

real property, whether it is capitalized or fully depreciated. 

The dollar amount in the following table includes costs to return assets with deferred 

maintenance at the 28 active facilities to acceptable condition. Changes identified in SFFAS No. 

42 are incorporated into FY 2014 reporting, including identifying beginning and ending balances 

and no longer identifying needs as critical or noncritical. The table shows that the total cost of 

deferred maintenance declined during FY 2014. This reflects maintenance projects that were 

completed during the year because they were too critical to delay. 
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In the facility assessments conducted during FYs 2011-2013, private sector contractors 

completed condition surveys for all major classes of PP&E at the 28 facilities represented above 

using accepted industry standards. Interviews with property management staff, review of 

available maintenance procedures, available drawings, and other documentation, and 

examination of the properties’ systems and components for their present condition were used for 

determining the condition and useful life of facilities and facility components. Estimated costs 

for replacement, repair, or maintenance of all classes of PP&E were based on the probable or 

actual extent of the observed defect, inclusive of the cost to design, procure, construct, and 

manage the replacement, repair or maintenance. These estimates were based on invoice or bid 

documents provided by the facility manager and on construction costs developed from 

construction resources and industry standards, such as R.S. Means and Marshall & Swift, along 

with the contractor’s experience with past costs for similar properties, city cost indices, and 

assumptions regarding future economic conditions. The AssetCALC estimated costs used here 

are a result of facility condition assessments and additional maintenance items which became 

deferred since the facility condition assessments were conducted, less the cost of maintenance 

completed.

The overall condition of major asset classes varies depending on the location, age, and type of 

property. The following table displays how NRCS defines asset condition on the basis of critical 

maintenance needed in the current year and the number of assets in each category. The assets 

represented in the table include assets such as office buildings, greenhouses, warehouse and 

storage buildings, roads, bridges, and other structures. 

NRCS manages its buildings in compliance with regulations and guidance from GSA, USDA, 

and Executive Orders. Buildings shall also comply with applicable codes such as the National 

Life Safety Code, Occupational Safety and Health Administration rules, and the Architectural 

Condition Index Condition Rating 

Number of 

NRCS Assets 

Greater than 95.00 Good 399

Between 90.00 and 94.99 Satisfactory 23

Between 70.00 and 89.99 Poor 16

Less than 70.00 Critical 8

Total 446

Asset Class

(in thousands)

Overall 

Condition

Beginning Balance 

(October 1, 2013) 

Ending Balance

(September 30, 2014)

Change in 

Cost 

FY 2014

Office Buildings poor-good $ 284,642 $ 265,062 $ (19,580)

Greenhouses poor-good 53,608 54,444 836

Service Buildings poor-good 191,250 178,198 (13,052)

Warehouse/Storage Buildings critical-good 292,234 265,187 (27,047)

Other Buildings critical-good 110,119 110,310 191

Irrigation Systems poor-good 14,337 14,337 -

Other Structures and Features critical-good 78,271 81,576 3,305

Total $ 1,024,461 $ 969,114 $ (55,347)

Cost to Return to Acceptable Condition 
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Barriers Act Accessibility Standard, and other regulatory and compliance requirements as 

determined by condition surveys. NRCS applies these regulations and requirements consistently 

to all major classes of PP&E. Guidelines used may vary from the norm based on the mission of 

each facility and use of each asset. For example, all NRCS roadways are farm roads (paved or 

graveled) located on Plant Materials Centers. The public does not use these roadways, and 

therefore they are not required to meet the standards of the Federal Highway Administration. 

Animal and Plant Health Inspection Service 

APHIS’ facilities are physically assessed, cyclically, at predetermined intervals. APHIS’ Facility 

Condition Assessment (FCA) program is a single engineering based system for assessing facility 

conditions to stabilize the repair backlog, prepare more credible budget requests, and predict 

future maintenance needs. The FCA conducted at each facility provides the following: 

 current conditions analyses, 

 anticipated capital renewal analyses; and 

 capital funding analyses. 

The current estimated deferred maintenance and repair backlog is $117 million. Of this amount, 

$58 million is critical, consisting of Integrity issues, Code Compliance, Environmental, and 

Operations/Functionality deficiencies. 
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Statement of Budgetary Resources (Unaudited) 

 

 

 

 

 

 

           

           

           

           

           

           

          

 

 

           

 

           

           

           

           

           

 

 

           

       

    

           

           

           

      

     

           

           

           

      

     

           

           

 

          

           

           

           

 

           

    

       

           

           

           

   

        

 
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Risk Assumed Information (Unaudited) 

Risk assumed is generally measured by the present value of unpaid expected losses net of 

associated premiums based on the risk inherent in the insurance or guarantee coverage in force. 

Risk assumed information is in addition to the liability for unpaid claims from insured events 

that have already occurred. The assessment of losses expected based on the risk assumed are 

based on actuarial or financial methods applicable to the economic, legal and policy environment 

in force at the time the assessments are made. The FCIC has estimated the loss amounts based on 

the risk assumed for its programs to be $7,640 million and $4,946 million as of September 30, 

2014 and 2013, respectively. 

Note: The FY 2013 risk assumed amount was revised from $4,496 million to $4,946 million to 

correct a transposition error. 
OTHER INFORMATION

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Section III: Other Information 

Schedule of Spending 

The Schedule of Spending (SOS) presents an overview of how and where agencies are spending 

(i.e. obligating) money for the reporting period. The data used to populate this schedule is the 

same underlying data used to populate the Statement of Budgetary Resources (SBR). The “Total 

Amounts Agreed to be Spent” line item of the schedule should reconcile to the “Obligations 

Incurred” line in the SBR. These amounts may not reconcile to USAspending.gov because the 

SOS and the website have different reporting requirements.

For The Years Ended September 30, 2014 and 2013 

(In Millions) 

Non-budgetary Non-budgetary

Credit Reform Credit Reform

Budgetary Financing Accounts Budgetary Financing Accounts

What Money is Available to Spend?

Total Resources $ 210,168 $ 24,427 $ 217,670 $ 25,527

Less Amount Available but Not Agreed to be Spent 20,161 5,530 11,583 4,772

Less Amount Not Available to be Spent 24,773 4,091 22,148 3,986

Total Amounts Agreed to be Spent 165,234 14,806 183,939 16,769

How was the Money Spent/Issued?

Assist Rural Communities to Create Prosperity so They Are

Self-Sustaining, Repopulating, and Economically Thriving:

Personnel Compensation and Benefits 2,101 - 2,152 -

Travel and transportation 71 - 68 -

Rent, communications, and utilities 136 (1) 193 -

Other contractual services 4,361 2,013 3,453 1,974

Supplies and materials 341 - 353 -

Equipment, land, and structures 57 - 29 -

Investments and loans 4,434 8,033 7,407 10,294

Grants, subsidies, and contributions 16,313 - 16,682 -

Insurance claims and indemnities 10,685 - 20,496 -

Interest, dividends, and refunds 120 4,135 134 4,109

Other 56 - 19 -

Total 38,675 14,180 50,986 16,377

Ensure Our National Forests and Private Working Lands Are Conserved,

Restored, and Made More Resilient to Climate Change, While

Enhancing Our Water Resources:

Personnel Compensation and Benefits 4,257 - 4,245 -

Travel and transportation 221 - 198 -

Rent, communications, and utilities 333 - 256 -

Other contractual services 2,908 5 2,667 4

Supplies and materials 271 - 288 -

Equipment, land, and structures 446 - 610 -

Investments and loans - 412 - 173

Grants, subsidies, and contributions 5,147 - 5,710 -

Insurance claims and indemnities 12 - 134 -

Interest, dividends, and refunds (14) 83 (11) 52

Other 139 - 341 -

Total 13,720 500 14,438 229

2014 2013
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Schedule of Spending (continued) 

For The Years Ended September 30, 2014 and 2013 

(In Millions) 

Non-budgetary Non-budgetary

Credit Reform Credit Reform

Budgetary Financing Accounts Budgetary Financing Accounts

Help America Promote Agricultural Production and Biotechnology

Exports as America Works to Increase Food Security:

Personnel Compensation and Benefits 189 - 185 -

Travel and transportation 9 - 8 -

Rent, communications, and utilities 13 - 12 -

Other contractual services 157 - 185 -

Supplies and materials 19 - 14 -

Equipment, land, and structures 12 - 6 -

Investments and loans 1 20 3 163

Grants, subsidies, and contributions 2,502 56 3,115 -

Insurance claims and indemnities 1 - - -

Interest, dividends, and refunds - 50 - -

Other 23 - 12 -

Total 2,926 126 3,540 163

Ensure that All of America's Children Have Access to Safe, 

Nutritious, and Balanced Meals:

Personnel Compensation and Benefits 2,144 - 2,061 -

Travel and transportation 87 - 86 -

Rent, communications, and utilities 81 - 81 -

Other contractual services 812 - 721 -

Supplies and materials 1,812 - 1,972 -

Equipment, land, and structures 81 - 48 -

Investments and loans - - - -

Grants, subsidies, and contributions 103,266 - 108,464 -

Insurance claims and indemnities 5 - 3 -

Interest, dividends, and refunds - - - -

Other 50 - 29 -

Total 108,338 - 113,465 -

Create a USDA for the 21st Century that is High Performing, 

Efficient, and Adaptable:

Personnel Compensation and Benefits 509 - 503 -

Travel and transportation 11 - 10 -

Rent, communications, and utilities 290 - 334 -

Other contractual services 651 - 523 -

Supplies and materials 12 - 14 -

Equipment, land, and structures 90 - 99 -

Investments and loans - - - -

Grants, subsidies, and contributions 10 - 23 -

Insurance claims and indemnities - - 1 -

Interest, dividends, and refunds 1 - - -

Other 1 - 3 -

Total 1,575 - 1,510 -

USDA Total 

Personnel Compensation and Benefits 9,200 - 9,146 -

Travel and transportation 399 - 370 -

Rent, communications, and utilities 853 (1) 876 -

Other contractual services 8,889 2,018 7,549 1,978

Supplies and materials 2,455 - 2,641 -

Equipment, land, and structures 686 - 792 -

Investments and loans 4,435 8,465 7,410 10,630

Grants, subsidies, and contributions 127,238 56 133,994 -

Insurance claims and indemnities 10,703 - 20,634 -

Interest, dividends, and refunds 107 4,268 123 4,161

Other 269 - 404 -

Total 165,234 14,806 183,939 16,769

Total Amounts Agreed to be Spent 165,234 14,806 183,939 16,769

Who did the Money go to?

Federal 11,259 5,649 12,980 5,788

Non-Federal 153,975 9,157 170,959 10,981

Total Amounts Agreed to be Spent 165,234 14,806 183,939 16,769
OTHER INFORMATION

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Response to Management Challenges 

The Reports Consolidation Act of 2000 requires the U.S. Department of Agriculture (USDA) 

Office of Inspector General (OIG) to report annually on the most serious management challenges 

USDA and its agencies face. To identify the Department’s challenges, OIG examined previously 

issued audit reports where corrective actions have yet to be taken. It also assessed ongoing 

investigative and audit work to ascertain significant vulnerabilities, and analyzed new programs 

and activities that could pose significant challenges due to their range and complexity. Eleven 

challenges were included in OIG’s report this year.

One new challenge was added on developing effective performance measures for USDA 

programs. Finally, OIG discussed several emerging issues that may develop into significant 

concerns: the Animal and Plant Health Inspection Service’s (APHIS) animal care; potentially 

redundant Federal programs and operations; and oversight of USDA’s acquisition management. 

The following narratives summarize: 

 Management challenges; 

 USDA’s fiscal year (FY) 2014 agency accomplishments; and 

 FY 2015 planned actions to address these management challenges. 

Interagency Communication, Coordination, and Program Integration 

Need Improvement (Challenge 1) 

As stated in the FY 2014 Management Challenges report, like many departments within the 

Federal Government, USDA faces a challenge in coordinating the efforts of various agencies and 

programs within its purview. This challenge is particularly pressing for USDA, as the 

Department divides responsibilities among several agencies that jointly provide oversight of key 

mission areas. This requires continual intradepartmental cooperation, and USDA agencies must 

better understand their interrelationships in order to create a cohesive, integrated system of 

program administration. Such an approach should increase organizational communication; 

streamline operations; reduce spending; and improve program efficiency, compliance, and 

integrity.

When one oversight agency is responsible for the administration and execution of a program that 

impacts many—if not all—of USDA’s agencies, strong intradepartmental communication and 

clear, unified guidance becomes critical. For example, the Office of the Chief Information 

Officer (OCIO) is generally responsible for the integrity of USDA’s information systems. 

However, in the case of USDA’s Universal Telecommunications Network (UTN)—the data 

network backbone for USDA customers and agencies—OCIO and the Office of Procurement and 

Property Management (OPPM) are jointly responsible for various aspects of its operation, 

including working closely with contracted companies. OCIO relies on OPPM to execute 
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contracts for various aspects of the Department’s operation. Additionally, while OPPM acts as 

the contracting officer (CO), OCIO acts as the contracting officer’s representative (COR) and 

oversees technical aspects of the execution of the contract for CO. This intricate relationship 

necessitates close coordination between OPPM and OCIO. 

In a system as complex as the UTN, success rests heavily upon each involved party’s 

coordination and communication. We found that both OCIO and OPPM need to improve their 

communication with the CO and COR, as well as with contractors, to ensure that USDA’s UTN 

operates as intended. Due to poor communication between various parties, we found that USDA 

is paying a contractor for UTN services that are not being provided, and that the UTN network is 

not meeting security requirements. We found that the previous CO and COR in charge of the 

task order did not exercise the necessary controls to ensure the network was secure; additionally, 

OPPM’s CO and OCIO’s COR were unaware of some security requirements. Due to a lack of 

oversight, required UTN network features were not complete, and security and data loss 

prevention measures were not fully implemented. To resolve this, we recommended an overall 

increase in oversight and communication at multiple levels. OPPM should implement procedures 

for reassigning contracts and task orders to COs to ensure they understand their newly assigned 

responsibilities and monitor contractors’ performance. Similarly, OCIO, the CO, and the COR 

should work together to improve internal processes for overseeing task orders. We also 

recommended the CO work closely with a contractor to ensure it meets its contractual 

obligations within established timeframes—and emphasized that both the CO and COR should 

be included on all communications with the contractor regarding changes and disputes. OCIO 

also needs to work with the contractor to strengthen UTN security measures to meet 

Departmental regulations and task order terms and conditions.3

With interwoven roles between agencies, monitoring multi-agency programs can be a complex 

undertaking. For example, the Trade Adjustment Assistance for Farmers (TAAF) Program is 

jointly administered by three agencies: the Foreign Agricultural Service (FAS), which provides 

oversight; the Farm Service Agency (FSA), which approves producer applications and makes 

payments to producers; and the National Institute of Food and Agriculture (NIFA), which 

provides training and technical assistance for producers. We found that FAS did not effectively 

monitor or conduct reviews of the other agencies’ day-to-day program administration. 

Additionally, FAS did not provide FSA with guidance on when to review records that supported 

program participants’ eligibility. In addition, FSA did not take adequate corrective actions to 

prevent program participants from receiving TAAF Program benefits prior to meeting all training 

requirements. As a result, 85 ineligible producers participated in the TAAF Program and 

received approximately $284,000 in benefits to which they were not entitled.4

Continual communication ensures that various Departmental agencies are effectively and 

collaboratively meeting the Department’s goals. Over the years, USDA has made progress in 

improving lines of communication and clarifying Department wide guidance. As the Department 

 

3 Management and Security over USDA’s Universal Telecommunications Network (88501-0002-12, July 2014). 

4 American Recovery and Reinvestment Act—Trade Adjustment Assistance for Farmers Program (50703-0001-23, October 

2013). 
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works to address future challenges facing U.S. agriculture, particularly in a time when the 

Government is asked to operate with fewer resources, we encourage agencies to strategize how 

best to accomplish mutual goals and use shared resources. This can help ensure that USDA’s 

processes are safeguarded against potential weaknesses, and that its programs benefit from the 

combined expertise present throughout USDA’s agencies. 

Corrective Actions:

A review of processes and procedures is underway to ensure contractor deliverables and services 

are reviewed and validated by OCIO’s Enterprise Network Services and coordinated with the 

OPPM. This will ensure contractor compliance with contract terms and conditions. The target 

completion date for this corrective action is September 30, 2014. 

OPPM issued a letter to inform all parties that correspondence or discussions regarding contract 

changes, disputes, or lack of performance is the sole responsibility of the Contracting Officer. 

OPPM also established Acquisition Operating Procedures to address reassignment of 

solicitations and contracts within the organization. 

FAS is working to return all unobligated funds for the FY 2009 TAAF Program to the 

Department of Treasury. In any future TAAF Program, FAS will continue to work closely with its 

program partners and will implement oversight procedures to identify strengths, weaknesses, and 

areas of improvement. 

USDA Needs to Create Strong, Integrated Internal Control Systems 

Across Programs (Challenge 2) 

As stated in the FY 2014 Management Challenges report, USDA managers oversee critical 

elements of our Nation’s agriculture, nutrition, and natural resources policy. In order to bring 

about desired results, they must design effective internal systems for program implementation.5

These internal controls are comprised of the policies, procedures, and organizational structures 

that collectively determine how a program is managed and how its requirements are met. In 

effect, internal controls are the tools managers use to ensure that programs achieve intended 

results efficiently and effectively; they provide for program integrity and proper stewardship of 

resources. Since systemic control flaws can yield systemic program weaknesses—e.g., 

unrealized goals and improper payments—managers must continuously assess and improve their 

internal control systems. When they identify a widespread deficiency, they must fix the problem 

before it undermines the program. 

Large programs present unique challenges that require particularly strong internal controls to 

safeguard against potential fraud, waste, and abuse. For instance, we reviewed the Rural Housing 

Service’s Single Family Housing (SFH) Direct Loan Program, which allows very low and low 

income households (that would not otherwise have sufficient credit) to receive SFH direct loans 

to purchase housing. As administrator of the program, the Centralized Servicing Center (CSC) 

 

5

 We have drawn from the Office of Management and Budget’s (OMB) description of Federal managers’ obligations in 

Management’s Responsibility for Internal Control (Circular A-123, 2006 revision). 
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oversees a loan portfolio of over 325,000 loans, with an outstanding principal balance exceeding 

$16 billion. We found that although CSC performed reviews of borrower income and generally 

made accurate payment subsidy eligibility and recapture determinations, CSC processors 

inaccurately calculated the final recapture receivables for 13 of the 100 borrower accounts in our 

sample—which statistically projects to 8,103 borrower recapture receivable accounts, with a 

total value of $33 million. CSC also lacked formal procedures to actively monitor borrower 

occupancy and did not always establish final payment subsidy recapture receivables in a timely 

manner. Also, for 7 of the 100 borrower accounts, CSC inaccurately calculated the borrowers’ 

payment subsidy—which projects to a total value of $4.9 million for 7,784 borrower accounts. 

We recommended CSC expand its secondary review process, improve how it tracks loans, and 

implement procedures to monitor borrower occupancy and track household income.6

We maintain that implementing corrective actions and strengthening internal controls in response 

to audit recommendations is key for program integrity and effectiveness. In recent years, USDA 

agencies have generally been more responsive in implementing corrective action plans to address 

issues identified in audits. However, individual issues, when viewed comprehensively, can 

sometimes point to weaknesses in the overall system of internal controls. As stewards of Federal 

resources, “[a]gencies should carefully consider whether systemic weaknesses exist that 

adversely affect internal control across organizational or program lines,” and senior USDA 

managers should work to identify and correct such issues. When USDA and its agencies 

strengthen their overall internal controls, they also strengthen their programs.

Corrective Actions:

If the debt is enforceable and collectable, Rural Development (RD) will review accounts where 

under-billing of the recapture receivable was identified, recalculate the amount of subsidy 

recapture due, establish a receivable, and contact the borrower to collect the amount(s) due. RD 

will re-write the desk procedures including secondary reviews for recapture receivable 

calculations. CSC will identify and monitor borrowers who have recaptured receivable accounts.

This will determine if the borrower continues to meet the occupancy requirement or if borrowers 

are deceased.

CSC will obtain an Office of the General Counsel (OGC) opinion related to occupancy for both 

granting subsidy and collecting recapture receivable amounts and will implement procedures in 

accordance with OGC guidance. 

CSC will provide training for all employees involved in the subsidy process, and for the 

calculating and collecting recapture receivable to address these OIG audit findings. The training 

will incorporate requirements for annual reviews and include standard adjustments to accounts 

for annual cost of living adjustments for social security and other government payments.

 

6 Single Family Housing Direct Loan Servicing and Payment Assistance Recapture (04601-0001-31, July 2014). 
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SECTION III

Information Security Needs Continuing Improvement (Challenge 3) 

As stated in the FY 2014 Management Challenges report, typically, USDA’s work is thought of 

in terms of the benefits and services the Department provides, which touch almost every aspect 

of American life. To accomplish its mission, USDA must manage vast amounts of data 

associated with its many programs and operations. This critical information ranges from 

agricultural statistics that drive domestic and global markets to data-driven inspection systems 

that help ensure our food is safe. Department employees must be able to access, use, and 

communicate this information to deliver programs effectively. Additionally, the general public 

can apply for many program benefits and other services via the internet. It is therefore critical 

that the Department protect the security, confidentiality, and integrity of its information 

technology (IT) infrastructure. 

With the passage of the Federal Information Security Management Act of 2002 (FISMA), the 

Office of Inspector General (OIG) has annually reviewed the Department’s cybersecurity 

initiatives, including those that shield IT equipment and systems from theft, attack, and intrusion. 

In the past year, USDA has improved its IT security. For instance, USDA’s National Information 

Technology Center became compliant with the Federal Risk and Authentication Management 

Program in June 2013—one year earlier than the mandatory date.7 However, even with these 

advances, our reviews have reported that USDA’s IT systems remain vulnerable in many key 

areas. 

We continue to recommend that the Office of the Chief Information Officer (OCIO) work with 

USDA agencies to identify overall risks, and then prioritize those risks so that it will have a solid 

basis for a time-phased plan to systematically mitigate them. Again, in FY 2013, we reported that 

OCIO has not (1) developed Departmentwide policies, procedures, or strategies for continuous 

monitoring or risk management; (2) monitored agencies for compliance with baseline 

configurations and ensured known vulnerabilities were fixed; (3) deleted separated employees’ 

access to computer systems, and developed and implemented a policy to detect and remove 

unauthorized network connections; and (4) issued policy for information security oversight of 

systems that contractors or other entities operate on USDA’s behalf, including cloud computing 

systems and services.8, 9

Since our 2013 FISMA review, OCIO has improved USDA’s IT security posture by releasing 

three critical Departmentwide policies in the latter part of FY 2013 and the beginning of 

FY 2014.10 While this is a positive step, USDA’s overall compliance with FISMA and other 

security guidance is also based upon individual agencies’ performance. In coming years, 

 

7 Office of the Chief Information Officer, Fiscal Year 2013 Federal Information Security Management Act Report (50501-0004-

12, November 2013). 

8 Cloud computing is a model for enabling convenient, on-demand network access to a shared pool of configurable computing 

resources (e.g., networks, servers, storage, applications, and services) that can be rapidly provisioned and released with minimal 

management effort or service provider interaction. 

9 Office of the Chief Information Officer, Fiscal Year 2013 Federal Information Security Management Act Report (50501-0004-

12, November 2013).

10 While we believe these policies to be a positive step, we could not evaluate their effectiveness because they were not in effect 

for most of FY 2013. We will be evaluating the implementation of these policies during our FY 2014 FISMA work. 
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USDA’s challenge will be to ensure that OCIO provides the necessary oversight, and that its 

agencies make efforts to implement OCIO’s policies and adapt them into agency-specific 

procedures. 

OCIO’s responsibility is to provide high-level oversight of the information systems that touch 

every aspect of USDA’s operations. However, OCIO has not always taken appropriate steps to 

ensure that these systems are adequately safeguarded. As noted in Challenge 1, we found 

significant security issues with USDA’s UTN, which serves as the data network backbone for 

USDA customers and agencies. Because USDA is not adequately overseeing and monitoring its 

contract with a contractor—which was tasked with key security roles—this contractor has not 

provided several of these services. OCIO also was not adequately performing some of its own 

duties and had not effectively implemented all recommendations from a prior OIG audit.11While 

OCIO has now created eight plans of action and milestones (POA&Ms) to address some known 

problems, as of June, only five POA&Ms were being addressed; three were delayed. 

While OCIO is responsible for overseeing overall USDA security, each agency must also use 

controls recommended by the National Institute of Standards and Technology (NIST) to reduce 

risks to Federal systems. In our reviews, we noted that individual agencies do not always fulfill 

these duties. For example, during the course of another IT-related audit, we found that, although 

the National Agricultural Statistics Service (NASS) consistently performs monthly security scans 

of its network, it is not remediating the identified IT vulnerabilities in a timely manner. We 

found 4,858 critical, high, and medium-risk vulnerabilities on 899 devices, which could 

compromise the system if not addressed timely. NASS also did not create any POA&Ms to 

resolve these vulnerabilities once they were detected, as required. Without creating a POA&M in 

the Cyber Security Assessment and Management (CSAM)12 system for each vulnerability, 

USDA agencies cannot track their progress in addressing these IT vulnerabilities.13

Looking forward, OCIO needs to lay the foundation for an effective, comprehensive IT security 

plan. It is then each agency’s responsibility to create and implement agency-specific procedures 

based on Departmental policy. With 34 agencies and offices to protect, many with their own IT 

infrastructure, managing IT security will remain a formidable responsibility for USDA. 

Corrective Actions:

OCIO has developed Departmentwide policies and procedures for continuous monitoring and 

risk management. Continuous monitoring has been automated through use of the Tivoli Endpoint 

Manager. On May 15, 2014, the Chief Information Officer (CIO) sent a memorandum to 

agencies requiring that all agencies meet NIST standards for secure configuration baselines. 

OCIO also included templates for waiver/deviation from baseline configuration standards for 

approval by the CIO. 

 

11 Management and Security over USDA’s Universal Telecommunications Network (88501-0002-12, July 2014).

12 CSAM is a comprehensive system developed by the Department of Justice, which facilitates achieving FISMA compliance. 

13 Security Review of the National Agricultural Statistics Service’s Lockup Procedures (26501-0001-12, February 2014). 
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NASS created 11 POA&Ms in FY 2014 and has since completed eight. Of the 4,858 

vulnerabilities identified during the audit, NASS has successfully mitigated 2,981 to date; of 

those, all critical vulnerabilities have been resolved. NASS expects to mitigate the remaining 

vulnerabilities by the end of CY 2014. 

Departmental Outreach Efforts Need to be More Transparent 

(Challenge 4) 

As stated in the FY 2014 Management Challenges report, USDA is dedicated to ensuring that its 

programs and benefits are accessible to all communities it serves. In an April 2009 memorandum 

to all USDA employees, the Secretary of Agriculture reiterated the importance of civil rights, 

emphasizing that there was significant progress to be made in working with communities to 

address past civil rights issues. The Department has received public attention with respect to 

various discrimination complaints that have been filed in Federal district court, including 

Pigford I,

14 the Black Farmers Discrimination Lawsuit (BFDL),15 Keepseagle,16 and

Garcia/Love.17 Settlements have been reached in Pigford I, BFDL, and Keepseagle, and a 

voluntary administrative claims process has been established for Hispanic and women farmers 

and ranchers claimants (Garcia/Love). 

As part of our work under the Claims Resolution Act of 2010, which provided $1.15 billion for 

the payment of claims in BFDL, OIG conducted a performance audit of the claims process for 

the BFDL settlement. The BFDL settlement agreement provided two external entities—the 

claims administrator and a deciding official (known as the neutral)—would be responsible for 

processing and approving or denying claims, respectively. Overall, nothing came to our attention 

to indicate that the claims process was not implemented in accordance with the BFDL settlement 

agreement. We did, however, identify that the neutral’s adjudicators reached different 

conclusions for similar claims—approving some and denying others. The claims administrator 

also had not identified all instances where multiple claims may have been filed for a single 

farming operation or an individual class member. Finally, the neutral had provisionally approved 

at least 20 persons who were ineligible for a BFDL award because they had already participated 

in the Pigford I settlement. The claims administrator and the neutral addressed our findings,18

and we are currently testing the effectiveness of their corrective actions in an ongoing audit.19

As the Department moves forward to address civil rights disputes and reaches out to the 

communities it serves, we emphasize the importance of strong internal controls—such as 

formalized procedures, documentation, and oversight—which will, in the long run, ensure more 

transparent, consistent, and equitable treatment of all those seeking to participate in USDA 

programs.

 

14 Pigford v. Glickman, No. 97-1978 (D.D.C.). 

15 In re Black Farmers Discrimination Litigation, No. 08-mc-511 (D.D.C.). 

16 Keepseagle v. Vilsack, No. 1:99 CV 03119 (D.D.C.). 

17 Garcia v. Vilsack, No. 1:00CV02445 (D.D.C.) and Love v. Vilsack, No. 1:00CV02502 (D.D.C.).

18 In re Black Farmers Discrimination Litigation (50601-0001-21, December 2013). 

19 In re Black Farmers Discrimination Litigation—Adjudicated Claims (50601-0003-21, work in process).
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180 | Fiscal Year 2014 Agency Financial Report 

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Corrective Actions:

There were no corrective actions needed in FY 2014 or actions to be completed in FY 2015 to 

resolve the prior year audits discussed in this management challenge. There are several audits 

pending that will be addressed by USDA when the audits are finalized by OIG. 

Strategic Plan on Trade Should be Strengthened to Assess the Impact of 

Agricultural Commerce and Trade (Challenge 5) 

As stated in the FY 2014 Management Challenges report, given the importance of U.S.

agriculture to the economy—in 2013, the Nation’s farms and ranches produced $445 billion in 

goods20—USDA has a deeply-rooted and longstanding interest in promoting the export of our 

commodities worldwide. Over the last few years, the total monetary value of U.S. agricultural 

exports has risen significantly because of several factors, including adverse weather conditions in 

major agricultural areas, the U.S. dollar’s declining value, and increased demand in countries 

such as India and China. The value of U.S. agricultural exports has grown from $115.8 billion in 

FY 2010 to $144.1 billion in FY 2013. 

In this positive environment for U.S. agricultural goods, USDA’s challenge is to capitalize on the 

historic moment. The Secretary emphasized the importance of the Department’s strategic plan on 

trade, saying, “We need to remain focused on keeping up the incredible momentum we’ve seen 

over the past five years.”

21 Agricultural commerce and trade is one of the primary goals in the 

Department’s current strategic plan for FY 2014-2018. However, creating a focused and resultsoriented approach remains a challenge for USDA—which in turn makes it difficult to determine 

the overall impact of increased exports on our Nation’s rural economies. 

In monitoring the Department’s efforts, we have found that this is an area for continued 

improvement. We reported in 2007 that USDA had not integrated its country-specific marketing 

strategies into a focused, global strategy capable of responding effectively to international 

market trends. At that time, we recommended that the Department develop a global market 

strategy to increase U.S. export opportunities and competitiveness and, in 2010, the Department 

announced a global market strategy in answer to the President’s call for an export initiative.22, 23

In FY 2013, we reported a similar issue: FAS’ recently updated strategic plan—which is in effect 

through FY 2015—needed to be strengthened. FAS helps U.S. food and agricultural exporters 

take full advantage of market opportunities through trade promotion and trade policy, and serves 

as the principal coordinator for international activities within USDA. We found that while FAS’ 

 

20 Value of agricultural sector production forecast for 2013, as of February 2014. 

21 “Vilsack: U.S. farm exports hit a record $140.9 billion last fiscal year,” Des Moines Register (November 15, 2013, 

http://blogs.desmoinesregister.com/dmr/index.php/2013/11/15/vilsack-u-s-farm-exports-hit-a-record-140-9-billion-last-fiscalyear/article).

22 Foreign Agricultural Service: Implementation of the Trade Title of the 2002 Farm Bill and the 2002 President’s Management 

Agenda (50601-0012-At, March 2007). 

23 In March 2010, the President issued the National Export Initiative, an executive order to enhance and coordinate Federal 

efforts to facilitate the creation of jobs in the United States through the promotion of exports and to ensure the effective use of 

Federal resources. This initiative supports the Administration’s goal of doubling exports from 2010 to 2015. 
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updated strategic plan did include measurable goals and objectives, these goals and objectives 

(which measure the dollar value of exports) do not present the whole picture of how FAS’ 

actions are affecting the global market for American agricultural goods. To resolve these issues, 

we recommended that FAS refine its performance measures to contextualize changes to U.S.

market share; incorporate clear, outcome-based performance measures into the 2013 Country 

Strategy Statements; and work with the Department to update certain strategies and performance 

measures.

24

While the Department is taking steps to respond to OIG’s past findings, further work is still 

needed. In its latest FY 2015 budget hearing before Congress, FAS showed a willingness to 

consider market share and dollar values as part of its goals—a step we have recommended FAS 

take since our 2007 trade report. FAS’ challenge is to strengthen its measure for estimating the 

number of U.S. jobs created by this rise in exports.25 Secretary Vilsack emphasized that the 

Department’s trade promotion efforts—which return $35 in economic benefits for every 

$1 invested—not only provide “a great value for producers who gain access to additional market 

opportunities abroad,” but could also create a profound, beneficial impact upon the “rural 

communities that depend on a solid agriculture sector to create and support jobs.”

26

With the Department’s emphasis in measuring its impact on rural economies, determining FAS’ 

actual impact is of key importance. At present, FAS still cannot validate the estimates that it has 

projected; it has agreed, however, to consider changing the goal to better measure the impact 

FAS has on the rural economy. In coming years, we plan to monitor FAS’ efforts to improve its 

strategic plan. This plan is essential to fulfilling USDA’s overarching goal of increasing 

prosperity in rural communities.

Corrective Actions: 

Country Strategy Statement (CSS) reporting guidelines for 2014 incorporated improvements 

including clear, outcome-based performance measures. The majority of 2014 CSS reports have 

been completed using the improved guidelines. 

The measurement of FAS capacity building activities still needs further improvement. FAS 

management reconvened a working group to again work toward identifying how further 

improvements can be made toward consistently developing activities with measurable outcomes 

for the CSS. Guidelines for 2015 reporting will be developed by this group. FAS also will 

determine a collection of measures that together illustrate how FAS efforts are affecting global 

markets, and will coordinate with the Department to update the current Global Market Strategy. 

 

24 Effectiveness of FAS’ Recent Efforts to Implement Measurable Strategies Aligned to the Department’s Trade Promotion and 

Policy Goals (50601-0001-22, March 2013). 

25 FAS developed its performance measure based on the Economic Research Service annual macroeconomic models that 

estimate the number of jobs created and additional economic activity generated from the export of agricultural products at both 

farm and non-farm levels. 

