Risk Management Agency

Program Compliance and Integrity

Annual Report to Congress 

June 2000 – December 2001

United States

Department of

Agriculture

Risk 

Management 

Agency
The U.S. Department of Agriculture (USDA) prohibits

discrimination in all its programs and activities on the basis of

race, color, national origin, sex, religion, age, disability, political

beliefs, sexual orientation, or marital or family status. (Not all

prohibited bases apply to all programs.) Persons with

disabilities who require alternative means for communication of

program information (Braille, large print, audio tape, etc.)

should contact USDA’s TARGET Center at 202-720-2600

(voice and TDD).

To file a complaint of discrimination, write USDA, Director,

Office of Civil Rights, Room 326-W,Whitten Building, 14th and

Independence Avenue, SW,Washington, DC 20250-9410 or call

202-720-5964 (voice or TDD). USDA is an equal opportunity

provider and employer.

April 2002
RMA Program Compliance and Integrity Annual Report to Congress iii

Contents

Preface ................................................................................................................................v

Executive Summary .............................................................................................................vii

Implementation Overview ......................................................................................................1

Data Reconciliation of Producer Information .....................................................................1

Referrals to and from FSA ...............................................................................................3

Claims Audit Procedures for FSA .....................................................................................4

Training for FSA Personnel ...............................................................................................5

Consultation with State FSA Committees .........................................................................7

Data Warehousing and Data Mining .................................................................................7

Oversight of Agents and Loss Adjusters .........................................................................21

Sanctions for Program Noncompliance and Fraud ...........................................................21

Special Investigation Branch (SIB) .................................................................................22

Submission of Information to FCIC To Support Compliance Efforts ...................................23

Funding ........................................................................................................................23

Waste, Fraud, and Abuse: 2001 Accomplishments ...............................................................25

Highlights .....................................................................................................................25

Reviews .......................................................................................................................27 

Outcomes ....................................................................................................................47

Conclusion .........................................................................................................................48
iv RMA Program Compliance and Integrity Annual Report to Congress
RMA Program Compliance and Integrity Annual Report to Congress v

Preface

The Federal Crop Insurance Program is the primary

source of risk protection for our Nation's farmers.

Based on the most recent data, the program provided about $37 billion in protection on about 78 percent of the Nation's insurable acres in 2001. This

protection cost taxpayers about $2.8 billion.

Producers paid about $1.2 billion in premiums and

received about $3.1 billion in indemnity payments.

However, to ensure that benefits are distributed equitably among producers and that the costs to taxpayers can continue to be justified, it is essential that

there be adequate safeguards in place to avoid

potential abuses.

The Agricultural Risk Protection Act of 2000, which

enhanced the incentives for producers to buy higher

levels of coverage, also provided the Department

with new tools for monitoring and controlling program

abuses. In particular, it required the Risk

Management Agency, which administers the program, and the Farm Service Agency to work together

to strengthen local level oversight, and to reconcile

inconsistencies in their databases on crop production and yields. Further, the Act provided for the use

of data mining as a new technology for targeting

compliance reviews and investigations. It also

increased the sanctions that can be imposed for program abuses.

Our first annual report under the new Act documents

the Department's progress toward implementing

these new tools. It provides background information

on how the program is monitored for compliance and

describes the initial steps that have been taken to

change the way compliance activities will be conducted in the future. The report also contains an extensive amount of information on the potential for data

mining to target compliance reviews and investigations. The results show promise of being helpful in

identifying areas of potential abuses. However, it

should be noted that these results do not necessarily reflect the full extent of abuse that may be occurring in the crop insurance program.

As indicated in the report, there were over 12,000

reviews and investigations of potential abuses in

2001. These reviews reduced program costs by an

estimated $94 million by preventing payments on

potential claims or deterring claims. An additional

$35 million has been recovered on claims that

should not have been paid. Efforts are underway to

achieve more refined targeting results.

The Department is fully committed to preserving the

integrity of the Federal Crop Insurance Program and

expects to be able to demonstrate continuing

progress toward that goal in future reports.

Ann M.Veneman

Secretary of Agriculture
vi RMA Program Compliance and Integrity Annual Report to Congress
This is the first annual report on program compliance

and integrity of the FCIC program as required by section 515 (i) of the Act as amended by ARPA.This annual

report describes the implementation and operation of

section 515 of the Act, Program Compliance and

Integrity.This report includes the time period since the

passage of ARPA in June 2000 through December 2001.

Further, as required by section 515(i)(2) of the Act, the

annual report identifies specific occurrences of waste,

fraud, or abuse and contains an outline of actions that

have been or are being taken to eliminate the identified

waste, fraud, or abuse.

Since June 2000, the principal focus of RMA’s Compliance

function has been implementing section 515 of the Act.

Section 515(d) of the Act required that RMA and FSA

formalize their alliance and, along with the 17 approved

insurance providers, work together to improve program

compliance and integrity. Substantial RMA resources ($7

million obligated for data mining/warehousing and training) were—and continue to be—devoted to this objective.

RMA efforts have been focused on:

• establishing the data reconciliation processes between

FSA and RMA;

• developing procedures for referring potential crop

insurance errors or abuse between FSA and RMA;

• establishing an FSA annual claims audit role as part of

RMA’s quality-control process;

• training FSA and RMA personnel on the new provisions of the Act and resulting procedures; and 

• developing the FSA/FCIC program consultation

process.

Additional efforts have been dedicated to:

• initiating the data warehousing and data mining project,

• increasing sanction efforts to facilitate the imposition

of penalties (such as fines, debarments, and disqualifications), and

• establishing a Special Investigations Branch (SIB) to

enable more focused and timely responses to highprofile and complex cases that would strain the capabilities and resources of existing RMA Regional

Compliance Offices (RCO).

All of these efforts have been accomplished with encouraging, early success.

Prior to this year, the largest concentration of RMA

Compliance resources were used for after-the-fact

reviews focused on detecting errors, fraud, or abuse.

These have continued but at a greatly reduced rate.The

Act has resulted in RMA working more closely with FSA

State and County Offices on identifying potential crop

problems and establishing more timely oversight.The Act,

with its inherent coordination components, has provided

additional compliance resources for pre-emptive efforts.

As a result, the new alliance has been able to pre-empt

possible program abuse.

Pre-emptive efforts include:

• Early alerts from FSA facilitate RMA working with the

approved insurance providers to investigate and, if

applicable, stop improper or erroneous payments or

make other appropriate corrections.

• Initial data mining results coupled with early investigative analysis are forwarded to approved insurance

providers and FSA County Offices, which ensures the

timely detection and documentation of uninsurable

losses.

• USDA Office of the Inspector General (OIG) Hotline

complaints can receive prompt field confirmation (or

refutation).

This new emphasis on prevention has produced promising results. RMA has estimated cost savings of about

$94 million in the FCIC program during the period of

October 2000 - December 2001, due to its compliance

efforts.

Although prevention efforts and implementation of the

Act have been major priorities for RMA, traditional investigation and criminal, civil, and administrative processes

continue to be ongoing and have generated recoveries of

about $35 million. In FY 2001, RMA reviewed over

12,000 crop insurance policies (540-percent increase

over the previous year) that represented $1.5 billion in

liability.The referrals (to and from FSA) that support prevention/deterrence efforts alone now encompass over

4,500 policies (a 700-percent increase over the previous

year). RMA believes this trend will continue.

RMA Program Compliance and Integrity Annual Report to Congress vii

Executive Summary
For 2002, RMA will concentrate on the mission-critical

tasks of evaluating and improving the new processes that

have been established, as well as building and adapting the

Agency’s reporting, tracking, and feedback systems to

complement and integrate the multiple components mandated in Section 515 of the Act.The balance of this

report provides the results of the joint efforts of RMA

and FSA in implementing Section 515 of the Act and

combating waste, fraud, and abuse in the FCIC program.

viii RMA Program Compliance and Integrity Annual Report to Congress
Background

Section 515(d) of the Federal Crop Insurance Act (7

U.S.C. §1515) (Act) required the development of a coordinated plan (implementation plan) for the Farm Service

Agency (FSA) to assist the Risk Management Agency

(RMA) in the ongoing monitoring of the Federal Crop

Insurance Corporation (FCIC) crop insurance program

(FCIC program). RMA and FSA worked together on

phase I of the implementation plan to develop the prerequisite internal United States Department of

Agriculture (USDA) procedures and guidance between

RMA and FSA for improving the FCIC program compliance and integrity. Five implementation teams, established

in July 2000, spearheaded the mission for initiatives established in section 515.These initiatives included: establishing the data reconciliation processes between FSA and

RMA; developing procedures for referring potential crop

insurance errors or abuse between FSA and RMA; establishing an FSA annual claims audit role as part of RMA’s

quality-control process; training FSA and RMA personnel

on the new provisions of the Act and resulting procedures; and developing the FSA/FCIC program consultation process. Initially the teams were comprised of RMA

and FSA personnel.The implementation plan was signed

by the Secretary in January 2001 and presented to the

approved insurance providers at that time, thus initiating

phase II of the implementation plan.

In January 2001, phase II was begun and representatives

of the 17 approved insurance providers involved in the

FCIC program were sent a written request to nominate

approved insurance provider representatives to join the

five implementation teams.The teams were then composed of over 60 people—23 of whom were from the

approved insurance providers.

The implementation teams were given a detailed briefing

on the previous work from phase I in a 2-day meeting in

late February 2001.They were also given opportunity to

discuss their concerns and provide suggestions for the

process. Implementation team leaders then briefed

House and Senate Agricultural Committee staff on the

implementation status of the Act in March 2001.

Compliance and oversight training was also held in March

2001, during which FSA State personnel and approved

insurance providers were given an update on the status

and were provided training on the Act implementation.

Based upon the implementation team efforts, RMA/FSA’s

4-RM: FCIC Program Integrity Handbook (4-RM

Handbook) was developed and then published in April

2001.This handbook can be found on the RMA website

at http://www.rma.usda.gov.The 4-RM Handbook established the necessary procedures and provided guidance

for FSA State and County Offices, RMA, and approved

insurance providers to follow to ensure that program

integrity is achieved. It covers the five implementation

areas: data reconciliation, referrals and investigations,

claims audit, training of FSA personnel, and consultation

with FSA State Committees.Training on these procedures and crop loss adjustment was conducted April-June

2001 for approximately 2,500 FSA County personnel.The

accomplishments and status of the five required implementation areas follow.

Data Reconciliation of Producer Information

The Act requirement:“Sec. 515(c) Reconciling Producer

Information.—The Secretary shall develop and implement a coordinated plan for the Corporation and the

Farm Service Agency to reconcile all relevant information

received by the Corporation or the Farm Service Agency

from a producer who obtains crop insurance coverage

under this title. Beginning with the 2001 crop year, the

Secretary shall require that the Corporation and the

Farm Service Agency reconcile such producer-derived

information on at least an annual basis in order to identify and address any discrepancies.”

Background

The data reconciliation implementation team drafted its

work plan in October 2000.The work plan laid out a

process that would allow interim data reconciliation

activities to be implemented while more in-depth data

reconciliation activities were explored, developed, and

implemented.The data reconciliation activities explored

included expanding data elements, improving data sharing

and data compatibility, and addressing regulatory/statutory constraints.

RMA Program Compliance and Integrity Annual Report to Congress 1

Implementation Overview
2 RMA Program Compliance and Integrity Annual Report to Congress

In April 2001, the data reconciliation implementation

team developed a data requirement proposal for data

reconciliation.The data reconciliation implementation

team included FSA and RMA personnel, and approved

insurance provider representatives.This proposal further

identified current data processing limitations, data compatibility and availability issues, as well as program differences and regulatory /statutory constraints affecting producer data reconciliation.This document was finalized

among team members in October 2001, although

changes may be made to the document as new requirements are identified.

The 2001 reconciliation process actually began in August

when RMA provided acreage, share, and unit reporting

information to FSA.Those data were compared to FSA

acreage reporting data. FSA generated the acreage/share

data reconciliation report comparing acreage, producer

identification number (ID), and crop share at the producer level (county and crop) for the 17 Market Assistance

Loan Program crops. In December 2001, FSA County

Office personnel began the reconciliation process by

reviewing the data discrepancy report. Discrepan-cies

exceeding established tolerances that cannot be reconciled by FSA County Offices would be forwarded to

RMA for further resolution through an automated system.Those that require correction will be forwarded to

the approved insurance provider and appropriate systems

monitored to ensure corrections are made.

Production data will be added to subsequent data comparison.This will take place at the earliest in the fall of

2002.The same process will be used to compare and

reconcile production data. It is anticipated that the data

discrepancy report will continue to be processed quarterly to identify new discrepancies and determine the

number of discrepancies that have been resolved.

Current Status

FSA County Offices are currently reviewing the

acreage/share data discrepancy reports to identify crop

records that should be referred to RMA for review.This

initial process is ongoing through May 2002. Results of

• Referrals to RMA for investigation have more than

tripled (562 to 2,296) as a result of the Crop Year

(CY) 2000 data reconciliation efforts mandated by

the FY 2000 Disaster Assistance Program.This

trend is expected to continue for the 2001 data

reconciliation.

• Amendments to the 4-RM Handbook for the CY

2001 data reconciliation were issued in October

2001.

• Data requirements were drafted and approved by

team members that define current and future data

reconciliation activities.

• A test of the data comparison process was performed in August 2001. Four counties were selected

from Texas and South Dakota to review the proposed report format and download process. (Prior

to full implementation, the criteria to be used in

identifying legitimate discrepancies were determined

so that meaningful differences were selected for

reconciliation.) 

• FSA developed, tested, and released software to

FSA State and County Offices to record and track

data discrepancy determinations.

• RMA CY 2001 data files were provided to FSA in

September. Files consisted of 1.8 million lines of

data or 332 megabytes from the 17 crops.After the

data were sorted and compiled, approximately 1.3

million lines of data or 240 megabytes of data were

forwarded to the FSA to compare against FSA producer derived data to start the data reconciliation.

• On December 3, 2001, the acreage/share data reconciliation report was downloaded to affected FSA

County Offices for review.

• FSA acreage reporting software has been programmed for CY 2002 to capture the RMA unit

number. Other initiatives are being explored such as

having the producer report acreage and other pertinent data to one source.
RMA Program Compliance and Integrity Annual Report to Congress 3

the data reconciliation review were uploaded from FSA

County Offices starting in December 2001. Data discrepancies will be forwarded to RMA for resolution beginning

the third quarter of FY 2002. Data discrepancies will be

forwarded for approved insurance provider review/correction beginning the third quarter of FY 2002 after an

RMA Compliance review of discrepancies forwarded by

FSA State and County Offices. RMA will monitor

approved insurance provider actions to reconcile discrepancies in accordance to the 4-RM Handbook.

Referrals to and from FSA 

The Act requirement:“Sec. 515(d)(1)(A)) at the request

of the Corporation or, subject to paragraph (2), on its

own initiative if the Farm Service Agency has reason to

suspect the existence of program fraud, waste, or abuse,

conducting fact finding relative to allegations of program

fraud, waste, or abuse; (B) reporting to the corporation,

in writing in a timely manner, the results of any fact finding conducted pursuant to subparagraph (A), any allegation of fraud, waste, or abuse, and any identified program

vulnerabilities.”

Background

FSA County Offices have the authority and responsibility

to actively watch for potential fraud, waste, and abuse of

FCIC programs. RMA also has the authority to request

assistance from FSA in monitoring the FCIC program.

FSA County Offices will document observations and

gather the information/proof necessary to validate concerns in the FCIC program.The referral implementation

team developed the following procedures for FSA, RMA,

and approved insurance providers in handling referrals

for allegations of fraud, waste, or abuse.

The 4-RM Handbook requires the FSA County Offices

to:

• document any form of complaint from any complainant as accurately as possible;

• actively watch for potential fraud, waste, and abuse of

the FCIC program;

• document observations and gather the evidence necessary to validate concerns;

• honor any request by the complainant with regard to

confidentiality; and

• forward all referrals to FSA State Offices.

The 4-RM Handbook requires the FSA State Offices to:

• serve as the liaison between the FSA County Offices

and RMA on all referrals;

• ensure that referrals from the FSA County Offices

are complete and that all necessary documentation is

provided;

• notify the appropriate FSA County Office when a

referral is unwarranted and will not be forwarded to

RMA; and

• make an initial determination for FSA to conduct its

own investigation or refer the case to the Office of

Inspector General (OIG) when RMA fails to respond

in a timely manner to or declines to proceed with an

investigation.