26 “Vilsack: U.S. farm exports hit a record $140.9 billion last fiscal year,” Des Moines Register (November 15, 2013, 

http://blogs.desmoinesregister.com/dmr/index.php/2013/11/15/vilsack-u-s-farm-exports-hit-a-record-140-9-billion-last-fiscalyear/article).
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Action Needed to Improve Natural Resources Stewardship (Challenge 6) 

As stated in the FY 2014 Management Challenges report, one of USDA’s mission areas is 

ensuring the health of the land through sustainable management and conservation of the Nation’s 

natural resources. Recently, Congress has emphasized conservation efforts. For example, for the 

first time ever, the Agricultural Act of 2014 (2014 Farm Bill) has tied Federal crop insurance 

program eligibility to compliance with conservation practices.27 NRCS plays a key role in 

managing the Nation’s natural resources by working with private landowners to help them 

conserve, maintain, and improve their natural resources. Over the years, USDA’s agencies—

particularly NRCS—have had to balance budgetary concerns with the increasing demands placed 

on our Nation’s public and private lands, as well as the logistical issues of managing vast and 

geographically diverse natural resources. We have found that without strong controls in place to 

ensure compliance and effective program operations, NRCS cannot ensure that its budget for 

conservation efforts—$4.25 billion in FY 2013—is used efficiently or correctly. As NRCS now 

faces growing concerns such as climate change, increasing land development, and conservation 

measures that affect human safety, successfully managing these demands will continue to pose a 

challenge in future years. 

For instance, NRCS’ controls over the Environmental Quality Incentives Program (EQIP) need 

to be strengthened in order to meet its goal of providing financial and technical assistance to 

participants to build practices that will address pressing environmental concerns. EQIP is NRCS’ 

largest program—for FYs 2009 through 2011, it received nearly $3.5 billion. Despite the 

program’s prominence, we found that even though the allocation method adequately considered 

environmental concerns on the national level, NRCS’ State-level allocation processes did not. 

Second, State offices did not make onsite visits for all practices to ensure they were completed 

by the participant, as required by contract. Instead, States allowed contractors and participants to 

self-certify. Third, we found that, of the participants with projects that were significantly behind 

schedule, NRCS did not take action to identify those that were noncompliant with their contracts 

(or modifications to their contracts). In the future, this could limit NRCS’ ability to take 

corrective action. Finally, NRCS did not require follow-up visits to ensure practices were in 

working order for their intended lifespan—which resulted in several practices at locations we 

visited not being maintained. Without effective monitoring controls to address these issues, 

NRCS may not be effectively obtaining the environmental benefits that are expected of EQIP 

practices. 

We recommended that NRCS implement controls and schedule an analysis to ensure State 

allocation formulas are tied to environmental concerns, and implement controls to ensure that 

participants who do not meet contractual timelines are identified as noncompliant. NRCS should 

also require onsite verification to ensure practices are actually complete and obtain a formal 

opinion from the Office of the General Counsel on whether participants must maintain practices 

for the estimated lifespan.28

 

27 Agricultural Act of 2014, Pub. L. No. 113-79, tit. II, subtit. G, 128 Stat. 649, 762-766.

28 Environmental Quality Incentives Program (10601-0001-31, July 2014). 
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We also found that NRCS has an opportunity to improve how it monitors landowner compliance 

with conservation easement program goals. Since 1992, NRCS has protected and restored over 

3 million acres of wetlands, grasslands, forests, and farmlands through the various easement 

programs it administers. As a result, NRCS has a long-term responsibility to ensure the different 

easement program objectives are achieved and statutory requirements are met on these lands. 

NRCS carries this out through annual monitoring. Currently, NRCS monitors more than 

15,000 easements annually. Since these easements are for 30 years or for perpetuity, and since 

their number is growing, NRCS must establish effective systems to monitor them. We reviewed 

records or made site visits to easements under the Wetland Reserve Program, the Emergency 

Watershed Protection Program’s Flood Plain Easements, the Grassland Reserve Program, and 

the Farm and Ranch Lands Protection Program.

We found that the personnel performing onsite monitoring are not detecting violations, mistakes, 

and outdated items, both on easements and in the related files. As a result, NRCS is not 

consistently detecting violations, properly reporting easement status, or correcting 

noncompliances, all of which could compromise the environmental benefits of the easements and 

diminish the agency’s ability to effectively monitor its easement investments. We also found that 

NRCS is not effectively tracking easement monitoring. We recommended that NRCS make 

improvements to its conservation easement compliance activities. NRCS generally agreed with 

our recommendations.29

Responsible management is the key to ensuring that all Americans benefit from our country’s 

rich and diverse natural resources. USDA agencies must strike a balance between production and 

conservation demands, while at the same time working to safeguard American communities. 

With growing concern over issues such as climate change, we encourage NRCS to be vigilant in 

putting its limited resources to the best use. 

Corrective Actions:

OGC advised again that NRCS does not have the authority to enforce practice lifespan 

requirements as a contract violation matter upon expiration of the EQIP contract period. NRCS’ 

current policy is based upon this OGC guidance. 

NRCS will analyze State-developed EQIP allocation formulas to identify inconsistencies in 

interpretation of EQIP policy and factors used to target funding to natural resource concerns that 

are priorities. NRCS will issue a memorandum or National Bulletin reminding local office staff 

of proper certification and documentation procedures. 

Food Safety Inspection Systems Need Improved Controls (Challenge 7) 

As stated in the FY 2014 Management Challenges report, because food-borne pathogens and 

food contamination can put consumer health in jeopardy, USDA inspection systems work to 

protect the safety of the U.S. food supply. The Department provides a range of safety measures, 

 

29 NRCS Conservation Easement Compliance (10601-0002-31, July 2014). 
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from placing qualified inspectors in livestock slaughtering facilities to creating comprehensive 

inspection and testing programs that pinpoint likely risks at processing facilities. To maintain the 

confidence of consumers, Congress, and other stakeholders, USDA’s food safety agencies should 

continue to improve their inspection processes and technology systems to accurately assess risk 

and effectively prevent contamination. USDA’s challenge is to remain vigilant and proactive in 

ensuring that American consumers receive wholesome foods.

Even in the face of budget constraints, food safety agencies—like the Food Safety and Inspection 

Service (FSIS)—are responsible for ensuring the safety of the Nation’s food supply. Our review 

of FSIS’ and the Agricultural Marketing Service’s (AMS) efforts in maintaining food safety 

raised concerns about how FSIS was addressing this challenge. We found that some FSIS 

inspectors are working many hours above a normal schedule of 80 hours per two-week pay 

period—more than 400 of FSIS’ approximately 10,000 inspectors averaged more than 120 hours 

each pay period for all of FY 2012. Overworked FSIS inspectors may be risking the public’s 

health as well as their own, especially if they are fatigued while performing crucial food safetyrelated tasks. 

A report by the Centers for Disease Control and Prevention has shown that working long hours is 

not only detrimental to the health and well-being of employees, it also decreases employee 

productivity while on the job. Similarly, the Occupational Safety and Health Administration 

found that extended or unusual work shifts can lead to an increased risk of operator error, 

injuries, or accidents. The FSIS union contract stipulates that field inspectors are generally not to 

work more than 10 or 12 hours in one day, depending on their duties. Additionally, Federal 

regulations state that Departments must schedule the basic work week so as to consist of five 

consecutive 8-hour days.30 However, we found that some inspectors are working these hours six 

and even seven days a week. Because of these extended hours, OIG believes FSIS inspectors 

could have decreased productivity, which might impair their ability to perform functions that are 

critical to public food safety. FSIS disagreed that the hours were affecting its field staff’s work, 

but agreed to take measures to better understand the effects of these long hours on its employees, 

such as conducting an internal review to assess whether FSIS effectively limits inspectors’ 

required overtime hours, implementing any additional safeguards needed, and setting limitations 

on extended overtime hours. FSIS agreed to all recommendations.31

Because of its vital importance in public health and safety, we will continue to monitor the 

Department’s efforts in addressing pressing food safety concerns. For example, FSIS is 

implementing a new information system to improve public health, which will collect, 

consolidate, and analyze data. The Public Health Information System (PHIS) is intended to serve 

as a comprehensive data analysis system and includes four components: domestic inspection, 

import activities, export activities, and predictive analytics. FSIS implemented PHIS for 

domestic inspection in April 2011, and PHIS for import activities in May 2012—the remaining 

two components are currently being implemented. In large part, FSIS anticipates that PHIS 

 

30 These regulations do offer some flexibility. For example, the Department may depart from the basic work week in those cases 

where maintaining such a schedule would seriously handicap the Department in carrying out its function. 

31 FSIS’ and AMS’ Field-Level Workforce Challenges (50601-0002-31, July 2013). 
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should improve upon past FSIS information systems that we have reviewed, such as the 

Performance Based Inspection System and the Automated Import Information System. 

The task of ensuring the safety of America’s food is a vast responsibility, and we recognize the 

difficulties USDA faces in maintaining daily vigilance. If the Department continues to meet its 

food safety challenge through strengthening its inspection processes and technology systems, 

then consumers can be confident that USDA’s measures effectively safeguard against the risk of 

contaminants entering the food supply. 

Corrective Actions:

FSIS formed a work group to examine the reasons for excessive overtime and the impact of 

excessive overtime on employees’ health, safety, and performances. The group reviewed 

corrective action and managerial intervention to prevent excessive hours of overtime while still 

maintaining the appropriate safety and physical fitness of the in-plant personnel. The work 

group’s report included an action plan highlighting the 10- and 12-hour rule set by FSIS and the 

Union. The report stressed that supervisors must enforce the rule and that managers must hold 

their supervisors accountable for excessive overtime hours. The report also includes hiring and 

training recommendations to further address the issue of excessive overtime hours. Finally, 

FSIS’ Accounts Payable Management Branch has begun to generate overtime reports each pay 

period, which include the names of employees who post over 56 overtime hours. These reports 

are shared with the managers (District Managers, Deputy District Managers, and Supervisory 

Resource Management Analysts) in each district to ensure appropriate action is taken whenever 

excessive overtime hours are reported. 

FSIS is implementing Actual Time Automation (ATA), which is an initiative that will perform 

all necessary reconciliations of the FSIS’ time and attendance reporting system to its system for 

billing overtime to ensure industry is accurately billed for inspection services. The ATA 

implementation has several phases including a phase to implement an electronic device that will 

replace the current paper timekeeping and billing processes. 

Identifying, Reporting, and Reducing Improper Payments Can 

Strengthen USDA Programs (Challenge 8) 

As stated in the FY 2014 Management Challenges report, USDA delivers approximately $159 

billion in public services annually through more than 300 programs. In FY 2013, USDA reported 

that 16 of its programs and activities were vulnerable to significant improper payments 

(“high-risk” programs) and estimated $6.2 billion in improper payments for that year—a 5.36 

percent error rate, and an increase from FY 2012’s 5.11 percent error rate. The Department needs 

to continue efforts to identify the root causes of improper payments and implement corrective 

actions to reduce its improper payments based on those causes. 

Improper payments occur when funds go to a wrong or ineligible recipient, the proper recipient 

receives an incorrect amount of funds or uses funds in an improper manner, or documentation is 
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not available to support a payment. Not all improper payments involve fraud or waste—most 

payment errors are inadvertent and often based on missing documentation. However, all 

improper payments affect the integrity of Government programs and compromise citizens’ trust 

in government.

In recent years, the President’s 2009 Executive Order, Reducing Improper Payments and 

Eliminating Waste in Federal Programs (EO 13520), the Improper Payments Elimination and 

Recovery Act of 2010 (IPERA), and the Improper Payments Elimination and Recovery 

Improvement Act of 2012 (IPERIA) have all increased the Government’s accountability for 

reducing Federal improper payments. These measures not only require more stringent reporting, 

they also help agencies reduce improper payments by identifying and correcting underlying 

problems. Additionally, they require OIGs to evaluate agencies’ progress in implementing these 

requirements. We found that USDA continues to struggle to fully comply, particularly with 

requirements involving USDA’s reporting practices and preventative measures. 

One necessary step towards improving the accuracy of USDA’s payments is improving the 

transparency and quality of its reports. Without accurate reporting, USDA cannot fully assess 

and communicate its efforts to eliminate the highest improper payments in its programs. As in 

previous years, we found that USDA is not submitting timely and complete quarterly reports. 

Although FY 2013’s reports were generally more timely as the year progressed, agencies still fell 

significantly short of their required timelines—ranging from 222 days late in the first quarter to 

65 days late in the fourth quarter. We also found that the Office of the Chief Financial Officer 

(OCFO) omitted the entire first quarter reports for two agencies—and as a result, their 

overpayments were not reported throughout the entire fiscal year.32

With every lapse in its internal controls, USDA risks increased improper payments. During our 

IPERA review for FY 2013, we reported that, collectively, eight programs administered by the 

Food and Nutrition Service (FNS), FSA, NRCS, and RMA did not comply with the requirement 

of meeting their FY 2013 improper payment reduction targets. Had they done so, they could 

have avoided $416 million in reported improper payments. Agencies with particularly high error 

rates need to strengthen their internal controls to more effectively prevent and identify 

overpayments when they occur. For example, NRCS’ Farm Security and Rural Investment Act 

programs missed their target by 6.90 percent, which resulted in the reporting of over 

$157 million in additional estimated improper payments. RMA’s Federal Crop Insurance 

Corporation also missed its target by 1.23 percent, which resulted in the reporting of over 

$133 million in additional estimated improper payments. RMA determined that one of the 

companies we sampled grossly underestimated the resources it needed for the crop insurance 

claim load—which caused the majority of RMA’s excessive errors. Both NRCS and RMA have 

agreed to take corrective actions—including improvements to testing, additional training, 

 

32 Fiscal Year 2013 Executive Order 13520, Reducing Improper Payments, High-Dollar Overpayments Reports Review (50024-

0006-11, August 2014).
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updated policy, and detailed reviews to ensure the same errors are not repeated in future 

years.

33, 34

Although USDA began implementing processes to reduce the risk of improper payments and 

comply with IPERA, for the third consecutive year, it did not comply with the law—falling short 

on three of the seven requirements. Looking forward, OCFO and USDA agencies must complete 

several actions—such as FNS developing a reliable method to estimate improper payments for 

meals claimed in its Child and Adult Care Food Program—to assess results and achieve 

compliance. We note that USDA—and particularly OCFO—is taking measures to strengthen 

some internal controls. For example, in an effort to prevent payments from going to deceased 

individuals, USDA implemented a monthly comparison of payment recipients against the Social 

Security Administration’s Death Master File. In addition, agencies began requesting access to the 

Department of the Treasury’s Do Not Pay Portal. OCFO anticipates that most agencies will have 

fully implemented this process by the end of the fiscal year. When all of the tools are available, 

USDA plans to utilize the Do Not Pay Portal to help prevent payments being processed to 

ineligible participants on the list. 

As USDA works to address improper payments by implementing necessary internal controls, we 

continue to emphasize the importance of complying with IPERIA, IPERA, EO 13520, and other 

requirements. If USDA addresses key weaknesses, the public can be more confident that USDA 

conscientiously and effectively accounts for, uses, and recovers taxpayer dollars.

Corrective Actions:

Despite USDA’s efforts to decrease improper payments, the improper payment rate may 

continue to increase for a few years as agencies continue to enhance their methodologies for 

identifying and reporting improper payments. Additionally, since improper payment testing is 

performed on payments made in prior fiscal years, corrective actions implemented may not result 

in an immediate impact on the improper payment rate. In some cases, corrective actions could 

take several years to impact the improper payment rate. 

USDA has improved the timeliness of the High-Dollar Overpayment Quarterly Report. While 

additional work needs to be done, improvements were noted in both OIG Executive Order 

13520, Reducing Improper Payments, High Dollar Report Review and USDA Management 

Challenges report. In FY 2014, USDA also implemented detailed second-party reviews to ensure 

that agency submissions were not omitted. 

The Department conducted a study to evaluate the source of improper payments in the crop 

insurance program to more accurately test and report improper payment results. 

The Federal Crop Insurance Program FY 2013 improper payment rate was 5.23 percent, and the 

target published in the FY 2012 Agency Financial Report was 4.0 percent. The improper 

 

33 Additionally, RMA stated that the company in question was under close monitoring for the 2013 crop year and would not be 

approved for 2014 unless it made additional corrective actions and improvements. 

34 U.S. Department of Agriculture Improper Payments Elimination and Recovery Act of 2010 Compliance Review for Fiscal Year 

2013 (50024-0005-11, April 2014) 
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payment rate was elevated due to the material weaknesses of one company that exhibited an 

exceptionally large amount of errors (27.3 percent) for the year. RMA found that the company 

had increased its premium volume in 2011 without a commensurate increase in infrastructure 

and resources to adequately service the additional business. Subsequently, the Federal Crop 

Insurance Corporation (FCIC) conducted extensive reviews of the company’s administration of 

the Federal crop insurance program because of the company’s failure to follow policies and 

procedures, and violations of the Standard Reinsurance Agreement. The company has 

implemented corrective actions to address the administrative weaknesses raised from FCIC’s 

review and is currently operating at a satisfactory performance level. FCIC continues its 

monitoring of this company to ensure it maintains its operational capacity at an acceptable level. 

No further action will be taken by the agency concerning this matter. 

USDA determined that FSA’s Conservation Reserve Program and Marketing Assistance Loans 

have consistently reduced their improper payments to the point that they are no longer at 

high-risk for making improper payments. With concurrence from OIG and OMB, USDA has 

removed the aforementioned from the list of programs at high-risk of improper payments. 

USDA strengthened the quality review process for accurate and complete agency information in 

the Improper Payments section of the Agency Financial Report (AFR). USDA developed a 

second-party review process that increased the accuracy of reporting in last year’s AFR. USDA 

developed a detailed checklist that will make further improvements in the accuracy of the 

information in this year’s report. 

NRCS has implemented several initiatives to decrease its improper payment rate. NRCS now 

requires proof that entity participants have registered in the System for Awards Management 

(SAM) prior to obligation and payment. To decrease improper payments related to easements, 

NRCS is scheduled to implement a pre-payment checklist and additional payment-related 

controls in its easement inventory tool. Furthermore, additional guidance and policy reminders 

will be provided to State offices regarding appraisals to ensure that NRCS pays the correct 

amount for easements. These actions are scheduled for early FY 2015. 

FNS has confirmed in three of its programs that did not meet their respective target error rates, 

the differences noted (0.9 percent for School Breakfast Program), 0.59 percent for National 

School Lunch Program, and 0.38 percent for Special Supplemental Nutrition Program for 

Women, Infants and Children) are based on aged estimates and are all well within the confidence 

intervals for the study estimates. In this respect, when the level of precision inherent in these 

estimates is considered, FNS believes the three programs substantively met their targets for 

FY 2013. 

USDA will continue to improve the timeliness of the High-Dollar Overpayment Quarterly 

Report. USDA will seek ways to maximize the recovery of improper payments and accurately 

report the results of recovery efforts. Also, USDA will implement updated guidance from OMB 

on evaluating, testing, and reducing improper payments.
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USDA Needs to Increase Efforts for Appropriately Training and 

Preparing Human Resources (Challenge 9) 

As stated in the FY 2014 Management Challenges report, in the current economic climate, 

USDA—like most of the Federal Government—has been asked to accomplish more with fewer 

employees. For many agencies, this means appropriately training and utilizing their available 

staff. 

More than ever, as agencies address this challenging situation, it is critical to ensure that 

employees are not duplicating work and that limited resources are focused on areas of the 

greatest need. Despite declining resources—FSA saw its salary and expense appropriation shrink 

from $1.57 billion in FY 2010 to nearly $1.4 billion in FY 2013—the agency has not developed 

an integrated compliance strategy to ensure that its resources are focused on areas posing the 

most significant risk of noncompliance. Instead, FSA conducts various compliance activities that 

are not coordinated within an overall strategy. FSA officials stated that they believed that FSA’s 

strategic plan and various handbooks comprised its compliance strategy. However, we found this 

approach does not go far enough in evaluating FSA’s compliance activities as a whole. 

Specifically, FSA had not evaluated its compliance activities to ensure that the scope and 

methodology of the various reviews adequately address specific problem areas and risks, and had 

not developed an overall compliance goal or performance measures for each of its compliance 

activities. As a result, some of FSA’s compliance activities were duplicative and were not 

achieving their intended results. Therefore, FSA cannot ensure that it is maximizing the use of its 

limited resources to ensure that its compliance activities focus on areas of greatest risk.35

Likewise, FAS needs to work diligently to ensure that it strategically focuses its resources to 

appropriately meet staffing needs. We found that staffing shortages have affected FAS’ ability to 

monitor active Food for Progress Program agreements. Our review found that FAS’ Food Aid 

Division did not always receive, review, or monitor semiannual reports submitted by private 

voluntary organizations (PVOs), which in turn has impacted its ability to reasonably ensure the 

integrity of the financial information in these reports. Additionally, the Food Aid Division cannot 

confirm that PVOs established separate bank accounts to administer agreements or ensure that 

PVOs remitted interest earnings on the Commodity Credit Corporation’s advanced 

administrative funds. FAS officials attributed these weaknesses to a lack of staffing and a 

mandate to cut travel expenses, as well as working in an uncertain budget environment where 

they did not know what resources they had to oversee and implement corrective actions. FAS 

officials stated that the agency’s ability to perform close out reviews was also affected by vacant 

positions and a lack of staff. Finally, FAS officials explained that they had given higher priority 

to awarding grants rather than to monitoring them. Although FAS has agreed with our 

11 recommendations, further action is needed to reach management decision on 5 of them.36

Like FAS and FSA, both AMS and FSIS could improve human capital management in order to 

create a more streamlined and effective workforce. We reviewed AMS’ and FSIS’ methods of 

 

35 FSA Compliance Activities (03601-0001-22, July 2014). 

36 Private Voluntary Organization Grant Fund Accountability (07601-0001-22, March 2014).
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compensating for a limited workforce and found that both agencies needed to improve their 

succession planning and how they monitor or bill industry for their services. For instance, we 

found that FSIS could not adequately reconcile reimbursable overtime charges to industry with 

the overtime recorded by field staff in its timekeeping system, which could potentially have 

resulted in inaccurate overtime charges billed to industry. We also found that agreements 

between the two agencies on how to cross-utilize their workforces were out of date and needed to 

be revised. The agencies are currently in the process of implementing the recommended 

changes.37

As USDA continues to streamline its operations, it must ensure that its limited resources are sent 

directly to areas where there is the greatest need. Doing so should reduce error and ensure that 

USDA is efficient and effective in performing the diverse duties of an evolving Federal 

workforce.

Corrective Actions:

FSA will evaluate its compliance activities to ensure that the scope and methodology of the 

various reviews adequately address specific problem areas and risks, taking into consideration 

FSA’s limited human resources, and develop an overall agency-integrated compliance strategy. 

FAS has made significant changes to its regulations, operating systems, and policies and 

procedures all of which have improved FAS’ oversight of its food assistance agreements. FAS 

will engage an independent consultant to perform a human capital assessment of the Food 

Assistance Division; this assessment will include an evaluation of staffing requirements 

necessary to further strengthen management of the food assistance programs.

USDA issued new guidance regarding the integration of succession planning and workforce 

planning into USDA Human Capital Planning. As described in the March 2014, memorandum, 

all USDA agencies will be working with the Department’s Office of Human Resource 

Management on designing and implementing succession plans for each program area. 

AMS piloted a new online portal and worked through issues with Departmental Management 

prior to Department-wide dissemination. In May 2014, the Department reviewed 53 areas within 

the AMS Human Capital Plan, and the agency scored high relative to the Department’s median 

scores. 

AMS will continue to work both internally and with the Department to ensure the agency is 

equipped to address changing industry and customer needs. Additionally, AMS is updating a 

Memorandum of Understanding with FSIS on the cross-utilization of field personnel, for use 

when opportunities arise. 

FSIS worked with APHIS to design and implement a Secure Socket Layer proxy solution that 

APHIS employees can easily operate within the FSIS network. APHIS monitors the status of 

overdue industry accounts and properly services FSIS debts. Both agencies were involved in 

piloting this solution. 

 

37 FSIS’ and AMS’ Field-Level Workforce Challenges (50601-0002-31, July 2013). 
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FNS Needs to Strengthen SNAP Management Controls (Challenge 10) 

As stated in the FY 2014 Management Challenges report, by far the largest program within 

USDA, the Supplemental Nutrition Assistance Program (SNAP) provides monthly food 

assistance and nutrition for the health and well-being of more than 47 million low-income 

individuals. Program participation has grown by 81 percent since 2007, and the program 

disbursed over $76.07 billion in benefits in FY 2013. Given the program’s significance, fraud 

committed by both SNAP recipients and the retailers that redeem SNAP benefits is a critical 

concern. With increased participation comes increased risk, and past audit work has found that 

FNS needs to redouble its efforts not only to enforce its policies against such fraud as 

trafficking,38 but also to establish strong internal controls to prevent it.

In recent years, FNS has taken measures to strengthen its oversight of SNAP in three key areas: 

(1) reducing improper payments and errors, (2) combating the abuse and misuse of benefits, and 

(3) better pursuing recipient and retailer fraud. FNS’ efforts have included improvements to its 

anti-fraud retailer data system, further plans to upgrade retailer surveillance technology, and 

promotion of a trafficking hotline number. Moreover, FNS has finalized regulations to 

implement stronger penalties and sanctions for small retailers. 

While FNS has made progress, further efforts are needed to fully utilize available resources. OIG 

recently analyzed SNAP-related databases at Federal and State levels to identify potentially 

ineligible recipients. Last year, we reported that 27,044 recipients (0.2 percent) in 10 States were 

receiving approximately $3.7 million a month in SNAP benefits, even though they were 

potentially ineligible.39 FNS has been responsive to our recommendations, reminding States of 

the importance of data matching and issuing guidance encouraging States to make greater use of 

USDA fraud data. Currently, FNS is working on developing and implementing a pilot system 

that will allow five participating States to check for dual participation within this group of States. 

FNS continues to offer guidance and technical support to the five-State consortium to ensure that 

the project meets OMB’s objectives. The pilot began in June 2014 and is scheduled to run for 12 

months, at which point an evaluation report will be provided to FNS. FNS will develop any 

necessary action plans at that time as a result of decisions regarding any possible future actions. 

FNS also plans to issue a report that explores the feasibility and options for developing a SNAP 

recipient fraud rate by the end of FY 2014, as well as a study to determine the feasibility of using 

a national sample of SNAP retailers for calculating the national trafficking rate. 

As FNS updates its technology to monitor and strengthen SNAP, FNS must also ensure that it is 

making full use of gathered data, and that its agency policies and employee skill sets sufficiently 

supplement these efforts. In July 2013, we reported that FNS does not have clear procedures and 

guidance to carry out key oversight and enforcement activities to address SNAP retailer fraud, or 

adequate authority to prevent multiple instances of fraud, either by a particular owner or at a 

particular location. We recommended that FNS comprehensively review its policies, procedures, 

 

38 Trafficking is the exchange of benefits for cash or other compensation. 

39 Analysis of FNS’ Supplemental Nutrition Assistance Program Fraud Prevention and Detection Efforts (27002-0011-13, 

September 2012). 
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192 | Fiscal Year 2014 Agency Financial Report 

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and guidance; require background checks for retailers; make improvements to its automated 

retailer data system; create and strengthen safeguards for high-risk stores; and require more 

supervisory reviews. While we have reached agreement on most of the report’s 

recommendations, FNS needs to make further changes to safeguard SNAP from retailer fraud.40

Specifically, FNS needs to seek legislative changes that would provide FNS the authority to 

require any owner of a location that has been previously permanently disqualified for trafficking 

to have a vested interest, such as posting a collateral bond or letter of credit, before authorization. 

Until legislative changes are made, the agency should strengthen oversight and monitoring of 

store locations that have been permanently disqualified two or more times for trafficking. FNS 

must also change SNAP regulations and policy to permanently disqualify retail store owners at 

all authorized retail locations. FNS should also notify store owners that, in the future, any 

trafficking violation will require the store owner to qualify for and pay a penalty in lieu of 

permanent disqualification, or be subject to permanent disqualification at all store locations 

currently authorized for that owner. Finally, FNS must also ensure owners who have been 

permanently disqualified for trafficking are not granted authorization as a SNAP retailer at new 

locations.

With these changes in mind, it becomes all the more important for FNS to be able to assess 

SNAP’s progress in reducing improper payments. We are currently completing fieldwork on our 

review of SNAP error rates. State agencies are required to review SNAP payments and identify 

payment errors for a statistical sample of national households that receive benefits. FNS then 

selects a sub-sample of these households, verifies the States’ findings, and uses these reviews to 

calculate the States’ official error rates. Since SNAP has grown considerably in recent years, it is 

critical for FNS to ensure that the national payment error rate is calculated correctly and that the 

program’s improper payments are being accurately reported. 

Investigating SNAP fraud continues to be a priority for OIG, based upon the level of funding this 

program receives. OIG has significantly increased the level of investigative resources allocated 

to combating SNAP fraud from 37 percent in FY 2010 to 55 percent in FY 2013. With this 

increase has come a high percentage of success: the conviction rate for investigations of SNAP 

fraud was 94 percent for FY 2013. Typically, OIG’s investigations have centered on retailers 

engaging in SNAP trafficking. After careful analysis of our investigative work and discussions 

with FNS, we concluded that to address fraud more effectively and ultimately better protect 

USDA funds, States must also make a concentrated effort to deal with recipient trafficking. With 

this goal in mind, OIG is working with FNS to address both the retailers and recipients identified 

through our investigations as engaging in SNAP trafficking. As we continue to review SNAP 

fraud detection and prevention efforts and investigate instances of fraud, we are dedicated to 

working with FNS to strengthen SNAP’s internal controls.

 

40 Controls for Authorizing Supplemental Nutrition Assistance Program (SNAP) Retailers (27601-0001-31, July 2013). 
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Corrective Actions:

FNS takes program integrity very seriously. Any errors are of concern; however, FNS points out 

that the findings in OIG’s audit of 10 State databases constitute an actual error rate well below 

0.20 percent of the caseload, which suggests that while current processes can be improved, they 

are, in fact, working. FNS is committed to our continuing collaboration with our State partners to 

further reduce errors. When each State followed up on the identified cases, it was determined 

that actual errors again turned out to be a small fraction again of the initial 0.20 percent of cases 

identified as potential anomalies. Where these actual errors were identified, the State pursued 

recovery of the improper payment.

Currently, FNS is working on developing and implementing a pilot system that will allow five 

participating States to check for dual participation within this group of States. FNS continues to 

offer guidance and technical support to the five-State consortium to ensure that the project meets 

OMB’s objectives. As mentioned, the pilot began in June 2014 and is scheduled to run for 

12 months, at which point an evaluation report will be provided to FNS. FNS will forward a 

copy of the evaluation report upon its completion and will develop any necessary action plans at 

that time as a result of decisions regarding any possible future actions. 

FNS released the Recipient Integrity Management Evaluation (ME) Module, and FNS conducted 

reviews of every State in FY 2013. The module is used by FNS to examine State Agency (SA) 

and local SNAP offices to determine compliance with Federal requirements governing recipient 

integrity. The ME Module focuses on four areas of recipient integrity: investigations, 

administrative disqualification hearings, prosecutions, and reporting. FNS is in the process of 

conducting a full Recipient Integrity ME review in every State again for FY 2014.

On April 23, 2014, FNS awarded a new contract to Criterion Systems Inc. to manage FNS’ 

electronic Disqualified Recipient System (eDRS). FNS is working with its contractor to enhance 

the eDRS system to address previous findings, specifically focusing on improving data integrity. 

Furthermore, FNS is continuing to work with SAs in order to transition them to more timely and 

robust data connections, such as Web services that improve the timeliness and accuracy of data 

matched by States against the eDRS system. As part of this transition, FNS requires States to 

conduct full audits to reconcile State disqualification records against those found in eDRS, 

ensuring that disqualified individuals who are ineligible do not participate in the program. 

FNS is conducting a study to determine whether it is feasible to create a uniform methodology 

for States to calculate their recipient fraud rate, which would be incorporated into a national 

recipient fraud rate. FNS is also conducting a study to determine the feasibility of using a 

national sample of SNAP retailers for calculating the national trafficking rate. FNS is currently 

developing a timeline for issuance of the National Fraud Rate Feasibility Recommendations and 

Options report. 

The retailer management function was centralized at FNS headquarters in January 2013. The 

National Standard Operating Procedures provide a clear line of responsibility for all retailer 

management functions as of February 1, 2013. Replacement of the retailer management policy 
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USDA

handbook is underway. Several subject areas have been replaced by issue-specific policy 

memoranda. 

A Quality Assurance Branch was formed to address retailer management issues; several retailer 

management training modules have been developed to provide foundational training to all 

retailer management staff. Senior OIG officials have acknowledged that FNS has no statutory 

authority to directly access the National Crime Information Center (NCIC) for the purpose of 

obtaining criminal background checks for retailers. Therefore, FNS has agreed to initiate a 

proposed rule that would require any new high-risk applicants and current high-risk retailers to 

provide FNS with a self-initiated NCIC background check prior to authorization or 

reauthorization. The work plan to initiate this proposed rule will be completed in calendar year 

2014.

USDA Needs to Develop Effective Performance Measures for its 

Programs (Challenge 11) 

As stated in the FY 2014 Management Challenges report, the Government Performance and 

Results Modernization Act of 2010 requires agencies to report the actions taken by programs as 

outcomes clearly linked to program goals.41 OIG has consistently identified performance 

measures as an area in need of improvement. In particular, our review of performance measures 

for Recovery Act funds illustrated that program and agency goals are not clearly articulated, that 

performance measures tend to report outputs rather than outcomes, and that the data being 

reported are of questionable accuracy.42 As our audits have extended to non-Recovery Act 

programs, we have found similar issues. Without accurate and meaningful outcome-based 

performance measures, policymakers will not receive the information they need to make 

appropriate funding decisions.