The 4-RM Handbook requires RMA to:

• review all referrals received from FSA State Offices and

determine whether further investigation is warranted;

• forward the appropriate referrals to the approved insurance providers;

• evaluate the appropriateness of action taken by

approved insurance providers relative to the referred

case;

• forward all fraud referrals to OIG; and

• provide a written summary of the review results to

the relevant FSA State Office upon conclusion of the

review process.

The 4-RM Handbook requires the approved insurance

providers to:

• perform a field review of producers identified in the

referral;

• document reviews and take appropriate action;

• report results of reviews and actions to RMA; and 

• request assistance from FSA County Offices when

attempting to identify fraud, waste, and abuse.

In addition to referrals, RMA will develop and provide a

spot-check list of insured producers to FSA County

Offices and the approved insurance providers annually.The

list will be developed using data mining technology and

previous loss experience. FSA County Offices will perform
a minimum of two documented growing season field

inspections (GSI) for producers on the spot-check list—

one within 30 days of the final planting date, and one prior

to the general harvest of the crop.The purpose of the

inspections is to determine the crop and surrounding area

farms’ conditions. FSA County Offices will refer to RMA

any case where they have observed potential problems.

RMA may also request an FSA County Office’s assistance in

obtaining additional information to establish the credibility

of a complaint or when an immediate presence is needed

to document evidence before it is destroyed. RMA will

transmit the FSA County Office referrals to the approved

insurance provider of record to take the appropriate action

on any case, provided that it does not appear to involve

suspicious activity on the part of any approved insurance

provider personnel, such as a loss adjuster or sales agent.

Current Status

The referral implementation team met June 2001 to evaluate feedback from approved insurance providers and

FSA County Office personnel. Several areas in the procedure that needed clarification were identified.The referral implementation team wrote an amendment to the 4-

RM Handbook procedure, published August 23, 2001, to

reflect the needed clarifications.The referral implementation team accomplished its objective of developing a plan

and procedure for RMA and FSA to work together to

improve program compliance and integrity.The procedures can be found in the 4-RM Handbook on the RMA

website at: http://www.rma.usda.gov.

Claims Audit Procedures for FSA

The Act requirement:“Sec. 515(d)(1) The Secretary shall

develop and implement a coordinated plan for the Farm

Service Agency to assist the Corporation in the ongoing

monitoring of programs carried out under this title,

including— ...(C) assisting the Corporation and

approved insurance providers in auditing a statistically

appropriate number of claims made under any policy or

plan of insurance under this title.”

Background 

The implementation plan approved by the Secretary in

January 2001 outlined the process by which FSA would

assist RMA in their ongoing monitoring of programs.The

claims audit implementation team developed the procedures for FSA County Offices to provide assistance during the claims audit process. In contrast to the referral

process that requires FSA involvement in monitoring current crop conditions, the claims audit process requires

FSA County Offices to assist in detecting and correcting

improperly paid claims. FSA County Office involvement in

claim audits will provide third party verification of producer information that will assist approved insurance

providers and RMA in validating that crop insurance

indemnities are properly paid.

Manual 14 (The Guidelines and Expectations for Delivery

of the Federal Crop Insurance Program), which is incorporated by reference in the Standard Reinsurance

Agreement (SRA), requires the approved insurance

provider to review statistically selected indemnified

claims (claims).The SRA also requires that the approved

insurance provider verify the accuracy of the information

reported by the policyholder, the determinations of the

agent and loss adjuster, and the processing of the documents. In addition, the approved insurance provider must

verify the accuracy of the information reported to FCIC.

Manual 14 requires approved insurance providers to conduct 50, 75, 100, 125, or 150 claim audits every year,

depending on the total number of contracts in force for

each approved insurance provider.Approved insurance

providers must verify that all information provided by the

policyholder, sales agent, and loss adjuster is true and

accurate through whatever means is necessary. RMA is

required to conduct periodic compliance evaluations of

the approved insurance providers’ claim audits to assess

the accuracy of their audits. RMA anticipates that about

1,600 claim audits will have been conducted for CY

2001.

Approved insurance providers may request information

from FSA County Offices via an FSA State Office.When

requesting FSA producer information, approved insurance

providers should reconcile claim data with FSA information and resolve the differences. FSA County Offices will

4 RMA Program Compliance and Integrity Annual Report to Congress
RMA Program Compliance and Integrity Annual Report to Congress 5

provide producer information, maps, and other program

information and documents and are encouraged to

report concerns of suspected program abuse.

The claims audit for the CY 2000 data is underway.The

statistically selected claims were provided to the approved

insurance providers who conducted reviews and are now

being checked by RMA Compliance with FSA’s assistance.

Current Status

An RMA data processing expert has been added to the

claims audit implementation team.The claims audit implementation team met in August 2001 and considered but

rejected as unworkable a system to automate FSA producer data transmissions to approved insurance

providers via the approved insurance provider computer

network server. Issues such as computer system compatibility, file formats, and Manual 14 could not be adequately

resolved.Though the approved insurance providers are

not required to access FSA data, FSA information technology personnel are working to develop a print option

from the County Office computer system that will allow

frequently requested documents to be reprinted and

provided to approved insurance providers. Both RMA

and FSA will place Form FSA-426A (Multiple Peril Crop

Insurance/FCIC Information Request) on their web sites

to allow approved insurance providers the convenience

of downloading the forms as needed and e-mailing the

completed forms to FSA.

Training for FSA Personnel

The Act requirement:“Sec. 515(d)(3) Use of field infrastructure.The plan required by paragraph (1) shall provide for the use of the field infrastructure of the Farm

Service Agency.The Secretary shall ensure that relevant

FSA personnel are appropriately trained for any responsibilities assigned to the personnel under the plan.At a

minimum, the personnel shall receive the same level of

training and pass the same basic competency tests as

required of loss adjusters of approved insurance

providers.”

Background 

Manual 14 requires that the approved insurance

providers’ new loss adjusters receive 60 hours (including

at least 24 hours of classroom training) of structured

training specifically related to available risk management

products the first year.The implementation team focused

on the loss adjustment and compliance and oversight

training.The training team identified the most effective

methods of conducting the training sessions, the numbers

of employees to be trained, and the curriculum to be

included in each session.The team also oversaw the planning and delivery of the training sessions.A training plan

was developed to provide instruction for documenting

fraud, waste, and abuse in the FCIC program; knowledge

of the FCIC program; and loss adjustment activities.This

training approach uses the latest technology and techniques to provide instruction, maximize cost savings, and

reach the targeted audiences.

Compliance and Oversight Training Session. Sixteen hours

of training was provided to FSA State Office personnel

from all 50 States during a 2-day training session in

March 2001.This training was open to representatives of

the 17 approved insurance providers, and to RMA and

OIG personnel.A total of 280 personnel were trained.

The objectives of the session were to teach FSA State

Office employees about:

• the processes involved in the referral, consultation,

training, data reconciliation, and claim audits sections

of the implementation plan;

• the SRA, the Act, and the regulations that control the

conduct of the approved insurance providers;

• RMA’s administrative processes involved in compliance findings including monetary recoveries;

• criminal/civil processes carried out by U.S.Attorney

Offices on crop insurance fraud; and 

• rules of evidence and fraud indicators presented by

the OIG.

FSA Classroom Loss Adjustment Training.The curriculum

included 24 hours of classroom loss adjustment training

as required in Manual 14, covering the crop insurance policy, Loss Adjustment Manual, actuarial documents, and

determining production to count. More detailed crop-specific insurance and loss adjustment training was provided
6 RMA Program Compliance and Integrity Annual Report to Congress

on crops predominant in the region where the training

sessions were held.Also during these sessions, FSA

County Office personnel received an additional 4 hours of

training on FSA’s role under section 515 of the Act and a

summary of the Compliance and Oversight Training.

Training was provided to 2,637 FSA County Office personnel at 28 regional locations throughout the United States

(fig. 1). RMA Regional Offices, Compliance Offices, and FSA

State Office personnel conducted the training.The sessions began in April 2001.All 28 sessions were completed

by June 2001. In addition, 100 RMA Compliance investigators attended the training.All attendees passed a required

12-part competency test and received a total of 28 hours

of training credited towards the 60-hour requirement.

Current Status

Crop Field Monitoring and Fraud Training. RMA is developing two training sessions to meet the Act’s provision:

• (1) Crop Field Monitoring Training. RMA will train

FSA County Office personnel in crop field monitoring

through a distance learning training medium.The curriculum for the web-based training will be developed

by RMA.The areas of training will include: Loss

Adjustment Manual Provisions concerning growing

season inspections; general information on appraisal

methods, including demonstrations of appraisals; and

other applicable instruction on crop field monitoring

by FSA County Office personnel.This training, in conjunction with the Anti-Fraud training, will fulfill the 60-

hour requisite of approved insurance provider loss

adjusters under Manual 14.

• (2) Anti-Fraud Training. In September 2001, RMA contracted with a leading expert in the insurance industry experienced in developing anti-fraud training.The

training will be tailored to crop insurance and will

include the latest techniques such as CD-ROM/video

to identify and document potential fraud.This will be

included in the crop field monitoring training. In addition, RMA will provide the CD-ROM/video and the

appropriate training materials to FSA State Offices.

Also, RMA will provide the approved insurance

Figure 1. Loss AdjustmentClassroom Training by Region 

Source: USDA/Risk Management Agency, 2001.

Northern

500

Midwestern

312

Eastern

604

Western

184

Central

356

Southern

681

Total = 2,637
RMA Program Compliance and Integrity Annual Report to Congress 7

providers with the material for assisting their compliance personnel in identifying potential fraud in the

FCIC program.

Consultation with State FSA Committees

The Act requirement:“Sec. 515(e) The Secretary shall

establish procedures under which the Corporation shall

consult with the State Committee of the Farm Service

Agency for a State with respect to policies, plans of

insurance, and material related to such policies or plans

of insurance (including applicable sales closing dates,

assigned yields, and transitional yields) offered in that

State under this title.”

Background 

The consultation process established by the above provision is a means for RMA to share program information

with the State Committees of FSA.This process will

allow the committees to make timely recommendations

to RMA on policies and plans of insurance that may

include final planting dates, assigned yields, and transitional yields (T-yields).These recommendations will help

RMA identify program discrepancies and vulnerabilities.

The consultation implementation team included in the 4-

RM Handbook the following procedures for FSA State

Committees and offices to follow.

The 4-RM Handbook requires the FSA State Committee

to:

• consult the FSA County Committees for input

regarding requests for review of FCIC program information;

• review compiled data gathered by FSA State Offices;

• make recommendations to RMA; and

• identify, review, and recommend appropriate action to

RMA to change existing or proposed RMA T-yields,

dates, practices, etc.

The 4-RM Handbook requires the FSA State Office to:

• maintain communications with RMA;

• coordinate scheduling of requests with RMA;

• conduct a preliminary review;

• complete fact finding;

• provide FSA State Committees and RMA with supporting documentation including any written justification as appropriate to address identified concerns;

• present the request and findings of fact to FSA State

Committees;

• document and forward FSA State Committee recommendations to RMA;

• provide RMA with FSA State Committee written

responses citing no concerns identified when appropriate; and

• assign a tracking number to the recommendation.

Current Status

In June 2001, RMA established a working group to develop internal RMA communication procedures.This procedure is currently in the concurrence process.A 4-RM

Handbook amendment was issued in August 2001 that

included a provision to ensure that the privacy of the

information provided by RMA is maintained during the

consultation process with FSA.This information is for

internal USDA use and is not considered public information until it is officially published by RMA.

Data Warehousing and Data Mining

The Act requirement:“Sec. 515(j)(2) The Secretary shall

use the information technologies known as data mining

and data warehousing and other available information

technologies to administer and enforce this title.”

Background

An agreement was signed on December 14, 2000,

between Tarleton State University (university) and

USDA/FCIC in order to fulfill the Act’s requirement.The

purpose of the agreement was to review existing data to

detect fraud, waste, and abuse, and also to create a single

warehouse of crop insurance data. Software that could

be used for pattern recognition and data mining relating

to a crop, locale, producer, agent, loss adjuster, or

approved insurance provider will be developed to

improve compliance and enhance the integrity of the

FCIC program.This portion of the annual report covers

a short 9-month period that began with the signing of
8 RMA Program Compliance and Integrity Annual Report to Congress

the cooperative agreement.This project was successfully

established and developed quickly.

Data Warehousing

The first major task was the acquisition, development,

and construction of an enormous data warehouse consisting of RMA data. Collaborative engineering and participant work plan coordination sessions between the university and RMA were conducted.The university completed the 10-year database warehouse a month ahead of

schedule.

An initial planning meeting, collaborative engineering sessions, and several participant work plan coordination sessions between the university and RMA were conducted.

A computing logistics plan was developed that studied

the facilities to validate the ability to support the data

warehouse. Deficiencies were documented, together with

recommendations for bringing the facilities up to the

required specifications provided by the computer vendor.

Data capacity studies performed in earlier analysis were

used as a basis for sizing the computer hardware necessary to support an efficient data warehouse.A logical

model for the 10-year database was designed and tested

before the final physical model was designed and data

imported to that model.

The Data Warehouse Is Unique

The single physical model design allows data mining tools

to use specific data sets for a 10-year pattern of behavior.The data for the 10-year history exist in other databases but are maintained in several different physical

models, limiting data mining tools and analysis.

Incorporated in the database are the RMA Risk Rating

Areas (area defined for crop insurance purposes according to level of peril) that allow the data mining tools to

analyze crop data across county lines and provide

reports based on an area rating.

The data warehouse maintains all RMA data records for

RY (Reinsurance Year) 1991-2000.The data are in a single

physical model with definition tables for each year’s data.

Ten years of RMA database history and 11 years of

weather data comprised the initial data that was warehoused in September 2001.The transfer of RMA records

began in February 2001 with RY 2000.The last of the

records for RY 1991-95 were transferred in July 2001. By

the end of FY 2001, the data warehouse contained 731

million records.

Databases currently in the model that have yet to receive

further analysis are:

• RMA National Agricultural Statistics Service (NASS)

data, and

• Compliance Tracking System data.

Before the end of calendar year 2002, RMA will have

high-speed, broadband access portal to the data systems

and data warehouse.This will enable RMA managers to

access and query the data. It will also allow RMA investigators to access the data for investigative analysis and to

support ongoing field investigations and reviews.As an

interim measure, data is currently available to RMA on

the Center for Agribusiness Excellence web site.

Acceptance of the computing logistics will be the final

phase of the deliverables for the first year.

Data Mining

Data mining is a single step in a multi-step research

process, although the term is often used to mean a variety of processes, such as statistical analysis, standard

query language queries, and online analytical processing.

Typically, the multi-step process includes determining

objectives, preparing, selecting, preprocessing, and transforming data, in addition to mining and analyzing the data.

Data mining has caused RMA to adjust its business practices, because the Agency uses data mining and analysis to

identify crops, areas, or persons where the data is anomalous and to initiate investigations.

The goal of data mining is to improve compliance and

integrity of the FCIC program. Objectives include:

• Conducting research to obtain new and useful information to help investigators detect and eliminate

fraud, waste, and abuse;

• Obtaining and utilizing management and investigative

tools to conduct data mining, pattern recognition, and

online analytical processing of RMA;
RMA Program Compliance and Integrity Annual Report to Congress 9

• Identifying potential fraud on the part of insurance

agents, loss adjusters, or producers;

• Identifying patterns of losses and analyzing the cause

of loss for patterns that could be used to indicate

fraud;

• Identifying apparent collusion or anomalous behavior;

• Measuring the industry’s fraud problem and quantifying results; and

• Integrating data warehousing and data mining systems

with an enhanced management information system.

Before the data warehouse was completed, the university

was asked to begin data mining operations.This step

served to test the warehouse and provide an initial product to facilitate the procedures established for FSA to

assist RMA in monitoring waste, fraud, and abuse by performing spot checks of identified producers at the local

level.The results of these spot checks would then be forwarded to the approved insurance provider to enhance

their role in the protection of the integrity of the FCIC

program.

Consequently, a list of 600 producers identified as statistically anomalous within the CY 2000 database was delivered to RMA in April 2001.The producers were identified through data mining of two scenarios: loss to acreage

(producers with the highest indemnity relative to acreage

insured) and prevented planting (producers with prevented planting acreage when the majority of other producers in the area planted the crop). Of the 600 producers,

420 were forwarded to applicable FSA offices for spot

checks and four to approved insurance providers after

review by RMA (table 1).

Cotton Data Mining

Using yield-switching (a fraudulent scheme whereby a

producer applies crop production to a different unit than

the production came from for crop insurance purposes)

methodology, the first nationwide data mining of cotton

producers resulted in over 2,600 flagged files indicating

potential yield switching issues. Further investigative

analysis identified 82 producers who were tied to flagged

policies (table 2).These names were distributed to RMA

Compliance offices that then distributed them to FSA

and the approved insurance providers.The yield data

were retrieved from the policy database and processed

to prepare it for regression analysis.The data were sorted and rendered to depict the selected policies’ units in

an output chart that indicates yield activity.

The charts depict 10 years of unit and farm and county

average yield data for policies that meet the screening

criteria, culminating in CY 1999 (year 10). CY 2000 yield

data were not complete at the time the process was run.

CY 1996–2000 Policyholder Inquiry System data for each

flagged actual production history (APH) cotton policy

were included to assist with field analysis.This system, a

web-based tool, reports specific policy information,

including premium, indemnity, yield, acreage, policy type,

and other data for a given policy or set of policies from

the policy database. Policies were sent to the respective

RMA Compliance offices in June for further analysis and

investigation (table 2). Most of the flagged policies that

warranted further action resulted in requests of FSA for

a GSI and a review by the current approved insurance

provider.

Soybeans Data Mining

Immediately after sending the flagged policies for cotton,

work began on APH soybeans.This was the first attempt

at conducting the operation in two parts.As before, the

yield data was queried from the crop policy database.The

yield data was screened with an improved version of the

yield switching software, which permitted changing the

screening criteria to optimize the process for different

crops without editing and re-compiling the source code.

All APH soybean policies from CY 2000 were screened,

resulting in 93 flagged policies (table 3). Policy histories

for 1996-2001 for the flagged policies were pulled to

enable analysis.Additional searches were performed for

policies that lacked a complete policy history for the

period. Policy history was researched for policies with

matching variables for the address, phone number, or

name. Given that the soybean harvest would soon occur,

RMA did not refer the flagged policies to FSA. Instead,

RMA requested pre-harvest inspections by the respective

approved insurance providers for those policies warranting further action.
10 RMA Program Compliance and Integrity Annual Report to Congress

Table 1—Policies Flagged for Prevented

Planting/Loss to Acreage, CY 2000

AL 3 3 

AR 27 27 

AZ 31 31 

CA 37 37 

CO 20 8 12 

GA 2 2 

ID 20 20 

IL 27 9 18 

IN 29 11 18 

KS 46 36 1 10 

KY 6 6 

MA 1 1 

MD 3 3 

MI 20 12 2 8 

MN 14 14 

MO 17 17 

MS 4 4 

MT 1 1 

NC 2 2 

ND 51 51 

NE 17 16 1 

NH 2 2 

NY 26 26 

OH 24 11 13 

OK 7 7 

OR 7 7 1 2 

PA 20 20 

SC 33 33 

SD 20 20 

TN 2 2 

TX 54 54 

VA 6 6 

VT 2 2 

WA 5 5 

WI 14 14

Totals 600 420 4 2 180

Flagged Policies 

Sent to RCO

Referred to

FSA

Referred to 

Insurance Providers

RCO Initiated 

Review/Action

Policies Examined

But Not Referred

Table 2—Cotton Policies Flagged for Yield

Switching, CY 2000

AL 10 10 10

AR 2 2 2

AZ 6 6

CA 1 1

GA 13 13 13

LA 4 4 4

MO 2 2

MS 14 14 14

NC 14 14 14

OK 1 1 1

SC 1 1 1

TN 3 3 3

TX 11 11 11

Totals 82 80 75 0 0

Notes: List was based on States where cotton is reinsured by FCIC, so not all

States are represented. Policies were only referred or reviewed if analysis

determined that further action was warranted, so not all actions (columns)

are represented.All policies with yield variances do not warrant reviews or

referrals. No cases were opened on these policies.All policies were targeted

for growing season inspection by the company and/or FSA; resultant indemnities paid declined sharply.

RCO: Regional Compliance Office.

Source: USDA/Risk Management Agency, 2001.

Flagged Policies 

Sent to RCO

Referred to

FSA

Referred to 

Insurance Providers

RCO Initiated 

Review/Action

Policies Examined

But Not Referred

Notes: List was based on 100 most statistically anomalous producers in each

of the six regions, so not all States are represented. Policies were only

referred or reviewed if analysis determined that further action was warranted, so not all actions (columns) are represented.All statistically anomalous

losses do not warrant reviews or referrals.

RCO: Regional Compliance Office.

Sources: Center for Agribusiness Excellence analysis of FCIC Policy Data, and

USDA/Risk Management Agency, 2001.
RMA Program Compliance and Integrity Annual Report to Congress 11

Winter Wheat Data Mining

Work on winter wheat is in progress.A list of producers

identified for growing season inspections has been forwarded to the Regional Compliance Officers.As winter

wheat comes out of dormancy, growing season inspections will take place.

Yield Switching Process Improvement

As these reports were issued, the pattern recognition

process continued to evolve and improvements were

made. RMA directed that report delivery be synchronized with the growing season to maximize the utility of

the information. Consequently, a comprehensive schedule

tied to the growing season was developed. For the four

priority crops with late summer/fall harvests (cotton,

soybeans, corn, and wheat), the report will be delivered

in February. For States where RMA reinsured winter

wheat, the report will be delivered in November.This

delivery schedule would permit ample time for RMA to

analyze the flagged policies to determine if further action

is warranted. It would also permit time to request additional input from FSA and the approved insurance

providers during the growing season. Other crops are

under consideration for screening and will be included in

the future.

Data Mining Summary

Some policies flagged by data mining runs were already

under investigation.There have also been policies flagged

for which RMA investigators determined that no further

investigation was warranted.Tangible results from data

mining efforts will take years to fully realize because the

adjudication, administrative, sanction, and appellate

processes often involve lengthy procedures taking years

to complete.

An immediate benefit of RMA's data mining operation

has been increased public awareness, resulting in a deterrent effect.As a group, the insureds consistently received

large and increasing indemnities until they were informed

that they were being included in the CY 2001 Spot

Check List RMA provided to FSA (fig. 2).The group's

projected indemnity would likely have been much greater

absent the added scrutiny (fig. 3).The projected cost savings were over $72 million as a result of all reviews.

Policies were flagged in CY 2001 for cotton and soybean

yield switching because individual unit yield histories

(1989-2000) were so diverse, compared with both the

farm and county average yields for the same period. RMA

Compliance flagged 82 cotton and 93 soybean policies

for excessive yield variances.The impact among these

cotton and soybean producers is similar to that of the

producers on the Spot Check List.The actual indemnities

received fell dramatically for both cotton and soybeans in

CY 2001 (figs. 4 and 5).

Table 3—Soybean Policies Flagged for Yield

Switching, CY 2000

AL 1 1

IA 7 7

IL 9 6 3

IN 12 10 2

KS 1 1

LA 5 5

MD 3 3

MI 3 2 1

MN 6 6

MO 16 8 8

MS 21 21

NC 3 3

NE 1 1

OH 1 1

SD 3 3

TX 1 1

Totals 93 0 61 0 32

Notes: List was based on States where soybeans are reinsured by FCIC, so

not all States are represented. Policies were only referred or reviewed if

analysis determined that further action was warranted, so not all actions

(columns) are represented.All policies with yield variances do not warrant

reviews or referrals.

RCO: Regional Compliance Office.

Source: USDA/Risk Management Agency, 2001.

Flagged Policies 

Sent to RCO

Referred to

FSA

Referred to 

Insurance Providers

RCO Initiated 

Review/Action

Policies Examined

But Not Referred
12 RMA Program Compliance and Integrity Annual Report to Congress

Figure 2. Spot Check Group Indemnity Cy 2001

0

30

60

90

120

150

Million $

Source: USDA/Risk Management Agency, 2001

CY 1998 CY 1999 CY 2000 CY 2001

0

50

100

150

200

Million $

Source: USDA/Risk Management Agency, 2001

CY 1998 CY 1999 CY 2000 CY 2001

Figure 3. Spot Check Group Projected Indemnity CY 2001

Figure 4. Cotton Yield Switching Group Indemnity CY 2001

0

2

4

6

8

10

12

Million $

Source: USDA/Risk Management Agency, 2001

CY 1998 CY 1999 CY 2000 CY 2001

Figure 5. Soybean Yield Switching Group Indemnity CY 2001

0

.4

.8

1.2

1.6

2.0

Million $

Source: USDA/Risk Management Agency, 2001

CY 1998 CY 1999 CY 2000 CY 2001
The projected indemnities in the yield switching groups

for CY 2001 cotton and soybeans would have increased

if the trend of the preceding years continued (figs. 6 and

7).The resulting cost savings for the cotton yield switching group was over $11 million and the soybean yieldswitching group was over $1 million due to the increased

monitoring efforts of these policies.

Like most operations today, the anti-fraud business is an

ever-changing one.As policy and programs evolve, those

who seek to commit fraud will develop new techniques

for committing acts of wrongdoing.These changes will

require continued analysis and development of innovative

methodology, tools, and compliance efforts to remain

effective. Only through constant assessment and

improvement of RMA’s business practices, can they sustain the level of vigilance required to keep erroneous

payments in check, improve program integrity, and protect the taxpayer’s funds. Data mining is another tool

used by RMA toward this end.

Data mining serves as a compliance multiplier that

extends the capabilities of a limited investigative force. In

the end, it is the field work of approximately 80 investigators covering 50 States and 1 territory who must inspect

farms, conduct interviews, gather documentation, and

collect physical evidence before they can conclude that

fraud, waste, or abuse occurred.

Detection of Disparate Performance

The Act requirement::“Sec. 515(f)(1) Covered activities.—

The Secretary shall establish procedures under which the

Corporation will be able to identify the following:

(A) Any agent engaged in the sale of coverage offered

under this title where the loss claims associated with

such sales by the agent are equal to or greater than 150

percent (or an appropriate percentage specified by the

Corporation) of the mean for all loss claims associated

with such sales by all other agents operating in the same

area, as determined by the Corporation. (B) Any person

RMA Program Compliance and Integrity Annual Report to Congress 13

Figure 6. Projected Indemnities for Cotton Yield

Switching Group, CY 2001, Without Data Mining 

0

3

6

9

12

15

Million $

Source: USDA/Risk Management Agency, 2001

CY 1996 CY 1997 CY 1998 CY 1999 CY 2000 CY 2001

Figure 7. Projected Indemnities for Soybean Yield

Switching Group, CY 2001, Without Data Mining

0

0.5

1.0

1.5

2.0

Million $

Source: USDA/Risk Management Agency, 2001

CY 1998 CY 1999 CY 2000 CY 2001
performing loss adjustment services relative to coverage

offered under this title where such loss adjustments performed by the person result in accepted or denied claims

equal to or greater than 150 percent (or an appropriate

percentage specified by the Corporation) of the mean

for accepted or denied claims (as applicable) for all other

persons performing loss adjustment services in the same

area, as determined by the Corporation.” 

Note:A report of agents and adjusters that met the Act

provision of the “150 percent of the mean” was delivered

by the university in September 2001, three months ahead

of schedule.

Crop Insurance Agent Statistics

For CY 2000, 14,547 agents wrote 1.3 million policies,

and 23 percent had losses.The average agent operated in

5.2 counties, sold 90 policies with 20 losses, and used 1.4

reporting organization agent IDs.The maximum policies

were 4,488 (2,684 loss policies) for an agent tax ID

operating in 90 counties, using 39 different reporting

organization agent IDs. (It would seem that these are

sub-agents using the same agency tax ID and not their

own personal tax ID). Further research is needed to separate these agents from their agencies.The minimum for

an agent is one policy with no losses and operating in

only one county. Only 3,914 policies (3 percent) had

more than one agent on it.The average county has 25.7

agents and of the 2,784 distinct counties, 261 counties

have only one or two agents writing in them.

Over 6,000 agents were flagged (loss ratio is greater than

or equal to 150 percent of the county average) in at least

one county, representing 41 percent of all agents, or 56

percent of all agents who had losses.The indemnity and

premium totals of all agents are $2.2 billion and $2.4 billion, respectively.Ten percent of all agents, who each had

more than 50 losses, accounted for $1.5 billion in indemnities, which is 68 percent of all indemnities and $1.1 billion

of premiums or 48 percent of all premiums.These agents

wrote 66 percent of the loss policies. Eighty-five percent of

these agents were flagged in at least one county.

Some 3,851 of the agents wrote policies that never had a

loss in CY 2000 and booked only 12 percent of the total

premiums.There were 2,554 agents who had only one or

two losses in all counties, accounting for 1 percent of all

indemnities; 34 percent of these agents were flagged.

Seventy-eight percent of agents had fewer than 20 loss

policies, accounting for 13 percent of indemnities and 32

percent of premiums.About 29 percent of these agents

were flagged in at least one county.The indemnity per

loss policy for all agents was fairly constant, but the ratio

(of indemnity to premium) rises as the number (of loss

policies) increases.The distribution of indemnities by

agents is very skewed towards the high end because a

few have many loss policies and pay very low premiums

for them. In other words, the number of policies sold is

directly related to the loss ratio; as one goes up, so does

the other (table 4).

Crop Insurance Loss Adjuster Statistics

For CY 2000, there were 3,256 distinct adjusters who

adjusted 299,704 policies in the 50 States.The average

number of policies adjusted was 92.The least policies

worked by adjusters were one and the maximum was

1,257 policies. Ninety percent of adjusters worked 219

or fewer policies. Most of the adjusters worked a relatively small number of policies, as would be expected

(table 5).The top 10 percent (adjusters with greater than

219 policies) accounted for 38 percent of the policies, 36

percent of the indemnity, and 37 percent of the risk premium, indicating that their loss ratio was similar to the

lower 90 percent.

14 RMA Program Compliance and Integrity Annual Report to Congress
RMA Program Compliance and Integrity Annual Report to Congress 15

AL 109 54 9 5 9 5

AK 2 0 1 0 42 0

AZ 64 13 11 7 61 2

AR 195 61 32 8 227 6

CA 489 126 116 40 73 2

CO 274 115 47 18 6 10

CT 12 4 2 1 15 0

DE 18 2 2 1 76 0

FL 168 62 36 23 57 3

GA 326 175 57 32 3 2

HI 5 0 1 0 83 0

ID 158 45 30 14 509 5

IL 1520 520 286 85 294 37

IN 671 221 138 50 746 12

IA 2269 814 473 152 139 39

KS 1078 537 166 57 126 31

KY 263 87 59 31 19 10

LA 91 46 10 5 12 2

ME 25 7 8 4 31 0

MD 62 20 10 4 9 0

MA 19 6 7 4 52 0

MI 184 93 30 13 418 5

MN 1254 420 265 95 21 11

MS 105 60 23 10 260 8

MO 643 200 123 50 45 29

MT 338 172 57 27 189 3

NE 1448 732 214 81 5 36

NV 5 04260

NH 8 2 19 8 5 0

NJ 14 7 7 3 23 0

NM 61 18 115 44 9 1

NY 51 35 131 53 327 2

NC 594 139 39 15 120 7

ND 875 379 61 20 83 9

OH 266 121 31 8 56 7

OK 295 133 16 7 56 29

OR 116 21 23 8 41 2

PA 111 51 108 34 5 2

Table 4--Agent Disparate Performance Summary, CY 2000

Agents Flagged

(loss ratio > Agent Flagged

Total Number 150% of county Agents with Flagged As Agents With in More Than

State of Agents average) 1 or 2 Claims Outliers No Claims 1 RCO’s Area

Table 4 continued page 16
16 RMA Program Compliance and Integrity Annual Report to Congress

RI 6 1 32 15 27 0

SC 130 59 70 20 142 3

SD 677 274 4 1 71 22

TN 194 78 7 6 48 17

TX 600 331 41 22 3 6

UT 17 6 28 1140

VT 16 11 8 5 94 0

VA 190 64 103 32 93 3

WA 185 52 15892

WV 25 11 0 0 148 4

WI 441 157 0 0 15 16

WY 59 230003

Total 16,726 6,565 3,075 1,139 4,912 393

National* 14,547 6,030 2,554 869 3,851 119

Note: Since some agents were flagged in multiple counties and States,

"TOTAL" = total number of flags and "NATIONAL" = total number of individual agents flagged.

RCO: Regional Compliance Office.

Sources: Center for Agribusiness Excellence analysis of FCIC Policy Data; and

USDA/Risk Management Agency, 2001.