A recent audit of FSA’s Economic Adjustment Assistance to Users of Upland Cotton Program 

(EAAP)—a program that authorizes economic assistance to domestic users of upland cotton to 

ensure the competitiveness of U.S. textile mills in the global marketplace—found that the agency 

has not (1) established goals for EAAP consistent with its mandate, (2) developed a program 

evaluation, or (3) established performance measures to determine the impact of economic 

assistance payments to domestic users of upland cotton. Even though FSA projected that it made 

payments that would limit market losses, plant closures, and employment declines, the agency 

has not developed a way to measure this impact. Instead, FSA views paying users in a timely 

manner and assuring the users spend the money within required timeframes to be its only 

purpose in administering the program. Therefore, FSA did not develop an assessment of program 

impact beyond making payments and performing examination reviews. Without established 

goals and related outcome measures, FSA cannot demonstrate that the $337 million spent 

between August 2008 and July 2013 has stimulated the U.S. textile industry, or determine to 

 

41 Public Law 111-352.

42 Recovery Act - Recovery Act: NRCS' Emergency Watershed Protection Program Floodplain Easements and Watershed 

Operations Effectiveness Review (10703-0001-31, March 2013). 
OTHER INFORMATION

Fiscal Year 2014 Agency Financial Report | 195

SECTION III

what extent the assistance actually improved the condition of users as they compete in a global 

market.43

We found that although FAS had taken steps to improve the internal control structure of the Food 

for Progress Program, it had not developed and implemented indicators or measures to assess 

staff performance in meeting its responsibilities. As a result, FAS cannot readily determine 

whether private voluntary organizations properly carry out Food for Progress Program 

agreements, whether projects are on track to achieve intended results, or whether program funds 

have been used for their intended purposes.44

We also found similar problems with how FAS administered Section 632(a) funds for 

capacity-building projects in Afghanistan. Although senior managers were aware of general 

control weaknesses in 2010, they did not sufficiently strengthen their control environment before 

accepting Section 632(a) funds from the United States Agency for International Development 

(USAID). We found that FAS had not implemented performance monitoring plans for projects 

being implemented in Afghanistan until over two years after the first project began, which meant 

that FAS did not have adequate methods to monitor recipient accomplishment of program goals 

and objectives. We noted that performance plans for some of the projects we reviewed had only 

recently been developed and agreed to. However, FAS awarded the projects and allocated funds 

beginning in FY 2011. Therefore, none of the projects started with performance plans, and most 

had delays of over a year before putting a plan in place. We believe that continued use of the 

performance plans, along with clear and measurable objectives, is critical to strong FAS 

oversight of these funds.45

Without outcome-based performance measures that are tied to clear program goals, USDA 

agencies will not be able to accurately report their successes or identify programs in need of 

improvement.

Corrective Actions:

FSA is closely following the law, as written in the 2008 and 2014 Farm Bills. The agency will do 

the following: 1) establish goals for EAAP consistent with its mandate, 2) develop a program 

evaluation, and 3) establish performance measures to determine the impact of assistance 

payments to domestic users of upland cotton. 

FAS has begun to implement formal policies and procedures for staff related to monitoring and 

collection of interest earnings and supervisory monitoring of performance reports. FAS and FSA 

also have been working over the past year to document roles and responsibilities between the 

two agencies where CCC resources are concerned. 

 

43 Economic Adjustment Assistance to Users of Upland Cotton (03601-0002-22, July 2014). 

44 Private Voluntary Organization Grant Fund Accountability (07601-0001-22, March 2014).

45 Section 632(a) Transfer of Funds from USAID to USDA for Afghanistan (50601-0002-16, February 2014).
 Managing for Results in Performing Its Many Vital Public Functions 

196 | Fiscal Year 2014 Agency Financial Report 

USDA 

Summary of Financial Statement Audit and 

Management Assurances 

Summary of Existing Material Weaknesses 

The U.S. Department of Agriculture’s material weaknesses and financial system 

non-conformance, as related to management’s assurance for the Federal Managers’ Financial 

Integrity Act (FMFIA) and the certification for the Federal Financial Management Improvement 

Act (FFMIA), are listed in Exhibit 18 and Exhibit 19. 

Exhibit 18: Summary of Financial Statement Audit 

Audit Opinion Unmodified 

Restatement No

Material Weakness 

Beginning 

Balance New Resolved Consolidated Reassessed 

Ending 

Balance 

Improvement Needed in 

Overall Financial 

Management* 

1 1 

Improvement Needed in 

Information Technology 

Security and Controls 

1 1 

TOTAL MATERIAL 

WEAKNESSES 2 2 

* USDA reports Improvements Needed in Overall Financial Management as a financial system non-conformance in Exhibit 14.

Exhibit 19: Summary of Management Assurances 

Effectiveness of Internal Control Over Financial Reporting (FMFIA § 2) 

Statement of Assurance Qualified 

Material Weakness 

Beginning 

Balance New Resolved Consolidated Reassessed 

Ending 

Balance 

Information Technology 1 1 

Estimated Losses for 

Insurance Claims Calculation 1 1 

TOTAL MATERIAL 

WEAKNESSES 2 2 

Effectiveness of Internal Control Over Operations (FMFIA § 2) 

Statement of Assurance Unqualified 

Material Weakness 

Beginning 

Balance New Resolved Consolidated Reassessed 

Ending 

Balance 

TOTAL MATERIAL 

WEAKNESSES 0 0 
OTHER INFORMATION

Fiscal Year 2014 Agency Financial Report | 197

SECTION III 

Conformance With Financial Management System Requirements (FMFIA § 4) 

Statement of Assurance Systems do not conform to financial management system requirements. 

Material Weakness 

Beginning 

Balance New Resolved Consolidated Reassessed 

Ending 

Balance 

Funds Control Management* 1 1 

TOTAL 

NON-CONFORMANCES 1 1 

Compliance With Federal Financial Management Improvement Act FFMIA 

Agency Auditor 

1. System Requirements Noncompliance noted Noncompliance noted

2. Accounting Standards Noncompliance noted Noncompliance noted

3. U.S. Standard General 

 Ledger at Transaction Level Noncompliance noted Noncompliance noted

* USDA also reports this Funds Control Management weakness as noncompliance with FFMIA. 
 Managing for Results in Performing Its Many Vital Public Functions 

198 | Fiscal Year 2014 Agency Financial Report 

USDA

Improper Payments 

Since fiscal year (FY) 2000, agencies have reported efforts to reduce improper payments through 

the Office of Management and Budget’s (OMB) Circular No. A 11, “Preparation, Submission, 

and Execution of the Budget.” Under the Improper Payments Information Act of 2002 (IPIA), as 

amended by the Improper Payments Elimination and Recovery Act of 2010 (IPERA) and the 

Improper Payments Elimination and Recovery Improvement Act of 2012 (IPERIA), executive 

agencies must identify programs that may be susceptible to significant improper payments, 

estimate the annual amount of improper payments, and submit those estimates to Congress. 

A program with significant improper payments (a high-risk program) has both a 1.5 percent 

improper payment rate of the total program outlays, and at least $10 million in improper 

payments, or exceeds $100 million dollars in improper payments. Implementing guidance for 

IPERA is located in OMB Circular No. A 123, “Management’s Responsibility for Internal 

Control,” Appendix C, “Requirements for Effective Measurement and Remediation of Improper 

Payments.” 

Measuring and reporting improper payments is mandatory for four high-risk programs under the 

former Section 57 of OMB Circular No. A 11. The U.S. Department of Agriculture (USDA) also 

has identified an additional 10 high-risk programs through its risk-assessment process. Six 

USDA programs were identified as high-risk in the 2014 Agency Financial Report (AFR) 

reporting year per the Consolidated Security, Disaster Assistance, and Continuing 

Appropriations Act, 2009 (Public Law 110–329, September 30, 2008). This risk assessment 

process is used to review USDA programs and activities, and identify those susceptible to 

significant improper payments. 

Fiscal Year 2014 Results 

The Department’s improper payment rate increased to 5.52 percent for FY 2014, an increase 

from 5.36 percent for FY 2013. USDA’s FY 2014 improper payment results are as follows: 

 Eight USDA high-risk programs reported improper payment rates for FY 2014 that met the 

programs’ reduction targets for FY 2014. 

 The Supplemental Nutrition Assistance Program (SNAP) reported an improper payment rate 

of 3.20 percent—less than the FY 2014 reduction target of 3.80 percent, and less than the 

3.42 percent improper payment rate reported for FY 2013. The SNAP improper payment 

rate is a historic low for the program. 

 The Child and Adult Care Food Program (CACFP) reported an improper payment rate of 

1.05 percent—less than the FY 2014 reduction target of 1.48 percent and less than the 

1.09 percent improper payment rate reported for FY 2013. 

 The National School Lunch Program (NSLP) reported an improper payment rate of 

15.25 percent—less than the FY 2014 reduction target of 15.30 percent and less than the 

15.69 percent improper payment rate reported for FY 2013. 
OTHER INFORMATION

Fiscal Year 2014 Agency Financial Report | 199

SECTION III 

 The Wildland Fire Suppression Management Program reported an improper payment rate of 

0.00 percent—less than the FY 2014 reduction target of 0.02 percent. 

 The Rental Assistance Program (RAP) reported an improper payment rate of 1.99 percent—

less than the FY 2014 reduction target of 2.20 percent. 

Below is the matrix that USDA uses to provide a cross-tabulation framework for the way in 

which each program categorizes and reports its improper payment estimate. 

Exhibit 20: Type of Improper Payment 

Reason for Improper Payment Overpayment 

(%) 

Underpayment 

(%) 

Insufficient 

Documentation to 

Determine (%) 

Inability to Authenticate Eligibility 0.00% 0.00% 0.00%

Failure to 

Verify: 

Death Data 0.00% 0.00% 0.00%

Income Data 0.00% 0.00% 0.00%

Excluded Party Data 5.06% 0.00% 0.00%

Prisoner Data 0.00% 0.00% 0.00%

Other Eligibility Data 0.07% 0.00% 0.00%

Administrative 

or Process Error 

Made by: 

Federal Agency 3.47% 0.15% 0.00%

State Agency 14.76% 5.44% 0.00%

Other Party (e.g., participating 

lender, or any other 

organization administering 

Federal dollars) 

45.74% 11.26% 0.00%

Medical Necessity 0.00% 0.00% 0.00%

Other Reason 13.34% 0.70% 0.00%

In FY 2014, the Department took the following actions to address improper payments: 

 Determined that the Conservation Reserve Program and Marketing Assistance Loans have 

consistently reduced their improper payments to the point that they are no longer at 

high-risk for making improper payments. With concurrence from the Office of Inspector 

General (OIG) and OMB, USDA has removed them from the list of programs at high-risk of 

improper payments. 

 Improved the timeliness of the High-Dollar Overpayment Quarterly Report. While 

additional work needs to be done, improvements were noted in both OIG’s High Dollar 

audit and management challenges report. USDA implemented detailed second-party reviews 

to ensure that agency submissions are accurate. 

 Conducted a study to evaluate the source of improper payments in the crop insurance 

program to more accurately test and report improper payment results. 
 Managing for Results in Performing Its Many Vital Public Functions 

200 | Fiscal Year 2014 Agency Financial Report 

USDA

 Launched an outreach campaign to inform USDA staff involved with programs and 

activities susceptible to improper payments about remedies available through the 

Department’s recovery auditing contract. 

 USDA and Treasury implemented a system to check all USDA payments against the Death 

Master File to verify payments. USDA and Treasury also implemented a new system that 

allows USDA to check multiple databases in the “Do Not Pay” Portal at time of 

authorization. 

USDA’s FY 2015 goals are to further strengthen the quality review process for accurate and 

complete agency information in the Improper Payments section of the AFR. We will continue to 

improve the timeliness of the High-Dollar Overpayment Quarterly Report. USDA will seek ways 

to maximize the recovery of improper payments and accurately report the results of recovery 

efforts. USDA will implement updated guidance from OMB on evaluating, testing, and reducing 

improper payments. USDA will also expand agency use of USDA’s program payments recovery 

auditing contract. 

Compliance with IPERA Requirements 

OIG conducts a compliance review of IPERA requirements annually. OIG’s USDA IPERA 

Compliance Review for FY 2013, dated April 2014, found that USDA agencies did not fully 

comply with three of seven IPERA requirements. Information on the findings, accomplishments, 

and planned actions by agency are included in Section 1: Management’s Discussion and 

Analysis, Compliance with Laws and Regulations of this report (USDA FY 2014 AFR). 

Programs non-compliant with IPERA for one fiscal year must submit a plan to Congress 

describing the actions that the agency will take to become compliant. For programs noncompliant with IPERA for two consecutive fiscal years, OMB is to review the program and 

determine if additional funding would help the agency come into compliance. For programs that 

are non-compliant with IPERA for three consecutive fiscal years, the agency must submit to 

Congress a reauthorization proposal for each discretionary program or proposed statutory 

changes necessary to bring a mandatory program into compliance. 

Status of Non-Compliant Programs Based on USDA Agency 

Information Provided for USDA FY 2014 Agency Financial Report 

Based on information provided by the program agencies for the FY 2014 AFR, it appears that 

USDA will be non-compliant for three of the seven IPERA requirements for FY 2014. The 

programs are listed below by the number of consecutive years they were non-compliant. OIG 

will conduct USDA’s IPERA Compliance Review for FY 2014 and publish a report in FY 2015. 
OTHER INFORMATION

Fiscal Year 2014 Agency Financial Report | 201

SECTION III

Programs non-compliant with IPERA for 2 consecutive years are, as follows: 

Farm Security and Rural Investment Act Program 

 Did not meet annual improper payment reduction targets. 

 Did not report improper payment rates of less than 10 percent. 

Federal Crop Insurance Corporation Fund 

Did not meet annual reduction targets. 

Loan Deficiency Payments 

 Did not meet annual improper payment reduction target. 

 Did not report improper payment rate of less than 10 percent. 

Programs non-compliant with IPERA for 4 consecutive years are, as follows: 

National School Lunch Program 

Did not report improper payment rates of less than 10 percent. 

School Breakfast Program 

 Did not report improper payment rates of less than 10 percent. 

 Did not meet annual improper payment reduction target. 

Child and Adult Care Food Program 

Did not report sufficient improper payment estimates. 

Special Supplemental Nutrition Program for Women, Infants and Children 

Did not meet annual improper payment reduction target. 

Direct and Counter-Cyclical Payments 

Did not meet annual improper payment reduction target. 
 Managing for Results in Performing Its Many Vital Public Functions 

202 | Fiscal Year 2014 Agency Financial Report 

USDA 

I. Risk Assessment 

The Office of the Chief Financial Officer (OCFO) issued detailed guidance for the risk 

assessment process, including templates, and performed extensive reviews of draft risk 

assessments. Programs with larger outlays were required to perform more detailed assessments 

than smaller programs. 

For USDA’s largest programs, the risk-assessment process includes the following: 

 Amount of improper payments needed to meet the reporting standards; 

 Description of the program including purpose and basic eligibility requirements; 

 Definition of improper payments specific to the program; 

 Program vulnerabilities linked to improper payments; 

 Internal controls designed to offset the program vulnerabilities; 

 Test of transactions for selected programs; 

 Listing of significant reviews and audits; 

 Final determination of risk level; 

 Planned future enhancements; and 

 Description of how improper payments are recovered. 

USDA has identified the following 20 programs as susceptible to significant improper payments. 

Exhibit 21: Programs Susceptible to Improper Payments 

Selection Methodology USDA Agency Program 

Former Section 57 of 

Office of Management and 

Budget (OMB) Circular 

No. A-11, “Preparation, 

Submission, and Execution 

of the Budget” (Circular 

No. A-11). 

Food and Nutrition Service 

(FNS) 

Supplemental Nutrition Assistance Program 

(SNAP) 

National School Lunch Program (NSLP) 

School Breakfast Program (SBP) 

Special Supplemental Nutrition Program for 

Women, Infants and Children (WIC) 

USDA Identified as 

Susceptible to Significant 

Improper Payments 

Farm Service Agency (FSA), 

Commodity Credit 

Corporation (CCC) 

Milk Income Loss Contract (MILC) Program 

Loan Deficiency Payments (LDP) 

Direct and Counter-Cyclical Payments (DCP) 

Miscellaneous Disaster Programs (MDP) 

Noninsured Assistance Program (NAP) 

FNS Child and Adult Care Food Program (CACFP) 

Forest Service (FS) Wildland Fire Suppression Management (WFSU) 

Rural Development (RD) Rental Assistance Program (RAP) 

Risk Management Agency Federal Crop Insurance Corporation (FCIC) 
OTHER INFORMATION

Fiscal Year 2014 Agency Financial Report | 203

SECTION III 

Selection Methodology USDA Agency Program 

(RMA) Program Fund 

Natural Resources 

Conservation Service (NRCS) 

Farm Security and Rural Investment Act 

Programs (FSRIP) 

Disaster Relief 

Appropriation Act of 2013 

(Sandy Disaster) 

FNS Hurricane Sandy—Commodity Assistance 

Program 

FSA, CCC Hurricane Sandy—Emergency Conservation 

Program 

FSA, CCC Hurricane Sandy—Emergency Forest Restoration 

Program 

FS Hurricane Sandy—Emergency Forest Restoration 

Program 

FS Hurricane Sandy—Capital Improvement and 

Maintenance 

NRCS Hurricane Sandy—Emergency Watershed 

Protection Program 

II. Statistical Sampling 

An exhibit describing each program’s sampling process is below: 

Exhibit 22: Program Sampling Process 

Agency Program Sampling Process

Food and 

Nutrition Service 

(FNS) 

Supplemental 

Nutrition Assistance 

Program (SNAP) 

Statistical Sampling: 

States are required to select monthly a statistically random sample 

from a universe of all households receiving SNAP benefits for that 

given month. Most States draw the samples systematically (i.e. 

using a constant sampling interval), although there are some States 

that employ simple random and/or stratified sampling techniques. 

Required annual sample sizes range from 300 for State Agencies 

(SAs) with small SNAP populations (e.g. Wyoming and Guam), to 

well over 1,000 for larger States, with the average being around 950 

per State. Federal “subsamples” covered in the following paragraph, 

are selected by FNS systematically from each State’s complete 

reviews, with sample sizes running from 150 to 400 annually. 

Error Rate Calculation: 

The National payment error rate is calculated using a multi-step 

process: 

 Each SA conducts quality control reviews of a monthly sample of 

cases. The review measures the accuracy of eligibility and benefit 

determinations for each sampled case against Program standards. 

SAs are required to report to FNS the findings for each case 

selected for review. 
 Managing for Results in Performing Its Many Vital Public Functions 

204 | Fiscal Year 2014 Agency Financial Report 

USDA 

Agency Program Sampling Process

 FNS then subsamples completed State quality control reviews and 

re-reviews selected individual case findings for accuracy. Based 

on this subsample, FNS determines each SA’s official error rate, 

using a regression formula. 

 The National payment error rate is then computed by averaging 

the error rate of the active cases for each State, weighted by the 

amount of issuance in the State. 

FNS National School 

Lunch Program 

(NSLP) 

Year/Period of Data Sampled: 

Data collected in school year (SY) 2005-2006 aged with 

administrative data from SY 2012-2013. 

Type of Sampling Methodology: 

OMB-approved alternative. 

Because detailed information on the circumstances of households 

with NSLP participants is not collected administratively, USDA 

makes use of periodic studies to assess the level of error in program 

payments. The November 2007 NSLP/SBP Access, Participation, 

Eligibility and Certification (APEC) study uses a national 

probability sample of school food authorities (SFAs), schools, 

certified students and their households, and households that applied 

and were denied for program benefits in school year 2005-2006. 

A stratified random sample of 78 unique public SFAs was selected 

in the first stage of sampling. Stratification variables included 

geographic region, prevalence of schools having a School Breakfast 

Program (SBP) and those using Provision 2/3, and a poverty 

indicator. For SFAs that do not have Provision 2/3 schools, three 

schools, on average, were selected for the second stage of sampling. 

Schools were stratified into two groups: (1) elementary schools and 

(2) middle- and high-schools. The school sample included both 

public and private schools. A total of 264 schools participated in the 

study (216 non-Provision 2/3 schools, 24 Provision 2/3 schools in 

their base year, and 24 Provision 2/3 schools not in their base year). 

For the third stage of sampling, samples of households were 

selected in 240 of these schools to yield completed interviews for 

about 3,000 students certified for free and reduced-price meals and 

400 denied applicant households. 

To update the erroneous payment rate estimates in NSLP since the 

2007 APEC study was released, a series of econometric models 

were developed that captured the relationship between 

characteristics of the districts that participated in the APEC study 

and their estimated rates of certification error. Estimated 

coefficients from these models were used in conjunction with 

updated values of district characteristics obtained from the School 

Food Authorities Verification Collection Reports (Form FNS-742) 

to predict certification error. Certification error rates were then 

translated into amounts and rates of erroneous payments in each 

district. Aggregating the district level estimates produced a national 

measure of predicted erroneous payments. 
OTHER INFORMATION

Fiscal Year 2014 Agency Financial Report | 205

SECTION III 

Agency Program Sampling Process

Universe Population: N/A 

Sample Size: N/A 

Formula Used to Calculate The Sample Size: N/A 

List of Controls That Payments Were Tested Against:

In the APEC study, independent reviews of about 6,800 student 

applications approved for free and reduced-price meals and over 

1,000 denied applications were conducted to estimate the case error 

rate due to administrative error. In addition, in-person household 

interviews were conducted in over 3,400 households to determine 

estimates of household misreporting on the applications. 

Data on counting and claiming errors were collected in all schools 

selected for application reviews. On randomly selected school days, 

field staff observed approximately 100 lunch transactions at each of 

the 245 schools participating in the NSLP as well as 50 breakfast 

transactions at each of the 218 schools participating in the SBP. 

Cashier error was estimated using information from these meal 

transactions. Data on school-recorded daily meal totals across all 

points of sale, aggregated meal counts reported to the district, and 

total meals submitted to the SA for reimbursement were examined 

to determine claiming errors. 

FNS School Breakfast 

Program (SBP) 

Year/Period of Data Sampled: 

Data collected in SY 2005-2006 aged with administrative data from 

SY 2012-2013. 

Type of Sampling Methodology: 

OMB-approved alternative. 

Because detailed information on the circumstances of 

SBP-participating households are not collected administratively, 

USDA makes use of periodic studies to assess the level of error in 

program payments. The November 2007 NSLP/SBP Access, 

Participation, Eligibility and Certification (APEC) study uses a 

national probability sample of school food authorities (SFAs), 

schools, certified students and their households, and households that 

applied and were denied for program benefits in SY 2005-2006. 

A stratified random sample of 78 unique public SFAs was selected 

in the first stage of sampling. Stratification variables included 

geographic region, prevalence of schools having a SBP and those 

using Provision 2/3, and a poverty indicator. For SFAs that do not 

have Provision 2/3 schools, three schools, on average, were selected 

for the second stage of sampling. Schools were stratified into two 

groups: (1) elementary schools and (2) middle- and high-schools. 

The school sample included both public and private schools. A total 

of 264 schools participated in the study (216 non-Provision 2/3 

schools, 24 Provision 2/3 schools in their base year, and 24 

Provision 2/3 schools not in their base year). For the third stage of 

sampling, samples of households were selected in 240 of these 

schools to yield completed interviews for about 3,000 students 

certified for free and reduced-price meals and 400 denied applicant 

households. 
 Managing for Results in Performing Its Many Vital Public Functions 

206 | Fiscal Year 2014 Agency Financial Report 

USDA 

Agency Program Sampling Process

To update the erroneous payment rate estimates in SBP since the 

2007 APEC study was released, a series of econometric models was 

developed that captured the relationship between characteristics of 

the districts that participated in the APEC study and their estimated 

rates of certification error. Estimated coefficients from these models 

were used in conjunction with updated values of district 

characteristics obtained from the School Food Authorities 

Verification Summary Reports (Form FNS-742) to predict 

certification error. Certification error rates were then translated into 

amounts and rates of erroneous payments in each district. 

Aggregating the district-level estimates produced a national 

measure of predicted erroneous payments. 

Universe Population: N/A 

Sample Size: N/A 

Formula Used to Calculate the Sample Size: N/A 

List of Controls That Payments Were Tested Against:

In the APEC study, independent reviews of about 6,800 student 

applications approved for free and reduced-price meals and over 

1,000 denied applications were conducted to estimate the case error 

rate due to administrative error. In addition, in-person household 

interviews were conducted in over 3,400 households to determine 

estimates of household misreporting on the applications. 

Data on counting and claiming errors were collected in all schools 

selected for application reviews. On randomly selected school days, 

field staff observed approximately 100 lunch transactions at each of 

the 245 schools participating in the NSLP, as well as 50 breakfast 

transactions at each of the 218 schools participating in the SBP. 

Cashier error was estimated using information from these meal 

transactions. Data on school-recorded daily meal totals across all 

points of sale, aggregated meal counts reported to the district, and 

total meals submitted to the SA for reimbursement were examined 

to determine claiming errors. 

FNS Special Supplemental 

Nutrition Program for 

Women, Infants and 

Children (WIC) 

Estimates of improper payments in the WIC focus on two 

components: certification error and vendor error. FNS makes use of 

periodic studies to assess the level of error in program payments 

and then “ages” the data to produce updated annual estimates. The 

National Survey of WIC Participants-II Study, published in 

April 2012, established estimates of improper payments due to 

certification error. The 2013 WIC Vendor Management Study 

established the most recent national estimates of erroneous 

payments due to vendor error. FNS generates an annual update for 

the improper payment measurements of both components using 

statistical techniques based on the findings of these bookend 

studies. 

Year/Period of Data Sampled: 

Certification Error—FY 2009. 

Vendor Error—FY 2012. 
OTHER INFORMATION

Fiscal Year 2014 Agency Financial Report | 207

SECTION III 

Agency Program Sampling Process

Type of Sampling Methodology: 

OMB-approved Alternative. 

Certification Error: One of the main purposes of the National 

Survey of WIC Participants II (NSWP II) was to assess erroneous 

payments due to certification error in a nationally representative 

sample of WIC participants. The sample was based on a multi-stage 

sample design. First, a sample of 40 clusters, located in 23 States, 

was selected with Probability Proportional to Size (PPS) based on 

the number of WIC participants, with large States being allowed to 

be selected more than once. Two local agencies were selected for 

each of the 40 sample clusters. One very large California local 

agency was sampled three times, resulting in 78 separate local 

agencies sampled in the second stage. Two clinics were sampled 

with PPS from each local agency whenever possible, resulting in a 

total of 148 clinics being selected in the third stage. A total of 2,538 

WIC participants spread across all five WIC categories (Pregnant, 

Breastfeeding, Postpartum WIC) completed telephone interviews in 

the fourth stage. A subset of 1,210 WIC participants completed inhome interviews during the fifth stage. The in-home survey was 

designed to verify income information through review of household 

income documents. From the interviews, the eligibility of each WIC 

participant was determined to be either correct or improper, and the 

number of case errors was determined. Further, case error was 

translated to dollar error, which required researchers to obtain the 

actual redemption data for respondents from State WIC programs 

from May to July 2009. 

Because improper payment estimates need to be produced annually, 

and given that surveys such as the NSWP-II are extremely 

expensive to mount, FNS required a methodology to “age” the 

estimates produced in that study. The generation of improper 

payments associated with erroneous WIC eligibility in the years 

beyond FY 2009, is based on a three-stage model. In the first stage, 

equations were developed from the NSWP-II survey data to predict 

the probability that a WIC participant was certified erroneously 

(i.e., deemed eligible when the participant’s actual income was not 

within eligibility guidelines) and to predict the average annual cost 

of an erroneous determination for those in error. The second stage 

of the process focuses on predicting the size and changes in the 

composition of the WIC population. The files used for gaining the 

WIC population included WIC Participant Characteristics data from 

a census of all WIC participants enrolled within a particular target 

month (April of every even-numbered year) and WIC 

administrative data obtained from the National Data Bank that can 

provide information on overall trends within WIC certification 

category and region. The third stage of the process is to apply the 

predictions generated from the first stage to the second stage 

population. This approach results in population-adjusted estimates 

of the incidence of eligibility errors and dollar impact. 

Vendor Error: The 2013 WIC Vendor Management Study 

employed a nationally representative probability sample of 1,904 

retail WIC vendors. A two-stage cluster design, with primary 

sampling units (PSU) defined by geographic clusters of counties, 
 Managing for Results in Performing Its Many Vital Public Functions 

208 | Fiscal Year 2014 Agency Financial Report 

USDA 

Agency Program Sampling Process

was developed to meet the study needs. PSUs were defined as either 

individual counties or groups of geographically contiguous counties 

within a single State, with at least 80 vendors in a PSU. The final 

sampling frame contained 352 PSUs. The study’s primary method 

of data collection was through more than 5,600 visits to WIC 

vendors, resulting in more than 7,900 WIC transactions over a 

3-month period. The compliance buyers provided the sole source of 

data on the outcome variables of interest; these data are the basis for 

the national estimates of over- and undercharges. 

Additional data sources include FNS’ WIC State Plan Guidance 

documents, which were used to examine differences in vendor 

compliance outcomes by common SA administrative practices and 

to identify whether and which vendor management practices are 

associated with reduced incidence of vendor violations. The 

Integrity Profile Report 2010 was used as the basis for the 

development of sampling weights for the base and Cash Value 

Voucher (CVV) study. Finally, for each WIC SA selected for the 

study, Food Instrument (FI) reconciliation files were acquired. 

These four data sources were merged to create an analytic data file. 

National and Electronic Benefit Transfer State subgroup-level 

annual estimates of over- and undercharges were developed for the 

base study, the CVV study, and overall. To estimate the annual 

WIC overcharge, the ratio of the best purchase price to the 

redeemed dollar amount was calculated for each vendor. 

FNS conducts periodic studies to estimate the value of vendor 

overcharges and undercharges. The most recent studies were 

conducted in 2005 and 2012. The sampling process for those studies 

is described in the FY 2011 Performance and Accountability Report

(PAR), which can be found at 

http://www.ocfo.usda.gov/usdarpt/pdf/Final,%201.24.12.pdf. For 

FY 2013, FNS estimate the rates of overpayment and underpayment 

by applying the average annual percent changed in the rates from 

2005 and 2012 to the estimated 2012 rates. 

Universe Population: 

Certification Error: 9.11 million WIC participants for the National 

Survey of WIC Participants-II Study (FY 2009). 

Vendor Error: 48,634 authorized vendors with retail food delivery 

operations in the continental United States (except Mississippi, 

Vermont, and military commissaries) for FY 2010 (FY 2013 WIC 

Vendor Management Study). 

Sample Size: 

Certification Error: 1,210 WIC participants. 

Vendor Error: 1,904 retail WIC vendors; more than 5,600 visits to 

WIC vendors, resulting in more than 7,900 WIC transactions over a 

3-month period. 

Formula Used to Calculate The Sample Size: N/A 

List of Controls That Payments Were Tested Against: 

Certification Error: Erroneous payments were determined from 

information provided by applicants during eligibility determination 
OTHER INFORMATION

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SECTION III 

Agency Program Sampling Process

for WIC benefits. This was accomplished by asking respondents to 

show the documents or “proofs” they had originally used to gain 

eligibility in the WIC Program. The proofs had to meet the 

standards set by FNS and/or the SA. From the interviews, the 

eligibility of each WIC participant was determined to be either 

correct or improper, and the number of case errors was determined. 

Further, case error was translated to dollar error, which required 

researchers to obtain the actual redemption data for respondents 

from State WIC programs from May to July 2009. 

Vendor Error: To estimate the annual WIC overcharge by vendors, 

the best purchase price obtained by the compliance buyer was 

compared to the redeemed dollar amount. The actual dollar amount 

over- or undercharged was also calculated using price and 

redemption information. For each record in which an overcharge 

was identified, amounts paid were compared to the Maximum 

Allowable Reimbursement (MAR) and Not-to-Exceed (NTE) 

values provided by the SA. If the amount paid exceeded the MAR 

or NTE, the lesser amount was used to calculate the overcharge. 

FNS Child and Adult Care 

Food Program 

(CACFP) 

Year/Period of Data Sampled: 

FY 2013 

Type of Sampling Methodology: 

OMB-approved alternative. 

In lieu of producing a program-wide improper payment measure, 

FNS has identified the Family Day Care Home (FDCH) component 

of this program as potentially high-risk. Beginning in 2005 and 

annually thereafter, FNS has measured the level of erroneous 

payments due to sponsor error for the two types of program 

reimbursement (Tier 1 and Tier 2). CACFP sponsors are 

responsible for determining whether FDCHs receive meal 

reimbursements at the higher level (Tier 1) or lower level (Tier 2). 

The improper payment rate (cost of improper payments due to 

tiering errors as a percentage of all CACFP FDCH reimbursements) 

has been between 1 percent and 2 percent from 2005 to 2013. 

In addition to the annual sponsor error assessments, FNS has 

continued to use its limited resources to explore potential 

methodologies to develop other measure of high-risk program 

components—in particular, the accuracy of meal claims in FDCHs 

participating in CACFP. The 2010 CACFP Improper Payment Meal 

Claims Assessment project concluded that it was not feasible to use 

parent recall data on specific meals (breakfast, morning snack, 

lunch, afternoon snack, supper, and evening snack) to estimate 

erroneous meal claims. A new CACFP Improper Payment Meal 

Claims Study will be conducted in 2014 to explore an alternative 

method of measuring the rate of erroneous payments to CACFP 

FDCHs for meals claimed for reimbursement. FNS plans to award 

this contract by September 30, 2014. 

The improper payment measures presented do not include improper 

payments associated with the Adult Day Care component or Child 

Care Centers, nor do they include meal claiming errors at this time. 
 Managing for Results in Performing Its Many Vital Public Functions 

210 | Fiscal Year 2014 Agency Financial Report 

USDA 

Agency Program Sampling Process

Universe Population: 

123,017 approved FDCHs participating in CACFP with 855 

sponsoring organizations (CACFP Tiering Study). 

Sample Size: 

For sponsor tiering error measures—600 FDCHs in 60 distinct 

sponsors in 14 States. 

Formula Used to Calculate The Sample Size: 

Sample sizes were calculated to meet the OMB requirements of a 

90 percent confidence interval of plus or minus 2.5 percent points. 

Overall, the 90 percent confidence interval for the percentage of 

reimbursement dollars paid in error resulting from FDCH tiering 

was plus or minus 0.54 percent points. 

List of Controls That Payments Were Tested Against: 

The tiering status of FDCHs was first verified by determining their 

school area eligibility (at least 50 percent of students were approved 

for free/reduced-price meals) and Census Block Group area 

eligibility (at least 50 percent of children at or below 185 percent of 

the Federal Poverty Guidelines) for Tier I and Tier II status. 

A sponsor of an FDCH not verified through area eligibility was 

contacted to secure additional documentation in support of the 

FDCH’s tiering status, such as income and categorical eligibility. 

FNS Hurricane Sandy—

Commodity 

Assistance Program 

FNS decided to conduct a comprehensive review and reconciliation 

of all the funds received by each State. A total of $4,603,177 in 

food funds and $1,096,823 in administrative funds were provided to 

the nine States. Food funds were accounted for separately and 

tracked nationally via the Web-Based Supply Chain Management 

System, an integrated food purchasing, tracking, and ordering 

system for USDA. Administrative funds were accounted for 

separately as well, and States that chose to accept administrative 

funds were required to submit a quarterly FNS-667 report (Report 

of the Emergency Food Assistance Program Administrative 

(TEFAP) Costs)) through the Food Programs Reporting System. 