Table 4--Continued

Agents Flagged

(loss ratio > Agent Flagged

Total Number 150% of county Agents with Flagged As Agents With in More Than

State of Agents average) 1 or 2 Claims Outliers No Claims 1 RCO’s Area

Table 5—Number of Policies per Adjuster Summary,

CY 2000

Policies Number of Policies Number of 

Worked Adjusters Worked Adjusters

1,000 + 2 <10 581

400 + 90 <50 1,530 

250 + 252 <100 2,235

100 + 1,036 <500 3,210

40 + 1,931 <1000 3,254 

Source: USDA/Risk Management Agency, 2001.

Of the 3,256 adjusters, 2,594, or 80 percent, were

flagged for a loss ratio of greater than or equal to 150

percent of the average for the county (table 6).The reason that a high percentage of the adjusters were flagged

is because loss adjusters work loss claims in multiple

counties.These flagged adjusters accounted for $1.98 billion of indemnity out of the $2.20 billion total indemnity,

or 90 percent of all indemnity. Of the 2,594 flagged

adjusters, 29 percent were flagged once, 21 percent were

flagged twice, 16 percent were flagged three times, and

single adjusters were flagged multiple times (table 7).
RMA Program Compliance and Integrity Annual Report to Congress 17

AL 89 52 16

AK 2 0 0

AZ 14 5 1

AR 120 78 31

CA 92 68 2

CO 163 73 22

CT 8 2 0

DE 4 1 0

FL 71 38 3

GA 118 77 3

HI 3 1 0

ID 49 28 6

IL 281 210 34

IN 185 127 40

IA 360 258 63

KS 423 251 63

KY 69 48 23

LA 58 37 4

ME 6 4 1

MD 25 14 0

MA 10 6 0

MI 81 64 13

MN 339 198 25

MS 68 49 15

MO 181 115 50

MT 145 85 16

NE 371 239 55

NH 7 3 1

NJ 8 6 0

NM 47 19 4

NY 23 16 1

NC 119 74 3

ND 454 257 27

OH 129 86 33

OK 159 76 28

OR 37 16 6

PA 44 31 6

RI 3 1 0

SC 57 33 2

SD 301 176 32

TN 85 49 25

TX 318 243 32

UT 12 4 2

VT 10 5 1

VA 55 32 2

WA 58 38 6

WV 8 3 1

WI 126 80 15

WY 39 16 11

Total 5,434 3,392 724

National* 3,256 2,594 207

Note: Since some adjusters were flagged in multiple counties and States,

"TOTAL" = the total number of flags, and "NATIONAL" = the total number of

individual adjusters flagged.

RCO: Regional Compliance Office

Source: Center for Agribusiness Excellence analysis of FCIC Policy Data,

USDA/Risk Management Agency, 2001.

Total Number

of Adjusters

Adjusters Flagged

(loss ratio > 150%

of county acreage)

Adjusters Flagged in

More than 1 RCO

Table 6—Loss Adjuster Disparate Performance Summary, CY 2000

Total Number

of Adjusters

Adjusters Flagged

(loss ratio > 150%

of county acreage)

Adjusters Flagged in

More than 1 RCO
18 RMA Program Compliance and Integrity Annual Report to Congress

More Analysis Underway

The plan for FY 2002 includes various investigative scenarios and parameters, such as:

Insurance Agent, Loss Adjuster, Producer, and Insurance

Provider. RMA will identify insurance agents, loss

adjusters, producers, approved insurance providers,

crops, and county/adjacent county areas where the

data demonstrate deviation from the norms established

by RMA/FCIC. Examples include:

• Identifying those insurance agents and loss adjusters

who have loss claims that are in excess of 150 percent of the mean for that area (State and county).

• Identifying loss adjusters who have loss claims equal

to or greater than 150 percent of the:

(1) Risk Rating Region – (by crop, type, and practice) by filtering on the threshold and providing

analysis of the 150 percent based on the indemnity

being greater than or equal to $20,000, liability

being greater than or equal to $20,000, loss ratio

being greater than 1, lost cost being greater than 1,

or number of policies being greater than 1;

(2) Risk Rating Region (by crop, type, and practice)

after removing CAT policies; and 

(3) County and Risk Rating Region means (by crop).

• Identifying insurance agents who have loss claims

equal to or greater than 150 percent of the:

(1) Risk Rating Region (by crop, type, and practice)

by filtering on the threshold and providing analysis

of the 150 percent, based on the indemnity being

greater than or equal to $20,000, liability being

greater than or equal to $20,000, loss ratio being

greater than 1, lost cost being greater than 1, or

number of policies being greater than 1;

(2) Risk Rating Region (by crop, type, and practice)

after removing CAT policies; and

(3) County and Risk Rating Region means (by crop,

type, and practice).

Insurance Agent, Loss Adjuster, and Producer. RMA will

analyze indicators of collusion among insurance agents,

loss adjusters, and producer indemnity behavior in the

FCIC program. For CY 2000 data, this will involve analyzing 24 million records, excluding CAT policies.

Entities to be analyzed will include those that equal or

exceed 150 percent of the county mean of all entityrelevant indicators flagged as “exceptions.” The six indicator variables computed are the:

• (1) indemnity divided by the premium;

• (2) indemnity divided by the liability;

• (3) number of loss policies divided by the total

number sold;

• (4) number of loss units divided by the number of

units insured;

• (5) indemnity for loss adjuster claims divided by the

total county claims; and

• (6) number of claims for each loss adjuster divided

by the total number of claims for the county.

Insurance Agent and Loss Adjuster. RMA will identify

insurance agents and loss adjusters who have:

• different loss ratios while working for different

approved insurance providers;

• patterns of losses (by agent and loss adjuster)

according to the insurance fund to which the policies are designated; and

• claim losses that appear inconsistent with other

insurance agents and loss adjusters within the same

county and/or adjacent counties.

Producer.Through data mining and research (if applicable), RMA will determine producers who:

• have a policy indemnity for more acreage than the

acreage carried to harvest over a multi-year frame

(to identify producers whose determined acreage

consistently exceeds the reported acreage for several consecutive years);

• flip acreage on an alternating basis, such as every

other year, and carry their approved yields for

insurance purposes from one land unit to another;

• receive indemnities when the crop planted is not

suitable for the soil and other conditions of the

land;
RMA Program Compliance and Integrity Annual Report to Congress 19

• have prevented planting when other producers

planted a crop;

• use varying names, business entities, and social security/employer identification numbers; and 

• have a policy indemnity for more acreage than was

reported.

Insurance Provider. Data mining scenarios include

researching the approved insurance providers that do a

majority of business in a certain area and a majority of

business by fund designation code. Concentration of

claims and any other anomalous data will also be

determined.

Crop. Crops will be identified where there are significant changes in the number of:

• policies, types of policies, and/or coverage level of

policies issued in the county or State;

• acres insured in the county or State; and

• claims, types of claims, and/or coverage level of

claims issued in the county or State.

Other.Analysis will also be conducted to:

• compare Added Land Reference Units with units

where yield history was proven;

• identify new producers for misuse of new producer

status to counteract adverse yield histories or commit other fraudulent acts;

• identify landowners and their crop-share tenants

whose indemnity or production history display

inconsistencies on the same tract of land;

• identify policies that exceed production history (the

approved APH yield does not match RMA's actual

production history);

• compare NASS county yields, actual yields, and

actual losses over a 4-year cycle for agents and loss

adjusters; and

• identify adjusters with excessive case-loads based

on the number of counties and States served relative to RMA standards.

Further research of the data within the data warehouse includes analyzing data that connects producers,

agents, and adjusters to specific policies and claims,

added land policies in relation to actual yield policies,

and new producer policies in relation to policies established with actual production history.These scenarios,

and many more, are in the development phase and are

being further refined.
20 RMA Program Compliance and Integrity Annual Report to Congress

Table 7—Flagged Adjuster Summary, CY 2000

Number of Number of

Adjusters Flagged Times Flagged

762 1

540 2

407 3 

8 13 

5 14 

1 16 

1 20 

1 24 

Source: USDA/Risk Management Agency, 2001.

Data Mining and Automated Data Analysis Are Only

the Beginning

The data mining methodology identifies the agents and

adjusters with “disparate performance” as specified in

the Act. However, the results are simply statistics indicating potential improper payments may have been made.

Much investigative and analytical work and further analysis must still be completed to determine the likelihood

that these were truly improper payments.That investigative process is accomplished through both automated

and manual means. Data mining and automated data

analysis were performed along with manual investigative

analysis. Field reviews and investigations follow to further

identify significant outliers/flags, eliminate legitimate

claims, and prioritize investigative leads. Investigative

analysis of these recently received data mining results is

ongoing in RMA.The agent and adjuster lists will be prioritized and refined for subsequent investigation and

referrals to determine if fraud, waste, or abuse did in fact

occur.

The ongoing investigative analysis in RMA includes a

determination of whether the 150 percent loss ratio

threshold is the best measure to use or if other procedures should be proposed.The agents and adjusters

flagged under the current procedures are being further

analyzed using other data mining research criteria and

scenarios. RMA continues to conduct its data mining

research to refine the list of flagged agents and adjusters

and provide worthwhile leads to its field investigators,

FSA, and reinsured companies.The long-term goal is to

establish and institutionalize a data mining methodology

for determining, with a high degree of confidence, potentially fraudulent agents and adjusters.

RMA has expanded its investigative efforts to not only

meet the intent of the Act but to exceed the minimum

requirements. For example, RMA is not limiting its

efforts to agents and adjusters when determining disparate performance because agent/adjuster fraud is usually committed with at least the tacit, if not full, cooperation of the producer. Moreover, to properly data mine

the hundreds of millions of records in the data warehouse, anomalous and/or illegal activity should be investigated comprehensively with a total review that might

reveal trends, relationships, behaviors, and probabilities

when researched together. Ideally, this view should not

only be limited to producers who purchased crop insurance, but broadened to encompass producers who do

not purchase crop insurance.Although no authority

exists to expand the database to such a degree, such an

effort would require involvement beyond RMA. Only

then can millions of bytes of data be translated into

information, and, ultimately, useful knowledge for the

investigator.
Oversight of Agents and Loss Adjusters

The Act requirement:“Sec. 515(f)(3) The Corporation

shall develop procedures to require an annual review by

an approved insurance provider of the performance of

each agent and loss adjuster used by the approved insurance provider.The Corporation shall oversee the conduct of annual reviews and may consult with an approved

insurance provider regarding any remedial action that is

determined to be necessary as a result of the annual

review of an agent or loss adjuster.”

The Standard Reinsurance Agreement (SRA) requires an

approved insurance provider to conduct an annual evaluation and assessment of the new agent's proficiency. For

all other agents, the approved insurance provider is not

required to conduct an annual review but must ensure

the sales agent possesses the skills necessary to properly

sell and service crop insurance business. For loss

adjusters, the approved insurance provider must conduct

a minimum of two proficiency evaluations of all loss

adjusters on an annual basis.

The Act requires FCIC to develop procedures to require

an annual review by the approved insurance provider of

the performance of each agent and loss adjuster used.

The approved insurance provider’s annual review of each

agent’s and loss adjuster’s performance will be implemented when the SRA is renegotiated. RMA may renegotiate the SRA once during 2001-05.

Sanctions for Program Noncompliance and

Fraud

The Act requirement:“Sec 515(h)(1)...A producer, agent,

loss adjuster, approved insurance provider, or other person that willfully and intentionally provides any false or

inaccurate information to the Corporation or to an

approved insurance provider with respect to a policy or

plan of insurance under this title may, after notice and an

opportunity for a hearing on the record, be subject to 1

or more of the sanctions...” 

Administrative Sanctions

Congress expanded the RMA administrative sanctions

authority under the Act and expressed a clear concern

about its application as a vehicle for improving FCIC program integrity.The application of administrative sanctions

under the Act and predecessor statutory authorities provided for a sanctions process encompassing two closely

related but distinct functions.

Congress expanded the RMA administrative sanctions

authority under the Act to make the sanctions more

meaningful. Previously, RMA’s authority was limited to

disqualification of producers from participating in the

crop insurance program. Many producers would not find

such sanctions a deterrent because they were still eligible

for other farm program benefits. Now RMA has the

authority to not only disqualify producers, but agents,

loss adjusters, and approved insurance providers as well.

Further, producers may be disqualified from most other

farm programs. Monetary sanctions have also been

enhanced.

With enhanced tools in place to protect program integrity, RMA has moved forward with improvements in the

administrative sanction process. RMA created a new

position of Sanctions Officer within the agency.A

Sanctions Officer was selected in August 2001 to: work

with the USDA Office of General Counsel (OGC) in the

development of evidence and documentation standards

for activities that can be sanctioned; work with the RMA

Administrator to determine policy applications to those

legal standards; and facilitate processes in the field offices

to produce sanction referrals that meet legal and policy

standards.The Sanction Officer’s work with the RMA

Administrator will focus on the drafting of regulations for

the implementation of the new sanction authorities,

especially as they relate to agents, loss adjusters, and

approved insurance providers.The Sanctions Officer in

conjunction with the Directors of the RCOs and Special

Investigations Branch (SIB) have already scheduled two

sanctions training sessions for a number of the field

investigators.

RMA Program Compliance and Integrity Annual Report to Congress 21
22 RMA Program Compliance and Integrity Annual Report to Congress

The second function is the processing of administrative

sanctions referrals.That process and procedure are

directed at meeting legal due process protection requirements of persons named in sanctions referrals by RMA’s

Appeals and Litigation Staff (A&L).A&L processes sections 508(n) and 515(h) of the Act, depending on the

year in which the alleged wrongful conduct took place,

and agents, loss adjusters, and approved insurance

providers under section 515(h) of the Act.

Disqualification or other administrative actions may also

be included in criminal and/or civil verdicts or plea agreements entered in U.S. District Courts.A&L also processes

referrals for disqualification and debarment actions under

7 C.F.R. § 3017 (table 8).

Kickback Scheme Sanctions Imposed

A scheme was uncovered involving producers buying

crop insurance through an insurance broker in which the

broker received kickbacks from fraudulent claims. RMA

filed disqualification complaints against six of those

involved.The producers either neglected to plant crops

or planted a few seeds to give the appearance of a crop

and proceeded to claim that they had a loss.

Disqualification actions have been imposed against three

of the producers for a period of 5 years for each individual. Disqualification actions filed against one other producer and a loss adjuster involved in the scheme are

pending. One complaint was dismissed due to the producer’s death.

Witness Requests for Staff Increase Drastically

A&L responds to requests for RMA employees to appear

as witnesses in cases where RMA is not a party to the

lawsuit.A&L also responds to subpoenas for the production of documents in accordance with 7 C.F.R. part 1

subpart K. Disputes between the producers and

approved insurance providers involve the denial of claims

and the amount of indemnity payable.The appearance of

an RMA employee at a judicial proceeding provides significant support to the approved insurance providers in

their efforts to uphold the integrity of the FCIC program. Sixteen witness requests were received from 1992-

99, and 12 witness requests in FY 2000.That number has

almost quintupled to 57 during the period of October

2000 through December 2001.

Special Investigation Branch (SIB)

RMA’s SIB was established in 2001 and operates within

Compliance.The SIB currently has eight staff members

headquartered in Washington, D.C., with offices in North

Carolina, Georgia,Virginia, Minnesota,Texas, and

California. SIB’s goal is to investigate alleged fraud, waste,

and abuse in programs authorized by the Act and to help

RMA identify reasons the abuse occurred.The programs

overseen by the SIB include the Multiple Peril Crop

Insurance (MPCI), Revenue Insurance, Crop Revenue

Coverage,Adjusted Gross Revenue, Group Risk Income

Protection, and innovative risk management programs

such as the Dairy Options Pilot Program.The SIB works

proactively with the RMA’s managers and other Federal,

State, and public agencies such as the FSA and OIG investigators and auditors, State insurance department and law

enforcement agencies, and approved insurance provider

special investigative units and claims personnel.

The SIB is structured to conduct investigations involving

high-profile, highly complex cases involving multiple subjects spread over wide geographic areas.These cases

involve allegations of major program abuse and/or program vulnerabilities requiring a rapid, highly skilled investigative response to obtain and preserve crucial evidence.

In many cases, SIB investigators coordinate and lead

rapid-response investigative teams composed of both

Table 8—Administrative Sanctions, Oct. 2000 -

Dec. 2001

Disqualification Debarment 

Referred (open) 14 4

Completed 

(sanction imposed) 9 1

Declined (lack of 

legal sufficiency) 2 4

Appealed/withdrawn 2 3

Pending 14 5

Source: USDA/Risk Management Agency, 2001.
RMA Program Compliance and Integrity Annual Report to Congress 23

investigators permanently assigned to the unit and investigators from the RCOs.

RMA Compliance efforts can result in criminal, civil, or

administrative actions.The SIB, along with the RCO,

refers all cases of substantiated fraud to the OIG as

required by the Inspector General Act (Public Law 95-

452).The SIB provides direct assistance to OIG, at their

request, with criminal investigations, including technical

support with program regulations, field investigations,

courtroom testimony, and any other assistance requested. OIG is responsible for referring cases to the U.S.

Department of Justice, U.S.Attorney’s Office. In some

instances, RMA Compliance may make referrals to State

or local prosecutors for insurance fraud prosecutions.

RMA Compliance can make Affirmative Civil Enforcement

(ACE) referrals to the U.S.Attorney’s Office through

OIG or OGC.ACE is a civil action by the United States

to recover damages for fraud and other misconduct;

impose civil penalties for violations of the Nation’s

health, safety, and economic welfare laws; and use the

Fraud Injunction Statute to enjoin ongoing mail, wire, or

bank frauds and freeze ill-gotten gains derived from those

frauds.

The SIB and RCOs can initiate administrative actions

authorized by the Act.These include disqualification of

producers, insurance agents, loss adjusters, approved

insurance providers, and other persons who violate program rules.Administrative actions are administered by

RMA’s Sanctions Officer. Disqualification or other administrative actions may also be included in criminal and/or

civil verdicts or plea agreements entered in U.S. District

Courts.

Submission of Information to FCIC To

Support Compliance Efforts

The Act requirement:“Sec. 515 (g)(1)...The Secretary

shall establish procedures under which approved insurance providers shall submit to the Corporation the following information with respect to each policy or plan of

insurance offered under this title.

(A) The name and identification number of the

insured.

(B) The agricultural commodity to be insured

(C) The elected coverage level, including the price

election, of the insured.

(2) Time for submission.—The information required by

paragraph (1) with respect to a policy or plan of insurance shall be submitted so as to ensure receipt by the

Corporation not later than the Saturday of the week

containing the calendar day that is 30 days after the

applicable sales closing date for the crop to be insured.”

Late Sales Reduction

RMA issued Manager’s Bulletin MGR-00-017.1, dated June

30, 2000, to amend the Standard Reinsurance Agreement

(SRA) effective for RY 2001.This amendment included

the requirement to submit certain sales information not

later than the Saturday of the week containing the thirtieth calendar day after the applicable sales closing date.

After this deadline, an approved insurance provider’s failure to timely submit accurate information or company

revision to the elected level of coverage or price election

results in a reduction of the approved insurance

provider’s administrative and operating expense (A&O)

subsidy for any eligible crop insurance contract.As a

result, fewer than 1 percent of the policies were assessed

a reduction in A&O subsidy due to being processed or

changed after the applicable cut-off dates. Detailed

reports containing late reported policies are available for

compliance review and are also being provided to the

approved insurance providers on a monthly basis.

Funding

Section 515 of the Act established $23 million in funding

for fiscal years 2001-05, of which $7.3 million was obligated for 2001 (table 9).The Managers of the Committee

of Conference directed FCIC to make full use of the

capabilities of information management systems in order

to fulfill the requirements of Section 515.The majority of

the funding was used to accomplish this goal.
24 RMA Program Compliance and Integrity Annual Report to Congress

Table 9—Money Spent by RMA on ARPA Projects,

FY 2001

ARPA Projects Dollar Amount

Tarleton State University Cooperative 

Agreement for data warehousing and 

data mining project $4,998,000

Agreement w/FSA for administrative 

and travel costs (Stage I and Stage II 

training) $1,988,337

Business Television Services (BTS) 

Anti-Fraud training for FSA and 

insurance providers $161,500

RMA’s travel costs for Compliance 

Oversight Training (Stage I and II) $120,264

FSA/RMA video conference and 

CD-ROM (Stage I) $23,250

Interagency agreement between FCIC 

and Agricultural Marketing Service 

(R&D contract) $21,500

Total $7,312,851

Source: USDA/Risk Management Agency, 2001.
RMA Program Compliance and Integrity Annual Report to Congress 25

RMA has had a series of successes in the past year

working with USDA’s Offices of the Inspector

General (OIG) and the General Counsel (OGC), FSA

State and County Offices, U.S.Attorneys Offices, State

Attorneys General, approved insurance providers, producers, and other interested parties. RMA recovered $35

million in funds that should not have been paid and identified $94 million in cost savings.

Highlights

Highlights of the results of some criminal and civil cases

and RMA administrative efforts follow.

Cases: Criminal and Civil 

Insurance Provider Pays $10 Million to Settle

California Raisin Fraud Suit 

The Federal Government alleged that in 1994 an

approved insurance provider represented that raisins in

the Fresno, CA, area were unable to be reconditioned

because of rain damage, causing FCIC to reinsure the

claims paid.Those raisins were then reconditioned and

sold at full market value.The case also alleged the duplication, falsification, and fabrication of documents by the

approved insurance provider.The approved insurance

provider denied that it submitted false or fraudulent

claims to FCIC.This case was a result of an investigation

by RMA Compliance, OIG, and OGC into raisin loss

adjustment practices.The U.S.Attorney’s Office entered

settlement discussions and RMA notified the approved

insurance provider that it would not be renewing its

SRA,The approved insurance provider paid $10 million

to settle the case and retained its SRA for reinsured year

(RY) 2002.This $10 million settlement was the largest

recovery under the False Claims Act, 31U.S.C. Sec. 3729,

by FCIC in its history.

Three Texas Producers and an Adjuster Convicted for

Filing False Claims; Pay $685,720 in Restitution

A discrepancy on a of Crop Disaster Program (CDP)

payment led the local FSA County Office in Texas to

refer a case to RMA.Three producers were convicted for

filing insurance claims for crops that were never planted.

Other producers are still being investigated. Including the

additional producers, the indemnities for these claims

total $1.1 million.The adjuster in the case was convicted,

sentenced to 24 months in prison, and ordered to pay

restitution of $685,720 with an additional 3 years of

supervised probation.

Oklahoma Agent and Producer Convicted; Pay

$630,680 in Restitution 

A crop insurance agent in Oklahoma was convicted for

insuring a personal farming operation in other peoples'

names in order to avoid paying higher premiums. Hotline

complaints and referrals from FSA and other sources led

to the investigation.The agent was debarred for 6 years,

sentenced to 33 months in prison, and ordered to pay

$591,000 in restitution.The agent's husband was indicted

on one count of conspiracy, 14 counts of false statements, nine counts of false claims, and three counts of

interstate property obtained by fraud. His trial is currently pending.A rice producer was also convicted in the

case for false claims involving hidden rice production.The

producer pled guilty and was sentenced to 9 months of

home confinement and 6 months probation, and was

ordered to pay $39,680 in restitution.

Ineligible Florida Producer Collected $500,000 in

Claims 

A referral from an FSA County Office in Florida resulted

in an RMA Compliance investigation of a producer who

is ineligible for insurance because of nonpayment of premium.The grower enlisted a driver from his produce

trucking company to apply for crop insurance on his

tomatoes, corn, and beans.The producer then allegedly

received $500,000 for losses on his crops through the

truck driver.The case is being presented to a District

Attorney’s office in Florida.

North Dakota Elevator Operator Sentenced for

Inflating Damages on Durum Wheat 

Multiple complaints about North Dakota durum wheat

producers led RMA investigators to uncover a scheme in

which an elevator manager in North Dakota in conjunction with area policyholders was inflating crop damages

so they could buy the wheat at heavily discounted prices

with policyholders benefiting from higher indemnities

Waste, Fraud, and Abuse: 2001

Accomplishments
26 RMA Program Compliance and Integrity Annual Report to Congress

under the quality adjustment provisions in the policy. Had

the scheme not been uncovered, the cost to RMA in

excess indemnities at the elevator would have been

$775,000.The manager of the elevator was sentenced in

U.S. District Court for conspiracy to defraud the United

States. He lost his bond as an elevator operator, was

fined, and given 2 years probation in exchange for agreeing to cooperate in the investigations of other elevators.

Criminal action is pending against another elevator manager involving approximately $1.3 million in excess

indemnities paid.

Deterrence

Two Anonymous Complaints Lead to $300,000 in

Claims Denied in California Cotton 

An anonymous complaint alleged that sales agents may

have sold cotton policies for the sole purpose of paying

ineligible prevented planting losses (after it was

announced that producers would only receive 45 percent

of their contracted water allotment).This prompted the

RCO to issue a letter to all approved insurance

providers to consider conducting a field review of policyholders to determine that they adhered to the requirements of the FCIC program policy. For new policies, the

cotton crop insurance policy precludes insuring causes of

loss that occur before the insurance period begins.

A second anonymous complaint led to an investigation of

a group of individuals who allegedly applied for insurance

coverage on Extra Long Staple cotton in order to receive

prevented planting payments. It was alleged that the land

was leased to these individuals after it was generally

known that significant cutbacks to water allotments

would occur.

RMA Compliance determined that the individuals might

not qualify for a prevented planting payment if the failure

of the irrigation water supply occurred prior to the sales

closing date.This information was furnished to the

approved insurance provider and a claim was not paid. If

the approved insurance provider had not denied these

prevented planting claims, the overpayments to these

individuals would have totaled about $300,000.

Early Detection in North Carolina Avoids Potential

Abuse in Sweet Potato Program

An FSA County Office in North Carolina referred a

complaint to the RCO that several producers who had

purchased crop insurance for their sweet potato crops

had scheduled delivery of sweet potato slips (seedlings)

after June 30.The sweet potato crop insurance policy

requires planting by June 30 to minimize risk. FSA

County Office personnel documented several hundred

acres of prepared, unplanted acreage in addition to

4,000-5,000 acres already under cultivation. Subsequent

inspections by the approved insurance providers ended

late planting in mid-row, thereby reducing potential liability for late-planted sweet potatoes by approximately

$346,000.

Joint RMA/FSA Crop Monitoring Program in

Tennessee and Kentucky Serves as Model for the Act

Procedure

RMA and FSA County Offices worked together on a

crop monitoring program for CY 2000 (first in Tennessee

and later in Kentucky) that served as the model for the

Act monitoring program currently in place in the 4-RM

Handbook. In 2002, the program is concentrating on

Burley Tobacco.The program has resulted in a cost avoidance of $149,377.

Hidden and Destroyed Production in California

Prunes May Have Been Prevented 

An anonymous complaint alleged that some local prune

processors would limit the amount of prunes they would

accept because of a market oversupply from previous

years’ production.The low market demand for prunes

reflected the oversupply situation and could have led to

poor farming practices or destroyed production without

an appraisal in CY 2001. RMA Compliance confirmed

that volume controls were imposed on growers and

worked with the FSA County Offices and the approved

insurance providers to alert all parties involved in the

insurance process.Timely information was disseminated

through inserts into FSA County Office newsletters

about possible effects on insurance and policy requirements.As a result of the oversupply situation, the RCO

issued a recommendation that RMA’s Prune Handbook
be changed to address concerns about inconsistent

appraisal procedures being applied by approved insurance

providers.

Reviews 

RMA Compliance is delegated the authority and responsibility to develop and administer a sound system of

oversight to assure that RMA mandates, policies, and procedures are effective and that FCIC programs are operated in compliance with laws, rules, regulations, policies,

procedures and agreements to achieve intended purposes. RMA Compliance accomplishes this mission by conducting reviews.

Overview

During October 2000 - December 2001, RMA reviewed

12,024 policies representing $1.5 billion of crop insurance liability. RMA Compliance initiates reviews through

program reviews and data mining efforts, and receives

referrals from FSA, OIG (hotline, audits, and investigations), approved insurance providers and other sources

(table 10).

The following sections report on actions being taken to

eliminate specific occurrences of waste, fraud, and abuse

by source category.The number of referrals to and from

FSA has ballooned 700 percent to 4,670 new referrals

either to or from FSA while working to close the

remaining 20 percent of CDP referrals from CY 1999

(figs. 8 and 9).

From October 2000 to December 2001, RMA (through

efforts with FSA, OIG, and approved insurance providers)

identified nearly $94 million in cost avoidance on FCIC

funds (fig. 10).These were dollars that were not paid on

potential claims or claims that were deterred from being

made.

RMA also recovered over $35 million of FCIC funds that

should not have been paid (fig. 11).This recovery came

from administrative actions against approved insurance

providers, which includes issuing findings, Board of

Contract Appeals (BCA) decisions and settlements or

criminal and civil action by the Department of Justice.

The following paragraphs group the reviews by the

source category of the review: spot-check referrals, FSA,

4-RM,AD-2007 referrals, CY 1999 and 2000 CDPs; OIG

hotline complaints, audits, and investigations; approved

insurance provider referrals; program vulnerabilities and

other reviews. Some examples of spot-check referrals

received follow.

Spot-Check Referrals

RMA developed and provided to FSA County Offices a

spot-check list of producers that have exhibited high loss

ratios, high frequency of losses, and severe losses.The

spot-check list was based on data mining technology,

analysis, and previous loss experience. RMA has also been

given the authority, through the Act, to request assistance

from FSA County Offices in conducting reviews relative

to allegations of program fraud, waste, or abuse. FSA

County Office personnel perform and document field

inspections in order to determine crop and surrounding

farming conditions.The results of the spot-checks by FSA

County Offices are referred back to RMA. RMA then

provides these results to the approved insurance

providers. RMA issues a spot-check list to FSA every

April, including further data mining initiatives and analysis

of spot-checks from the previous year.

In 2001, there were 1,772 producers identified for spotchecks.This list was sent to FSA State Offices that forwarded them to the appropriate FSA County Offices.

RMA notified producers by letter, indicating that they

were a part of the spot-check list and explaining what

this entailed.

An excerpt from a producer letter follows:

“One of your policy crops has been chosen for a spot

check. RMA has requested FSA to perform a minimum of

two documented field inspections: one within 30 calendar days of the final planting date and one before harvest

becomes general in the area for those producers on the

RMA Program Compliance and Integrity Annual Report to Congress 27
28 RMA Program Compliance and Integrity Annual Report to Congress

Total Case Source

FSA FSA

Spot FSA 4-RM CDP CDP OIG

Check AD-2007 2000 1999 Hotline

Number 

of Policies 1,772 602 2,296 513 1,028

Total

Premium $42,590,772 $8,434,187 $12,898,432 $5,497,478 $25,250,286

Total 

Indemnity $54,211,519 $18,754,060 $37,221,078 $15,719,166 $44,923,253

Total

Liability $304,281,354 $58,257,345 $138,790,248 $48,996,037 $135,296,170

Number of 

Initial Findings 1 2 26 50 10

Premium

Discrepancy $626 $0 $5,403 $113,513 $104,997

Indemnity

Discrepancy $12,134 $49,467 $470,196 $1,381,828 $741,307

Number of 

Final Findings 1 2 78 36 9

Premium

Discrepancy $1,428 $0 $45,241 $91,372 $84,485

Indemnity

Discrepancy $0 $39,501 $551,346 $815,280 $600,302

BCA

Decisions $0 $0 $0 $0 $0

BCA

Settlements $0 $0 $0 $0 $0

Number of

Operation Reviews 1,772 601 2,304 502 1,070

Cost

Avoidance $72,236,739 $2,375,750 $1,670,498 $700,477 $4,824,304

Questioned

Costs $116,825 $24,264 $0 $0 $56,923

Number of 

Program Findings 0 0 0 1 0

Number of Program 

Recommendation 0 0 0 2 0

Questioned

Costs $0 $0 $0 $0 $699,578

Number of

Settlements 0 0 0 0 5

Criminal Case

Convictions 0 0 0 0 0

Criminal Case

Restitution $0 $0 $0 $0 $0

Civil Case

Settlement $0 $0 $0 $0 $0

Table 10—Compliance Case Sources, October 2000-December 2001
RMA Program Compliance and Integrity Annual Report to Congress 29

4-RM AD-2007 = FSA/RMA 4-RM Handbook Referral Form. CDP

= Crop Disaster Program.

OIG = Office of the Inspector General.

Source: USDA/Risk Management Agency, 2001.