States were required to obligate all Sandy administrative funds by 

September 30, 2013. FNS reviewed the required reports submitted 

by all States and was able to document that the full amount of the 

$5.7 million allocated was obligated by the end of September 2013, 

and that all expenditures were allowable and used for the intended 

purposes. After conducting this full reconciliation of all Disaster 

Relief Act funds provided to States for TEFAP, FNS can provide 

reasonable assurance that the improper payment error rate was zero. 

FSA, CCC Milk Income Loss 

Contract (MILC) 

Program 

This information is not available at this time. 

FSA, CCC Loan Deficiency 

Payments (LDP) 

A statistical sample design was not completed for loan deficiency 

payments (LDP) because there were only 50 LDP issued in 

FY 2013. All LDP issued in FY 2013 were reviewed; the error rates 

are actual and not estimates. 
OTHER INFORMATION

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SECTION III 

Agency Program Sampling Process

FSA, CCC Direct and CounterCyclical Payments 

Program (DCP) 

This information is not available at this time. 

FSA, CCC Miscellaneous 

Disaster Programs 

(MDP) 

This information is not available at this time. 

FSA, CCC Noninsured 

Assistance Program 

(NAP) 

Universe Population: 

$345,497,193 

42,880 payments. 

Sample Size: 

$15,917,742 

600 payments. 

FSA, CCC Hurricane Sandy—

Emergency 

Conservation 

Program 

Year/Period of Data Sampled: 

FY 2013 

Type of Sampling Methodology: 

Standard Statistical Sample 

Universe Population: 

$397,474 

134 Payments.

Sample Size: 

$204,154 

50 Payments. 

List of Controls That Payments Were Tested Against:

Eligibility verification. 

Payment calculation. 

FSA, CCC Hurricane Sandy—

Emergency Forest 

Restoration Program 

This program reported $0 outlays for FY 2013 and therefore did not 

perform a sample. 

Forest Service 

(FS) 

Wildland Fire 

Suppression 

Management (WFSU) 

Year/Period of Data Sampled: 

10/1/2012 through 9/30/2013. 

Type of Sampling Methodology: 

The standard statistical sampling methodology was used for FS. We 

consulted with a PhD statistician from the University of New 

Mexico to ensure the validity of the sample design, sample sizes, 

and measurement methodology. The samples were selected using a 

90 percent confidence level, with a precision range of 2.5 percent. 

The software used for sample selection was SAS 9.2 for Windows. 

FS pulls the payment and advance transactions from the financial 

system of record and provides the data in an electronic format to the 

statistician. The statistician uses Monetary Unit Sampling and 

systematically analyzes and reviews transactions coded to the 

WFSU fund for the period 10/1/2012 through 9/30/2013 to 

determine the sample size based on the dollar amount of 

transactions processed. The statistician selects the samples and 

provides them to FS, along with the sample size determination 
 Managing for Results in Performing Its Many Vital Public Functions 

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Agency Program Sampling Process

methodology. Under the monetary unit sampling approach, the 

probability of choosing a given payment is proportionate to its size 

relative to the total dollar amount of all payments. This method is 

consistent with a focus on the accuracy of the total of program 

payments. 

Universe Population: 

$751,093,992 

303,766 payments 

Sample Size: 

$151,127,181 

136 payments 

Formula Used To Calculate The Sample Size: 

Total at 9/30/2013/((Projected Tolerable Mis-statement-(Projected 

Expected Mis-statement*1.5))/2.31) 

$751,093,991.78/(($15,021,879.78-($1,502,187.98*1.5))/2.31) = 

136 Projected Total Sample Size 

List Of Controls That Payments Were Tested Against: 

Testing covered the following areas: 

 Determining if the correct vendor was paid; 

 Determining if the payment occurred during the period of 

performance; 

 Validating commitments are properly authorized prior to 

payment; 

 Validating the correct amount was paid; 

 Validating the payment was timely; 

 Validating that sufficient documentation was available to support 

payment; 

 Validating the payment was not a duplicate payment; 

 Verifying that the recipient was not on the “Do Not Pay” list; 

 Verifying that the recipient’s registration status is active in 

System for Award Management (SAM); 

 Verifying that the recipient’s address matches with SAM’s data in 

FMMI; 

 Determining if the recipient has any active exclusion records; and 

 Determining if the recipient is on the HHS OIG exclusion list. 

FS Hurricane Sandy—

Emergency Forest 

Restoration Program 

This program reported $0 outlays for FY 2013 and therefore did not 

perform a sample. 

FS Hurricane Sandy—

Capital Improvement 

and Maintenance 

Year/Period of Data Sampled: 

10/1/2012 through 9/30/2013. 

Type of Sampling Methodology: 

We consulted with a PhD statistician from the University of 

New Mexico to ensure the validity of the sample design, sample 

sizes, and measurement methodology. Due to the universe size, FS 
OTHER INFORMATION

Fiscal Year 2014 Agency Financial Report | 213

SECTION III 

Agency Program Sampling Process

sampled 100 percent of all non-payroll FY 2013 transactions 

charged to Construction Disaster Fund Supplemental (CMDF) 21 

and 22 funds for the period of 10/1/2012 through 9/30/2013. 

Universe Population: 

$268,239 

57 payments 

Sample Size: 

$268,239 

57 payments 

Formula Used to Calculate The Sample Size: 

Not applicable. 100 percent of transactions tested. 

List of Controls That Payments Were Tested Against: 

Testing covered the following areas: 

 Determining if the correct vendor was paid; 

 Determining if the payment occurred during the period of 

performance; 

 Validating commitments are properly authorized prior to 

payment; 

 Validating the correct amount was paid; 

 Validating the payment was timely; 

 Validating that sufficient documentation was available to support 

payment; 

 Validating the payment was not a duplicate payment; 

 Verifying that the recipient was not on the “Do Not Pay” list; 

 Verifying that the recipient’s registration status is active in 

System for Award Management (SAM); 

 Verifying that the recipient’s address matches with SAM’s data in 

FMMI; 

 Determining if the recipient has any active exclusion records; and 

 Determining if the recipient is on the HHS OIG exclusion list. 

Rural 

Development 

(RD) 

Rental Assistance 

Program (RAP) 

RD’s IPIA audit reviews rental assistance (RA) payments 

supporting documentation prepared by Section 515 and Section 514 

loan program borrowers and property managers of Multi-Family 

Housing (MFH) properties financed by RD. This audit does not 

review work done by agency personnel; it reviews the 

documentation prepared to substantiate subsidy payments requested 

by borrowers. 

The RAP is very similar to the Section 8 housing subsidy program 

operated by the U.S. Department of Housing and Urban 

Development (HUD). The agency reviewed the sampling plan 

developed by HUD for its IPIA studies. It engaged RD statisticians 

to prepare a similar plan for this report. This report is based on a 

review of tenants receiving RA during FY 2013. The sampling plan 

consisted of 666 RA payments from a universe of 3,477,458 or 

.02 percent. The methodology produced a sample with a 99-percent 

confidence level. This year, as in audits since 2008, the agency used 
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214 | Fiscal Year 2014 Agency Financial Report 

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Agency Program Sampling Process

the Audit Unit staff from the Centralized Servicing Center (CSC) to 

undertake the study. The study required CSC to evaluate tenant files 

and income calculations. The IPIA audit was initially designed to 

mirror efforts undertaken by HUD, since they had been performing 

IPIA audits for several years prior to RD. HUD’s design included 

testing of the payment process. RD’s payment process is different 

from HUD’s in that the amount of the payment is determined at the 

time of submission of RD Form 3560-8 “Tenant Certification,” 

which is what the audit reviews. The amount calculated at the time 

that the Tenant Certification is carried forward is the payment 

amount; there is no human intervention in the process, and there is 

no opportunity for additional error. Therefore, there is no impact on 

the improper payment rate. 

The universe of RA payments made during FY 2013 was 3,477,458. 

The only parameter used to determine the eligible universe was the 

RA payment. No other data element, such as location, size of 

property, number of units, or availability of other RA 

(such as Section 8) was a consideration. The statisticians were 

provided a data extract from the Multi-Family Housing Information 

System (MFIS). The extract contained a list of all tenants receiving 

RA during FY 2013. The data included month of payment, project 

name, project identifier (case number/project number), and tenant 

name and unit number. From the data extract, the statisticians 

selected the sample by a systematic sample technique. Once the 

sample was identified, a memo was sent to the 

borrowers/management agents that explained the process (including 

detailed instructions), provided the list of tenant payments to be 

reviewed, and provided a list of documents that needed to be 

provided to CSC for their review. The data received from the 

borrower/ management agent was used to compare with agency 

records. The study required CSC to complete the survey for the 

selected tenant payments. There was to be no substitution of the 

selected payment, and, if the management agent was unable to 

submit the file, the payment would be considered improper. 

In order to be eligible to receive the benefit of RA, a tenant must be 

very low- or low-income, their net tenant contribution would be less 

than the basic rent for the unit, meets the occupancy rules of the 

property, and has a signed, unexpired Tenant Certification Form 

(Form RD 3560-08) on file with the borrower. 

To qualify for RA, a beneficiary must meet income eligibility 

requirements. In a MFH property, USDA provides a rent subsidy 

for the benefit of eligible households to reduce their monthly rental 

payment. This RA payment is made to the property owner (or 

his/her management agent) to supplement property income (which 

would otherwise be lost because of the tenant’s inability to pay the 

approved rent). A tenant household must submit an application to 

reside at a USDA-financed MFH property through a borrower 

(owner) or their property management agent. The application 

process requires that the individual or family provide information 

on the amount and source(s) of income, which are (third party) 

verified by the property management agent. This income 

determination is the primary determinant of a family’s rent charge 
OTHER INFORMATION

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SECTION III 

Agency Program Sampling Process

and, in turn, of the amount of RA subsidy that is provided to the 

property owner. Confirming the tenant’s income information is one 

of the primary tasks of the MFH property owner (or his/her agent). 

USDA allows as a project expense a monthly management fee to 

the property manager to manage the property; qualifying expenses 

covered by this fee include verifying tenant income and ensuring 

that appropriate subsidies are requested. 

The agency tested if RD’s OCFO paid appropriately on the 

borrower’s request for subsidy. The borrower is required to submit 

Form 3560-29 “Notice of Payment Due Report,” also referred to as 

the “Project Worksheet.” This form contains a list of tenants 

occupying the units as of the first day of the month prior to the 

payment due date. This form is reviewed and analyzed for accuracy 

by the automated system prior to payments being processed. 

Anomalies are individually reviewed by processing staff to resolve 

any discrepancies. Borrowers have two options for submitting 

Form 3560-29 to the agency: 1) mail or fax the form to the 

Centralized Servicing Center; or, 2) accept the form through the 

Management Interactive Network Connection (MINC) system, 

which is a secured Web site. When borrowers use the MINC 

system, the form is generated from the tenant certifications that are 

currently on file with the agency. Once the borrower accepts the 

form in MINC, the information is automatically sent through the 

MFIS and then to the Automated Multi-Housing Accounting 

System, without any data entry by CSC. Therefore, the agency’s 

risk for data entry errors is eliminated. In FY 2013, 94 percent of 

the payments were automatically processed for accuracy and 

conformance through the MINC system, which left 6 percent that 

might have data entry errors. 

The agency used the same methodology for completing the review 

of these 6 percent of payments as was used for reviewing Tenant 

Certifications. The agency used statisticians to identify the sample 

for review. Of the 4,425 payments that were processed manually 

between October 2012 and September 2013, a sample of 579 

payments that required manual intervention was reviewed. Of the 

579 payments, zero errors were found. The percentage of the 

sample size was larger than the tenant certification sample in order 

to ensure that we obtained an expanded cross section of manually 

input payments. 

Year/Period of Data Sampled: 

FY 2013 

Type of Sampling Methodology: 

Standard Statistical Sample 

Universe Population: 

$1,117,574,937 

3,477,458 payments 

Sample Size: 

$233,768 

666 payments 
 Managing for Results in Performing Its Many Vital Public Functions 

216 | Fiscal Year 2014 Agency Financial Report 

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Agency Program Sampling Process

Formula Used To Calculate The Sample Size: 

Sample Size= 

Where: 

Z: Z Value (e.g. 1.96 for 95% Confidence level or 2.58 for 99 % 

Confidence level) 

p: pick for an outcome to occur successfully (.5 used for a 

conservative sample size needed) 

q = 1-p: a pick for an unsuccessful outcome 

C: Confidence interval, expressed as decimal (e.g., .05 = +/- 5)

SS: Sample Size 

SS = 665.64 

Correction for Finite Population = 3,477,458 record of payments 

from Sept 1, 2012 to Sept 1, 2013.(2) 

New SS = 665.51= 666 

Where: Pop = population 

List of Controls That Payments Were Tested Against: 

Supporting documentation to demonstrate that property managers 

correctly calculated the requested subsidy may have included the 

following: 1) a copy of verification of employment for each adult 

household member, 2) the most recent award or benefit letter for 

unemployment and unemployment benefits, or social security 

payments, 3) a copy of the divorce decree, separation agreement, or 

other document indicating the amount of the required support 

payments, 4) documentation indicating the amount of money 

received for the care of foster children or adults, and the anticipated 

period of time the support will be provided, 5) income tax returns 

for self-employed individuals, 6) financial institution statements to 

verify account balances, 7) medical expense documentation used to 

calculate medical expenses. 

Risk 

Management 

Agency (RMA) 

Federal Crop 

Insurance Corporation 

(FCIC) Program Fund 

OIG has expressed concerns with the current sampling method and 

the need for it to be statistically valid as required by IPIA. RMA 

and OMB have held discussions concerning a replacement sampling 

plan that meets IPIA requirements, and RMA is in the process of 

working on a replacement process that can be implemented for the 

FY 2016 reporting period. 

 RMA recognizes that substantive concerns have been raised with 

the current methodology. In response, RMA proposes a 

significantly modified methodology that will provide a more 

credible estimate of the amount of improper payments in the 

Federal crop insurance program. RMA proposes that the agency’s 

improper payment reviews would no longer be conducted as part 

of the National Program Operations Review process that 

consisted of reviewing each AIP once every 3 years. Rather, 

RMA will annually review a random sample of approximately 30 

policies issued by each AIP, or about 600 policies in total each 

year (assuming 20 AIPs). The number of policies reviewed would 

be sufficiently large to develop an estimate achieving a 95 percent 
OTHER INFORMATION

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SECTION III 

Agency Program Sampling Process

level of confidence and a margin of error of plus/minus 3 percent, 

which is required by OMB Circular A-123 Appendix C guidance. 

Each review would assess whether the amount of premium 

subsidy and Administrative & Operating (A&O) subsidy for each 

policy was correct. In addition, for those policies with a claim for 

loss the review would further assess whether the amount of the 

indemnity payment was correct. For the individual AIP, the 

improper payment rate would be calculated as the sum (across all 

of its policies subject to the review) of the amounts of premium 

subsidy, A&O subsidy, and indemnity paid in error divided by the 

sum of premium subsidy, A&O subsidy, and indemnity for the 

subject policies. To calculate the improper payment rate for the 

crop insurance program as a whole and for IPERA purposes, the 

individual AIP improper payment rates would be weighted by 

their respective shares of total policies, thereby addressing a 

criticism of the current methodology. RMA plans to present this 

proposal to OMB so that it can begin implementation by March 

2015 and fully report with the revised methodology by FY 2016 

reporting. In FY 2014, RMA plans to continue utilizing its current 

method for reporting purposes. OMB approved the current 

methodology for FY 2014 but plans to explore the options for 

what will happen in FY 2015;

 RMA completed the random 2010, 2011, and 2012 crop year 

indemnity reviews during 2011, 2012, and 2013 respectively. The 

sampling protocol was approved by OMB in 2005 and consists of 

randomly selecting 50 policies with indemnities greater than 

$2,500 for each of the companies being reviewed for any 

particular year. Each policy is completely reviewed to ensure the 

premium, liability, and indemnity were correctly established. 

However, we calculate an error rate only on the improper 

indemnities; 

 Compliance reviews were conducted on approximately one-third 

of the companies each year for a total of either 250 or 300 random 

policy reviews, depending on the number of companies 

participating for any given year. The error rate reported for a 

fiscal year is based on the policy review results from 3 prior crop 

years, e.g., the FY 2014 error rate is based on reviews conducted 

for the 2010, 2011, and 2012 crop years. The inclusion of policy 

review results for 3 crop years will typically ensure that every 

company is included in the error rate calculation; 

 RMA will continue to build its database of policies randomly 

selected for review. This database will enable the agency to 

discern any trends in error patterns and identify the appropriate 

corrective actions to address the underlying issue; and 

 Samples are drawn by an autonomous compliance specialist who 

oversees the compliance review data base and is responsible for 

data quality control. Limited RMA resources have made it 

impractical to conduct a statistically valid program review each 

year. Rather, random policy reviews are conducted by RMA 

compliance personnel in combination with the National Program 

Operations Reviews to provide the data necessary to produce an 

error rate for the purposes of the IPIA. 
 Managing for Results in Performing Its Many Vital Public Functions 

218 | Fiscal Year 2014 Agency Financial Report 

USDA 

Agency Program Sampling Process

Natural 

Resources 

Conservation 

Service (NRCS) 

Farm Security and 

Rural Investment Act 

Programs (FSRIP) 

Year/Period of Data Sampled: 

FY 2013 

Type of Sampling Methodology: 

NRCS’ sampling methodology was a statistical sample stratified 

with 10 stratums. Our sample was obtained from all Farm Bill 

financial assistance payments that were paid in FY 2013. We 

selected payments with the transaction code TC (Treasury 

Confirmation). 

Universe Population: 

$2,199,848,820 

375,884 payments 

Sample Size: 

$33,208,150 

271 payments 

Formula Used to Calculate The Sample Size: 

NRCS used the sample size calculator from raosoft.com. We used a 

confidence level of 90 percent with a margin of error of 5 percent 

(+/- 2.5 percent). 

List of Controls That Payments Were Tested Against: 

Each selected sample item was reviewed, based upon supporting 

documentation, to ensure the following: 

 Recipient was eligible for payment; 

 Payment was made to proper recipient; 

 Payments issued for goods and/or services were delivered within 

the appropriate period of performance; 

 Payments were made for the goods and/or services that were 

reflected on the contract documents; 

 Payment amounts are equal to or less than the contract amount 

(not in excess of contract amount); 

 Appropriate documentation (when applicable) contains the 

eligible recipient's signature; 

 An NRCS official signature acknowledging receipt of goods 

and/or services is present; 

 Payment amounts agree to invoice amounts/payment requests; 

and 

 Payments were supported by adequate program-specific 

documentation. 

NRCS Hurricane Sandy—

Emergency 

Watershed Protection 

Program 

This program reported $0 outlays for FY 2013 and therefore did not 

perform a sample. 
OTHER INFORMATION

Fiscal Year 2014 Agency Financial Report | 219

SECTION III 

III. Corrective Actions 

Each program is required to develop a Corrective Action Plan. The following exhibit describes 

actions taken and planned.

Exhibit 23: Program Corrective Action Plans 

Agency Program Corrective Actions 

FNS Supplemental 

Nutrition Assistance 

Program (SNAP) 

Program regulations require State Agencies (SAs) to analyze data 

to develop corrective action plans to reduce or eliminate program 

deficiencies. A State with a high error rate must develop a quality 

check corrective action plan to address deficiencies revealed 

through an analysis of its own quality control data. A State with an 

excessive error rate will be required to invest a specified amount 

(depending on its error rate and size) designated specifically to 

Program improvements. The State will also face further fiscal 

penalties if it fails to lower its error rate in a future fiscal year. 

Steps Taken to Improve the Overall Control Environment and 

Improper Payments: 

FNS, through its regional offices, works directly with States to 

impart the importance of payment accuracy and correct payments 

to State leadership and to assist them in developing effective 

corrective action strategies to reduce payment errors. Regional 

offices provided technical assistance to States throughout 

FY 2014. 

FNS administers a State Exchange Program whereby funds are 

provided to States to facilitate travel to obtain, observe and share 

information on best practices and effective techniques for error 

reduction. Coalitions have been formed among States to promote 

the following: partnerships, information exchange, and 

collaborative efforts that address mutual concerns and support 

development of effective corrective action. These activities were 

conducted throughout FY 2014. 

Quality Control Payment Error Rates are announced at the end of 

June in the year following the end of the review period. SAs with 

error rates of 6 percent or higher are required to submit corrective 

action plans (CAPs) to FNS addressing these errors 

[7 CFR 275.16(b) (1)]. These CAPs are open-ended and remain in 

effect until all deficiencies in program operations have been 

reduced substantially or eliminated. SAs provided updates to their 

CAPs through regular, semiannual updates sent to FNS on 

May1, 2014 and November 1, 2014 respectively [7 CFR 

275.17(a)]. 

FNS National School 

Lunch Program 

(NSLP) 

Actions Taken to Reduce Improper Payments: 

Issued a revised Eligibility Manual in August 2012. This manual 

contains information on determining students’ eligibility for free 

and reduced-price meals in the NSLP and the School Breakfast 

Program (SBP). 

Conducted five national trainings for Federal and State reviewers 

on the new Administrative Review (AR) process that was designed 
 Managing for Results in Performing Its Many Vital Public Functions 

220 | Fiscal Year 2014 Agency Financial Report 

USDA 

Agency Program Corrective Actions 

to ensure a more comprehensive evaluation of school meal 

programs to improve program integrity. The new AR process was 

updated to include a review of SBP requirements and was 

designed to ensure that monitoring process provides effective 

review of the complex requirements within the school meal 

programs while also recognizing the resource constraints facing 

the SAs. The new process includes approaches to reduce improper 

and erroneous payments and ensure document compliance. The 

new process also strives to ensure proper implementation of the 

school meals and other nutrition assistance programs. FNS also 

incorporated review procedures to assess the financial health of the 

nonprofit school food service account, including assessing 

compliance with cost allowability requirements. In addition, CRE 

Procedures Manual and Forms and Instructions was issued in 

September 2013, and posted to the FNS Web site for those SAs 

electing to use the CRE procedures for reviews conducted in 

SY 2013-2014. This update reflects recent legislation and policy 

aimed at strengthening the monitoring process. 

Additionally, from FY 2006 to 2013, FNS upgraded its Web-based 

system for States to report the results of verification activity 

annually using the Verification Collection Report (FNS-742). This 

reporting mechanism improved the accuracy and timeliness of this 

data. In 2013, the FNS-742 form itself was improved with requests 

for additional data, which, along with a simplification of the 

form’s instructions and a more user-friendly layout, now 

contributes to a more accurate direct certification rate, among 

other improvements. The new FNS-742 now captures direct 

certification data broken out by type, data on direct verification, 

additional information related to verification and program 

participation, as well as data on verifications for cause. The form 

was implemented for SY 2013-2014 data collection. Prior to 

implementation, FNS conducted national training on the new form. 

FNS has been actively emphasizing to States the importance of 

using the FNS-742 and other data sources, such as the CRE Data 

Report (FNS-640), as a way to identify and target corrective 

action. On October 24, 2011, FNS issued clarification of the 

verification and reporting processes for categorically eligible 

foster children. On February 10, 2012, FNS issued a policy memo 

detailing the school district’s ability and responsibilities to verify 

SBP and NSLP applications beyond the required sample size when 

there is cause. On August 3, 2011, FNS also issued applications 

and other materials for households with limited English 

proficiency. The translated prototype materials, besides being 

available in English, are now available in 33 other languages and 

lead to greater accuracy in application data and fewer certification 

errors. 

FNS funding from Congress in FY 2004 for the agency to provide 

technical assistance and training materials from FY 2004 to 2008 

to help State and local partners reduce administrative errors and 

improve Program integrity. 
OTHER INFORMATION

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SECTION III 

Agency Program Corrective Actions 

Plans to Prevent Future Improper Payments: 

In response to the APEC study conducted in FY 2007, FNS is 

executing several key measures to improve Federal and State 

oversight and technical assistance to identify and recover improper 

payments in the NSLP. The following outlines the proactive 

measures FNS has taken to strengthen Program integrity: 

 Required annual training for schools on certification and 

accountability issues; the training is ongoing; 

 Provided $47 million for each of 2 years, FYs 2012 and 2013, to 

SAs to implement the new meal pattern requirements, funding 

that supports the following: 1) training, 2) technical assistance, 

and 3) conducting performance-based reimbursement 

certification activities and validation reviews, and administrative 

reviews. The FY 2012 allocation had to be obligated by 

September 30, 2014, and FY 2013 funding must be obligated by 

September 30, 2015; 

 FNS annually releases a solicitation for funding to SAs for 

Administrative Reviews and Training (ART) grants. This 

funding is made available to perform administrative reviews and 

training of selected local educational agencies (LEA) identified 

by the States as having demonstrated a high level of, or high-risk 

for, administrative error in the NSLP. For this purpose, $4 

million has been set aside since FY 2005. Beginning in FY 2009, 

FNS divided these grant opportunities into two categories: 

1) ART Method I for funding to carry out additional 

administrative reviews in error-prone LEAs, and 2) ART 

Method II for developing and delivering training to error-prone 

LEAs and for implementing technologies to help States monitor 

and identify LEAs at high-risk of administrative errors. From 

FY 2005 to FY 2013, FNS awarded 60 ART grants to States 

totaling over $26 million. FY 2014 ART Method II grants 

applications (received May 2014) included State requests for 

approximately $4 million in funding for automated monitoring 

systems and training. These requests are currently under review 

for possible awards in the fall of 2014; 

 Through the CN Operational Support Branch, FNS provides 

ongoing support and technical assistance to State agencies on 

technology grants and issues in order to assist them in working 

toward successful program outcomes in the implementation of 

automated systems to improve the following: 1) CN program 

administration and performance; 2) access to CN program 

benefits through direct certification, direct verification, and other 

automated means to establish children’s program eligibility; and 

3) Federal reporting on program outcomes; 

 Facilitated by the Operational Support Branch, FNS has 

convened a national workgroup of State, and FNS regional, and 

national office representatives to identify priorities for State and 

local automation initiatives to improve program accountability, 

monitoring, training, data quality, and other program areas 

where automation is a strong business solution. Initiatives 
 Managing for Results in Performing Its Many Vital Public Functions 

222 | Fiscal Year 2014 Agency Financial Report 

USDA 

Agency Program Corrective Actions 

already underway in FY 2014 and extending into FY 2015 

include the following: 

o Establishment of model requirements for State-automated 

information systems used to manage State NSLP programs, 

including functionality to capture application, certification, 

direct certification, claiming, program monitoring, and 

administrative review and other components of State 

program operations; 

o Establishment of model requirements for local 

point-of-service systems used by SFAs for counting, 

claiming, certification, and application processes; 

o Work with FNS’ Office of Policy Support (OPS) to conduct 

an intensive data study to establish best practices in the 

collection, reporting, and monitoring of program data at State 

and local levels aimed at improving management data; and 

o Planning for national technology training for SAs to 

showcase best practices in automation for program 

operations including Federal reporting, project management, 

data analytics, direct certification, administrative review, and 

other topics; the goal of the aforementioned is to assist States 

in the more effective use of automation and business 

intelligence to improve program operations and integrity. 

FNS has an ongoing contract with expert consultants to provide 

technical assistance directly to States in the areas of training and 

automation in order to assist States in identifying and targeting 

LEAs that are at high-risk for operational errors and to assist 

States with meeting statutory benchmarks for direct certification. 

In FYs 2013 and 2014, FNS completed over 50 site visits in order 

to provide SAs with technical assistance on improving automation 

programs and direct certification, training, and monitoring of 

program operations with special emphasis on error-prone LEAs. 

Administrative Efficiencies to Address Under-Certification 

Issues: 

The 2010 CN Reauthorization (the Healthy, Hunger-Free Kids Act 

of 2010 [PL 111-296]) added provisions that strengthened the 

certification process. As a result of this Act, FNS has done the 

following: 

 Provided performance awards ($4 million each year for 3 years; 

School Year (SY) 2011-2012 and 2012 2013 are completed, and 

SY 2013-2014 is in process). Of the $4 million available, 

$2 million is for outstanding performance awards for States, and 

the remaining $2 million is for States showing substantial 

improvement; 

 Conducted a phased-in demonstration project that began in 

SY 2012-2013, in select school districts, to test the potential for 

direct certification using Medicaid data. FNS is in the process of 

conducting an evaluation study and, as required by the Act, there 

will be two Reports to Congress incorporating the results of the 

evaluation study: the interim report is due no later than 

October 1, 2014, with a final report due no later than October 1, 
OTHER INFORMATION

Fiscal Year 2014 Agency Financial Report | 223

SECTION III 

Agency Program Corrective Actions 

2015. The Act does not indicate a specific end date for this 

demonstration project. However, the project sets specific goals 

to include areas serving 10 percent of students certified for free 

and reduced price meals nationwide by the third year 

(SY 2014-2015) and ongoing in each subsequent school year; 

 Provided alternatives to paper application systems in lowincome areas; Community Eligibility Provision (CEP) is an 

alternative to collecting household applications and is being 

phased in over a period of 3-years in a limited number of States 

selected by FNS and will be made available nationwide in the 

SY 2014-2015; and 

 Reinforced requirements on the monitoring of SFAs to ensure 

accuracy of household applications, application processing, meal 

count tabulation, and the identification of a reimbursable meal 

by requiring the following: 

o Develop a unified monitoring system to review the NSLP 

and SBP, including a nutritional assessment for both 

Programs (i.e., the consolidation of CRE and School Meal 

Initiative (SMI) into one review of both the NSLP and SBP); 

the system was implemented in late 2013; 

o Conduct State administrative reviews of all SFAs on a 

3 year cycle beginning in SY 2013-2014 (the former cycle 

was 5 years); and 

o Post a summary of schools administrative review final results 

and make this information available to the public; the 

transparency requirement will be addressed in the proposed 

rule, which is in clearance, with a targeted publication date in 

SY 2014-2015. 

FNS is completing or has already completed a number of proposed 

rules resulting from the 2010 CN Reauthorization Act that will 

serve to reduce improper payments by doing the following: 

 Requiring an independent review of applications in order to 

increase the accuracy of eligibility determinations in school 

districts that demonstrate high levels of administrative error; the 

final rule was published in February 6, 2014; implementation of 

this requirement is required in SY 2014-2015; 

 Establishing professional standards for school food service 

personnel, requiring professional education and training 

standards for certification of local school food service directors 

and staff, and criteria and standards for the selection of State 

Directors; a proposed rule for implementing these changes was 

published on February 4, 2014. FNS received nearly 240 

comments on the proposal from a wide variety of stakeholders, 

and will take this input into account as it develops the final rule. 

Publication is expected in Spring 2015; 

 Providing for fines for gross mismanagement and violating 

program requirements; an additional method for enforcing 

program compliance; the proposed rule will be published in 

2014 and will call for fines for egregious or persistent problems, 

those that remain unsolved after initial reviews. The SA will be 
 Managing for Results in Performing Its Many Vital Public Functions 

224 | Fiscal Year 2014 Agency Financial Report 

USDA 

Agency Program Corrective Actions 

able to fine local program operators; and FNS will be able to 

fine both SAs and local program operators for gross 

mismanagement; and 

 Strengthening program compliance by prohibiting any school, 

institution, or individual that is terminated from one of the Child 

Nutrition Programs and is on a list of disqualified institutions 

and individuals from participating in, or administering any of the 

Child Nutrition Programs; the proposed rule will be published 

in 2014. 

The 2010 CN Reauthorization Act brought further emphasis on 

improving direct certification rates for children in families 

receiving SNAP benefits, including setting benchmarks for State 

direct certification rates with SNAP at 80 percent for SY 2011-

2012, 90 percent for SY 2012-2013, and 95 percent for 

SY 2013-2014 and beyond. Beginning in the Spring of 2013, 

States not meeting the required direct certification rate benchmarks 

for a given SY have been required to develop and implement 

continuous improvement plans (CIP) to describe the activities they 

will implement to reach more eligible children in future years. 

FNS approved 16 State plans in FY 2013 and has 28 State plans 

under review in FY 2014. FNS provides ongoing technical 

assistance to support States in their efforts, and, in 2012, 

contracted for additional technical assistance to States in the area 

of direct certification improvements, including the collecting and 

sharing of State and LEA best practices. The technical assistance 

provided under this contract is still ongoing. Individual technical 

assistance is provided to States in developing and carrying out 

their CIPs. 

The Act also provides $4 million in funding annually to be used 

for direct certification performance awards to up to 15 States each 

year, for FYs 2012, 2013, and 2014. These awards are made in the 

categories of “outstanding performance” ($2 million) and 

“substantial improvement” ($2 million) for States making the 

greatest strides in direct certification performance with SNAP. 

Fourteen States received awards in FY 2012, thirteen States in 

FY 2013, and analysis is underway for FY 2014 awards to be 

made in September 2014. Prior to the 2010 Reauthorization, 

Section 749(h) of the Agriculture, Rural Development, Food and 

Drug Administration, and Related Agencies Appropriations Act, 

2010 (P.L. 111-180) provided $22 million for FNS to make grants 

to SAs that administer NSLP and have the lowest rates of children 

in SNAP households who are directly certified for free meals. SAs 

may use the grant funds to pay costs associated with improving 

their direct certification rates. FNS issued a Request for 

Applications (RFA) in 2010 to allow SAs to apply for the grant 

funding from November 2010 through July 2012. This funding 

opportunity has been extended for FY 2013 and FY 2014 to make 

available remaining funding from the original $22 million to SAs. 

Thus far, FNS has awarded 41 Direct Certification grants to States 

totaling over $17 million, to assist in implementing direct 

certification process improvements. SAs will have one additional 

opportunity to apply for funding in FY 2014. The purpose of these 
OTHER INFORMATION

Fiscal Year 2014 Agency Financial Report | 225

SECTION III 

Agency Program Corrective Actions 

grants is to help fund State efforts to make improvements that will 

help them reach and maintain the mandated 95 percent benchmark 

set by the 2010 CN Reauthorization. SAs were provided with 

monthly opportunities (from February through July 2014) to apply 

for FY 2014 Direct Certification Improvement grants. Three 

applications are pending for award in the fall of 2014. 

Opportunities to apply will be extended until funding is exhausted. 

FNS’ continuing efforts with direct certification have led to 

significant improvements e.g., in SY 2012-2013, 89 percent of 

LEAs directly certified students from SNAP households, a 

substantial increase from SY 2004-2005. 

Other Administrative Actions: 

FNS is also promoting States’ CN Program integrity efforts by 

establishing a FNS administrative review CN Program Integrity 

Office to further promote program integrity efforts, and by 

supporting technology solutions to State and local program 

management and monitoring challenges. These integrity efforts 

began in 2014. 