Case Source

Insurance 

OIG OIG Provider Program

Audit Investigation Initiated Reviews Other Total

76 950 256 2,896 2,164 12,024

$12,269,070 $21,001,117 $2,553,179 $36,260,072 $27,089,617 $193,844,210

$58,536,668 $51,753,609 $6,802,281 $110,434,847 $74,808,068 $473,164,549

$116,311,044 $122,208,266 $35,828,378 $282,212,636 $239,142,567 $1,481,324,045

10 5 3 15 53 161

$23,164 $0 $2,494 $77,355 $353,559 $655,589

$619,303 $4,130,573 $31,080 $1,438,649 $1,531,370 $9,474,627

3 0 3 26 31 179

$2,637 $0 $641 $18,287 $62,991 $297,734

$49,722 $0 $27,363 $304,356 $1,871,568 $3,869,989

$0 $0 $0 $0 $2,311,341 $2,311,341

$0 $81,540 $0 $893,414 $259,714 $1,234,668

76 441 253 0 2,015 8,505

$0 $1,408,375 $345,596 $5,169,250 $5,256,985 $93,987,974

$0 $6,817,141 $1,263,450 $0 $6,045,600 $14,324,203

0 0 0 12 0 13

0 0 0 12 0 14

$0 $0 $0 $7,416,006 $0 $8,115,584

1 16 0 2 0 18

0 3 00 0 3

$0 $2,586,023 $0 $0 $0 $2,586,023

$0 $4,672,731 $0 $10,087,500 $0 $14,760,231
30 RMA Program Compliance and Integrity Annual Report to Congress

list.These inspections will be documented.This documented information will be reported to the appropriate

Regional Compliance Office (RCO) and made available

to the FSA County Office for your insurance company’s

use during loss adjustment activities.

“A policy crop that has been chosen does not mean that

it is a crop insurance compliance issue. It does mean that

it represents one that is not typical for your area.We do

realize that there are many areas in the Nation that have

suffered severe crop losses.We are asking FSA County

personnel to assist us in determining the causes for atypical policy history.”

Figure 8. Policies Under Review by Category, 

Oct.2000 - Dec. 2001

4-RM AD-2001 FSA/RMA 4-RM Handbook Referral Form

CDP: Crop Disaster Program 

OIG: Office of the Inspector General

Source: USDA/Risk Management Agency, 2001

Total Number of Policies = 12,024

Spot Check

1772

FSA 2007

602

FSA CDP 

2000

2296

FSA CDP 

1999

OIG 513

Hotline

1028 OIG 

Audit

76

OIG 

Investigation

950

Ins. Provider

Initiated

256

Program

Reviews

2896

Other

2164

Figure 9. Crop Insurance Liability Under Review 

by Category Oct.2000 - Dec. 2001

Total Number of Liabilities = $1.5 billion

Spot Check

$304,281,354

FSA 2007

$58,257,345

FSA CDP 

2000

$138,790,248

FSA CDP 

1999

$48,996,037 OIG 

Hotline

OIG $135,296,170

Audit

$116,311,044

OIG 

Investigation

$122,208,266

Ins. Provider

Initiated

$35,828,378

Program

Reviews

$282,212,636

Other

$239,142,567

4-RM AD-2001 FSA/RMA 4-RM Handbook Referral Form

CDP: Crop Disaster Program 

OIG: Office of the Inspector General

Source: USDA/Risk Management Agency, 2001
RMA Program Compliance and Integrity Annual Report to Congress 31

As of December 2001, RMA has received back from FSA

the results of 953 spot-checks (fig. 12). RMA Compliance

will track claims filed on indicated marginal crops and

also track loss history compared with 2001. Cost savings

are reported on pages 11-13.

Some examples of resolved and open spot-check referrals follow.

Table Grape Fields Photographed in California 

FSA personnel conducted a growing season inspection

(GSI) of a ranch on the RMA spot-check list. FSA County

Office personnel took pictures to document their observation that the “grape vines have a light crop and an

older, weaker vineyard” than the surrounding grape

fields. They also noted that “grapes need better weed

control for healthy and quality grapes.” RMA requested

the approved insurance provider perform a field review

Figure 10. Cost Avoidance by Category 

Oct.2000 - Dec. 2001

Total Cost Avoidance = $94 million

Spot Check

$72,236,739 FSA 2007

$2,375,750

FSA CDP 

2000

$1,670,498

FSA CDP 

1999

$700,477 

OIG 

Hotline

$4,824,304

OIG 

Investigation

$1,408,375 Ins. Provider

Initiated

$345,596

Program

Reviews

$5,169,250

Other

$5,256,985

4-RM AD-2001 FSA/RMA 4-RM Handbook Referral Form

CDP: Crop Disaster Program 

OIG: Office of the Inspector General

Source: USDA/Risk Management Agency, 2001

Figure 11. Findings and Recoveries by Category 

Oct.2000 - Dec. 2001

BCA Board of Contract Appeals

Source: USDA/Risk Management Agency, 2001

Total = $35 million

Findings

$14,297,939

BCA Decisions

$2,311,341

BCA Settlements

$1,234,668

Criminal Case

Restitution

$2,586,023

Civil Case

Settlement

$14, 760,231
32 RMA Program Compliance and Integrity Annual Report to Congress

for CY 2001.The approved insurance provider was to

determine if good farming practices were followed and

to provide RMA a report detailing the results of its

review and action taken.The review is pending. RMA also

requested that the approved insurance provider forward

copies of the policy and claim files if a claim was paid.

FSA, RMA, and Insurance Provider Work Together on

Poor Farming Practices Case in Kansas

A policy selected for a spot check was referred to RMA

for investigation by FSA’s Montgomery County Office in

Kansas because it appeared the policyholder never used

fertilizer and/or herbicides on his grain sorghum and

soybeans.The policyholder was also a loss adjuster for a

crop-approved insurance provider.The referral questioned the producer’s farming practices, as well as

whether all of the acreage the producer reported as

planted was actually planted.The liability for the policy

was $51,100.

The referral and photos were provided to the approved

insurance provider who conducted a GSI. RMA worked

with the approved insurance provider on the GSI and

verified FSA's allegations of poor farming practices. RMA

is working with the approved insurance provider to

review all the policyholder's documentation to support

the policyholder's claim that he is following good farming

practices. In addition, there appeared to be questions on

prior crop year losses (prevented planting paid on

acreage that was not planted and harvested within 1 of

the last 3 years).A pre-harvest inspection will be performed.

Poor Farming Practices in Georgia 

FSA was denied access to a producer’s property to make

requested field inspections.Visual inspections by FSA

County Office personnel from the road and neighboring

farms revealed fields that were infested with weeds and

indications that the land had not been tilled. RMA has

referred the case to the approved insurance provider

and requested they conduct growing season inspections.

No claim has been filed at this time.

More Weeds Controlled and Acres Recertified in

Alabama

An initial spot check of acreage showed multiple concerns with weeds and certification of acres.After the

inspection, the producer began aggressively spraying

fields of cotton and peanuts and recertified acreage.The

final inspection indicated good stands and conditions

comparable to other farms in the county.

FSA 4-RM AD-2007 Referrals to RMA

In accordance with section 515 of the Act, FSA County

Office personnel are actively watching for fraud, waste,

and abuse in the crop insurance program outside of the

spot check process.Whenever problems are observed,

the personnel document their observations and refer

this information to RMA Compliance. Specific procedures, the FSA/RMA 4-RM Handbook, were developed

between RMA and FSA to facilitate this referral process

and such referrals are transmitted through the FSA State

Figure 12. Status of Spot Checks FY 2001 

OIG: Office of the Inspector General

RCO: RMA Regional Compliance OfficeSource: 

SIB: RMA Special Investigative Brance

USDA/Risk Management Agency, 2001

Total Number of Checks = 953

Returned to FSA

47

Pending RCO 

Action

174

Pending 

Company

Action

170

Resolved

47
RMA Program Compliance and Integrity Annual Report to Congress 33

Office on the AD-2007 referral form. In 2001, more than

2,500 FSA State and County personnel were trained by

RMA on this referral process.

RMA received 602 referrals from FSA County Offices

from 28 States as of December 2001.Ten States accounted for 81 percent of the referrals (fig. 13). RMA has

resolved 118 (32 of which were determined to be valid

complaints), and the remainder of the referrals are being

reviewed either by RMA,

OIG, or the approved insurance providers (fig. 14).These

efforts to date have shown that $2,375,741 of cost avoidance has occurred because the approved insurance

providers have not paid these potential indemnities. Since

the majority of the open referrals were received in

August and September 2001, additional investigation time

will be required to resolve them.

Some examples of resolved and open referrals RMA has

received from FSA County Offices follow.

Cotton Crop Abandoned in Mississippi

A referral from the Washington FSA County Office

regarding poor farming practices and crop abandonment

resulted in a GSI of a cotton field by the approved insurance provider.The approved insurance provider determined that the cotton field had not been properly managed.The crop insurance claim was denied resulting in

$449,847 in cost avoidance.

Figure 13. 4-RM AD-2007 Referrals from FSA to RMA,

Top Ten States, FY 2001

4-RM AD-2001 FSA/RMA 4-RM Handbook Referral Form

Source: USDA/Risk Management Agency, 2001

Total = 486 (81%) of 602

Texas

234

Mississippi

52

Oklahoma

36

Georgia

35

Nebraska

23

Alabama

22

North Carolina

22

Wisconsin

19

Louisiana

16

South Dakota

27

Figure 14. Status of 4-RM AD-2007 Referrals from 

FSA to RMA, FY 2001

Total Referrals = 602

Returned

to FSA 

2

Pending RCO 

Action

78

Pending 

Company 

Action

392

Resolved

118

Joint OIG/SIB/RCO

Case

12

OIG: Office of the Inspector General

RCO: RMA Regional Complience Office

SIB: RMA Special Investigative Branch

Source: USDA/Risk Management Agency, 2001
34 RMA Program Compliance and Integrity Annual Report to Congress

Farm Name Not Reported To Hide Production in

Ohio

RMA received a referral from the Ohio FSA State Office

concerning an allegation that an Ohio producer was selling corn and/or soybean production using an unreported

farm name to hide crop production.This results in lower

reported production on his insured acres and creates or

increases the indemnity payment. RMA is currently investigating this allegation involving about $250,000 of liability

for CY 2001.

Peanuts Planted Late in Oklahoma

Two referrals received from the Oklahoma FSA State

Office alleging poor farming practices and late planting

were forwarded to the approved insurance provider.A

GSI of the fields revealed that the peanuts were planted

after the final planting date and were therefore uninsurable.The company denied coverage on 1,135 acres of

peanuts planted in four counties resulting in a reduced

liability of $234,615.

“Stripper” Cotton Abandoned in California

FSA reported that a producer allegedly abandoned 430

acres of “stripper” cotton out of the 4,500 acres seeded.

The producer claimed that high winds damaged the

acreage. FSA personnel reviewed the weather data available through the University of California, Davis.They

found no indication of winds at the time of loss. RMA is

currently conducting a review to determine if the allegations can be substantiated.The indemnity being reviewed

is approximately $200,000.

Poor Farming Practices in Mississippi Cotton

RMA received a referral from the FSA Sunflower County

Office in Mississippi that alleged a producer was using

poor farming practices by not properly preparing the

seed bed and planting his cotton after the last late planting date (established under the terms of his policy).The

referral was sent to the approved insurance provider and

a GSI was performed.The provider determined that the

allegations were valid and applied uninsured causes to

the full policy liability of $123,000.

Prevented Planting Abuse Alleged in North Dakota

RMA received a referral from the FSA Steele County

Office in North Dakota alleging that an absentee operator claimed prevented planting on two large cropland

tracts in two different counties to avoid moving his

equipment over 150 miles to farm. RMA Compliance

investigators observed the unplanted tracts and obtained

information from the producer, neighbors, and FSA. It

was determined that on one tract prevented planting

was general to the area. However, that was not true in

the case of the second tract. Conditions were such that

the producer could have planted the acreage.This information was provided to the approved insurance provider

who determined that the second tract could have been

seeded to the intended soybean crop.This proactive

intervention prevented the payment of a claim in excess

of $90,000, according to the approved insurance

provider.

Poor Farming Practices Under a New Entity Name in

Georgia Cotton 

RMA received a referral from the FSA Toombs County

Office in Georgia alleging that a producer was using poor

farming practices on his cotton crop. RMA conducted a

field review and determined that the producer was not

following good farming practices.Also, RMA determined

that the producer was farming as a “new producer” with

crop insurance even though the land had been farmed

and insured in the past by the producer's spouse.The

referral was sent to the approved insurance provider for

review.The policy under review has a liability of $74,000.

Insufficient Panels in Cattle Grazed Wheat in Texas

RMA received a referral from the FSA Baylor County

Office in Texas alleging that a producer did not put

enough cattle panels in his wheat fields to protect the

acreage from grazing and provide a representative strip

from the acreage as required by the policy to permit loss

adjustment of the acreage.Additionally, the cattle grazing

in the wheat fields destroyed some of the panels.The

referral was sent to the approved insurance provider and

a claim review was performed.The approved insurance

provider applied uninsured causes of loss on 416 acres.

This resulted in a reduction of $31,100 in the indemnity.
RMA Program Compliance and Integrity Annual Report to Congress 35

Poor Farming Practices in Texas Cotton

RMA received a referral from the FSA Mitchell County

Office in Texas alleging that a producer was using poor

farming practices by not controlling weeds in his cotton

crop.The referral was sent to the approved insurance

provider and a GSI was performed.They determined that

the allegation was valid.The approved insurance provider

applied uninsured causes of loss on 373 acres of the producer’s cotton crop and reduced the indemnity payment

by $21,000.

Cotton Planted After the Final Plant Date in

Mississippi

RMA received a referral from the FSA Holmes County

Office in Mississippi alleging that a producer planted his

cotton crop after the final planting date.The referral was

sent to the approved insurance provider and a GSI was

performed.The approved insurance provider determined

that the FSA referral was valid and zeroed out the cotton acreage for the policy resulting in a $10,409 reduction in liability.

CDP Referrals from FSA to RMA

The CDP referrals are disaster payment applications

processed by FSA County Offices that indicate either a

data discrepancy (for example, acreage or APH) from

RMA data or potential fraud by a producer involving the

FCIC program.The CDP referrals are forwarded to RMA

for investigation.The number of CDP referrals has more

than tripled from 562 referrals with crop insurance liability of $55.9 million in CY 1999 to 2,296 referrals with

crop insurance liability of $139 million in CY 2000 (fig.

15).

As RMA and FSA work to reconcile producer CDPs, lessons are learned and procedures are fine-tuned.As RMA

and FSA get better at referring and resolving CDPs, the

number in a given State drops which may even represent

a deterrence element (figs. 16 and 17). RMA has received

90 percent (2,057) of the CY 2000 CDP referrals from

10 States; 88 percent (493) of the CY 1999 CDP referrals were received from 10 States.

0 0

20

40

60

80

100

120

140

160 2,500

2,000

1,500

1,000

500

$Mil. No. of Policies

Source: USDA/Risk Management Agency, 2001

FS CDP 1999 FS CDP 2000

Total Liability

Number of Policies

Figure 15. Total Policies and Liability for Crop Disaster

Payment Referrals

Figure 16. FSA Crop Disaster Program Referrals to 

RMA, Top Ten States, CY 2000

CY: Crop Year

Source: USDA/Risk Management Agency, 2001

Total = 2057 (90%) of 2296

Minnesota

39

Kansas

460

Iowa

34

Wisconsin

309

Nebraska

506

Montana

157

Colorado

141

Texas

104

North Dakota

66

South Dakota

241
36 RMA Program Compliance and Integrity Annual Report to

As of December 2001, RMA has resolved 951 (42 percent) of the CY 2000 referrals (fig. 18). RMA has

resolved 449 (80 percent) of CY 1999 referrals (fig. 19).

For CY 1999, the 449 referrals that were resolved

resulted in total dollar savings to the FCIC program of

$700,477 (fig. 20).The 952 referrals that were resolved

for CY 2000 resulted in a total dollar savings to the

FCIC program of $1,670,498.

The following provides examples of some resolved and

open CDP referrals RMA has received from FSA County

Offices.

Figure 17. FSA Crop Disaster Program Referrals to 

RMA, Top Ten States, CY 1999

CY: Crop Year

Source: USDA/Risk Management Agency, 2001

Total = 493 (88%) of 562

Wisconsin

29

Texas

198

Ohio

22

North 

Carolina

51 North Dakota

19

Iowa

36

Georgia

33

Indiana

31

Minnesota

30

California

44

Figure 18. Status of FSA Crop Disaster Program 

Referrals to RMA, CY 2000 

Total Referrals = 2,296

Returned

to FSA 

8

Pending RCO 

Action

664

Pending 

Company 

Action

670

Resolved

951

Joint OIG/SIB/RCO

Case

3

OIG: Office of the Inspector General

RCO: RMA Regional Complience Office

SIB: RMA Special Investigative Branch

Source: USDA/Risk Management Agency, 2001

Figure 19. Status of FSA Crop Disaster Program 

Referrals to RMA, CY 1999

Total Referrals = 562

Pending RCO 

Action

22

Pending 

Company 

Action

33

Resolved

449

Joint OIG/SIB/RCO

Case

57

OIG: Office of the Inspector General

RCO: RMA Regional Complience Office

SIB: RMA Special Investigative Branch

Source: USDA/Risk Management Agency, 2001
CY 2000 CDP Referrals from FSA to RMA

Questionable Yields on Non-Loss Units Compared to

Loss Units in Indiana

RMA received a CDP referral from the Indiana FSA State

Office identifying excessively high yields on non-loss units

compared to excessively low yields for loss units on

popcorn and soybeans.This insured producer owns three

different corporate entities and operates in four Indiana

counties.These policies have a liability of $796,700 and

indemnities of $186,200. RMA also received a 1999 CDP

on this farming operation.