A number of studies are currently planned, already underway, or 

recently completed; these studies also support efforts to reduce 

erroneous payments, including: 

 The Regional Office Review of Applications (RORA), an annual 

report examining administrative error in NSLP during LEA's 

approval process of free and reduced-price applications. The 

data collection is annual; reports are issued in the spring or 

summer of the following year. The RORA 2012 was posted to 

the Web on June 1, 2013, and the RORA 2013 was posted in 

2014;

 NSLP and SBP Access, Participation, Eligibility, and 

Certification Study II (APEC–II), an update of national estimates 

of overpayment, underpayment and overall erroneous payments, 

which will measure certification error and meal counting and 

claiming error in SY 2012-2013, then compare these results with 

those found in SY 2005-2006. This study will also develop and 

validate estimation models for updating the erroneous payment 

estimates annually. In addition, it will produce separate 

estimates of erroneous payments for LEAs participating in the 

Community Eligibility Provision and will examine alternatives 

to develop estimates of erroneous payment estimates at the State 

level. A final report is expected in early 2015; 

 State Performance on Enrolling Children Receiving Program 

Benefits for Free School Meals (Direct Certification), an 

assessment of the effectiveness of State and local efforts to 

directly certify children for free school meals. A final report is 

expected in the fall of 2014; 

 High-risk Indicators of NSLP Certification Errors, a study that 

will provide a profile of school districts likely to be at 

"high-risk" for NSLP certification error through econometric 

modeling that relates school district characteristics to 

certification errors. The final report was issued in April 2012; 
 Managing for Results in Performing Its Many Vital Public Functions 

226 | Fiscal Year 2014 Agency Financial Report 

USDA 

Agency Program Corrective Actions 

 The NLSP Direct Certification Improvement Study, an 

evaluation of the effectiveness of using computerized matching 

systems to directly certify low-income children from SNAP 

households. A final report is expected in 2014; 

 Direct Certification for Children Receiving Medicaid Benefits, a 

measurement of the effectiveness of direct certification using 

Medicaid data. An interim report is expected in October 2014, a 

final report is due in October 2015; 

 Community Eligibility Study, an examination of the number of 

schools and LEAs in high-poverty areas that are eligible to 

receive special assistance payments; the study describes various 

attributes of those eligible schools and LEAs that elect or do not 

elect this option. The evaluation also examined the option’s 

impact on program integrity, availability and type of breakfast 

program, nutritional quality of school meals, and program 

participation. The final report was released in February 2014; 

 Universal Meal Service through Census Data, an evaluation 

conducted by the National Academies’ Committee on National 

Statistics (CNSTAT) and which looked into the use of data from 

the American Community Survey to develop eligibility estimates 

for school meals programs in lieu of individual applications. A 

final report was issued in December 2012; and 

 School Nutrition and Meal Cost Study, an examination of the 

relationships between school environment and school food 

service operations, nutritional quality of meals offered and 

served in school meal programs, plate waste, costs to produce 

reimbursable meals, student participation, participant 

characteristics, and satisfaction and related attitudes toward the 

school lunch and breakfast programs. Primary data collection 

will occur in SY 2014-2015. A final report is due in early 2017. 

FNS School Breakfast 

Program (SBP) 

Actions Taken to Reduce Improper Payments: 

 Issued a revised Eligibility Manual in August 2012. This manual 

contains information on determining students’ eligibility for free 

and reduced-price meals in the NSLP and the SBP; 

 Conducted five national trainings for Federal and State 

reviewers on the new Administrative Review (AR) process that 

was designed to ensure a more comprehensive evaluation of 

school meal programs to improve program integrity. The new 

AR process was updated to include a review of SBP 

requirements and was designed to ensure the monitoring process 

provides effective review of the complex requirements within 

the school meal programs while also recognizing the resource 

constraints facing the SAs. The new process includes approaches 

to reduce improper and erroneous payments, document 

compliance, and strives to ensure proper implementation of the 

school meals and other nutrition assistance programs. FNS also 

incorporated review procedures to assess the financial health of 

the nonprofit school food service account, including assessing 

compliance with cost allowability requirements. In addition, 

CRE Procedures Manual and Forms and Instructions was issued 
OTHER INFORMATION

Fiscal Year 2014 Agency Financial Report | 227

SECTION III 

Agency Program Corrective Actions 

in September 2013 and was posted to the FNS Web site for those 

SAs electing to use the CRE procedures for reviews conducted 

in SY 2013-2014. This update reflects recent legislation and 

policy aimed at strengthening the monitoring process; 

 Additionally, from FY 2006 to FY 2013, FNS upgraded its 

Web-based system for States to report the results of verification 

activity annually using the Verification Summary Report 

(FNS-742). In FY 2014, FNS changed the report’s name to 

Verification Collection Report and now collects data through the 

Food Program Reporting System. This reporting mechanism 

improved the accuracy and timeliness of this data. In 2013, form 

FNS-742 itself was improved with requests for additional data, 

which, along with a simplification of the form’s instructions and 

a more user-friendly layout, now contributes to a more accurate 

direct certification rate, among other improvements. The new 

FNS-742 now captures direct certification data broken out by 

type, data on direct verification, additional information related to 

verification and program participation, as well as data on 

verifications for cause. The form was implemented for 

SY 2013 2014 data collection. Prior to implementation, FNS 

conducted national training on the new form. FNS has been 

actively emphasizing to States the importance of using the FNS742 and other data sources, such as the CRE Data Report (FNS640), as a way to identify and target corrective action. On 

October 24, 2011, FNS issued clarification of the verification 

and reporting processes for categorically eligible foster children. 

On February 10, 2012, FNS issued a policy memo detailing the 

school district’s ability and responsibilities to verify SBP and 

NSLP applications beyond the required sample size when there 

is cause. On August 3, 2011, FNS also issued applications and 

other materials for households with limited English proficiency. 

The translated prototype materials, besides being available in 

English, are now available in 33 other languages and lead to 

greater accuracy in application data and fewer certification 

errors. 

 Secured funding from Congress in FY 2004 for FNS to provide 

technical assistance and training materials from FYs 2004 to 

2008 to help State and local partners reduce administrative errors 

and improve Program integrity. 

Plans to Prevent Future Improper Payments: 

In response to the APEC study conducted in FY 2007, FNS is 

executing several key measures to improve Federal and State 

oversight and technical assistance to identify and recover improper 

payments in the NSLP. The following outlines the proactive 

measures FNS has taken to strengthen Program integrity: 

 Required annual training for schools on certification and 

accountability issues; the training is ongoing; 

 Provided $47 million for each of 2 years, FYs 2012 and 2013, to 

SAs to implement the new meal pattern requirements, funding 

that supports training, technical assistance, and conducting 

performance-based reimbursement certification activities and 
 Managing for Results in Performing Its Many Vital Public Functions 

228 | Fiscal Year 2014 Agency Financial Report 

USDA 

Agency Program Corrective Actions 

validation reviews, and administrative reviews. The FY 2012 

allocation had to be obligated by September 30, 2014, and 

FY 2013 funding must be obligated by September 30, 2015; 

 FNS annually releases a solicitation for funding to SAs for 

Administrative Reviews and Training (ART) grants. This 

funding is made available to perform administrative reviews and 

training of selected local educational agencies (LEA) identified 

by the States as having demonstrated a high level of, or high-risk 

for, administrative error in the NSLP. For this purpose, $4 

million has been set aside since FY 2005. Beginning in FY 2009, 

FNS divided these grant opportunities into two categories: 

1) ART Method I for funding to carry out additional 

administrative reviews in error-prone LEAs, and 2) ART 

Method II for developing and delivering training to error-prone 

LEAs and for implementing technologies to help States monitor 

and identify LEAs at high-risk for administrative errors. From 

FY 2005 to FY 2013, FNS awarded 60 ART grants to States 

totaling over $26 million. FY 2014 ART Method II grants 

applications (received May 2014) included State requests for 

approximately $4 million in funding for automated monitoring 

systems and training. These requests are currently under review 

for possible awards in the fall of 2014; 

 Through the CN Operational Support Branch, FNS provides 

ongoing support and technical assistance to SAs on technology 

grants and issues to assist them in working toward successful 

program outcomes in the implementation of automated systems 

to improve the following: 1) CN program administration and 

performance; 2) access to CN program benefits through direct 

certification, direct verification, and other automated means to 

establish children’s program eligibility; and 3) Federal reporting 

on program outcomes; 

 Facilitated by the Operational Support Branch, FNS has 

convened a national workgroup of State, and FNS regional and 

national office representatives to identify priorities for State and 

local automation initiatives to improve program accountability, 

monitoring, training, data quality, and other program areas 

where automation is a strong business solution. Initiatives 

already underway in FY 2014 and extending into FY 2015 

include: 

o Establishment of model requirements for State-automated 

information systems used to manage State NSLP programs, 

including functionality to capture application, certification, 

direct certification, claiming, program monitoring, and 

administrative review and other components of State 

program operations; 

o Establishment of model requirements for local 

point-of-service systems used by SFAs for counting, 

claiming, certification, and application processes; 
OTHER INFORMATION

Fiscal Year 2014 Agency Financial Report | 229

SECTION III 

Agency Program Corrective Actions 

o Work with FNS’ Office of Policy Support (OPS) to conduct 

an intensive data study to establish best practices in the 

collection, reporting, and monitoring of program data at State 

and local levels aimed at improving management data; and 

o Planning for national technology training for SAs to 

showcase best practices in automation for program 

operations including Federal reporting, project management, 

data analytics, direct certification, administrative review, and 

other topics; the goal of the aforementioned is to assist States 

in the more effective use of automation and business 

intelligence to improve program operations and integrity. 

FNS has an ongoing contract with expert consultants to provide 

technical assistance directly to States in the areas of training and 

automation in order to assist States in identifying and targeting 

LEAs that are at high-risk for operational errors and to assist 

States with meeting statutory benchmarks for direct certification. 

In FYs 2013 and 2014, FNS completed over 50 site visits in order 

to provide SAs with technical assistance on improving automation 

programs and direct certification, training, and monitoring of 

program operations with special emphasis on error-prone LEAs. 

Administrative Efficiencies to Address Under-Certification 

Issues: 

The 2010 CN Reauthorization (the Healthy, Hunger-Free Kids Act 

of 2010 [PL 111-296]) added provisions that strengthened the 

certification process. As a result of this Act, FNS has done the 

following: 

 Provided performance awards ($4 million each year for 3 years; 

SY 2011-2012 and 2012-2013 are completed, and SY 2013-2014 

is in process). Of the $4 million available, $2 million is for 

outstanding performance awards for States, and the remaining 

$2 million is for States showing substantial improvement; 

 Conducted a phased-in demonstration project that began in 

SY 2012-2013, in select school districts, to test the potential for 

direct certification using Medicaid data. FNS is in the process of 

conducting an evaluation study and, as required by the Act, there 

will be two Reports to Congress that will incorporate the results 

of the evaluation study: the interim Report is due no later than 

October 1, 2014, with a final report due no later than October 1, 

2015. The Act does not indicate a specific end date for this 

demonstration project. However, the project sets specific goals 

to include areas serving 10 percent of students certified for free 

and reduced price meals nationwide by the third year 

(SY 2014-2015) and ongoing in each subsequent school year; 

Provided alternatives to paper application systems in lowincome areas; Community Eligibility Provision (CEP) is an 

alternative to collecting household applications and is being 

phased in over a period of 3 years in a limited number of States 

selected by FNS and will be made available nationwide in SY 

2014-2015; and 
 Managing for Results in Performing Its Many Vital Public Functions 

230 | Fiscal Year 2014 Agency Financial Report 

USDA 

Agency Program Corrective Actions 

 Reinforced requirements on the monitoring of SFAs to ensure 

accuracy of household applications, application processing, meal 

count tabulation, and the identification of a reimbursable meal 

by requiring the following: 

o Develop a unified monitoring system to review the NSLP 

and SBP, including a nutritional assessment for both 

Programs (i.e., the consolidation of CRE and SMI) into one 

review of both the NSLP and SBP); the system was 

implemented in late 2013; 

o Conduct administrative reviews of all SFAs on a 3-year cycle 

beginning in SY 2013-2014 (the former cycle was 5 years); 

and 

o Post a summary of the schools administrative review final 

results and make this information available to the public; the 

transparency requirement will be addressed in the proposed 

rule, which is in clearance, with a targeted publication date in 

SY 2014-2015. 

FNS is completing or has already completed a number of proposed 

rules resulting from the 2010 CN Reauthorization Act that will 

serve to reduce improper payments by doing the following: 

 Requiring an independent review of applications in order to 

increase the accuracy of eligibility determinations in school 

districts that demonstrate high levels of administrative error; the 

final rule was published in February 6, 2014; implementation of 

this requirement is required in SY 2014-2015; 

 Establishing professional standards for school food service 

personnel, requiring professional education and training 

standards for certification of local school food service directors 

and staff, and criteria and standards for the selection of State 

Directors; a proposed rule for implementing these changes was 

published on February 4, 2014. FNS received nearly 240 

comments on the proposal from a wide variety of stakeholders 

and will take this input into account as it develops the final rule. 

Publication is expected in Spring 2015; 

 Providing for fines for gross mismanagement and violating 

program requirements; an additional method for enforcing 

program compliance; the proposed rule will be published in 

FY 2014 and will call for fines for egregious or persistent 

problems—those that remain unsolved after initial reviews. The 

SA will be able to fine local program operators, and FNS will be 

able to fine both SAs and local program operators for gross 

mismanagement; and 

 Strengthening program compliance by prohibiting any school, 

institution, or individual that is terminated from one of the Child 

Nutrition Programs and is on a list of disqualified institutions 

and individuals from participating in, or administering, any of 

the Child Nutrition Programs; the proposed rule will be 

published in 2014. 

The 2010 CN Reauthorization Act brought further emphasis on 

improving direct certification rates for children in families 
OTHER INFORMATION

Fiscal Year 2014 Agency Financial Report | 231

SECTION III 

Agency Program Corrective Actions 

receiving SNAP benefits, including setting benchmarks for State 

direct certification rates with SNAP at 80 percent for SY 

2011-2012, 90 percent for SY 2012-2013, and 95 percent for SY 

2013-2014 and beyond. Beginning in the spring of 2013, States 

not meeting the required direct certification rate benchmarks for a 

given SY have been required to develop and implement 

continuous improvement plans (CIP) to describe the activities they 

will implement to reach more eligible children in future years. 

FNS approved 16 State plans in FY 2013 and has 28 State plans 

under review in FY 2014. FNS provides ongoing technical 

assistance to support States in their efforts, and, in 2012, 

contracted for additional technical assistance to States in the area 

of direct certification improvements, including the collecting and 

sharing of State and LEA best practices. The technical assistance 

provided under this contract is still ongoing. Individual technical 

assistance is provided to States in developing and carrying out 

their CIPs. 

The Act also provides $4 million in funding annually to be used 

for direct certification performance awards to up to 15 States each 

year, for FYs 2012, 2013, and 2014. These awards are made in the 

categories of “outstanding performance” ($2 million) and 

“substantial improvement” ($2 million) for States making the 

greatest strides in direct certification performance with SNAP. 

Fourteen States received awards in FY 2012; thirteen States 

received awards in FY 2013, and analysis is underway for FY 

2014 awards to be made in September 2014. 

Prior to the 2010 Reauthorization, Section 749(h) of the 

Agriculture, Rural Development, Food and Drug Administration, 

and Related Agencies Appropriations Act, 2010 (P.L. 111-180) 

provided $22 million for FNS to make grants to SAs that 

administer NSLP and have the lowest rates of children in SNAP 

households who are directly certified for free meals. State agencies 

may use the grant funds to pay costs associated with improving 

their direct certification rates. FNS issued a Request for 

Applications (RFA) in 2010 to allow SAs to apply for the grant 

funding from November 2010 through July 2012. This funding 

opportunity has been extended for FY 2013 and FY 2014 to make 

available remaining funding from the original $22 million to SAs. 

Thus far, FNS has awarded 41 Direct Certification grants to States, 

totaling over $17 million, to assist in implementing direct 

certification process improvements. SAs will have one additional 

opportunity to apply for funding in FY 2014. The purpose of these 

grants is to help fund State efforts to make improvements that will 

help them reach and maintain the mandated 95 percent benchmark 

set by the 2010 CN Reauthorization Act. SAs were provided with 

monthly opportunities (from February through July 2014) to apply 

for FY 2014 Direct Certification Improvement grants. Three 

applications are pending for award in the fall of 2014. 

Opportunities to apply will be extended until funding is exhausted. 

FNS’ continuing efforts with direct certification have led to 

significant improvements e.g., in SY 2012-2013, 89 percent of 
 Managing for Results in Performing Its Many Vital Public Functions 

232 | Fiscal Year 2014 Agency Financial Report 

USDA 

Agency Program Corrective Actions 

LEAs directly certified students from SNAP households, which 

was a substantial increase from SY 2004-2005. 

Other Administrative Actions: 

FNS is also promoting States’ CN Program integrity efforts by 

establishing an FNS administrative review CN Program Integrity 

Office to further promote program integrity efforts, and by 

supporting technology solutions to State and local program 

management and monitoring challenges. These integrity efforts 

began in 2014. 

A number of studies are currently planned, already underway, or 

recently completed, which also support efforts to reduce erroneous 

payments, including the following: 

 The Regional Office Review of Applications (RORA), an annual 

report examining administrative error in NSLP during LEA's 

approval process of free and reduced-price applications. The 

data collection is annual; reports are issued in the spring or 

summer of the following year. The RORA 2012 was posted to 

the Web on June 1, 2013, and the RORA 2013 was posted in 

2014; 

 NSLP and SBP Access, Participation, Eligibility, and 

Certification Study II (APEC-II), an update of national estimates 

of overpayment, underpayment and overall erroneous payments, 

which will measure certification error and meal counting and 

claiming error in SY 2012-2013, then compare these results with 

those found in SY 2005-2006. This study will also develop and 

validate estimation models for updating the erroneous payment 

estimates annually. In addition, it will produce separate 

estimates of erroneous payments for LEAs participating in the 

Community Eligibility Provision and will examine alternatives 

to develop estimates of erroneous payment estimates at the State 

level. A final report is expected in early 2015; 

 State Performance on Enrolling Children Receiving Program 

Benefits for Free School Meals (Direct Certification), an 

assessment of the effectiveness of State and local efforts to 

directly certify children for free school meals. A final report is 

expected in the fall of 2014; 

 High-risk Indicators of NSLP Certification Errors, a study that 

will provide a profile of school districts likely to be at 

"high-risk" for NSLP certification error through econometric 

modeling, which relates school district characteristics to 

certification errors. The final report was issued in April 2012; 

 The NLSP Direct Certification Improvement Study, an 

evaluation of the effectiveness of using computerized matching 

systems to directly certify low-income children from SNAP 

households. A final report is expected in 2014; 

 Direct Certification for Children Receiving Medicaid Benefits, a 

measurement of the effectiveness of direct certification using 

Medicaid data. An interim report is expected in 2014, a final 

report is due in October of 2015; 
OTHER INFORMATION

Fiscal Year 2014 Agency Financial Report | 233

SECTION III 

Agency Program Corrective Actions 

 Community Eligibility Study, an examination of the number of 

schools and LEAs in high-poverty areas that are eligible to 

receive special assistance payments, and which describes various 

attributes of those eligible schools and LEAs that elect or do not 

elect this option. The evaluation will also examine the option’s 

impact on program integrity, availability and type of breakfast 

program, nutritional quality of school meals, and program 

participation. The final report was released in February of 2014; 

 Universal Meal Service through Census Data, an evaluation 

conducted by the National Academies’ Committee on National 

Statistics (CNSTAT) and which looked into the use of data from 

the American Community Survey to develop eligibility estimates 

for school meals programs in lieu of individual applications. A 

final report was issued in December 2012; and 

 School Nutrition and Meal Cost Study, an examination of the 

relationships among 1) school environment and school food 

service operations; 2) nutritional quality of meals offered and 

served in school meal programs; 3) plate waste; 4) costs to 

produce reimbursable meals; 5) student participation; 6) 

participant characteristics; and 7) satisfaction and related 

attitudes toward the school lunch and breakfast programs. 

Primary data collection will occur in SY 2014-2015. A final 

report is due in early 2017. 

FNS Special 

Supplemental 

Nutrition Program 

for Women, Infants 

and Children (WIC) 

Certification Error 

Actions Taken To Reduce Improper Payments: 

 FNS issued Policy Memorandum 2013-3, Income Eligibility and 

Documentation in the Special Supplemental Nutrition Program 

for Women, Infants and Children (WIC), to all WIC State 

agencies on April 26, 2013, to address income documentation; 

 FNS held a series of seven regional Webinars in FY 2014, which 

provided training and technical assistance on the Income 

Eligibility Guidance and addressed specific questions and 

circumstances raised by WIC SAs; 

 FNS updated the FY 2014 WIC State Plan guidance for 

consistency with the Income Eligibility policy memorandum; 

and 

 FNS conducted a series of Webinars for all FNS Regional 

Offices on the WIC Priority System/Caseload Management to 

assist WIC SAs with caseload management procedures. 

Actions Planned To Reduce Improper Payments: 

 FNS formed a Certification/Eligibility (CE) Management 

Evaluation (ME) workgroup on July 14, 2014, to revise a 

uniform set of evaluation criteria; 

 FNS will conduct ME Reviews in Certification/Eligibility for all 

90 WIC States agencies during FYs 2015 and 2016; and 

 FNS will conduct quarterly reviews of the CE Reviews to track 

milestones. 
 Managing for Results in Performing Its Many Vital Public Functions 

234 | Fiscal Year 2014 Agency Financial Report 

USDA 

Agency Program Corrective Actions 

Vendor Error 

Actions Taken To Reduce Improper Payments: 

 FNS completed 34 ME reviews in WIC Vendor Management 

during FY 2013; 

 FNS performed an internal review of WIC ME procedures and 

made updates to improve the management of the ME review 

process; 

 FNS conducted a program integrity meeting with regional 

vendor managers and program integrity staff in May 2014 in 

order to identify vendor management policies or practices that 

contribute to high program costs; and 

 FNS Headquarters created a WIC Program Integrity and 

Monitoring Branch responsible for vendor management 

oversight policy. 

Actions planned to reduce improper payments: 

 FNS plans to complete Vendor MEs in all geographical States, 

the District of Columbia, and Puerto Rico MINC 2014; 

 FNS will review and analyze the findings from the Vendor MEs 

and write a final report; and 

 FNS will continue to work with WIC SAs to strengthen vendor 

management policies, to address vendor management findings 

identified in the ME reviews, and to take appropriate and 

allowable action when vendors defraud or overcharge the 

program. 

FNS Child and Adult Care 

Food Program 

(CACFP) 

Actions Taken to Reduce Improper Payments: 

In 2014, FNS issued guidance materials to clarify existing 

regulation, policy and instruction; to provide resources to new 

Program staff and to assist States and institutions in developing or 

improving existing policies and resources. These materials focus 

on the following areas of CACFP administration: 

1. Monitoring Handbook for SAs. 

2. Serious deficiency, Suspension, Appeals for State Agency and 

sponsoring organization. 

3. Guidance for Management Plans and Budgets. 

4. Revision of FNS Instruction 796-2, Financial Management: 

Child and Adult Care Food Program. 

5. Independent Child Care Centers Handbook. 

The Multi-State Sponsors Handbook will be published at the end 

of FY 2014. 

In the second quarter of 2014, FNS, with the assistance of SA 

staff, conducted two national refresher trainings on the guidance 

handbooks. These training sessions provided an overview of the 

guidance handbooks and refresher training on critical requirements 

of the Program. Discussion, Q&As, scenarios and case studies 

provided SAs the opportunity to share administrative strengths and 

work through operational weaknesses. 
OTHER INFORMATION

Fiscal Year 2014 Agency Financial Report | 235

SECTION III 

Agency Program Corrective Actions 

Plans to Prevent Future Improper Payments: 

Management Evaluations (MEs) in FYs 2014, 2015 and 2016 – 

FNS Regional offices will conduct management evaluations of 

each SA , to ensure SAs compliance with Program regulations and 

the Healthy, Hunger-Free Kids Act of 2010 (HHFKA; PL 111-

296). Beginning in FY 2017, FNS will begin selecting SAs for 

management evaluations each fiscal year based on a risk-based 

approach using a ME Risk Assessment Tool rather than selecting 

SAs based on a calendar cycle. 

The HHFKA strengthened CACFP administration, certification, 

and monitoring processes by: 

 Providing additional CACFP audit funding in FY 2016, thereby 

making additional monies available to SAs for Program 

improvement. The audit funds may equal a maximum of 2 

percent of the CACFP funds used by each SA during the second 

preceding fiscal year. The SA must demonstrate it can 

effectively utilize this funding for program improvement. This 

provision will be addressed in a proposed rule expected to be 

published in 2014; 

 Simplifying area eligibility determinations in CACFP, allowing 

the use of all levels of school data (elementary and secondary) 

for tiering determinations. This requirement was included in the 

final rule entitled “Child Nutrition Programs: Nondiscretionary 

Amendments Related to the Healthy, Hunger-Free Kids Act of 

2010, 78 FR 13443, February 28, 2013.” See 

http://www.fns.usda.gov/sites/default/files/FR_Rule-022813.pdf; 

and 

 Requiring sponsoring organizations to conduct periodic 

unannounced site visits at not less than 3-year intervals to 

sponsored child and adult care, and family or group day care 

homes; at least one scheduled site visit each year at these centers 

and homes; and that the timing of unannounced reviews be 

varied in such a way that it makes the reviews unpredictable to 

sponsored facilities. This was implemented in policy 

memorandum “Child Nutrition Reauthorization 2010: Varied 

Timing of Unannounced Reviews in the Child and Adult Care 

Food Program” issued April 7, 2011. See 

http://www.fns.usda.gov/sites/default/files/CACFP-16-2011.pdf. 

This provision was also included in the proposed rule “Child and 

Adult Care Food Program: Amendments Related to the 

HHFKA” 77 FR 21018, April 9, 2012. FNS anticipates issuing a 

final rule in 2014. 

In addition, FNS has issued policy memos on the following 

program areas, which are intended to minimize meal counting and 

claiming errors, thus decreasing improper payments: 

 Area Eligibility Using Census Data, issued May 28, 2014; 

 Sharing Aggregate Data to Expand Program Access and 

Services in Child Nutrition Programs, issued April 24, 2014; 
 Managing for Results in Performing Its Many Vital Public Functions 

236 | Fiscal Year 2014 Agency Financial Report 

USDA 

Agency Program Corrective Actions 

 Effective Date of Free or Reduced Price Meal Eligibility 

Determinations, issued December 12, 2013; 

 School and Census Data, issued November 12, 2013; 

 Census Data Release: Fiscal Year 2014, issued November 8, 

2013;

 Eligibility Based on Census Data, issued February 21, 2013; 

 Eligibility Based on School Data, issued November 23, 2012; 

 Guidance on Income Eligibility Determinations and the Duration 

of Eligibility, issued February 10, 2011; 

 Area Eligibility for FDCHs, issued December 22, 2010; 

 Extending Categorical Eligibility to Additional Children in a 

Household, issued May 3, 2010; 

 Meal Disallowance Policies for Family Day Care Homes, issued 

March 31, 2009; and 

 Record Maintenance Requirements for FDCH providers, issued 

February 24, 2009. 

FNS has planned or is already conducting three studies that also 

strengthen the financial integrity process and work toward 

improving the balance of erroneous payments, including: 

 CACFP Sponsor Tiering Determination, an evaluation providing 

a national estimate of the share of CACFP participating FDCHs 

approved for an incorrect level of per meal reimbursement, or 

reimbursement tier for their circumstances; annual data 

collection with results typically posted in summer of the 

following year. CACFP Assessment of Sponsor Tiering 

Determinations 2012 was posted to the FNS Web site on 

August 8, 2013; 

 CACFP Improper Payment Meal Claims Assessment, which will 

evaluate the feasibility of a parent-recall interview methodology 

for developing national improper payment estimates of the share 

of CACFP-participating FDCH meals approved by providers for 

an incorrect level of per meal reimbursement. This study was 

completed in 2014, but it never was put on the FNS Web site. It 

found that parental recall of meals served to their child while in 

attendance at the FDCH was unreliable due to a low match rate 

between parent-recalled meals and actual meals served. The 

study concluded that it was not feasible to use the parental recall 

data on specific meals (breakfast, morning snack, lunch, 

afternoon snack, supper, and evening snack) to estimate 

erroneous meal claims. As a result, a new CACFP Improper 

Payment Meal Claims Study will be awarded in 2014 to explore 

an alternative method of measuring the rate of erroneous 

payments to CACFP FDCHs for meals claimed for 

reimbursement (see below); and 

 A study relating to the CACFP, an examination of best practices 

of States in soliciting sponsors for an afterschool supper 

program. This study was completed in November 2011, and is 

currently on the Child Nutrition Web site as a resource. 
OTHER INFORMATION

Fiscal Year 2014 Agency Financial Report | 237

SECTION III 

Agency Program Corrective Actions 

There are two additional CACFP studies on the FY 2014 Research 

and Evaluation Plan related to CACFP improper payments that are 

yet to be awarded: 

Improper Payments in CACFP Centers 

This study will provide a comprehensive measure of the level of 

erroneous payments (dollars and rates) to child care centers and 

center sponsors participating in CACFP. It builds on the methods 

developed for school meals in the Access, Participation, Eligibility 

and Certification (APEC) study series. Estimates will be designed 

to meet the measurement requirements of the Improper Payments 

Elimination and Recovery Act of 2010 (IPERA). The findings 

from this study would complement the annual measure of 

reimbursement “tiering” errors in FDCHs for IPERA-reporting on 

CACFP. 

CACFP Family Day Care Homes Meal Claims Feasibility 

Study 

The study would examine ways to provide a measure of erroneous 

payments to FDCHs participating in CACFP. Different methods of 

estimating improper payments and their rates will be developed 

and a feasibility study will be conducted in an effort to determine 

the best means to meet requirements under the IPERA. 

FNS Hurricane Sandy—

Commodity 

Assistance Program 

FNS internal controls and actions have reduced the potential for 

errors, resulting in TEFAP reporting a zero-percent improper 

payment rate for funding received through the Disaster Relief Act. 

These actions include enhanced internal controls, monitoring and 

reviews of State and local partners, and additional reporting 

requirements. 

FSA, CCC Milk Income Loss 

Contract (MILC) 

Program 

Actions Taken to Reduce Improper Payments: 

The authorization to administer this program expired on 

September 1, 2014. Therefore, no further actions are planned. 

FSA, CCC Loan Deficiency 

Payments (LDP) 

Actions Taken to Reduce Improper Payments: 

 A notice was issued to the field offices on August 11, 2014, 

listing the specific eligibility requirements for a LDP. 

 A follow-up notice with additional eligibility requirements for a 

LDP, issued October 6, 2014. A table was included, listing the 

applicable forms for each requirement. 

Actions Planned to Reduce Improper Payments: 

 A notice will be issued to the field offices listing the results of 

the IPIA highlighting the cause of the improper payments found. 

Handbook paragraphs with the correct procedure will be 

referenced for each cause. 

 A conference call or VTC will be scheduled with State office 

specialists to go over each of the findings in the IPIA. State 

office specialists will be required to hold meetings or conference 

calls with their county offices to go over the findings. 
 Managing for Results in Performing Its Many Vital Public Functions 

238 | Fiscal Year 2014 Agency Financial Report 

USDA 

Agency Program Corrective Actions 

 An online training course on the LDP policy requirements will 

be available on either the DAFP or DAFO site. County Office 

employees working with any aspect of LDP will be required to 

take the course. 

Amend policy to require CCC-770 LDP be completed by each 

county office employee for the first 5 LDP they process each crop 

year. 

FSA, CCC Direct and CounterCyclical Payments 

(DCP) 

Actions Taken to Reduce Improper Payments: 

The DCP Program authority was repealed in the 2014 Farm Bill, 

and the last payment cycle of 2013 DCP direct payments occurred 

during October and November of 2013. FSA provides continual 

compliance and oversight in the delivery of all authorized 

programs to minimize the risks associated with the disbursement 

of improper payments; however, the level of risk associated with 

issuing an improper payment for a program no longer authorized is 

null. Therefore, no action was taken in FY 2014 to reduce 

improper payments for the DCP program. 

Actions Planned to Reduce Improper Payments: 

No further DCP payments are to be made as the program has 

ended. 

FSA, CCC Miscellaneous 

Disaster Programs 

(MDP) 

Actions Taken to Reduce Improper Payments: 

Updated Handbook directives issued May 5, 2014, reemphasizing 

State and county FSA employee responsibilities. 

Actions Planned to Reduce Improper Payments: 

Supplemental Revenue Assistance Payments (SURE) program was 

not reauthorized in the 2014 Farm Bill and has expired based on 

adverse weather events and natural disasters having to occur on or 

before September 30, 2011. Sign up for 2012 SURE was held from 

May 5 through August 29, 2014, and only two applications were 

processed for payment. 

FSA, CCC Noninsured 

Assistance Program 

(NAP) 

Action Taken to Reduce Improper Payments: 

A National Notice was issued to field offices to reinforce current 

program policies and procedures in September 2013. 

Actions Planned to Reduce Improper Payments: 

 National NAP training will be held the week of November 3 

through November 7 in San Antonio, Texas. Acreage reporting 

policy and procedure will also be discussed during NAP 

training. 

 A new NAP handbook is being written to incorporate Farm Bill 

changes, improvements, and recommendations made by NAP 

task force members from various States. The new handbook will 

be issued to the field in January 2015. 

For those employees who made the errors that caused improper 

payments, the actual County Office Review Program (CORP) 

finding(s) will be documented in their FY 2015 performance 

plan. 
OTHER INFORMATION

Fiscal Year 2014 Agency Financial Report | 239

SECTION III 

Agency Program Corrective Actions 

 Additional Acreage Reporting Target Reviews will be conducted 

by CORP staff during FY 2015. 

 A National NAP Notice will be issued to field offices in 

November 2014 to reinforce current program policies and 

procedures. 

FSA, CCC Hurricane Sandy—

Emergency 

Conservation 

Program 

Actions Taken to Reduce Improper Payments: 

 State Office/County Office training VTC (4/8/13) 

 Program Technician training 

 District Director reviews 

Actions Planned to Reduce Improper Payments: 

 State Office conference call 

 County Executive Director training 

 Program Technician training 

 District Director reviews 

FSA, CCC Hurricane Sandy—

Emergency Forest 

Restoration Program 

This program reported $0 outlays for FY 2013, and therefore did 

not perform a sample. 

FS Wildland Fire 

Suppression 

Management 

(WFSU) 

Actions Taken to Reduce Improper Payments: 

Acquisitions Management (AQM) modified the agreement related 

to this transaction which allows for the Indirect Cost charged on 

the invoice. The modification also removes OMB Circular A-87 

(for the 2 CFR 225 Cost Principles) from this Fire Agreement’s 

Terms and Conditions, which should be exempted from Cost 

Principles per the Cooperative Forestry Protection Act. Action 

completed May 28, 2014. 

Actions Planned to Reduce Improper Payments: 

AQM will provide additional training to Grants & Agreements 

Specialists on criteria that should be included in agreements. 

Training is an ongoing occurrence. 

FS Hurricane Sandy—

Emergency Forest 

Restoration Program 

This program reported $0 outlays for FY 2013, and therefore did 

not perform a sample. 

FS Hurricane Sandy—

Capital Improvement 

and Maintenance 

(CMDF) 

Actions Taken to Reduce Improper Payments: 

There were no Hurricane Sandy-CMDF improper payments 

identified during FY 2014 (testing FY 2013 transactions), no 

specific correction action is required. 

Actions Planned to Reduce Improper Payments: 

Through continuous improvement and strengthening of internal 

controls, internal monitoring and reviews of potential improper 

payments, centralizing of accounting functions, improved 

communications, and follow-up prior to payment authorizations, 

the Forest Service has significantly reduced the potential for 

errors. 
 Managing for Results in Performing Its Many Vital Public Functions 

240 | Fiscal Year 2014 Agency Financial Report 

USDA 

Agency Program Corrective Actions 

RD Rental Assistance 

Program (RAP) 

Actions Planned to Reduce Improper Payments: 

 RD State Office staff is required to follow-up on each instance 

of error found in the audit and either: 1) obtain appropriate 

supporting documentation for the subsidy amount paid, or 2) 

begin recovery of unauthorized assistance amounts. Anticipated 

completion date December 2014; and 

 RD will meet with key industry groups to discuss this year’s 

audit findings. Anticipated completion date December 2014. 

RMA Federal Crop 

Insurance 

Corporation (FCIC) 

Program Fund 

Actions Taken to Reduce Improper Payments: 

The agency is party to an information exchange agreement 

between the Social Security Administration and the U.S. 

Department of Agriculture for the Death Master File. The 

agreement was effective May 1, 2014. 

Actions Planned to Reduce Improper Payments: 

 Design, develop, and implement an improper payments program 

that is IPIA-compliant for the FY 2016 reporting period; and 

 Implement Section 11021 of the 2014 Farm Bill by hiring in FY 

2015 the following staff to improve program integrity efforts: 

o Six field employees to conduct additional Large Claim 

Reviews and to review new program applicant reviews, as 

well as to conduct additional operation evaluation and review 

of current Approved Insurance Providers; 

o Eighteen compliance field employees to conduct increased 

field compliance activities; 

o Five headquarters employees to improve improper payment 

sampling, reduce improper payments and audits; 

o A headquarters and field person to provide one additional 

special investigator to the field and a coordinator in 

headquarters; and 

o A contractor to re-design and implement the review process 

of partner company activity including: testing of payments; 

evaluation and testing of internal controls; and performance 

reporting. Study improper payments sampling method and 

design and deploy program. 

NRCS Farm Security and 

Rural Investment Act 

Programs (FSRIP) 

Entity Participants Not Registered in SAM.gov 

Action Taken to Reduce Improper Payments: 

 Reminder about SAM.gov registration requirement for entities 

was provided at May video teleconference for program 

personnel. Completed May 2014; 

 The SAM.gov fact sheet that is provided to entity participants 

was updated to correct broken internet links. Completed August 

2013;

 Requirement for entity registration in SAM.gov was added to the 

practice reminder letter that is sent to all participants annually. 

Completed December 2013; 
OTHER INFORMATION

Fiscal Year 2014 Agency Financial Report | 241

SECTION III 

Agency Program Corrective Actions 

 Added language to the program application reminding entity 

participants of the requirement to register to SAM.gov. 

Completed February 2014; 

 National Bulletin was issued to instruct program personnel to 

verify that entity participants have registered in SAM.gov prior 

to making obligations and payments. Completed August 2014; 

 A National Bulletin has been issued regarding the new 

Agricultural Conservation Easement Program (ACEP), enacted 

under the new Farm Bill. The bulletin included guidance and a 

reminder about the SAM.gov registration requirement for 

entities. Completed July 2014. 

Participant Overpaid Due to a Calculation Error 

Actions Planned to Reduce Improper Payments: 

 Payment functionality will be deployed in the National 

Easement Staging Tool (NEST) that will provide additional 

controls related to payment type through cross referencing of 

programmatic and financial data. Target date is December 2014; 

 A pre-payment checklist for easement acquisition transactions 

will be implemented. Target date is December 2014. 

Land Not Owned by Participant for the Required Timeframe 

Actions Taken to Reduce Improper Payments: 

Land ownership requirement is tracked in the National Easement 

Staging Tool (NEST) as a required data element for the Wetlands 

Reserve Program (WRP). The new Agricultural Conservation 

Easement Program (ACEP) Wetland Reserve Easement enrollment 

option reduced the ownership requirement from 7 years to 24-

months. Completed February 2014. 

Actions Planned to Reduce Improper Payments: 

A pre-payment checklist for easement acquisition transactions will 

be implemented. Target date is December 2014. 

Funds Disbursed Prior to Office of the General Counsel 

(OGC) Title Opinion 

Actions Planned to Reduce Improper Payments: 

Reminder of policy will be provided on an EPD net conference. 

Target date is October 2014. 

Funds Disbursed Without Required National Headquarters 

(NHQ) National Appraiser Opinion 

Actions Taken to Reduce Improper Payments: 

 Regular reminders of appraisal policy are provided by the 

National Appraiser. Completed November 2013. 

 The NHQ Easement Program Division sent a letter to the State 

that made the improper payment to remind easement program 

personnel of the appraisal review requirements. Completed 

September 2014. 

 The NHQ National Appraiser reviewed the appraisal associated 

with the improper payment. Completed August 2014.
 Managing for Results in Performing Its Many Vital Public Functions 

242 | Fiscal Year 2014 Agency Financial Report 

USDA 

Agency Program Corrective Actions 

Actions Planned to Reduce Improper Payments: 

Appraisal review requirements will be reviewed during an 

Easement Program division net conference by the National 

Appraiser. Target date is first quarter of FY 2015. 

Funds Disbursed Despite Failure of Appraisal Technical 

Review 

Actions Taken to Reduce Improper Payments: 

 Regular reminders of appraisal policy are provided by the 

National Appraiser. Completed November 2013; and 

 Appraisal review requirements were reviewed during an 

Easement Program division net conference by the National 

Appraiser. Completed September 2014. 

Actions Planned to Reduce Improper Payments: 

A pre-payment checklist for easement acquisition transactions will 

be implemented. Target date is December 2014. 

Full-Price Paid Instead Of Installment Payments As Requested 

Actions Planned to Reduce Improper Payments: 

Payment functionality will be deployed in the National Easement 

Staging Tool (NEST) that will provide additional controls related 

to payment type through cross referencing of programmatic and 

financial data. Target date is December 2014.

NRCS Hurricane Sandy—

Emergency 

Watershed 

Protection Program 

This program reported $0 outlays for FY 2013, and therefore did 

not perform a sample. 
OTHER INFORMATION

Fiscal Year 2014 Agency Financial Report | 243

SECTION III 

IV. Improper Payment Reporting 

The following exhibit shows USDA’s high-risk programs. See the notes for an explanation of the 

program’s other applicable information. 

Exhibit 24: Improper Payments Reporting Results 

Improper Payments (IP) Reporting Results (In Millions) 

Program 

Results

Reported in FY 2013

Results

Reported in FY 2014

Target 

IP % 

Outlays 

$ 

IP

%

IP

$ 

Target 

IP % 

Outlays 

$ 

IP

%

IP

$ 

Supplemental Nutrition 

Assistance Program, FNS 

3.81% 74,639 3.42% 2,553 3.80% 76,087 3.20% 2,437 

National School Lunch 

Program, FNS [Note #1]

Total Program 15.10% 11,304 15.69% 1,774 15.30% 11,463 15.25% 1,748 

Certification Error 8.81% 996 8.37% 959

Counting/Claiming Error 6.88% 778 6.88% 789

School Breakfast 

Program, FNS [Note #1] 

Total Program 24.36% 3,290 25.26% 831 24.43% 3,605 25.61% 923

Certification Error 9.47% 312 9.81% 354

Counting/Claiming Error 15.79% 519 15.79% 569

Women, Infants and 

Children, FNS 

Total Program 4.00% 4,520 4.38% 198 4.28% 4,517 4.55% 206

Certification Error 2.97% 134 2.87% 130

Vendor Error 1.41% 64 1.68% 76

Child and Adult Care 

Food Program, FNS 

[Note #2] 

Total Program 1.53% N/A N/A N/A N/A N/A N/A N/A 

FDCH – Tiering Decisions 917 1.09% 10 1.48% 930 1.05% 10

FDCH – Meal Claims N/A N/A N/A N/A 

Hurricane Sandy—

Commodity Assistance 

Program, FNS 

N/A N/A N/A N/A N/A 5.7 0.0% 0 

Milk Income Loss 

Contract Program, FSA 

1.80% 401 0.17% 1 1.80% 283 0.41% 1 

Loan Deficiency 

Payments, FSA 

0.40% 0.1 N/A N/A 0.40% 0.2 18.80% 0 
 Managing for Results in Performing Its Many Vital Public Functions 

244 | Fiscal Year 2014 Agency Financial Report 

USDA 

Improper Payments (IP) Reporting Results (In Millions) 

Program 

Results

Reported in FY 2013

Results

Reported in FY 2014

Target 

IP % 

Outlays 

$ 

IP

%

IP

$ 

Target 

IP % 

Outlays 

$ 

IP

%

IP

$ 

Direct and CounterCyclical Payments, FSA 

0.35% 0 N/A N/A 0.33% 4,619 0.71% 33

Miscellaneous Disaster 

Programs, FSA 

Total Program 2.10% 655 3.78% 24 N/A N/A N/A N/A 

Livestock Forage Disaster 

Program (LFP) 85 2.72% 2 N/A N/A N/A N/A 

Supplemental Revenue 

Assistance Payments 

(SURE) 

570 3.94% 22 3.50% 1,778 2.75% 49

Noninsured Assistance 

Program, FSA 

4.97% 256 5.23% 13 4.97% 346 4.25% 15

Hurricane Sandy—

Emergency Conservation 

Program, FSA 

N/A N/A N/A N/A N/A 0.4 0.02% 0 

Hurricane Sandy—

Emergency Forest 

Restoration Program, 

FSA 

N/A N/A N/A N/A N/A N/A N/A N/A 

Wildland Fire 

Suppression 

Management, FS 

0.02% 835 0.00% 0.0 0.02% 751 0.00% 0 

Hurricane Sandy—

Emergency Forest 

Restoration Program, FS 

N/A N/A N/A N/A N/A N/A N/A N/A 

Hurricane Sandy—

Capital Improvement 

and Maintenance, FS 

N/A N/A N/A N/A N/A 0.3 0.00% 0 

Rental Assistance 

Program, RD 

2.50% 1,108 1.79% 20 2.20% 1,117 1.99% 22

Federal Crop Insurance 

Corporation Program 

Fund, RMA 

4.00% 10,828 5.23% 566 5.15% 17,430 5.58% 972

Farm Security and Rural 

Investment Act 

Programs, NRCS [Note 

#3]

0.03% 2,277 6.93% 158 6.70% 2,200 23.08% 508

Hurricane Sandy—

Emergency Watershed 

Protection Program, 

NRCS

N/A N/A N/A N/A N/A N/A N/A N/A 
OTHER INFORMATION

Fiscal Year 2014 Agency Financial Report | 245

SECTION III 

The following exhibit shows USDA’s high-risk programs and provides a detailed breakdown of 

the annual amount of improper payments. It shows overpayments and underpayments, improper 

payments due to disbursement errors, and incomplete paperwork. 

Exhibit 25: Detailed Breakout of Improper Payments Reporting 

Detailed Breakout of Improper Payments Reporting for FY 2014 Total Improper Payments (In Millions) IP % Overpayment (In Millions) Overpayment % Underpayment (In Millions) Underpayment % Incorrect Disbursement (In Millions) 

Incorrect Disbursement % 

Incomplete Paperwork 

(In Millions) 

Incomplete Paperwork % 

Supplemental Nutrition 

Assistance Program, 

FNS 

2,437 3.20% 1,985 2.61% 453 0.60% 2,437 3.20% 0 0.00% 

National School Lunch 

Program, FNS 

[Note #1] 

1,748 15.25% 1,326 11.57% 421 3.67% 1,748 15.25% 0 0.00% 

School Breakfast 

Program, FNS 

[Note #1] 

923 25.61% 795 22.04% 128 3.57% 923 25.61% 0 0.00% 

Special Supplemental 

Program for Women, 

Infants and Children, 

FNS 

206 4.55% 145 3.20% 61 1.35% 206 4.55% 0 0.00% 

Child and Adult Care 

Food Program, FNS 

[Note #2]

10 1.05% 9 0.98% 1 0.07% 10 1.05% 0 0.00% 

Hurricane Sandy—

Commodity Assistance 

Program, FNS 

0 0.00% 0 0.00% 0 0.00% 0 0.00% 0 0.00% 

Milk Income Loss 

Contract Program, FSA 1 0.41% 0.8 0.33% 0.2 0.08% 1 0.41% 0 0.00% 

Loan Deficiency 

Payments, FSA 0 18.80% 0 16.10% 0 2.70% 0 2.70% 0 16.10% 

Direct and CounterCyclical Payments, 

FSA 

33 0.71% 33 0.71% 0 0.00% 33 0.71% 0 0.00% 

Miscellaneous Disaster 

Programs, FSA, SURE 49 2.75% 40 2.23% 9 0.52% 39 2.14% 10 0.61% 

Noninsured Assistance 

Program, FSA 15 4.25% 14 4.05% 1 0.20% 11 3.11% 4 1.14% 
 Managing for Results in Performing Its Many Vital Public Functions 

246 | Fiscal Year 2014 Agency Financial Report 

USDA 

Detailed Breakout of Improper Payments Reporting for FY 2014 Total Improper Payments (In Millions) IP % Overpayment (In Millions) Overpayment % Underpayment (In Millions) Underpayment % Incorrect Disbursement (In Millions) 

Incorrect Disbursement % 

Incomplete Paperwork 

(In Millions) 

Incomplete Paperwork % 

Hurricane Sandy—

Emergency 

Conservation Program, 

FSA 

0 0.02% 0 0.02% 0 0.00% 0 0.02% 0 0.00% 

Hurricane Sandy—

Emergency Forest 

Restoration Program, 

FSA 

N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A 

Wildland Fire 

Suppression 

Management, FS 

0 0.00% 0 0.00% 0 0.00% 0 0.00% 0 0.00% 

Hurricane Sandy—

Emergency Forest 

Restoration Program, 

FS

N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A 

Hurricane Sandy—

Capital Improvement 

and Maintenance, FS 

0 0.00% 0 0.00% 0 0.00% 0 0.00% 0 0.00% 

Rental Assistance 

Program, RD 22 1.99% 16 1.40% 7 0.59% 12 1.03% 11 0.96% 

Federal Crop Insurance 

Corporation Program 

Fund, RMA 

972 5.58% 914 5.25% 58 0.33% 972 5.58% 0 0.00% 

Farm Security and 

Rural Investment 

Program, NRCS [Note 

#3]

508 23.08% 508 23.08% 0 0.00% 508 23.08% 0 0.00% 

Hurricane Sandy – 

Emergency Watershed 

Protection Program, 

NRCS 

N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A 
OTHER INFORMATION

Fiscal Year 2014 Agency Financial Report | 247

SECTION III 

The following exhibit shows future year outlays and improper payment estimates for USDA’s 

high-risk programs.

Exhibit 26: Improper Payments Reduction Outlook 

Improper Payment Reduction Outlook (In Millions) 

Program 

FY 2015 Reporting FY 2016 Reporting FY 2017 Reporting 

Outlays 

$ 

IP

%

IP

$ 

Outlays 

$ 

IP

%

IP

$ 

Outlays 

$ 

IP

%

IP

$ 

Supplemental 

Nutrition 

Assistance 

Program, FNS 

79,741 3.42% 2,718 77,624 3.42% 2,655 74,906 3.42% 2,562 

National School 

Lunch Program, 

FNS 

11,717 15.17% 1,777 11,950 14.79% 1,767 12,000 14.43% 1,732 

School Breakfast 

Program, FNS 3,843 24.43% 939 4,075 23.62% 963 4,095 22.84% 935

Women, Infants 

and Children, FNS 4,647 4.18% 194 4,900 4.08% 200 5,072 3.98% 202

Child and Adult 

Care Food 

Program, FNS

[Note #2]

956 1.43% 14 960 1.38% 13 970 1.33% 13

Hurricane Sandy—

Commodity 

Assistance 

Program, FNS 

0 0.00% 0 N/A N/A N/A N/A N/A N/A 

Milk Income Loss 

Contract Program, 

FSA 

0 1.80% 0 0 1.80% 0 0 1.80% 0 

Loan Deficiency 

Payments, FSA 5 0.40% 0 10 0.40% 0 10 0.35% 0 

Direct and 

Counter-Cyclical 

Payments, FSA 

N/A N/A N/A N/A N/A N/A N/A N/A N/A 

Miscellaneous 

Disaster Programs, 

FSA 

LFP 

SURE 

N/A N/A N/A N/A N/A N/A N/A N/A N/A 

Noninsured 

Assistance Program, 

FSA 

168 4.90% 8 168 4.80% 8 168 4.80% 8 

Hurricane Sandy—

Emergency 

Conservation 

Program, FSA 

1 1.50% 0 1 1.45% 0 1 1.40% 0 
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248 | Fiscal Year 2014 Agency Financial Report 

USDA 

Improper Payment Reduction Outlook (In Millions) 

Program 

FY 2015 Reporting FY 2016 Reporting FY 2017 Reporting 

Outlays 

$ 

IP

%

IP

$ 

Outlays 

$ 

IP

%

IP

$ 

Outlays 

$ 

IP

%

IP

$ 

Hurricane Sandy—

Emergency 

Hurricane Sandy—

Emergency Forest 

Restoration 

Program, FSA 

N/A N/A N/A N/A N/A N/A N/A N/A N/A 

Wildland Fire 

Suppression 

Management, FS 

1,000 0.02% 0 1010 0.02% 0 1018 0.02% 0 

Hurricane Sandy—

Emergency Forest 

Restoration 

Program, FS 

N/A N/A N/A N/A N/A N/A N/A N/A N/A 

Hurricane Sandy—

Capital 

Improvement and 

Maintenance, FS 

1.45 0.02% 0 1 0.02% 0 0 N/A N/A 

Rental Assistance 

Program, RD 1,221 1.90% 23 1,282 1.89% 24 1300 1.88% 24

Federal Crop 

Insurance 

Corporation 

Program Fund, 

RMA 

8,733 5.75% 502 7,653 5.70% 436 7,611 5.65% 430

Farm Security and 

Rural Investment, 

NRCS [Note #3] 

2,714 9.90% 269 2,873 9.70% 279 3,101 9.50% 295

Hurricane Sandy—

Emergency 

Watershed 

Protection 

Program, NRCS 

N/A N/A N/A N/A N/A N/A N/A N/A N/A 

Note #1: Information has not been adjusted for interaction between the different sources of 

certification error and counting/claiming error. 

Note #2: CACFP currently tests and reports on the FDCH-tiering decision component of the 

payment process. FNS continues to evaluate the measurement processes for the CACFP meal 

claim component. FNS has not set a date for measurement and reporting. 

Note #3: NRCS’ testing processes have undergone changes since FY 2012 to create more robust 

testing criteria for all financial assistance payments. The primary cause of the increase in 

improper payments that were identified relate to entity participants not registering in SAM.gov 

as required. 
OTHER INFORMATION

Fiscal Year 2014 Agency Financial Report | 249

SECTION III

V. Recapture of Improper Payments Reporting 

The Department uses contractors to recover overpayments when it conducts audits required by 

the Improper Payments Elimination and Recovery Act of 2010 (IPERA). Some recovery audits 

do not meet the criteria of IPERA, and are conducted differently. One contract addresses 

overpayments to vendors that provide goods and services to USDA, and one contract addresses 

program overpayments.

The first contract mentioned above, the Supplier Credit Recovery Audit (SCRA) initiative, 

addresses vendor overpayments. USDA’s SCRA contractor uses proprietary software to analyze 

vendor billing and invoice records to identify possible overpayments. USDA validates the 

results, collects overpayments from the vendors, and distributes the recovered funds according to 

the disbursement scheme outlined in IPERA. Through this process, USDA has identified 

$616,183 in overpayments from August 2013 through July 2014. 

Under the second contract, possible program overpayments are detected by a contractor using 

proprietary software that scans program databases provided by USDA. The contractor provides 

its findings to USDA program staff, who then determine whether the findings represent 

collectable overpayments. This effort differs significantly from the SCRA initiative. SCRA 

overpayments are generally straightforward, and usually involve invoices that were incorrect, 

goods that were not delivered or that were delivered in the wrong quantity, bills that were paid 

twice, or services that were not performed according to the original contract. Program 

overpayments, however, are more complex, and often involve funds that have changed hands 

several times, or funds that are dispersed to States or other entities, which in turn provide 

services to vulnerable populations.

Rental Assistance Program (RAP) overpayments have been the focus of a recovery audit pilot to 

test the new initiative. The pilot project revealed the extent of time and resources that must be 

dedicated to validating possible overpayments in such an initiative. Lessons learned from this 

pilot will be used in new opportunities, and will help to design recovery audits that are more 

focused, and that consume fewer resources. 
 Managing for Results in Performing Its Many Vital Public Functions 

250 | Fiscal Year 2014 Agency Financial Report 

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The following exhibits are designed to illustrate payment recapture audit efforts. Exhibit 27

shows how recovery payments are reported for audits. 

Exhibit 27: Payment Recapture Audit Reporting 

Payment Recapture Audit Reporting (In Millions) 

Program or Activity Type of Payment (contract, grant, benefit, loan, or other) Amount Subject to Review for Calendar Year (CY) Reporting Actual Amount Reviewed and Reported (CY) Amount Identified for Recovery (CY) Amount Recovered (CY) % of Amount Recovered Out of Amount Identified (CY) Amount Out-standing (CY)*** % of Amount Outstanding out of Amount Identified (CY) 

Rental Assistance 

Program* Benefit $1,108 $0.323 $0.014 $0.040 78%** $0.042 100.00% 

Supplier Credit 

Recovery Audit* Contract $4,300 $4,300 $0.616 $0.616 100% $0.000 0.00% 

USDA Total $5,408 $4,300 $0.630 $0.656 96%** $0.042 6.67% 

Payment Recapture Audit Reporting (In Millions) 

Amount Determined Not to be Collectible (CY) % of Amount Determined Not to be Collectible out of Amount Identified (CY) Amounts Identified for Recovery in Previous Years (PYs) Amount Recovered (PYs) Cumulative Amount Identified for Recovery (CY+PYs) Cumulative Amount Recovered (CY+PYs) Cumulative Amount Outstanding (CY+PYs) Cumulative Amount Determined Not to be Collectible (CY+PYs) 

$0 0.0% $0.174 $0.106 $0.188 $0.146 $0.042 $0

$0 0.0% $0.000 $0.000 $0.616 $0.616 $0.000 $0

$0 0.0% $0.174 $0.106 $0.804 $0.762 $0.042 $0

* Exhibit 27 represents the one-year period September 1, 2013 – July 31, 2014. The column titled “Actual Amount Reviewed 

and Reported (CY)” represents the amount the recovery auditing contractor reported as potential improper payments. 

** These amounts are based on cumulative results for the Rental Assistance Program because it is a multiyear project with 

identification and recovery crossing fiscal years. 

*** The current year’s amount outstanding includes receivables identified in the current and prior fiscal years. 
OTHER INFORMATION

Fiscal Year 2014 Agency Financial Report | 251

SECTION III 

The following exhibit shows how these annual targets, based on the rate of recovery, are used to 

drive performance. 

Exhibit 28: Payment Recapture Audit Targets 

Payment Recapture Audit Targets 

Program or Activity Type of Payment (contract, grant, benefit, loan, or other) CY Amount Identified CY Amount Recovered CY Recovery Rate (Amount Recovered/ Amount Identified) CY +1 Recovery Rate Target CY + 2 Recovery Rate Target CY +3 Recovery Rate Target 

Rental Assistance 

Program Benefit $0.014 $0.040 78% 85% 85% 85%

Supplier Credit 

Recovery Audit Contract $0.616 $0.616 100% 100% 100% 100%

The following shows an aging schedule of outstanding overpayments in 6-month periods. 

Exhibit 29: Aging of Outstanding Overpayments 

Aging of Outstanding Overpayments 

Program or Activity Type of Payment (contract, grant, benefit, loan, or other) CY Amount Outstanding (0 

– 6 months) 

CY Amount Outstanding (6 months to 1 year) CY Amount Outstanding (over 1 year) 

Rental Assistance Program Benefit $0.003 $0.011 $0.028 

Supplier Credit Recovery Audit Contract $0.000 $0.000 $0.000 
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252 | Fiscal Year 2014 Agency Financial Report 

USDA 

The following exhibit shows a summary of how recovered amounts have been used. 

Exhibit 30: Disposition of Recaptured Funds 

Disposition of Recaptured Funds 

Program or Activity Type of Payment (contract, grant, benefit, loan, or other) Agency Expenses to Administer the Program Payment Recapture Auditor Fees Financial Management Improvement Activities Original Purpose Office of Inspector General Returned to Treasury 

Rental Assistance 

Program Benefit N/A N/A N/A N/A N/A N/A

Supplier Credit 

Recovery Audit Contract N/A N/A N/A N/A N/A N/A

Exhibit 30 shows disposition of recaptured funds as Not Applicable (N/A) because recoveries 

reported in Exhibit 25 for the two-year period of September 1, 2012 through August 31, 2014, 

had not been disbursed as of August 31, 2014. 

Exhibit 31 includes USDA improper payments identified and recovered, listed by source, from 

the fourth quarter FY 2013 to the third quarter of FY 2014. It includes amounts from prior years, 

as well as cumulative totals. The prior year column includes recoveries from FY 2004 through 

FY 2013. 

Exhibit 31: Overpayments Recaptured 

Overpayments Recaptured Outside of PRRA Initiative (In Millions) 

Agency Source FY 2014 Amount Identified FY 2014 Amount Recovered Prior Years Amount Identified Prior Years Amount Recovered Cumulative (Current & Prior Years) Amount Identified Cumulative (Current & Prior Years) Amount Recovered 

Statistical Samples Under IPIA $35.64 $1.82 $930.38 $893.80 $966.02 $895.62 

Identified Internally & Post 

Payment Reviews $240.19 $209.13 $961.92 $698.19 $1,202.11 $907.32 

Identified by OIG & 

Government Accountability 

Office (GAO) Audits 

$2.17 $1.83 $193.61 $0.13 $195.78 $1.96 

Self-reported by recipient $0.49 $0.31 $0.46 $0.11 $0.95 $0.42 

Reports from the Public $0.42 $0.02 $6.08 $6.01 $6.50 $6.03 

Other Sources $21.60 $21.38 $7.85 $5.12 $29.45 $26.50 

USDA Total $300.51 $234.49 $2,100.30 $1,603.36 $2,400.81 $1,837.85 
OTHER INFORMATION

Fiscal Year 2014 Agency Financial Report | 253

SECTION III

VI. Accountability 

The following steps were taken to ensure that agency managers are held accountable for reducing 

and recovering improper payments: 

FNS

SNAP 

FNS has a corporate priority to maintain a high standard of integrity in SNAP. This priority 

includes specific goals to support achievement of error rate goals, use multiple strategies to 

support payment accuracy and to participate actively in efforts related to the President’s 

Executive Order on Improper Payments. The agency goals and priorities are incorporated into 

each manager’s performance plan. 

SBP 

USDA has a strategic objective to improve nutrition assistance program management that is 

managed by FNS and includes a measure to improve the accuracy of school administrative 

processes that certify children for school meals. As part of its actions to advance this objective, 

FNS sets annual priority goals and initiatives, including specific goals applicable to programs at 

high-risk for erroneous payments. These agency goals and priorities are incorporated into each 

manager’s performance plan. 

NSLP 

USDA has a strategic objective to improve nutrition assistance program management that is 

managed by FNS and includes a measure to improve the accuracy of school administrative 

processes that certify children for school meals. As part of its actions to advance this objective, 

FNS sets annual priority goals and initiatives, including specific goals applicable to programs at 

high-risk for erroneous payments. These agency goals and priorities are incorporated into each 

manager’s performance plan. 

WIC 

FNS has a corporate priority to improve program management. Within this priority are specific 

goals applicable to programs at high-risk for erroneous payments. The agency goals and 

priorities are incorporated into each manager’s performance plan. 

CACFP 

FNS has a corporate priority to improve stewardship of Federal funds. Within this priority are 

specific goals applicable to programs at high-risk for erroneous payments. The goal for CACFP 

is to continue management improvements. The agency goals and priorities are incorporated into 

each manager’s performance plan. 
 Managing for Results in Performing Its Many Vital Public Functions 

254 | Fiscal Year 2014 Agency Financial Report 

USDA

FSA 

MILC 

The following are steps that have or will continue to be taken to ensure agency managers are 

held accountable for reducing and recovering improper payments: 

 FSA has a performance management program to improve individual and organizational 

effectiveness in accomplishing the agency’s mission and goals. This program provides 

improper payments to be included in the State Executive Director (SED) Performance Plan, 

element 5, titled “Program Management.” 

 National and State Office (STO) managers are held accountable for ensuring that program 

policies and procedures are provided to the STO and County Office (COF) employees 

accurately and on a timely basis. Federal managers are also held accountable, as reflected in 

the performance-based rating measures, for overall program administration at the national 

level. FSA Federal employees’ performance elements are directly related to FSA’s Strategic 

Plan; 

 COF employees, including the County Executive Director, are responsible for making 

payments to producers and following all administrative steps in doing so. Employees will be 

evaluated on program delivery and their compliance with regulations, policies, and 

procedures through their performance plans. 

 Deputy Administrator of Field Operations will facilitate meetings with the program areas to 

discuss any action necessary for senior management to address accountability. 

 The FSA Financial Services system was enhanced to include role-based security. The rolebased functionality was implemented in December of 2008 to differentiate roles between 

those individuals responsible for creating/revising producer personal data from those having 

access to update any other program/payment application. 

 NOTE: Authorization to administer MILC expired on September 1, 2014. 

LDP 

The following are steps that have or will continue to be taken to ensure agency managers are 

held accountable for reducing and recovering improper payments: 

 FSA has a performance management program in place to improve individual and 

organizational effectiveness in accomplishing the agency’s mission and goals. This program 

provides for improper payments to be included in the SED Performance Plan, element 5, 

titled “Program Management.” 

 National and STO managers are held accountable for ensuring that program policies and 

procedures are provided to the STO and COF employees accurately and on a timely basis. 

National Office managers are also held accountable, as reflected in the performance-based 

rating measures, for overall program administration at the national level. FSA employees’ 

performance elements are directly related to FSA’s Strategic Plan. 
OTHER INFORMATION

Fiscal Year 2014 Agency Financial Report | 255

SECTION III

 COF employees, including the CED, are responsible for making payments to producers and 

following all administrative steps in doing so. Employees will be evaluated on program 

delivery and their compliance with regulations, policies, and procedures through their 

performance plans. 

 Deputy Administrator of Field Operations will facilitate meetings with the program areas to 

discuss any additional action necessary for senior management to address accountability. 

 Employees at all levels of the agency will be held accountable for efficient and accurate 

delivery of all FSA programs. 

 In order to effectively prevent improper payments, SED’s having field offices with high 

improper error rates may require, within specific field offices, additional: 

◌ Supervisory follow-up or performance actions; 

◌ Payment review or approval levels; and 

◌ Required use of CCC-770 LDP checklist for all LDPs processed. 

DCP

The following are steps that have or will be taken to ensure agency managers are held 

accountable for reducing and recovering improper payments. 

 FSA has a performance management program in place to improve individual and 

organizational effectiveness in accomplishing the agency’s mission and goals. This program 

provides for improper payments to be included in the SED Performance Plan, element 5, 

titled “Program Management.” (In place for FY 2014.) 

 National and STO managers are held accountable for ensuring that program policies and 

procedures are provided to the State and County Office Employees accurately and on a 

timely basis. National Office managers are also held accountable, as reflected in the 

performance-based rating measures, for overall program administration at the national level. 

FSA employees’ performance elements are directly related to FSA’s Strategic Plan. (in 

place for FY 2014.) 

 County Office Employees, including the CED, are responsible for making payments to 

producers and following all administrative steps in doing so. Employees will be evaluated 

on program delivery and their compliance with regulations, policies, and procedures through 

their performance plans. (In place for FY 2012.) 

 Deputy Administrator of Field Operations will facilitate meetings with the program areas to 

discuss any additional action necessary for senior management to address accountability. 

 FSA’s 2012-2016 Strategic Plan provides that, in accordance with USDA’s effort to develop 

comprehensive internal controls, quality assurance processes and systems, and comply with 

the IPIA, FSA has incorporated the priority of reducing improper payments into its strategic 

planning documents. (In FSA’s 2012-2016 Strategic Plan.) 

 NOTE: DCP program authority was repealed in the 2014 Farm Bill. 
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256 | Fiscal Year 2014 Agency Financial Report 

USDA

SURE 

The following are steps that have or will be taken to ensure agency managers are held 

accountable for reducing and recovering improper payments. 

 FSA has a performance management program in place to improve individual and 

organizational effectiveness in accomplishing the agency’s mission and goals. (This 

program provides for improper payments to be included in the SED Performance Plan, 

element 5, titled “Program Management”.) 

 National and STO managers are held accountable for ensuring that program policies and 

procedures are provided to the State and county office employees accurately and on a timely 

basis. National Office managers are also held accountable as reflected in the 

performance-based rating measures, for overall program administration at the national level. 

FSA employees’ performance elements are directly related to FSA’s Strategic Plan. 

 County office employees, including the CED, are responsible for making payments to 

producers and following all administrative steps in doing so. Employees will be evaluated 

on program delivery and their compliance with regulation, policies, and procedures through 

their performance plans. 

 Deputy Administrator of Field Operations will facilitate meetings with the program areas to 

discuss any additional action necessary for senior management to address accountability. 