Questionable Reporting for Insurance and FSA

Purposes in Ohio

RMA received a CY 2000 CDP referral on an insured

producer who operates in six different counties.The

referral alleges this producer is reporting, for insurance

purposes, three farms he is not associated with and does

not have an interest in the crops.Also, FSA identified a

farm that was reported neither to the approved insurance provider nor to FSA.The referral alleges false statements by this producer in order to obtain crop insurance indemnity payments and FSA CDP and Loan

Deficiency Payments.The liability associated with this

case is $260,000.

Questionable Yields in North Carolina

RMA received a referral from the FSA Cumberland

County Committee questioning the yields given to a

producer for his CY 2000 soybean crop. RMA database

records indicate that a yield was established on a referenced unit. Other farms were then added using the referenced yield.The yields on the reference unit are also in

question because they are two and three times the

county T-yield.The case has been referred to the

approved insurance provider.This policy has a liability of

$57,000.

Poor Farming Practices Investigated in Iowa

RMA received a CDP referral from the FSA Franklin

County Office alleging that a producer did not use good

farming practices by not fertilizing his corn crop. RMA

conducted a field review and determined that the producer did not fertilize his corn. Based on the results of

an Iowa State University study showing yield reductions

when no fertilizer is used, RMA assessed a 34-percent

reduction in yield as production to count for FCIC program purposes due to the uninsured cause of loss.This

resulted in an indemnity overpayment in CY 2000 of

$24,893.

FSA/RMA Shared Information Leads to Poor Farming

Practices Investigation in Four States 

As a result of shared information (during the Act loss

adjustment training in Washington and California) on

denied CDP payments, four FSA State Offices (California,

Washington, Oregon, and Arizona) provided names and

ID numbers of 46 producers whose 2000 CDP benefits

were reduced or denied for suspected poor farming or

management practices. RMA initiated a review to evaluate the appropriateness of indemnities paid to the 46

policyholders.The indemnities associated with the policyholders amount to $4.7 million.

Figure 20. Monetary Results for FSA Crop Disaster

Program Referrals

Million $

CDP: Crop Disaster Program

Source: USDA/Risk Management Agency, 2001

Cost 

Avoidance

Premium

In Error 

Indemnty

In Error 

0

.3

.6

.9

1.2

1.5

1.8

2000 CDP

1999 CDP

RMA Program Compliance and Integrity Annual Report to Congress 37
CY 1999 CDP Referrals from FSA to RMA

Questionable Causes of Loss, Payments, and Claims

Discovered in Iowa 

An investigation of 13 producers farming land within the

Red Rock Reservoir boundary for the 1999 and prior

crop years was initiated by RMA Compliance after a

review of the evidence provided from FSA.The CDP

referrals and other program abuse complaint referrals

were determined to have merit.The investigation discovered questionable causes of loss (excessive moisture/precipitation), prevented planting payments, and planted

acreage claims. RMA determined that program weakness

and vulnerability were the primary causes for questionable claims being paid.

Corrective measures were recommended by RMA

Compliance and subsequently adopted that included providing clarification and guidance via RMA Manager’s

Bulletin (MGR-00-008) to the approved insurance

providers so that loss adjusters would correctly determine if contained water (reservoir), an uninsurable cause

of loss, was a factor during 1999 claims adjustment.

Further, an actuarial change was put in place for the 2001

crop year on all counties within the Red Rock Reservoir

boundary, which, in effect, removes excessive moisture

and precipitation as insurable causes of loss.The actuarial

change extends coverage only by written agreement.As a

result, a conservative cost-avoidance savings, based on a

percentage of loss directly associated with the causes of

loss excluded by the actuarial change, eliminated

$599,587 per year in potential indemnities.

Forage Production Abuse in Western Pennsylvania 

RMA received a CDP referral from FSA Mercer,Venango,

Butler, and Lawrence County Offices in Pennsylvania of

possible abuse in a producer’s forage production.An

RMA investigation revealed that the approved insurance

provider insured the forage crop without a proper preacceptance inspection. In addition, the forage crop did

not meet FCIC requirements for insurability. Neither the

approved insurance provider’s loss adjuster nor quality

control reviews identified the problem.An initial finding

was issued to the approved insurance provider identifying

an indemnity overpayment of $516,090.

Corn Released After Appraised as Zero Yield,Then

Harvested in Georgia

RMA determined through a referral from a Georgia FSA

County Office that a producer was harvesting corn on

acreage that had been appraised and released as zero

yield. RMA issued findings to the approved insurance

provider who made the financial corrections of an

indemnity overpayment of $36,836.

Complaint on South Dakota Forage Actual

Production History (APH)

RMA received a CDP referral from the FSA South

Dakota State Office alleging that three South Dakota

producers had unrealistic APHs on their first year of

insuring their forage crops.The complaint also alleged

that their high APH resulted in high indemnity payments

on their forage CY 1999 production.

RMA determined the records established from estimated

cattle consumption of forage rations and reconstructed

records were not sufficient documentation to support

the APH database yields reported by the producers for

1995-98.This resulted in an indemnity correction in CY

1999 of $72,343. RMA also identified similar high yields

on many self-certified APH histories submitted by several

new insureds. In order to prevent the problem from

expanding into subsequent crop years, the RMA

Compliance spearheaded an initiative to require systematic APH evaluations by the approved insurance providers

for new insureds exceeding the county averages by 50

percent.

In addition, RMA became aware of gaps in the APH edit

process that enabled questionable APH to be recorded

without question.As a result, the APH edit process has

been reassessed and improved. RMA expects the

improved edits to generate substantial recurring savings

on a national basis.

38 RMA Program Compliance and Integrity Annual Report to Congress
RMA Program Compliance and Integrity Annual Report to Congress 39

Office of Inspector General (OIG) Hotline

Complaints 

After an initial screening to determine whether OIG

should open a criminal investigation, complaints to the

OIG hotline that allege administrative or civil program

issues are referred to RMA Compliance for review and

resolution.The results of RMA reviews are then reported

back to OIG.

During the reporting period, RMA received 178 OIG

Hotline referrals and closed 127 OIG Hotline referrals.

Including carryover cases from previous fiscal years, RMA

Compliance worked on a total of 295 Hotline referrals.

Ninety-nine closed referrals were unsubstantiated. Eleven

referrals were returned to OIG because no RMA violations were alleged or for criminal investigation.

Hotline cases resulted in 10 initial findings being issued

with findings of $104,997 in premium discrepancies and

$741,307 in indemnity discrepancies, and 9 final determinations being issued with findings of $84,485 in premium

discrepancies and $662,302 in indemnity discrepancies.

Additionally, Hotline cases resulted in $756,501 in questioned costs and cost avoidance of $4,824,304. Hotline

cases also resulted in findings that program or policy violations had occurred but the reinsured companies had

already taken corrective or remedial action with no loss

being incurred.

OIG Hotline referrals typically involve allegations of poor

farming practices, shifting/hidden production, collusion

between producers/agents/adjusters, and abuse of specific

policy provisions such as prevented planting.

Agent and Son Indicted for $3.5 Million Fraud in

North Dakota

A joint investigation into crop insurance fraud by the

OIG, SIB, and a RCO resulted in a crop insurance agent

and his son being indicted.The two are accused of conspiring with five other individuals to establish sham-farming operations that were ineligible for crop insurance

benefits. Production was shifted among the sham farming

operations in order to receive crop insurance indemnities. Crop insurance indemnity overpayments were

approximately $3.5 million during CY 1994-99.The case

was referred to the U.S.Attorneys office and the defendants are charged with making false statements to RMA,

FSA, and IRS and committing mail fraud, wire fraud, and

conspiring to commit money laundering.The indictment

also includes an asset forfeiture count.The trial is pending.

Insurance Provider Officials Settle False Claim

Processing for $324,000 in Minnesota 

A joint OIG, SIB, and RCO investigation resulted from a

hotline complaint alleging that a claims supervisor of an

approved insurance provider provided false and incomplete production information in order to secure a dry

bean claim payment for an insured. Other officials were

accused of approving the false claim for payment and

withholding information from the quality assurance claim

review.The officials were accused of failing to notify RMA

of the fraud when they became aware that the claim was

false.The false documents and misrepresentations caused

indemnity overpayments of $87,870. In a settlement

agreement, the approved insurance provider agreed to

pay damages and penalties of $323,600 and also agreed

to a Corporate Compliance Plan that RMA will use to

monitor and evaluate the provider's internal control system.

New Producer Yields Assigned Incorrectly on Cotton

in Georgia

CY 1999 and 2000 policies were reviewed after RMA

received an OIG Hotline complaint alleging cotton producers at a certain cotton gin were filing fraudulent crop

insurance claims. RMA concluded that the producer did

not qualify for "New Producer” status and improperly

reported production to count. RMA also found that the

approved insurance provider failed to identify these

errors during a mandatory crop claim review. RMA

requested that the approved insurance provider conduct

GSIs of 10 additional cases for similar occurrences.The

approved insurance provider agreed to correct the

indemnity overpayment of $102,000 for the CY 1999

policy and $184,000 for the CY 2000 policy.
Dry Bean Processor Indicted, Settles;Additional

Settlements Being Pursued with Ten Dry Bean

Insureds in Wisconsin

An OIG, SIB, and RCO joint investigation led to a civil

penalty being levied against a dry bean processing company in Wisconsin because the company president provided

false production and price information used to compute

indemnity payments.The processing company entered

into a settlement agreement for $139,320.The president

of the processing company agreed to cooperate with the

investigation and provide testimony at the criminal trial

of the insureds in the case above. Seven policyholders

have settled with State authorities that pursued recovery

of $109,450 for the dry bean indemnities involved in the

scheme.

Dry Bean Producer Fraud Leads to Guilty Plea in

Minnesota

A married couple was indicted and pled guilty to submitting fraudulent crop insurance claims by concealing the

actual amount of dry edible bean production and understating the price that they received.The husband also

submitted false information on his father’s dry bean claim

and misrepresented the price his father was paid.The

false reporting caused indemnity overpayments of

$100,330.They also admitted to related mail fraud

charges.

Both defendants signed plea agreements, one of which

carried an incarceration period of 10-21 months. Both

agreed to jointly pay restitution of $100,330. Civil action

is pending.

North Carolina Producer Ineligible for Coverage

An SIB and RCO review of an OIG hotline complaint

concluded that a producer did not qualify for strawberry

coverage.The approved insurance provider agreed with

RMA’s conclusion after reviewing the producer’s records

and subsequently denied the producer’s claim for $8,500

and refunded the premium.

Office of Inspector General (OIG) Audits

OIG conducts audits of the FCIC program each year.

During these audits, the auditors may identify where a

producer receives an incorrect crop insurance payment.

If this occurs, auditors will recommend that RMA correct

the payment. RMA will conduct a review of the producer’s claim records and develop an initial finding to the

approved insurance provider to correct the claim and

collect any overpayments.Also, RMA may conduct joint

audits with the OIG. During FY 2001, RMA collected

$221,103 from the approved insurance providers on

indemnity overpayments.The following paragraphs provide examples of some resolved OIG audits.

South Dakota Audit Leads to Settlement for False

Claims on Prevented Planting and Replanting

Payments

RMA assisted OIG auditors and the South Dakota U.S.

Attorney’s Office in this audit.A South Dakota crop

insurance agent and a producer, who was a close relative,

agreed to settle U.S. civil claims filed against them for filing false claims for prevented planting and replanting payments in 1996 and 1997. In return for a $260,000 cash

payment, the Federal Government settled the outstanding issues without any admission of wrongdoing.

Incorrect Potato Master Yields Calculated in North

Dakota 

In 1999, RMA, in conjunction with OIG, performed an

audit on specialty crops including potato crop policies.

The review found that in this case the approved insurance provider incorrectly calculated master yields for

potatoes in Walsh and Pembina Counties, North Dakota.

This resulted in an indemnity overpayment of $40,390 to

the insured. RMA issued findings to the approved insurance provider and verified that this amount was corrected.

40 RMA Program Compliance and Integrity Annual Report to Congress
RMA Program Compliance and Integrity Annual Report to Congress 41

Minnesota Audit Finds Requirements Not Met on

Dry Bean Acreage

RMA completed a review on a policy that was included

in an OIG audit survey of RMA’s Crop Rotation

Requirements.The audit found that this insured had not

met crop rotation requirements for 40 acres of dry

beans in CY 1999.This error resulted in an indemnity

overpayment of $7,190 and a premium overstatement of

$2,640. RMA issued findings to the approved insurance

provider and verified that this amount was collected.

Office of Inspector General (OIG) Investigations

RMA Compliance has long cultivated a close working

relationship with OIG investigators.That working relationship predates the FCIC/OIG Memorandum of

Understanding that was signed by RMA's Administrator

on January 19, 2001, and by OIG's Assistant Inspector

General for Investigations on March 6, 2001. RMA and

OIG cooperation builds on the guidelines found in

Departmental Regulation (DR) 1700-2. During FY 2001,

joint efforts by OIG and RMA resulted in $5.7 million

being collected on criminal investigations.The following

paragraphs provide examples of some resolved criminal

cases.

Satellite Imagery Evidence Results in $291,000 Jury

Award in Crittenden County,Arkansas 

A producer filed a complaint with RMA alleging that

another producer and two co-conspirators reported cotton acreage as planted that was not planted. RMA’s investigation determined that the acreage was not planted.

The Federal Government used satellite imagery for the

first time in a crop insurance case.The jury and judge

found for the Federal Government and awarded

$291,000. RMA assisted the U.S.Attorney for the Eastern

District of Arkansas, the OIG, and the FBI in the successful conclusion of this case.The indemnity was $244,930,

and the premium was $61,500.

Minnesota Producers Plead Guilty

An OIG and SIB investigation resulted in two producers,

a mother and son, pleading guilty to submitting fraudulent

crop insurance claims.The producers entered into a plea

agreement that requires they pay restitution of $100,330.

The son is still awaiting sentencing.The Federal

Government also plans to pursue civil action against the

pair.

Open Criminal/Civil Cases 

• CDP referral results in Texas agent and adjuster

implicated in $3.7 million in false claims;

• Producer investigated for obtaining insurance on

acreage in which there was no insurable interest;

loss adjuster failed to detect problem;

• Civil prosecution sought for hidden soybean and

dry bean production over 4 years;

• Banker identifies crop production in a fictitious

entity name indictment being prepared;

• Long-suspected MPCI agent is under investigation

for insurance fraud with help from witness;

• Arkansas producer fraud being investigated;

• Investigation into prevented planting fraud in soybeans involves 4,000 acres;

• Agent in Louisiana under investigation with help

from former employee;

• Investigation of $2.2 million case involving potato

grower in Michigan;

• Conspiracy investigation of two sales agencies

and 14 insureds in Ohio and Indiana;

• False claims investigation of Michigan insureds

with multiple entities;

• CDP referrals lead to investigation of shifting production of three corporations in Indiana;

• Approved insurance provider special investigative

unit and RMA Compliance work together to

present $400,000 Illinois Case to OIG.
Falsified Cotton and Soybean APH Leads to

Settlement Agreement in Arkansas

OIG identified a producer in St. Francis County,Arkansas,

who had falsified his cotton and soybean APH resulting in

large indemnity overpayments. RMA assisted the OIG in

pursuing this investigation.A settlement agreement was

entered into between the producer and the U.S.

Attorney's Office for the Eastern District of Arkansas in

June 2000 for $16,078.

Criminal Trial in Michigan Potato Case

The Michigan U.S.Attorney's Office (AUSA) filed an

indictment against individuals associated with an operation in Saginaw and Bay Counties, Michigan, for obtaining

and aiding in obtaining the payment of false, fictitious, and

fraudulent claims for disaster loans and crop insurance.

Potato crop insurance claims were submitted for multiple

crop years.Attempts by the AUSA to plea-bargain the

case have not resulted in any agreements.Trial was

scheduled for October 2001. Parallel civil proceedings

have also been initiated by the AUSA under the Affirmed

Civil Enforcement Program. RMA contributed considerable resources to the investigation and related AUSA

actions.The indemnity in this case is $3.0 million, and the

premium is $1.7 million.