 FSA’s 2012-2016 Strategic Plan provides that, in accordance with USDA’s effort to develop 

comprehensive internal controls, quality assurance processes and systems, and comply with 

the IPIA, FSA has incorporated the priority of reducing improper payments into its strategic 

planning documents. (In FSA’s 2012-2016 Strategic Plan) 

 NOTE: SURE program was not reauthorized in the 2014 Farm Bill. 

NAP

The following are steps that have or will be taken to ensure agency managers are held 

accountable for reducing and recovering improper payments.

 FSA has a performance management program in place to improve individual and 

organizational effectiveness in accomplishing the agency’s mission and goals. This program 

provides for improper payments to be included in the SED Performance Plan, element 5,

titled “Program Management.” (In place for FY 2014) 

 National and STO managers are held accountable for ensuring that program policies and 

procedures are provided to the State and county office employees accurately and on a timely 

basis. National Office managers are also held accountable, as reflected in the 

performance-based rating measures, for overall program administration at the national level. 

FSA employees’ performance elements are directly related to FSA’s Strategic Plan. (In 

place for FY 2014) 

 County office employees, including the CED, are responsible for making payments to 

producers and following all administrative steps in doing so. Employees will be evaluated 
OTHER INFORMATION

Fiscal Year 2014 Agency Financial Report | 257

SECTION III

on program delivery and their compliance with regulations, policies, and procedures through 

their performance plans. (In place for FY 2014) 

 Deputy Administrator of Field Operations will facilitate meetings with the program areas to 

discuss any additional action necessary for senior management to address accountability. 

 FSA’s 2012-2016 Strategic Plan provides that, in accordance with USDA’s effort to develop 

comprehensive internal controls, quality assurance processes and systems, and comply with 

the IPIA, FSA has incorporated the priority of reducing improper payments into its strategic 

planning documents. (In FSA’s 2012-2016 Strategic Plan). 

ECP 

The following are steps that have or will be taken to ensure agency managers are held 

accountable for reducing and recovering improper payments: 

 FSA has a performance management program in place to improve individual and 

organizational effectiveness in accomplishing the agency’s mission and goals. This program 

provides for improper payments to be included in the SED Performance Plan, element 5,

titled “Program Management.” 

 National and STO managers are held accountable for ensuring that program policies and 

procedures are provided to the State and county office employees accurately and on a timely 

basis. National Office managers are also held accountable, as reflected in the 

performance-based rating measures, for overall program administration at the national level. 

FSA employees’ performance elements are directly related to FSA’s Strategic Plan. 

 County office employees, including the CED, are responsible for making payments to 

producers and following all administrative steps in doing so. Employees will be evaluated 

on program delivery and their compliance with regulations, policies, and procedures through 

their performance plans 

 FSA’s 2012-2016 Strategic Plan provides that, in accordance with USDA’s effort to develop 

comprehensive internal controls, quality assurance processes and systems, and comply with 

the IPIA, FSA has incorporated the priority of reducing improper payments into its strategic 

planning documents. (In FSA’s 2012-2016 Strategic Plan.) 

FS 

WFSU 

Management will be made aware of improper payments identified and held accountable for 

reduction and recoveries of improper payments. Forest Service Handbook 6500-2012-1, Chapter 

6540.44, directs managers and payment staffs to manage and monitor the implementation of 

payment policies in accordance with direction issued by the Office of Chief Financial Officer 

(OCFO) to provide appropriate control environment that effectively prevents, detects, and 

recovers improper payments. The Forest Service utilizes IPIA statistical testing, review of 

improper payments and recoveries, and the High-Dollar Overpayment Quarterly Report to detect 

improper payments. These analytics assist in identifying the number and dollar value of improper 
 Managing for Results in Performing Its Many Vital Public Functions 

258 | Fiscal Year 2014 Agency Financial Report 

USDA

payments that have been identified and recovered by the Forest Service. In addition, 

dissemination of audit findings, recovery efforts and identification of root causes ensure 

management’s awareness. Quarterly monitoring and corrective actions will improve 

accountability, identification, and resolution of improper payments in a timely manner. 

CMDF 

Management will be made aware of improper payments identified and held accountable for 

reduction and recoveries of improper payments. FS Handbook 6500-2012-1, Chapter 6540.44, 

directs managers and payment staffs to manage and monitor the implementation of payment 

policies in accordance with direction issued by OCFO to provide an appropriate control 

environment that effectively prevents, detects, and recovers improper payments. The Forest 

Service utilizes IPIA statistical testing, review of improper payments and recoveries, and will 

begin including the High-Dollar Overpayment Quarterly Report, upon direction being provided 

by OCFO’s Fiscal Policy Division, to detect improper payments. These analytics assist in 

identifying the number and dollar value of improper payments that have been identified and 

recovered by FS. In addition, dissemination of audit findings, recovery efforts, and identification 

of root causes ensure management’s awareness. Quarterly monitoring and corrective actions will 

improve accountability, identification, and resolution of improper payments in a timely manner. 

RHS

 STO Directors and program managers’ performance plans include appropriate performance 

elements regarding IPIA and recovery of unauthorized assistance. Timeframe: Completed. 

 Deputy Administrator of MFH Programs continues to facilitate monthly meetings with the 

State and area office program areas to discuss any additional action necessary for senior 

management to address accountability and program administration for improper payments 

and unauthorized assistance. 

 The National Office staff performance plan agreements contain position-corresponding, 

mission-area strategic objective element goals and priorities, and are incorporated into each 

manager’s performance plan. For staff managing the RA program, appropriate performance 

elements regarding IPIA, and recovery of unauthorized assistance are included. 

RMA

RMA has revised its strategic plan and reviews annual performance tied to position specific 

standards to ensure RMA management takes future corrective actions to address program 

vulnerabilities that are intended to reduce program errors and increase efficiency. Furthermore, a 

strategic objective element aligned with RMA’s major goals has been placed into every 

employee’s performance plan beginning in FY 2005. For example, compliance personnel have a 

standard that ties to the goal associated with improving program integrity. These requirements 

are functioning as demonstrated by ongoing corrective actions for non-compliant companies.) 
OTHER INFORMATION

Fiscal Year 2014 Agency Financial Report | 259

SECTION III

NRCS

NRCS included specific language regarding the prevention, identification and recovery of 

improper payments in the State conservationists’ performance plans. In addition, the importance 

of reducing improper payments has been a topic of multiple national Webinar teleconferences, 

individual discussions with State Conservationists, and several National Bulletins. NRCS will 

continue to focus on reducing improper payments during the course of FY 2015. 

VII. Agency Information Systems and Other Infrastructure 

Although USDA is creating information systems and infrastructure to reduce improper 

payments, especially for programs susceptible to significant risk, efforts in some programs are 

constrained by limited resources. The Department has worked closely with the OMB to develop 

action plans that focus available resources on the most critical needs with regard to improper 

payment measurement and risk reduction. 

FNS

SBP 

The SBP does not have an administrative infrastructure for producing yearly estimates of 

improper payment rates and dollar values. FNS uses its periodic nationally representative APEC 

study to provide a baseline error rate estimate and an “aging” methodology to update this 

estimate annually, using program administrative data and macroeconomic indicators. FNS has 

also worked with OMB to provide an annual estimate using an approved methodology to 

estimate payment errors. While Congress did not appropriate funds for a new APEC study in 

FY 2012, recognizing the importance of updated estimates of erroneous NSLP/SBP payments, 

FNS sought and received authority to reprogram funds from other appropriated accounts to fund 

this study. In April 2012, FNS launched the APEC-II study for school year 2012-2013. The 

continuance of this study will enable FNS to estimate and measure changes in erroneous 

payments over time and would help inform FNS, Congress, the States, and advocacy partners for 

the development of additional guidance, training, and policy options. 

The FNS FY 2015 budget requests an increase in funding for the following SBP program 

integrity line items to establish and maintain effective internal controls to reduce improper 

payments: 

CN Training and Technical Assistance—an increase of $121,000 was requested ($8.016 million 

available in FY 2014). Effective and continual training and technical assistance are necessary to 

help States properly administer the Child Nutrition program to ensure States are equipped to 

identify and prevent fraud and abuse. This is especially critical because of the changes made to 

these vital programs by the 2010 CN Reauthorization, which, besides reauthorizing these 

programs, also instituted new requirements on State agencies; and 

CN Payment Accuracy—an increase of $287,000 was requested ($9.617 million available in FY 

2014). FNS believes that robust Federal oversight, monitoring, and technical assistance are 
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essential to the identification, prevention, and resolution of erroneous payments. This increase 

supports FNS’ dedicated commitment to this effort. FNS will use $3 million of the increased 

funding to support and promote States’ CN Program integrity efforts by establishing a FNS 

administrative review CN Program Integrity Response Team to further promote program 

integrity efforts, and to support technology solutions for State and local program management 

and monitoring challenges. 

FNS FY 2015 budget reflects the same level of funding as in previous years to continue effective 

internal control measures to promote program integrity in the following direct appropriations: 

Technical Assistance Program Integrity—$4 million is made available for ongoing training and 

technical assistance to State agencies and Regional offices to further promote program integrity 

efforts. 

Grants to States for Administrative Reviews—FNS annually releases funding to State agencies 

for Administrative Reviews and Training of selected local educational agencies (LEAs) 

identified by the States as having demonstrated a high-level of, or high-risk for administrative 

error in the NSLP. For this purpose, $4 million was set aside in FY 2005, and for each fiscal year 

thereafter. 

Coordinated Review Effort—$10 million to provide training and technical assistance for State 

agencies responsible for reviewing local school food authorities that participate in the school 

meal programs. Local administrative reviews help ensure that school children are offered meals 

that meet regulatory standards and that the financial claims associated with those meals are 

appropriate. 

NSLP 

The NSLP does not have an administrative infrastructure for producing yearly estimates of 

improper payment rates and dollar values. FNS uses its periodic nationally representative APEC 

study to provide a baseline error rate estimate and an “aging” methodology to update this 

estimate annually using program administrative data and macroeconomic indicators. FNS also 

worked with OMB to provide an annual estimate using an approved methodology to estimate 

payment errors. While Congress did not appropriate funds for a new APEC study in FY 2012, 

recognizing the importance of updated estimates of erroneous NSLP/SBP payments, FNS sought 

and received authority to reprogram funds from other appropriated accounts to fund this study. In 

April 2012, FNS launched the APEC-II study for SY 2012-2013. The continuance of this study 

will enable FNS to estimate and measure changes in erroneous payments over time and will help 

inform FNS, Congress, the States, and advocacy partners of the development of additional 

guidance, training, and policy options. 

The FNS FY 2015 budget requests an increase in funding for the following NSLP program 

integrity line items to establish and maintain effective internal controls to reduce improper 

payments: 

CN Training and Technical Assistance—an increase of $121,000 was requested ($8.016 million 

enacted in FY 2014). Effective and continual training and technical assistance are necessary to 
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help States properly administer the Child Nutrition program to ensure States are equipped to 

identify and prevent fraud and abuse. This is especially critical because of the changes made to 

these vital programs by the 2010 CN Reauthorization, which, besides reauthorizing these 

programs, also instituted new requirements on State agencies. 

CN Payment Accuracy—an increase of $287,000 was requested ($9.617 million enacted in 

FY 2014). FNS believes that robust Federal oversight, monitoring, and technical assistance are 

essential to the identification, prevention, and resolution of erroneous payments. This increase 

supports FNS’ dedicated commitment to this effort. FNS will use $3 million of the increased 

funding to support and promote States’ CN Program integrity efforts by establishing a FNS 

administrative review CN Program Integrity Response Team to further promote program 

integrity efforts, and to support technology solutions to State and local program management and 

monitoring challenges. 

FNS FY 2015 budget reflects the same level of funding as in previous years to continue effective 

internal control measures to promote program integrity in the following direct appropriations: 

Technical Assistance Program Integrity—$4 million is made available for ongoing training and 

technical assistance to State agencies and Regional offices to further promote program integrity 

efforts. 

Grants to States for Administrative Reviews—FNS annually releases funding to State agencies 

for Administrative Reviews and Training of selected local educational agencies (LEAs) 

identified by the States as having demonstrated a high-level of, or high-risk for administrative 

error in the NSLP. For this purpose, $4 million was set aside in FY 2005 and for each FY 

thereafter. 

Coordinated Review Effort – $10 million to provide training and technical assistance for State 

agencies responsible for reviewing local school food authorities that participate in the school 

meal programs. Local administrative reviews help ensure that school children are offered meals 

that meet regulatory standards and that the financial claims associated with those meals are 

appropriate. 

CACFP 

CACFP does not have an infrastructure or methods for producing yearly estimates of improper 

payment rates and dollar values. FNS is actively developing measurement methodologies for one 

component of the program that will yield measurement of risk of improper payments for that 

component. 

CACFP has three distinct parts: Child Care Centers, Adult Day Care facilities and FDCHs. 

Overall, program funding is provided to State agencies that provide funds to sponsoring 

organizations to pay for claims for reimbursable meals served at provider sites. Sites can be as 

large as an institution or as small as a household. Each part of CACFP has its own 

reimbursement structure. Payments and claim information are transferred between FNS, State 

agencies, program sponsors and program sites; each transaction represents a risk for improper 

payment. Because requirements vary significantly for each different type of program sponsor and 
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site, a full and rigorous assessment of the rate of improper payments is extremely complex. FNS 

did not have the resources to develop a measurement approach for erroneous payments in 

CACFP, and therefore submitted a request for resources in the FY 2006 budget process. The 

original plan was to develop a program-wide study that would examine reimbursements for 

meals served and develop program error measurements that complied with the requirements of 

the IPIA. Because of the complexities of the program, FNS estimated that it would cost $20 

million to measure improper payments at the precision required by the IPIA. Although the FY 

2006 Budget request included funds designated for the nationally representative CACFP 

erroneous payments study, funds were not provided by Congress. 

The FNS FY 2015 budget requests an increase in funding for the following program integrity 

line items to establish and maintain effective internal controls to reduce improper payments: 

CN Training and Technical Assistance—an increase of $121,000 was requested ($8,016 million 

enacted in FY 2014). Effective and continual training and technical assistance are necessary to 

support the CACFP oversight activities and to help States properly administer the Child 

Nutrition program so as to ensure States are equipped to identify and prevent fraud and abuse. 

This is especially critical because of the changes made to these vital programs by the HHFKA, 

which reauthorized these programs and instituted new requirements on State agencies. 

CN Payment Accuracy—an increase of $287,000 was requested ($9,617 million enacted in FY 

2015). FNS believes that robust Federal oversight, monitoring, and technical assistance are 

essential to the identification, prevention, and resolution of erroneous payments. This increase 

supports FNS’ dedicated commitment to this effort. 

FSA

MILC

Web-based software (e-MILC) has been developed to validate eligibility entries and monthly 

payment rates thereby reducing the occurrence of improper payments to MILC applicants. 

Payment rates are entered into the system at the National office and payments are calculated 

using e-MILC software. Payments are reviewed through the National Payment System (NPS) 

prior to disbursement, therefore leaving little room for improper payments 

Infrastructure improvements include: 

 FSA continually identifies areas of weakness and recommends improvements needed to 

current software in addition to providing applicable enhancements to increase efficiencies in 

program execution. Starting with the 2008 program year, software was enhanced to provide 

State office Specialist reports by county and State. Reports will assist State office specialists 

in monitoring MILC activity and the disbursement of payments. 

 By re-engineering business processes and adopting enhanced and modernized information 

technology, FSA has improved the delivery of programs. This modernization effort is a 

collaborative, cross-functional effort within FSA to advance and streamline business 

processes, and to achieve compliance by the oversight, management, and accountability of 
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administering FSA programs. As these new processes are under development, budgeted 

allocations are vital to incorporate these efficiencies. 

LDP

The Price Support Division currently uses an online system called eLDP to process all LDP 

requests. The eLDP system with its enhanced efficiency will eliminate many of the errors that 

have resulted in improper payments. 

Issue a National notice at the beginning of harvest to remind and reinforce current program 

policies and procedures to State and county offices. Make certain all program handbooks are 

up-to-date and have been amended with the current policy. 

By re-engineering business processes and adopting enhanced and modernized information 

technology, FSA has improved the delivery of programs. This modernization effort is a 

collaborative, cross-functional effort within FSA to advance and streamline business processes, 

and to achieve compliance by the oversight, management, and accountability of administering 

FSA programs. When fully functional, this process will check the LDP eligibility requirements 

for the applicable producer before any payment is issued. 

DCP

Utilization of a checklist, the CCC-770 DCP, DCP Contract Checklist, for county office 

Employees may be used prior to payment. County Executive Directors and District Directors 

may review/spot-check the completed CCC-770s to help identify apparent internal control 

deficiencies and address additional training needs to reduce future errors. 

 Integrate the employee’s individual performance results related to reducing improper 

payments into his/her annual performance rating. 

 Provide training on improper payments to field personnel and educate them on the 

importance of control procedures as well as the potential risks of noncompliance. 

 Compliance reviews and spot-checks are required to ensure the accuracy of payments and 

the integrity of FSA programs. Annually, based on a statistical sampling method, producers 

nationwide are selected for compliance review and spot-check. County Offices are required 

to complete spot-checks and reviews for the various programs and activities in which the 

selected producers participate for the year, and record the results of these reviews in the 

National Compliance Review database. This reporting mechanism allows the National 

Office to monitor the overall integrity of each program being implemented. 

 A forthcoming DCP notice, providing detailed findings discovered during the FY 2014 DCP 

Statistical Sample, including established policy and procedure references for each finding. 

State office division chiefs and specialists will be instructed to review this notice in detail to 

develop corrective actions, as needed, and ensure that County offices follow applicable 

program procedures issued through national notices and program handbooks. 

 Issue various national notices and handbook amendments to State and County Offices 

reinforcing current program policies and procedures. 
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 Improve the quality of field guidance by implementing a process whereby program 

directives are vetted by at least 6 field office employees before directives are approved and 

issued nationwide. 

SURE

The key components shown in this section below, even though shown in previous fiscal years, 

remain in place as effective controls in the management of SURE. 

 Utilization of an optional checklist, the FSA-770 SURE checklist, for County Office 

Employees may be used prior to payment. County Executive Directors and District 

Directors may review/spot-check the completed FSA-770s to help identify apparent internal 

control deficiencies and address additional training needs to reduce future errors. 

 Integrate the employee’s individual performance results related to reducing improper 

payments into his/her annual performance rating. 

 Provide training on improper payments to field personnel and educate them on the 

importance of control procedures as well as the potential risks of noncompliance. 

 Compliance reviews and spot-checks are required to ensure the accuracy of payments and 

the integrity of FSA programs. Annually, based on a statistical sampling method, producers 

nationwide are selected for compliance review and spot-check. County Offices are required 

to complete spot-checks and reviews for the various programs and activities in which the 

selected producers participate for the year, and record the results of these reviews in the 

National Compliance Review database. This reporting mechanism allows the National 

Office to monitor the overall integrity of each program being implemented. 

 A SURE Handbook Amendment was issued in May 2014, emphasizing FSA employee 

responsibilities and providing guidance and limiting factors for determining eligible 2012 

SURE participants. Currently only two 2012 SURE applications have been processed 

nationwide. Since SURE is a very complex and complicated program, resources to develop 

a fully automated program were curtailed. As a result, the application process is still 

manual, utilizing a spreadsheet process. Significant importance is placed on the ability to 

conduct second-party reviews of the data entered into the application. 

 Improve the quality of field guidance by implementing a process whereby program 

directives are vetted by at least 6 field office employees before directives are approved and 

issued nation-wide.

NAP 

Utilization of a checklist, the CCC-770 NAP checklist, for County Office Employees may be 

used prior to payment. County Executive Directors and District Directors may review/spot-check 

the completed CCC-770s to help identify apparent internal control deficiencies and address 

additional training needs to reduce future errors. 

 Integrate the employee’s individual performance results related to reducing improper 

payments into his/her annual performance rating. 
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 Provide training on improper payments to field personnel and educate them on the 

importance of control procedures as well as the potential risks of noncompliance. 

 Compliance reviews and spot-checks are required to ensure the accuracy of payments and 

the integrity of FSA programs. Annually, based on a statistical sampling method, producers 

nationwide are selected for compliance review and spot-check. County Offices are required 

to complete spot-checks and reviews for the various programs and activities in which the 

selected producers participate for the year, and record the results of these reviews in the 

National Compliance Review database. This reporting mechanism allows the National 

Office to monitor the overall integrity of each program being implemented. 

 A forthcoming NAP Notice, providing detailed findings discovered during the FY 2014 

NAP Statistical Sample, including established policy and procedure references for each 

finding. STO division chiefs and specialists will be instructed to review this notice in detail 

to develop corrective actions, as needed, and to ensure that County offices follow applicable 

program procedures issued through national notices and program handbooks and provide 

additional program training where needed for the identified weaknesses. District Directors 

will be instructed to review this notice with County Executive Directors and Program 

Technicians within their respective districts. A Video Teleconference will be held with all 

STOs to review the NAP Notice and detailed findings. 

 Issue various national notices and handbook amendments to State and County Offices 

reinforcing current program policies and procedures.

 Improve the quality of field guidance by implementing a process whereby program 

directives are vetted by at least 6 field office employees before directives are approved and 

issued nation-wide.

ECP 

Compliance reviews and spot-checks are required to ensure the accuracy of payments and the 

integrity of FSA programs. Annually, based on a statistical sampling method, producers 

nationwide are selected for compliance review and spot-check. County offices are required to 

complete spot-checks and reviews for the various programs and activities in which the selected 

producers participate for the year, and record the results of these reviews in the National 

Compliance Review database. This reporting mechanism allows the National Office to monitor 

the overall integrity of each program being implemented. 

 Provide training on improper payments to field personnel and educate them on the 

importance of control procedures as well as the potential risks of noncompliance. 

 Integrate the employee’s individual performance results related to reducing improper 

payments into his/her annual performance rating. 

 Utilization of a checklist. The CCC-770-ECP1 checklist may be used during the ECP 

agreement approval process; the CCC-770-ECP2 may be completed before the issuance of 

cost-share payment. County Executive Directors and District Directors may review/ 
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spot-check the completed CCC-770s to help identify apparent internal control deficiencies 

and address additional training needs to reduce future errors. 

 Contact STO managers where the majority of improper payments were identified during 

IPIA reviews to determine possible training and/or job aids the State and County Office staff 

may need to assist in facilitating compliance to controls. 

 Improve the quality of field guidance by implementing a process whereby program 

directives are vetted by at least 6 field office employees before directives are approved and 

issued nation-wide.

 Issue various national Notices and handbook amendments to State and County Offices 

reinforcing current program policies and procedures. 

FS

WFSU 

The AQM community will provide additional training to Grants and Agreements specialists on 

the correct language and criteria to cite in various types of agreements. A remedy ticket was 

created with a contractor to correct system configurations on how prompt pay interest is 

calculated on late payments; action is complete and the system calculations are accurate. Per 

Departmental Regulation 1010-001, FS OCFO certifies to all organizational changes that may 

have a potential impact on internal controls. 

FS currently has sufficient resources to establish and maintain effective internal controls, human 

capital, information systems, and other infrastructure to reduce improper payments. 

CMDF 

Although no improper payments were found during testing, FS is continually reviewing the 

improper payment process and internal controls to ensure systems are working adequately. 

Future enhancements to reduce improper payments include agency implementation of the “Do 

Not Pay” Portal to ensure ineligible vendors are excluded from doing business with the 

Government. Per Departmental Regulation 1010-001, the FS OCFO certifies to all organizational 

changes that may have a potential impact on internal controls. 

Forest Service currently has sufficient resources to establish and maintain effective internal 

controls, human capital, information systems, and other infrastructure to reduce improper 

payments. 

RMA

 For FY 2015, RMA requested an increase of $2,265,000 and 12 staff years for improved 

compliance. 

 RMA requests funding for an additional 12 staff years to improve the agency’s ability to act 

upon previous audit findings, improve improper payment rates, and reduce audit findings in 

the future. This funding will provide salary and expenses for 12 employees as well as any 
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necessary travel, supplies, contracts, and agreements to support these employees. OIG audits 

have concluded that RMA does not have an adequate sampling methodology to estimate 

improper payments. OIG encouraged RMA to request additional funding that would allow 

improved sampling for improper payments. 

 As required under IPIA, it is critical for RMA to ensure a decrease in improper payment 

rates in the Federal crop insurance program. The need to reduce improper payment rates will 

only grow as the Agricultural Act of 2014 is implemented. The additional staffing that RMA 

proposes will leverage industry best practices to provide a strong network for addressing 

improper payments and fraud prevention in the agency. This network will include a 

management position under the compliance division to oversee IPIA activities, with a focus 

on improving the sampling methodology and reducing the improper payment rate. 

Additionally, 11 other staff years will be added in the 6 regional compliance offices to 

support the reduction of improper payments and implementation of new sampling 

methodologies across the Nation. 

NRCS

 Utilizing existing resources, NRCS established a task force to review the processes related 

to improper payments. This task force will be identifying strengths and weaknesses in the 

processes, identifying best practices used throughout the Federal arena, and making 

recommendations. 

 The Easement Division of NRCS established an internal control team to review easements 

and ensure compliance. The team was launched in September 2014, and will be in 

full-operation by the first quarter of FY 2015. 

 Additionally, in FY 2014, NRCS continued to develop its methodology for complying with 

the “Do Not Pay” requirements. Added resources may be needed to meet the reporting 

requirements for this effort. Currently, NRCS must check each registration manually. As 

part of this effort, registration verification is required for the majority of the open 

obligations, which average 140,000 at any given time. As part of this effort, NRCS is 

looking at automating the verification process for SAM.gov registrations, which will require 

analysis, definition, development and implementation. 

VIII. Barriers 

FNS

SNAP

Some policy choices, many embodied in law, impact the risk of improper payments and the 

ability to mitigate them. Congress, through legislation, defines the limits of authority for 

accountability. Specifically, the 2002 Farm Bill restricted the liability levels States can be 

sanctioned due to high-error rates, and it also restricted the amount of bonus-funding available to 

States that do a good job reducing and maintaining a low-error rate. Also, in many instances the 
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goal of providing easy access to benefits must be balanced with the goal of reducing improper 

and erroneous payments. While the risks involved vary by program, some general 

characterizations can be made: 

 Program administration is decentralized and can involve a myriad of governmental and nongovernmental organizations. Assuring compliance with program rules represents a 

formidable challenge to FNS given the number of locations, the volume of transactions, and 

the level of benefits available. 

 States and localities tend to focus on managing local funds, rather than Federal funds. One 

hundred percent of benefit costs and approximately half of administrative expenses incurred 

by State agencies are funded by Federal appropriations. Although this distribution of costs 

has contributed to the strength of the nutrition safety net with national eligibility standards 

and program access, States and localities may reasonably be expected to put a higher 

priority on managing programs funded with local revenues than those subsidized by the 

Federal Government. 

 Proper implementation of nutrition assistance programs requires a high-degree of accuracy. 

This accuracy helps to ensure that benefits are generally well-targeted to those most in need, 

that there is uniformity of access across the country, and that benefits can only be used for 

food. Such exacting standards and the associated complex policies do, however, create a 

significant number of opportunities for error. 

SBP 

Recent Child Nutrition reauthorization legislation, while it did include some changes requested 

by the Administration to improve accountability, limited USDA’s ability to act in this area 

because of concerns about potential barriers to participation. In many instances, the mandated 

goal of providing easy access to benefits must be balanced against the goal of reducing improper 

and erroneous payments. In addition, program administration is highly decentralized; there are 

approximately 100,000 school meal locations at which benefits are provided. Many of these 

benefit providers simply do not have the capacity to develop robust accountability processes. For 

these reasons, any approach to reducing improper payments of school meals must: 

 Improve accuracy without compromising access for low-income families. A process that 

keeps eligible children from participating would undermine the program; 

 Not unduly increase burden on schools. Many schools consider the program burdensome 

now; adding burden could discourage schools from participating; 

 Be cost-effective. Improving accuracy is potentially resource-intensive; and 

 Answer the needs of other users of program data who often use certification data to 

distribute millions of dollars in other kinds of benefits to schools. As these needs contribute 

to the problem, a solution may also require new commitments from those users. 
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NSLP 

Recent Child Nutrition reauthorization legislation, while it included some changes requested by 

the Administration to improve accountability, limited USDA’s ability to act in this area because 

of concerns about potential barriers to participation. In many instances, the mandated goal of 

providing easy access to benefits must be balanced against the goal of reducing improper and 

erroneous payments. In addition, program administration is highly decentralized; there are 

approximately 100,000 school meal locations at which benefits are provided. Many of these 

benefit providers simply do not have the capacity to develop robust accountability processes. For 

these reasons, any approach to reducing improper payments of school meals must: 

 Improve accuracy without compromising access for low-income families. A process that 

keeps eligible children from participating would undermine the program; 

 Not unduly increase burden on schools. Many schools consider the program burdensome 

now; adding burden could discourage schools from participating; 

 Be cost-effective. Improving accuracy is potentially resource-intensive; and 

 Answer the needs of other users of program data who often use certification data to 

distribute millions of dollars in other kinds of benefits to schools. As these needs contribute 

to the problem, a solution may also require new commitments from those users. 

WIC 

Like many government programs and functions, Federal nutrition assistance was not designed 

with integrity and accuracy as its primary purpose. Some policy choices, many embodied in law, 

greatly impact the risk of improper payments and the ability to mitigate them. Congress, through 

legislation, defines the limits of authority for accountability. In many cases, accountability loses 

out to access concerns. In many instances the mandated goal of providing easy access to benefits 

must be balanced against the goal of reducing improper and erroneous payments. Provisions that 

improve access can increase the risk of improper payments. While the risks involved vary by 

program, some general characterizations can be made: 

 Program administration is highly decentralized and can involve a myriad of governmental 

and non-governmental organizations. For example, as of June 2014 there are 1,832 local 

WIC agencies involved in WIC eligibility determination and benefit delivery. Many of these 

local agencies simply do not have the capacity to develop robust accountability processes. 

This puts a special burden on Federal and State oversight and technical assistance systems; 

 States and localities tend to focus on managing local funds, rather than Federal funds. One 

hundred percent of WIC food benefit costs and most of the administrative expenses incurred 

by State agencies are funded by Federal appropriations. Although this has contributed to the 

strength of the nutrition safety net with national eligibility standards and program access, 

States, and local agencies typically place a higher priority on managing programs funded 

with State and/or local revenues than those funded by the Federal government; and 

 Proper implementation of nutrition assistance programs requires a high-degree of accuracy. 

This accuracy helps to ensure that benefits are generally well-targeted to those most in need, 
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that there is uniformity of access across the country, and that benefits can only be used for 

food. Such exacting standards do, however, create a significant number of opportunities for 

error. 

CACFP 

Like most government programs and functions, Federal nutrition assistance was not designed 

with integrity and accuracy as its primary purpose. Some policy choices, many embodied in law, 

greatly impact the risk of improper payments and the ability to mitigate them. Congress, through 

legislation, defines the limits of authority for accountability. In many cases, accountability is a 

secondary consideration to access concerns. In many instances the mandated goal of providing 

easy access to benefits must be balanced against the goal of reducing improper and erroneous 

payments. Provisions that improve access can increase the risk of improper payments. While the 

risks involved vary by program, some general characterizations can be made: 

 Program administration is highly decentralized and can involve a myriad of governmental 

and non-governmental organizations. For example, there are approximately 58,403 child 

and adult care centers, 824 family day care home sponsoring organizations, and 

approximately 117,621 family home day care providers through which benefits are 

distributed. Many of these simply do not have the capacity to develop robust accountability 

processes. This puts a special burden on Federal and State oversight and technical assistance 

systems; 

 One hundred percent of benefit costs and a significant portion of administrative expenses 

incurred by State agencies are funded by Federal appropriations. Although this distribution 

of costs has contributed to the strength of the nutrition safety net with national eligibility 

standards and program access, States and localities may reasonably be expected to put a 

higher priority on managing programs funded with local revenues than those subsidized by 

the Federal Government; and 

 Proper implementation of nutrition assistance programs requires a high-degree of accuracy.

This accuracy helps to ensure that benefits are generally well-targeted to those most in need, 

that there is uniformity of access across the country, and that benefits can only be used for 

food. Such exacting standards do, however, create a significant number of opportunities for 

error.

FSA

One barrier that limits FSA’s ability to recover improper payments is the U.S. Department of 

Agriculture Reorganization Act of 1994, Section 281. This legislation provides that “[E]ach 

decision of a State, county, or area committee or an employee of such a committee, made in good 

faith in the absence of misrepresentation, false statement, fraud, or willful misconduct shall be 

final not later than 90 calendar days after the date of filing of the application for benefits, [and] 

...no action may be taken...to recover amounts found to have been disbursed as a result of the 

decision in error unless the participant had reason to believe that the decision was erroneous.” 

This statute is commonly referred to the “Finality Rule.” 
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FS

WFSU 

We have not identified any statutory or regulatory barriers that would limit corrective actions in 

reducing improper payments; and 

CMDF 

We have not identified any statutory or regulatory barriers that would limit corrective actions in 

reducing improper payments. 

RHS

The agency does not have the statutory authority similar to HUD to gain access to HHS 

Directory of New Hires, IRS, SSI and DOL data to share with field offices and management 

agents. Having these resources will better enable borrowers and management agents to confirm 

and verify income information from tenants, on whose behalf Rental Assistance subsidies are 

provided. The Department submitted the legislation as part of the FY 2015 budget submission. 

RMA

RMA is not subject to any critical statutory or regulatory barriers for reducing improper 

payments. 

NRCS

 Verification of eligibility has been a challenge for NRCS. Adjusted Gross Income (AGI) 

eligibility has been delegated to FSA, and NRCS has successfully coordinated with FSA to 

implement FSA’s validation of adjusted gross income certifications so that any FSA 

changes in eligibility determinations are immediately effective for NRCS conservation 

program payments. For contracts prior to FY 2013, AGI eligibility was not validated by 

FSA prior to obligation. It was retroactively validated after obligation and after payments 

had been made to the participants. Therefore participants could misrepresent their income 

and related improper payments could not be avoided. For FY 2014, with the exception of 

the Agricultural Management Assistance program, AGI eligibility is not in effect. For FY 

2015, AGI will be verified by FSA prior to obligation. Therefore, any improper payments 

related to AGI will relate to only pre-2014 contracts; 

 Additionally, NRCS’ Conservation Security Program must pay participants in advance of 

the implementation of conservation enhancement activity. NRCS is statutorily required to 

pay participants at the beginning of the fiscal year in which the conservation enhancement 

activity is scheduled to be implemented. Since these payments are made in advance, 

improper payments are sometimes detected via annual quality assurance reviews but cannot 

always be prevented. The Conservation Security Program has now been replaced by the 

Conservation Stewardship Program. Under the Stewardship program, payments are not 

made in advance of performance; 
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 Furthermore, NRCS’ improper payment issues related to entities not registering in SAM.gov 

should be greatly reduced when Treasury’s “Do Not Pay” Portal is fully functional. Once 

the system is fully operational, NRCS will be able to utilize this data source during the preaward and pre-payment processes to ultimately help reduce improper payments; and 

 The significant majority of the errors identified in the annual testing are related to the failure 

of entity participants to register in SAM.gov as required prior to receiving payment. NRCS 

has changed its policy to require verification of the SAMS registration prior to issuing 

payments. 

IX. Additional Comments 

No additional comments. 

X. Do Not Pay Initiative 

USDA manages a highly-diverse portfolio of grants, cooperative agreements, loans, insurance, 

contracts, and direct payments within the Federal Government. While the Department 

collectively uses most existing databases, their application can be generally categorized as 

follows: 

 Contracts, grants, cooperative agreements, and insurance programs are verified against the 

System for Award Management (SAM) exclusions (also known as Excluded Parties List 

System) at pre-award; 

 Loans are verified against Credit Alert System or Credit Alert Interactive Verification 

Reporting System, SAM Exclusion, and Debt Check at pre-award; and 

 USDA also validates payments and awards against the Death Master File for specific 

programs and activities.

◌ RMA verifies against the Death Master File at pre-award; 

◌ FSA verifies many of its programs at pre-payment; 

◌ RD screens applicants and their principals through SAM at pre-award; 

◌ FNS Service requires State agencies to verify SNAP applicants against the Death 

Master File before they can be approved to receive benefits; and 

◌ All USDA disbursement files are verified by Treasury and all hits are adjudicated 

monthly. 

USDA programs generally are not using the List of Excluded Individuals/Entities on HHS’ OIG 

system or the Prisoner Update Processing System of the SSA, at this time. 

OCFO has been and continues to provide agencies with onboarding efforts into the Treasury “Do 

Not Pay” (DNP) Portal. Once widespread use of the DNP Portal goes “live”, all post-award 
OTHER INFORMATION

Fiscal Year 2014 Agency Financial Report | 273

SECTION III 

adjudication will be conducted online. As additional data sources become available through the 

DNP Portal, it will be more widely used for pre-award verification. 

Exhibit 32: Implementation of the Do Not Pay Initiative to Prevent Improper Payments 

Number (#) 

of payments 

reviewed for 

improper 

payments 

Dollars of 

payments 

reviewed for 

improper 

payments 

(In Millions) 

Number (#) 

of improper 

payments 

stopped 

Dollars of 

improper 

payments 

stopped 

(In Millions) 

Number (#) 

of improper 

payments 

not stopped 

Dollars of 

improper 

payments 

not stopped 

(In Millions) 

Reviews with 

the Death 

Master File 

Only 

24,190,220 $54,552 0 $0 9 $0.03 

Exhibit 32 shows data from October 2013 through May 2014. The data from June 2014 through 

September 2014 was not available in time for publication. 
 Managing for Results in Performing Its Many Vital Public Functions 

274 | Fiscal Year 2014 Agency Financial Report 

USDA

Inspector General Act Amendments of 1988: 

Management’s Report on Audit Follow-Up

Background 

The Inspector General Act Amendments of 1988 (P.L. 100-504), require that each agency head 

submits semi-annual reports to Congress on the actions taken in response to Office of Inspector 

General (OIG) audit, evaluation, and inspection reports. Consistent with the Reports 

Consolidation Act of 2000 (P.L. 106-531), the U.S. Department of Agriculture’s (USDA) Office 

of the Chief Financial Officer (OCFO) consolidates and annualizes the required semi-annual 

Inspector General Act Amendments’ reporting elements for inclusion in the annual Agency 

Financial Report.

OIG audits USDA’s programs, systems, and operations. It then recommends improvements to 

management based on its findings. Management may agree or disagree with the audit’s findings 

or recommendations. An agreement is reached during the management-decision process. If 

management agrees with a recommendation, a written plan for corrective action with a target 

completion date is developed. The plan is then submitted to OIG for concurrence. If both OIG 

and management agree that the proposed corrective action will correct the weakness, a 

management decision is concluded for that recommendation.

Audit follow-up ensures that prompt and responsive action is taken. USDA’s OCFO oversees 

audit follow-up for the Department. An audit remains open until all corrective actions for each 

recommendation are completed. As agencies complete planned corrective actions and submit 

closure documentation, OCFO reviews the submitted documentation for sufficiency and 

determines if final action needs to be completed. 
OTHER INFORMATION

Fiscal Year 2014 Agency Financial Report | 275

SECTION III 

Fiscal Year Results (as of July 31, 2014) 

USDA agencies closed 41 audits in fiscal year (FY) 2014. As of July 31, 2014, OIG and USDA 

agencies reached management decisions on 16 audits. As shown in the following exhibit, the 

Department’s inventory of open audits decreased in FY 2014 by 24 percent from 106 to 81. 

Exhibit 33: Open Audit Inventory

Note: The FY 2013 ending balance was revised from 102 to 106 to include 4 audits transmitted from the Office of Inspector 

General after the reporting period. These adjustments are also reflected in the beginning balances for audits with disallowed 

costs (DC) shown in Exhibit 33 and Exhibit 35. 

Audit Follow-Up Process 

The Inspector General Act Amendments of 1988 require an annual report to Congress providing 

the status of resolved audits that remain open. Resolved audits are those for which management 

decision has been reached for all recommendations. Reports on resolved audits must include the 

elements listed in the bullets below (see Exhibit 34 for definitions): 

 Beginning and ending balances for the number of audit reports and dollar value of 

disallowed costs (DC) and funds to be put to better use (FTBU); 

 The number of new management decisions reached; 

 The disposition of audits with final action; 

 Resolved audits that remain open one year or more past the management decision date and 

require an additional reporting element; and 

 The date issued, dollar value, and an explanation of why final action has not been taken. 
 Managing for Results in Performing Its Many Vital Public Functions 

276 | Fiscal Year 2014 Agency Financial Report 

USDA 

Exhibit 34: Audit Follow-Up Definitions 

Term Definition 

Disallowed 

Cost (DC) 

An incurred cost questioned by the Office of Inspector General (OIG) that management has 

agreed should not be chargeable to the Government. 

Final Action An action that management has agreed will address the audit findings and recommendations 

when completed. 

Funds To Be 

Put to Better 

Use (FTBU) 

An OIG recommendation that funds could be used more efficiently if management completes the 

recommendation, including: 

 Reductions in outlays or other savings; 

 De-obligation of funds from programs or operations, or the withdrawal of subsidy costs on 

loans, guarantees, or bonds; and 

 Implementation of recommended improvements for grants or contracts, or unnecessary 

expenditures noted in pre-award reviews of contracts or grant agreements. 

Management 

Decision 

Agreement between management and OIG on corrective action needed to address audit findings 

and recommendations. 

Beginning and Ending Inventory for Audits with Disallowed Costs and 

Funds to Be Put to Better Use 

Of the 41 audits that achieved final action during the fiscal year, 10 contained disallowed 

costs (DC). The number of DC audits remaining in the inventory at the end of the fiscal year 

is 22, with a monetary value of $65,868,605. See Exhibit 35 below. 

Exhibit 35: Inventory Of Audits with Disallowed Costs 

Audits with Disallowed Costs (DC) # of Audits Amount ($) 

Beginning of the Period – October 2013 27 $68,633,424 

Plus: New Management Decisions 5 $70,699,867 

Total Audits Pending Collection of DC 32 $139,333,291 

Adjustments (see Exhibit 36) $35,061,736 

Revised Subtotal $104,271,555 

Less: Final Actions (Recoveries) 10 $38,402,950 

Audits with DC Requiring Final Action at the End of the 

Period—July 2014 22 $65,868,605 

Exhibit 35 and Exhibit 37 include only those open audits with DC and FTBU, respectively. Additionally, some audits contain 

both DC and FTBU amounts. For these reasons, the number of audits shown as the ending balances in Exhibit 35 and 

Exhibit 37 does not equal the total resolved audit inventory balance in Exhibit 33. Beginning balance in Exhibit 35 was 

adjusted to include one audit with DC that was transmitted from OIG after the August 30, 2013 reporting period. 

As shown in Exhibit 35 above, for DC audits that achieved final action in FY 2014, OIG and 

management agreed to collect $73,464,686. Adjustments were made totaling $35,061,736 

(48 percent of the total) for the following reasons: (1) agency discovery; (2) legal decisions; (3) 

write-offs; and (4) appeals. Management recovered the remaining $38,402,950. 
OTHER INFORMATION

Fiscal Year 2014 Agency Financial Report | 277

SECTION III 

Exhibit 36: Distribution of Adjustments to Disallowed Cost 

Category Amount ($) 

Agency Discovery $17,668 

Legal Decisions $35,000,000 

Write-offs $41,500 

Appeals $2,568 

Total $35,061,736 

Final action occurred on 6 audits that involved FTBU amounts. The number of FTBU audits 

remaining in the inventory to date is 9 with a monetary value of $649,811,236 (see Exhibit 37).

Exhibit 37: Inventory of Audits with Funds to Be Put to Better Use (FTBU) 

Audits with FTBU # of Audits Amount ($) 

Beginning of the Period 13 $505,506,654 

Plus: New Management Decisions 2 $191,942,964 

Total Audits Pending 15 $697,449,618 

Less: Final Actions 6 $47,638,382 

Audits with FTBU Requiring Final Action at the End of the Period 9 $649,811,236 

Disposition of FTBU: 

 FTBU Implemented $47,638,382 

 FTBU Not Implemented 0 

 Total FTBU Amounts for Final Action Audits $47,638,382 

Exhibit 35 and Exhibit 37 include only those open audits with DC and FTBU, respectively. Additionally, some audits contain 

both DC and FTBU amounts. For these reasons, the number of audits shown as the ending balances in Exhibit 35 and 

Exhibit 37 does not equal the total resolved audit inventory balance in Exhibit 33. Beginning balance in Exhibit 37 was 

adjusted to include two audits with FTBU that were transmitted from OIG after the August 30, 2013 reporting period. 

The numbers of audits open one or more years without final action in FY 2014 increased from 

60 to 63 audits, or a 5 percent increase. The 63 audits include an additional 23 audits that reached 

one year past management decision date during FY 2014. USDA agencies continue to pursue 

compensating controls that address many of the underlying issues identified in these older audits. 

Exhibit 38: Increase in the Number of Audits Open One or More Years Past the 

Management Decision Date (MDD) 

Audits One Year or More Past MDD # of Audits 

Beginning of the period 60

Less: audits closed 20

Subtotal FY 2014 audits one year or more past MDD 40

Plus: Audits that turned one year during FY 2014 23

Ending Balance as of July 31, 2014 63
 Managing for Results in Performing Its Many Vital Public Functions 

278 | Fiscal Year 2014 Agency Financial Report 

USDA 

Agencies have completed all planned corrective actions on 12 audits that are pending collection 

of associated DC (see Exhibit 39 below). 

Exhibit 39: Distribution of Audits Open One Year or More Past the Management Decision 

Date (MDD) 

Audits on Schedule Audits Behind Schedule Audits Under Collection 

No. DC ($) FTBU ($) No. DC ($) FTBU ($) No. DC ($) FTBU ($) 

5 $11,824,596 $1,042,000 46 $14,448,522 $7,281,950 12 $38,578,422 $3,810,087 

Management’s Report on Audit Follow-Up

Audits without final action one year or more past MDD, and behind schedule are listed 

individually in Exhibit 40. The audits are categorized by the reason final action has not occurred.

More detailed information on audits on-schedule, and audits under collection, is available from 

OCFO.

Exhibit 40: Audits Open 1 Year or More, Past the MDD, And Behind Schedule 

Audits Date 

Issued 

Revised 

Completion 

Date 

Audit Title 

Monetary Amount Pending by 

Reason DC ($) FTBU ($) 

Agricultural Marketing Service (AMS) 

01601-2-32 7/15/2013 12/31/2014

National Organic 

Program—Organic 

Milk Operations

$0 $0

Pending 

Administrative 

Action

AMS Subtotal (1) $0 $0

Animal and Plant Health Inspection Service (APHIS) 

33601-3-CH 2/20/2003 9/30/2014 

Safeguards to Prevent 

Entry of Prohibited 

Pests And Diseases 

into The United States 

$0 $0

Issuance of 

Policy Guidance 

& Legislation 

33601-7-CH 8/14/2007 9/30/2014

Review of Customs 

and Border 

Protection’s 

Agricultural 

Inspection Activities 

$0 $0

50601-8-TE 1/28/2005 12/31/2014

Controls over APHIS 

Issuance of 

Genetically 

Engineered Organisms 

Release Permits 

$0 $0

50601-16-TE 5/31/2011 12/31/2014

Controls over 

Genetically 

Engineered Animal 

and Insect Research 

$0 $0

APHIS Subtotal 

(4) 

 $0 $0
OTHER INFORMATION

Fiscal Year 2014 Agency Financial Report | 279

SECTION III 

Audits Date 

Issued 

Revised 

Completion 

Date 

Audit Title 

Monetary Amount Pending by 

Reason DC ($) FTBU ($) 

Agricultural Research Service (ARS) 

50601-6-TE 3/4/2004 12/31/2014

ARS Controls Over 

Plant Variety 

Protection and 

Germplasm Storage 

$0 $0

Issuance of 

Policy Guidance 

& Legislation 

50601-10-AT 3/8/2004 01/31/2015

ARS Follow-Up 

Report on the Security 

of Biological Agents 

at U.S. Department of 

Agriculture 

Laboratories 

$0 $0

ARS Subtotal (2) $0 $0

Commodity Credit Corporation (CCC) 

06401-20-FM 11/9/2005 12/31/2014

CCC’s Financial 

Statements for 

FY 2005 and 2004 

$0 $0

Pending 

Administrative 

Action 

CCC Subtotal (1) $0 $0

Food and Nutrition Service (FNS) 

27002-11-13 9/28/2012 12/31/2016

Analysis of FNS’ 

Supplemental 

Nutrition Assistance 

Program Fraud 

Prevention and 

Detection Efforts 

$0 $0

Pending 

Administrative 

Action 

27099-49-TE

3/10/2008 5/31/2015

Disaster Food Stamp 

Program for 

Hurricanes Katrina 

and Rita in Louisiana, 

Mississippi and Texas 

$0 $0

Issuance of 

Policy Guidance 

& Legislation 

27601-1-23

1/3/2013 12/31/2014

National School 

Lunch Program-Food 

Service Management 

Company Contracts 

$0 $0

Pending 

Administrative 

Action 

27601-12-SF

11/18/2011 9/30/2014

Review of 

Management Controls 

for the Child and 

Adult Care Food 

Program 

$2,486,633 $0

Issuance of 

Policy Guidance 

& Legislation 

27601-16-AT

3/31/2008 8/31/2015

FNS Food Stamp 

Employment and 

Training 

$0 $0

Issuance of 

Policy Guidance 

& Legislation 

50601-14-AT

8/16/2010 12/31/2014

Effectiveness and 

Enforcement of 

Suspension and 

Debarment 

Regulations 

$0 $0

Pending 

Administrative 

Action 

FNS Subtotal (6) $2,486,633 $0
 Managing for Results in Performing Its Many Vital Public Functions 

280 | Fiscal Year 2014 Agency Financial Report 

USDA 

Audits Date 

Issued 

Revised 

Completio

n Date 

Audit Title 

Monetary Amount Pending by 

Reason DC ($) FTBU ($) 

Forest Service (FS) 

08601-55-SF 6/16/2011 10/31/2014

Forest Service 

Administration of 

Special Use Program 

$0 $5,387,567 

Issuance of 

Policy Guidance 

& Legislation 

FS Subtotal (1) $0 $5,387,567 

Farm Service Agency (FSA) 

03601-18-CH 8/10/2010 12/31/2014 Farm Loan Security $0 $0

Pending IT 

System 

Implementation 

& 

Enhancements 

FSA Subtotal (1) $0 $0

Food Safety and Inspection Service (FSIS)

24601-1-31 5/9/2012 12/31/2014

Application of FSIS 

Sampling Protocol for 

Testing Beef Trim for 

E. Coli O157:H7 

$0 $0

Issuance of 

Policy Guidance 

& Legislation 

24601-1-41 5/9/2013 12/31/2014

Inspection and 

Enforcement 

Activities at Swine 

Slaughter Plants 

$0 $0

24601-3-31 3/22/2013 12/31/2014 E. coli Testing of 

Boxed Beef $0 $0

50601-6-HY 7/15/2009 12/31/2014

Assessment of 

USDA’s Controls to 

Ensure Compliance 

with Beef Export 

Requirements 

$0 $0

Pending IT 

System 

Implementation 

& 

Enhancements 

50601-1-23 11/30/12 12/31/2014 Controls Over Shell 

Egg Inspections $0 $0

Pending 

Administrative 

Action 

FSIS Subtotal (5) $0 $0
OTHER INFORMATION

Fiscal Year 2014 Agency Financial Report | 281

SECTION III 

Audits Date 

Issued 

Revised 

Completion 

Date 

Audit Title 

Monetary Amount Pending by 

DC ($) FTBU ($) Reason 

Natural Resources Conservation Service (NRCS) 

10401-1-11 11/8/2011 9/30/2014 Financial Statements 

for FY 2011 $0 $0

Issuance of 

Policy Guidance 

& Legislation 

10401-2-FM 11/13/2008 9/30/2014 Financial Statements 

for FY 2008 $0 $0

Pending Internal 

Monitoring/ 

Program 

Reviews 

10401-3-FM 11/4/2009 7/31/2015 Financial Statements 

for FY 2009 $0 $0 Pending Internal 

Monitoring/ 

Program 

Reviews 10401-4-FM 11/8/2010 9/30/2015 Financial Statements 

for FY 2010 $0 $0

10703-1-AT 3/25/2013 6/30/2015

Recovery Act—

Rehabilitation of 

Flood Control Dams 

$0 $1,440,028 

Pending 

Administrative 

Action 

10703-1-KC 9/8/2010 12/31/2014

NRCS American 

Reinvestment and 

Recovery Act 

(ARRA) Emergency 

Watershed Protection 

Program Flood-plain 

Easement Phase I 

$0 $0

10703-3-KC 3/14/2012 11/30/2014

ARRA, Emergency 

Watershed Protection 

Program Floodplain 

Easements, Easement 

Applications on 

Non-Agricultural 

Land 

$0 $0

Issuance of 

Policy Guidance 

& Legislation 

NRCS Subtotal (7) $0 $1,440,028 

Office of the Chief Financial Officer (OCFO) 

50024-4-11

3/14/2013 10/30/2014 

USDA Improper 

Payments 

Elimination and 

Recovery Act of 

2010 Compliance 

Review for FY 2012 

$0 $0

Pending Internal 

Monitoring/ 

Program 

Reviews 

50401-3-11

11/15/2012 12/30/2014

USDA’s 

Consolidated 

Financial Statements 

for FY 2011 and 

2012 

$0 $0

Pending Internal 

Monitoring/ 

Program 

Reviews 

OCFO Subtotal (2) $0 $0
 Managing for Results in Performing Its Many Vital Public Functions 

282 | Fiscal Year 2014 Agency Financial Report 

USDA 

Audits Date 

Issued 

Revised 

Completion 

Date 

Audit Title 

Monetary Amount Pending by 

DC ($) FTBU ($) Reason 

Office of the Chief Information Officer (OCIO) 

50501-1-IT 8/15/2011 9/30/2015

OCIO USDA’s 

Management and 

Security Over 

Wireless Handheld 

Devices 

$0 $0

Pending 

Administrative 

Action 

50501-1-12 4/19/2012 3/31/2015

USDA’s 

Configuration, 

Management, and 

Security over Domain 

Name System Servers 

$0 $0 Issuance of 

Policy Guidance 

50501-2-IT 11/19/2010 09/30/2015 

OCIO FY 2010 

Federal Information 

Security Management 

Act 

$0 $0

Pending IT 

System 

Implementation 

& 

Enhancements 

50501-15-FM 11/18/2009 3/30/2015 

OCIO FY 2009 

Federal Information 

Security Management 

Act 

$0 $0 Issuance of 

Policy Guidance 

88401-1-11 9/26/2012 9/30/2015

Review of Selected 

Controls at the 

National Information 

Technology Center 

$0 $0

Pending 

Administrative 

Action 

88401-1-12 8/2/2012 9/30/2015

OCIO’s FY’s 2010 

and 2011 Funding 

Received for Security 

Enhancements 

$0 $0

88501-1-12 1/31/2013 9/30/2015

Review of Selected 

Controls of the 

eAuthentication 

System 

$0 $0

Pending IT 

System 

Implementation 

& 

Enhancements 

OCIO Subtotal (7) $0 $0
OTHER INFORMATION

Fiscal Year 2014 Agency Financial Report | 283

SECTION III 

Audits Date 

Issued 

Revised 

Completion 

Date 

Audit Title 

Monetary Amount Pending by 

DC ($) FTBU ($) Reason 

Rural Development (RD) 

04601-18-CH 9/27/2012 6/30/2015

Project Cost and 

Inspection Procedures 

for the Rural Rental 

Housing Program 

$0 $0

Issuance of 

Policy Guidance 

& Legislation 

04703-2-CH 9/28/2011 9/30/2014

Controls over 

Eligibility 

Determinations for 

Single Family Housing 

Guaranteed Loan 

Recovery Act Funds 

(Phase 2) 

$0 $0

09703-1-22 3/26/2013 4/30/2015

Rural Utilities Service 

Controls Over 

Recovery Act Water 

and Waste Loans and 

Grants Expenditures 

and Performance 

Measures 

$0 $454,355 Administrative 

Action 

34099-2-AT 9/14/2011 9/30/2014

Business and Industry 

Loan Program 

Omnivest Resources 

Inc. 

$4,052,351 $0

Issuance of 

Policy Guidance 

& Legislation 

34601-4-AT 1/10/2003 9/30/2014

Rural BusinessCooperative Service’s 

(RBS) Lender 

Servicing of Business 

and Industry 

Guaranteed Loans in 

Georgia 

$0 $0

34601-6-AT 6/25/2010 9/30/2014 RBS Intermediary 

Relending Program $7,909,538 $0

34601-15-TE 9/30/2003 9/30/2014

RBS National Report 

on the Business and 

Industry Loan 

Program 

$0 $0

34703-2-TE 12/5/2011 9/30/2014

American Recovery 

and Reinvestment 

Act—Business and 

Industry Guaranteed 

Loans, Phase 2 

$0 $0

34703-1-32 3/29/2013 9/30/2014

American Recovery 

and Reinvestment 

Act—Business and 

Industry Guaranteed 

Loans, Phase 3 

$0 $0

Issuance of 

Policy Guidance 

& Legislation 

RD Subtotal (9) $11,961,889 $454,355

Total Number 

Audits (46) Total $14,448,522 $7,281,950
 Managing for Results in Performing Its Many Vital Public Functions 

284 | Fiscal Year 2014 Agency Financial Report 

USDA 

Freeze the Footprint 

The Office of Management and Budget Memorandum M-12-12, Promoting Efficient Spending to 

Support Agency Operations effort, The U.S. Department of Agriculture (USDA) is implementing 

policy to “Freeze the Footprint,” by which it has committed to “dispose of excess properties held 

by the Federal Government and make more efficient use of the Government’s real estate assets.” 

USDA and other agencies “shall not increase the size of their civilian real estate inventory except 

in certain exceptions.” 

Exhibit 41: Freeze the Footprint Baseline Comparison 

Square 

Footage (SF) 

(SF In Millions) 

Fiscal Year 2012 

Baseline 

2014 

Current Year (CY) 

Change 

(2012-2014) 

35.93 35.56 -.37

Exhibit 42: Reporting Of Operation and Maintenance Costs—Owned and Directly Leased 

Buildings 

Operations and 

Maintenance 

(O&M) Costs 

(In Millions) 

Fiscal Year 2012 

Baseline 

2013

(CY-1)

Change 

(2012-2013) 

$560 $547 -$13

USDA has issued an Agriculture Property Management Regulation (AGPMR No. 13-05) 

providing policy and procedures for “Freeze the Footprint.” The Department has set forth 

processes and procedures to halt space needs at the FY 2012 baseline. 

USDA continues to support “Freeze the Footprint” by identifying opportunities for disposal, 

consolidation, and increased utilization of office and warehouse space. USDA is doing this by 

the formation of the Space Utilization Management Council with a mission to work with USDA 

agencies and the General Services Administration in developing and implementing programs 

designated to realize increased space utilization. USDA has also created a Center of Excellence 

(COE) for Leasing to concentrate on cost-saving efforts for the more than 3,000 direct lease 

portfolio. Finally, USDA has updated Departmental Regulation 1620-002, “USDA Space 

Management Policy”, to reflect a 150-square foot per person utilization rate that is all-inclusive. 

These actions and continued focus are examples of how USDA is managing the office and 

warehouse square footage at or below the baseline FY 2012 totals. 
ACRONYMS 

Fiscal Year 2014 Agency Financial Report | 285

Acronyms 

A 

A&O—Administrative & Operating 

AARC—Alternative Agricultural Research and 

Commercialization Corporation 

ACEP—Agricultural Conservation Easement Program 

ACFO-FS—Associate Chief Financial Officer for 

Financial Systems 

ADA—Antideficiency Act 

AR—Administrative Review 

AFMSS—Automated Fluid Mineral Support System 

AFR—Agency Financial Report 

AGI—Adjusted Gross Income 

AGPMR—Agriculture Property Management 

Regulation 

AMS—Agricultural Marketing Service 

APEC—Access, Participation, Eligibility and 

Certification 

APHIS—Animal and Plant Health Inspection Service 

APR—Annual Performance Report 

AQI—Agricultural Quarantine Inspection 

AQM—Acquisition Management 

ARRA—American Reinvestment and Recovery Act of 

2009

ARS—Agricultural Research Service 

ART—Administrative Reviews and Training 

ATA—Actual Time Automation 

B 

BDO—Barter Delivery Obligation 

BFDL—Black Farmers Discrimination Lawsuit 

BLM—Bureau of Land Management 

C 

C&A—Certification and Accreditation 

CACFP—Child and Adult Care Food Program 

CAP—Corrective Action Plan 

CBO—Certificates of Beneficial Ownership 

CCC—Commodity Credit Corporation 

CED—County Executive Director 

CEP—Community Eligibility Provision 

CFR—Code of Federal Regulations 

CI—Condition Index 

CIO—Chief Information Officer 

CIP—Continuous Improvement Plan 

CM—Continuous Monitoring 

CMDF—Construction Disaster Fund Supplemental 

CN—Child Nutrition 

CND—Child Nutrition Division 

CNPP—Center for Nutrition Policy and Promotion 

CNSTAT—National Academies’ Committee on 

National Statistics 

CO—Contracting Officer 

CoC—Cushion of Credit 

COF—County Office 

COR—Contracting Officer’s Representative 

CORE—Core Accounting System 

CORP—County Office Review Program 

CRE—Coordinated Review Effort 

CRP—Conservation Reserve Program 

CSAM—Cyber Security Assessment and Management 

CSC—Centralized Servicing Center 

CSS—Country Strategy Statement 

CVV—Cash Value Voucher 

CY—Calendar Year 

D 

DAFP—Deputy Administrator Farm Programs 

DC—Disallowed Costs 

DCP—Direct and Counter-Cyclical Payments 

DHS—United States Department of Homeland 

Security 

DM—Deferred Maintenance 

DNP—Do Not Pay 
 Managing for Results in Performing Its Many Vital Public Functions 

286 | Fiscal Year 2014 Agency Financial Report 

USDA 

E 

E&T—Employment and Training 

EAAP—Economic Adjustment Assistance to Users of 

Upland Cotton Program 

ECP—Emergency Conservation Program 

eDRS—electronic Disqualified Recipient System 

eFMS—Electronic Funds Management System 

EO—Executive Order 

EPD—Easement Programs Division 

EQIP—Environmental Quality Incentives Program 

ERS—Economic Research Service 

EWPP—Emergency Watershed Protection Program 

Floodplain Easements 

F 

FAS—Foreign Agricultural Service 

FCIC—Federal Crop Insurance Corporation 

FDA—Food and Drug Administration 

FDCH—Family Day Care Homes 

FECA—Federal Employee Compensation Act 

FFAS—Farm and Foreign Agricultural Services 

FFB—Federal Financing Bank 

FFIS—Foundation Financial Information System 

FFMIA—Federal Financial Management Improvement 

Act 

FFMS—Federal Financial Management System 

FISMA—Federal Information Security Management 

Act 

FMD—Financial Management Division 

FMFIA—Federal Managers’ Financial Integrity Act 

FMMI—Financial Management Modernization 

Initiative 

FNCS—Food, Nutrition and Consumer Services 

FNS—Food and Nutrition Service 

FOA—Funding Opportunity Announcement 

FS—Forest Service 

FSA—Farm Service Agency 

FSFL—Farm Storage Facility Loan 

FSH—Forest Service Handbook 

FSIS—Food Safety and Inspection Service 

FSM—Forest Service Manual 

FSMC—Food Service Management Company 

FSRIA—Farm Security and Rural Investment Act 

FSRIP— Farm Security and Rural Investment Act 

Programs 

FSSP—Federal Shared Service Provider 

FTBU—Funds To Be Put to Better Use 

FY—Fiscal Year

G 

G&A—Grants and Agreements 

GAO—Government Accountability Office 

GIPSA—Grain Inspection, Packers, and Stockyards 

Administration 

GMS—Global Market Strategy 

GSA—General Services Administration 

H 

HHFKA—Healthy, Hunger-Free Kids Act 

HIMP—Hazard Analysis and Critical Control Pointbased Inspection Models Project 

HUD—Department of Housing and Urban 

Development 

I 

IP—Improper Payments 

IPAC—Intragovernmental Payment and Collection 

IPERA—Improper Payments Elimination and 

Recovery Act of 2010 

IPERIA—Improper Payments Elimination and 

Recovery Improvement Act of 2012 

IPIA—Improper Payments Information Act of 2002 

IRS—Internal Revenue Service 

IT—Information Technology 

ITSD—Information Technology Services Division 
ACRONYMS 

Fiscal Year 2014 Agency Financial Report | 287

L 

L&WCF—Land and Water Conservation Fund 

LDP—Loan Deficiency Payment 

LEA—Local Educational Agency 

LFP—Livestock Forage Disaster Program 

M 

MAL—Marketing Assistance Loan 

MAR—Maximum Allowable Reimbursement 

MD&A—Management’s Discussion and Analysis 

MDD—Management Decision Date 

MDP—Miscellaneous Disaster Programs 

MILC—Milk Income Loss Contract 

MFH—Multi-Family Housing 

MFIS—Multi Family Housing Information System 

ME—Management Evaluation 

MINC—Management Interactive Network Connection 

MOU—Memorandum of Understanding 

MRP—Marketing and Regulatory Programs 

N 

NAL—National Agricultural Library 

NAP—Noninsured Assistance Program 

NAP—Noninsured Crop Disaster Assistance Program 

NASS—National Agricultural Statistics Service 

NCIC—National Crime Information Center 

NEST—National Easement Staging Tool 

NFS—National Forest System 

NHQ—National Headquarters 

NIFA—National Institute of Food and Agriculture 

NIST—National Institute of Standards and 

Technology 

NPS—National Payment System 

NRCS—Natural Resources Conservation Service 

NRE—Natural Resources and Environment 

NRHP—National Register of Historic Places 

NSLP—National School Lunch Program 

NTE—Not-to-Exceed 

O 

OCFO—Office of the Chief Financial Officer 

OCIO—Office of the Chief Information Officer 

OGC— Office of the General Counsel 

OIG—Office of Inspector General 

OMB—Office of Management and Budget 

OPPM—Office of Procurement and Property 

Management 

OPS—Office of Policy Support 

P 

PAR—Performance and Accountability Report 

PHA—Priority Heritage Assets 

PHIS—Public Health Information System 

PIP—Practice Incentive Payments 

PMC—Plant Materials Centers 

POA&Ms— Plan of Action Milestones 

PP&E—Property, Plant, and Equipment 

PRRA—Payment Recapture/Recovery Auditing 

PRV—Plant Replacement Value 

PSU—Primary Sampling Unit 

PVO—Private Voluntary Organizations 

PY—Previous Year 
 Managing for Results in Performing Its Many Vital Public Functions 

288 | Fiscal Year 2014 Agency Financial Report 

USDA 

R 

RA—Rental Assistance 

RAP—Rental Assistance Program 

RBEG—Recovery Act Rural Business Enterprise Grant 

RBS—Rural Business and Cooperative Service 

RC&D—Resource Conservation and Development 

RD—Rural Development 

REE—Research, Education, and Economics 

RFA—Request for Application 

RHIF—Rural Housing Insurance Fund 

RHS—Rural Housing Service 

RMA—Risk Management Agency 

RME—Risk Management Education 

RMF—Risk Management Framework 

RO—Regional Office 

RORA—Regional Office Review of Applications 

RUS—Rural Utilities Service 

S 

SA—State Agency 

SAM—System for Award Management 

SAP—Salmonella Action Plan (SAP) 

SAP— Systems, Applications, and Products 

SBP—School Breakfast Program 

SBR—Statement of Budgetary Resources 

SCRA—Supplier Credit Recovery Audit 

SDA—Socially Disadvantaged Farmers 

SED—State Executive Director 

SER—Single Effective Rate 

SFA—School Food Authority 

SFH—Single Family Housing 

SIP—Signup Incentive Payments 

SITC—Smuggling, Interdiction and Trade 

Compliance 

SMI—School Meal Initiative 

SNAP—Supplemental Nutrition Assistance Program 

SOP—Standard Operating Procedure 

SOS—Schedule of Spending 

SP—Special Publication 

SPA—Special Program Area 

SSA—Security Stack Array 

STO—State Office 

SURE—Supplemental Revenue Assistance Payments 

SY—School Year 

T 

TAAF– Trade Adjustment Assistance for Farmers 

TANF—Temporary Assistance to Needy Families 

TB—Technical Bulletin 

TEFAP— Report of the Emergency Food Assistance 

Program 

TME—Target Management Evaluations 

TPMC—Tucson Plant Materials Center 

U 

ULO—Unliquidated Obligations 

USAID—United States Agency for International 

Development 

USDA— U.S. Department of Agriculture 

USGCB—U.S. Government Configuration Baseline 

USSGL—U.S. Standard General Ledger 

UTN—Universal Telecommunications Network 

W

WebTA—Web-based Time and Attendance 

WEP—Water and Environmental Program

WFM—Wildland Fire Management 

WFSU—Wildland Fire Suppression Management 

WIC—Special Supplemental Program for Women, 

Infants and Children 

WRP—Wetlands Reserve Program