OIG Payment Limitation and MPCI Program

Eligibility Review in Minnesota

The OIG initiated an investigation of three farming operations for FSA payment limitation violations. Based on

the evidence presented in OIG’s investigative report,

RMA concluded that these entities did not actually

receive a share of the crop produced or share in the

proceeds from grain sales and therefore did not meet

FCIC program eligibility requirements. Members of these

partnerships did not exercise managerial control relating

to producing and marketing the crop (such as deciding

what to plant and when to plant, till, cultivate, irrigate,

spray, harvest, and market).All crops reported on the

MPCI policy forms actually belonged to only one entity.

This was the only eligible entity to insure these crops for

MPCI purposes. RMA calculated the CY 

1999 soybean indemnity as a single producer and on a

whole-farm basis.The misrepresentation of the producer

information caused an indemnity overpayment of

$399,500.The Minnesota U.S.Attorney’s Office is considering this case for civil prosecution for FSA payment limitations and crop insurance fraud.

Crop Insurance Agent Indicted in Kentucky

An OIG and SIB investigation resulted in a crop insurance agent being indicted for filing a false crop insurance

claim on his tobacco crop and assisting other producers

to file false tobacco crop insurance claims.The investigation involved multiple co-conspirators. One producer has

already pled guilty and was ordered to pay restitution of

$15,880.

Insurance Provider Referrals

RMA receives referrals from approved insurance

providers, which represent a proactive approach in

RMA’s effort to combat potential fraud.The majority of

the instances of suspected fraud are investigated before

the approved insurance providers pay claims to the producers.To date, the referrals have generated 263 reviews

by RMA.The following are examples of these referrals.

Partnership Investigation of Producer

Misrepresenting Planting Dates and Acreage in Iowa

An investigation by RMA and an approved insurance

provider stemming from a complaint resulted in the

approved insurance provider voiding three CY 1998 policies totaling $3.5 million in liability due to the producer’s

misrepresentation of reported planting dates and insurable acreage.The case was referred for criminal/civil

prosecution and declined.Administrative sanctions and

disqualification are being pursued.

Partnership Investigation with Insurance Provider

into Poor Farming Practices in Nebraska

An investigation by RMA and an approved insurance

provider stemming from a complaint resulted in two

approved insurance providers denying CY 1998 indemnity claims on two separate policies totaling $233,000 due

to poor farming practices on sugar beets, corn, and dry

beans.The affected producer filed for arbitration.

Approved insurance providers servicing these policies

have requested investigators' testimony during the arbitration hearing.

42 RMA Program Compliance and Integrity Annual Report to Congress
RMA Program Compliance and Integrity Annual Report to Congress 43

Insurance Provider and RMA Investigate Farming

Practices, Dates, and Acreage in Kansas 

An investigation by RMA and an approved insurance

provider resulted in a CY 1999 indemnity claim totaling

$117,600 being denied by the approved insurance

provider due to producer misrepresentation.The investigation found evidence that supports the allegation that

the producer misrepresented his farming practices, planting dates, and insurable acreage.The case was referred

for criminal/civil prosecution and was declined because

the approved insurance provider denied the claim for

indemnity.

RMA, Insurance Provider, and OIG Investigate

Irrigation Practices in Nebraska

RMA investigated a complaint received from an approved

insurance provider that resulted in a $102,500 reduction

in the indemnity payment.The approved insurance

provider and investigator documented irrigation practices

and other farming practices during several farm inspections.The approved insurance provider used this evidence in support of their decision to reduce the coverage from irrigated to a non-irrigated practice.The producer filed for arbitration.The investigator gave testimony during the arbitration proceedings.The arbiter ruled

in favor of the approved insurance provider.

Program Vulnerabilities 

A program vulnerability is a fundamental flaw in a policy,

product, structure or agency procedure or system that

results in an unintended consequence that requires corrective action through administrative, regulatory, legislative, or policy changes.A program vulnerability occurs

whenever a policy, procedure, or system’s process fails to

prevent, detect, or control losses due to fraud, waste,

abuse, or mismanagement in the FCIC program.

Compliance findings report program vulnerabilities that

are discovered during the course of the investigation or

review of programs, participants, or insurers.

Program vulnerabilities identified through this process

are prioritized for changes to RMA programs to ensure

to the extent possible that structured solutions to fraud,

waste, and abuse are implemented.The revision of the

basic provisions for policies covering insured crops has

taken into account and addressed a number of these vulnerabilities.

As part of the Act process, RMA Compliance carried out

a comprehensive review and update of all program vulnerability findings for 1996-2001. In cooperation with

other key operative elements of RMA Divisions

(Insurance Services and Research and Development), 329

vulnerabilities were identified, of which 227 were corrected, 8 were corrected in part, and 94 were not corrected. Of those not corrected, 55 of the identified vulnerabilities are scheduled for correction by an appropriate future action during the applicable crop year cycle or

SRA negotiation and the remaining 39 vulnerabilities are

under consideration.The following paragraphs are examples of program reviews.

Widespread Abuse of Prevented Planting Provisions

Suggested in Colorado, Kansas, Missouri, and

Nebraska 

A review of all 2000 crop year prevented planting claims

paid in Colorado, Kansas, Missouri, and Nebraska was initiated this year because of numerous allegations of program abuse from congressional inquiries, the general public, policyholders, crop insurance industry representatives,

and other Federal government agencies. Evidence suggested that no policyholders appeared eligible for prevented planting claims in the referenced States for the

2000 crop year, as weather conditions did not warrant

prevented planting claims due to weather-related causes

of loss, including drought.A discussion report was sent to

the 11 approved insurance providers who paid the prevented planting claims asking them to explain the rationale for payment.The monetary amounts in question are

$3.8 million in indemnity payments and $994,000 in premiums.

Program Abuse Allegations Surface in Nebraska

Forage APH 

Allegations of program abuse led RMA Compliance to

investigate APH certification on 2001 forage policies in

Nebraska.All CY 2001 forage policies (81), written

agreements establishing coverage, and production

records in support of the coverage offered were

reviewed.The review disclosed that production records

were incomplete, missing, or inconsistent with what was
44 RMA Program Compliance and Integrity Annual Report to Congress

certified on their APH and/or as required by approved

policy and procedures. Further, both an assessment of

the legal ramifications of amending or withdrawing the

coverage offered and its effect on potential forage claims

are planned.The total premium of $260,490 and liability

of $2.3 million is questioned.

Premiums Calculated Too Low Due to Incorrect

Citrus Map Area Designations in California 

Concerns that proper rate map areas were not applied

to CY 2000 California citrus policies led to an RMA

review that affirmed incorrect rate map areas were

assigned to all 1,965 acres reviewed.As a result, the premiums were calculated improperly using incorrect ratemap area adjustment factors causing a $23,590 understatement by four approved insurance providers. RMA

recommended that all the map areas in the counties

affected be reviewed and corrected. RMA also recommended an assessment of approved insurance provider

internal procedures and controls over map rate designations be conducted.

Dry Land Wheat Loss Adjustment and Yields in

California and Oregon Reviewed

Allegations of program abuse led RMA to initiate a

review of $30 million in CY 2000 wheat claims in

California and Oregon. RMA is offering wheat growers a

non-irrigated practice in California counties having

desert-like growing conditions.The allegations indicate Tyields are not commensurate with those conditions.

The review is ongoing and will determine the extent of

program vulnerabilities and whether RMA and approved

insurance providers are adequately preventing further

waste or abuse.The review will also evaluate whether

approved insurance providers provided adequate loss

adjustment service.

Good Farming Practices Assessed, Recommendations

Made

RMA initiated a review of current good farming practices

criteria and procedures and recommended several

changes.These include requiring that producers document changes in practices used to establish the APH.

RMA also recommended more specific language in the

special provisions pertaining to seeding rate, germination

rates, seedbed preparation, weed control, fertilizer

requirements, and harvest requirements. Draft language

has been included in the Basic Provisions that will

address concern regarding APH yields derived from small

acreage that should be in effect in CY 2003 or CY 2004.

Prevented Planting Vulnerabilities Identified 

RMA's review of the prevented planting program resulted

in recommendations to strengthen Eligibility and Notice

of Loss procedures. RMA recommended that: (1) a

threshold be established before prevented planting

becomes eligible for payment based on FSA county planting data; (2) prevented planting notices of loss be filed

within 72 hours of the final plant date or when planting

stops if in the late planting period; and (3) insurers adjust

the claim within 30 days of the notice of loss. Changes

have been made to the Basic Provisions that are expected to be in effect for the CY 2003 or CY 2004.

"Wash" Type Transactions in Dairy Options Trading

Identified as Vulnerable to Abuse 

Allegations of questionable dairy options trading transactions led to a review by RMA.Working with program

managers and subject-matter experts in other agencies,

RMA determined that no specific rules were violated and

no monetary findings were applicable. However, RMA did

determine that improved rules are needed to control

certain “wash” type transactions.Without improved rules

limiting wash transactions, there could be an incentive for

brokers and participants “to harvest the subsidy.” This

involves cashing out the subsidy for immediate gain

shared among the brokers and participants instead of the

participants benefiting from the intended market price

protection. RMA recommended the clarification and

improvement of existing rules and an informational dissemination program to prevent or discourage a reoccurrence.To date, RMA has paid $1.7 million of the $1.8 million in transaction fees.

Small Acreage Units Can Inflate APHs

RMA reviewed the effect of extremely small acreage

units on APHs in northern States because producers

have been planting a small number of acres of their normal crop and providing unusual care to increase the

yields on these acres beyond what is common to the

local area.These increased yields are then used to estab-
RMA Program Compliance and Integrity Annual Report to Congress 45

lish the yields for much larger units. However, these

increased yields are not representative of the producer’s

past farming history and the land’s sustainable production

capability.

RMA maintains an APH database that uses a current simple average for yield calculation. Producers are using the

inflated APH from these unrepresentative small acres to

greatly increase their APH and thus negate the effect of a

loss on their APH from a previous or future year loss.

This situation allows producers to increase their liabilities and exposes RMA to the risk of inflated indemnities.

Based on the review, RMA recommended the use of a

weighted average to establish an APH database rather

than the simple average that is currently being used.This

technique can take into consideration size as well as production.

Manual 14 Reviews

Quality Control Reviews

Guidelines and Expectations for the Delivery of the

Federal Crop Insurance Program (Manual 14) establishes

the minimum training and quality-control review procedures and performance standards required of all

approved insurance providers in the delivery of any policy insured or reinsured under the Act. Manual 14 is

incorporated by reference in the SRA.The SRA is the

agreement governing the contractual relationship

between FCIC and the approved insurance providers

delivering crop insurance to the Nation’s producers.

One key component of the quality control system

required by Manual 14 is the Compliance Crop Insurance

Contract Review, which requires the following:

• The approved insurance provider must conduct compliance reviews of a selected number of policies to

determine whether all FCIC procedures were followed by the sales agents and loss adjusters in the

sales and service of these policies. FCIC will furnish

each approved insurance provider by February 1st

after each crop year with a list of not less than 50

indemnified crop insurance contracts for review

under this category.

• FCIC will spot-check the completed reviews to determine the accuracy of the approved insurance

provider’s conclusions and respond to the approved

insurance provider as to the appropriateness of its

corrective actions.

The Act, Subtitle B, Section 515, (c) Reconciling Producer

Information, requires FCIC and FSA to reconcile producer-derived information on an annual basis (starting with

the 2001 crop year) in order to identify and address any

discrepancies. RMA is planning to conduct the Manual 14

spot checks to include a pilot program that compares

approved insurance provider reviews and FSA reviews of

the same records.

For CY 2000, there were 1,625 compliance crop insurance contract reviews completed nationwide by all

approved insurance providers.The 4-RM Handbook that

implements the Act’s guidelines establishes procedures

where FSA County Offices are to corroborate RMA

claim reviews.This year, RMA is conducting a pilot review

of all the compliance contract reviews that were conducted by the approved insurance providers in Indiana.

For this pilot, FSA County Offices will compare their

records with what the approved insurance providers

found.Any differences found by FSA County Offices will

be reviewed further by RMA Compliance.After RMA

completes the pilot program, the agency will determine

the effectiveness of a nationwide comparison of all 1,625

compliance crop contract reviews conducted during this

year’s spot check.

Self-Audit Review

Manual 14 outlines the minimum guidelines approved

insurance providers must employ to assure an effective

self-audit program and the program performance standards used to measure the compliance and effectiveness

of contract fulfillment. Currently, RMA is reviewing two

approved insurance providers’ quality-control operations

and their 2000 Annual Summary Reports.The review will

determine if the quality controls outlined in Manual 14

are effective.To accomplish this objective, RMA will (1)
46 RMA Program Compliance and Integrity Annual Report to Congress

determine if the selected approved insurance providers

have implemented the quality-control systems required in

Manual 14; (2) measure whether their quality-control systems have identified problems accurately; and (3) determine how approved insurance providers have responded

to program vulnerabilities (such as fraud, errors, and

internal procedural deficiencies).

To meet the objectives, RMA is interviewing selected

approved insurance provider managers and appropriate

staff about their processes and procedures for performing Manual 14 reviews, as well as examining and analyzing

pertinent approved insurance provider files. RMA is spotchecking reviews performed by approved insurance

providers and the results they reported in their Annual

Summary Report.The Agency is also confirming the number of required reviews using RMA databases.The purpose of the CY 2001 spot-checks is to determine if the

approved insurance providers' quality-control review files

adequately support that the reviews were conducted

according to requirements and whether the resulting

review conclusions were adequately supported.

Other Reviews

This category includes a variety of sources of complaints

or referrals, including RMA initiated, anonymous, or concerned citizen complaints to RMA and CY 1998 crop

loss disaster payment referrals.The following paragraphs

illustrate examples of these cases.

Lack of Quality Control Leads to $1 Million

Questionable Claim in California Almonds

An anonymous referral led to RMA's review of two

almond policies with indemnity overpayments totaling

nearly $1 million. RMA determined that the approved

insurance provider did not adequately perform its farm

visit requirements, conduct adequate mandatory-review

procedures designed for high-dollar claims, or perform

required loss adjustment activities.The policyholders

applied for and were denied 1999 FSA disaster benefits

totaling over $500,000.

Controversial Cherries Claim in California Leads to

$145,000 Returned to RMA

An anonymous complaint identified loss adjustment violations in a $145,000 cherry claim that led to the approved

insurance provider paying the money back to RMA.

Ineligible Producers Received Prevented Planting

Payments

RMA conducted a review of an allegation that several

policyholders were not eligible for prevented planting

(PP) payments in 1998 due to the reported acreage not

being planted and harvested within 1 of the 3 prior crop

years.The review discovered that 4 of the 5 policies

reviewed did not qualify for PP payments in 1998, resulting in a premium overstatement of $45,136 and indemnity overpayments of $156,919. One of the 5 policies was

referred to the Civil Division of the U.S.Attorney’s

Office for consideration of civil prosecution.The AUSA

declined prosecution; appropriate administrative remedies are currently being pursued.

Complaint Case Involving Uninsurable Crop Revenue

Coverage in Illinois 

RMA conducted a review of an allegation that an Illinois

insured had Crop Revenue Coverage (CRC) for highamylose corn acreage, which is uninsurable under a CRC

policy, in addition to other discrepancies.An initial finding

has been issued to the approved insurance provider for

overpaid indemnities of $95,000.

Complaint Received Concerning Loss Adjustment

Errors on Onions in Colorado

A complaint to RMA resulted in an investigation in which

initial findings (preliminary determination) were issued to

an approved insurance provider because their loss

adjuster improperly established the cause and severity of

damage after onions were placed in storage.The investigation also discovered that the loss adjuster was not

using approved procedures to establish the production to

count (harvested or appraised quantities of a crop produced from a unit which are subtracted from the unit’s

production guarantee in computing an indemnity). Initial

findings in the amount of $52,860 were provided to the

approved insurance provider.
Loss Adjustment Errors in California Cotton

A CDP referral from an FSA County Office in California

led to findings that a loss adjuster failed to verify the

insured’s share of the cotton crop.The quality-control

reviewer did not conduct adequate mandatory review

procedures designed for high-dollar claims, and the

approved insurance provider did not assign the correct

yields.The indemnity overpayment was $33,620.

Arbitrary Application Deadline Leads to Coverage

Error in California

A wheat producer in California complained to an RCO

that an approved insurance provider improperly reduced

his insurance coverage from 65 percent of the approved

yield and 100 percent of the price election (65/100) to

50 percent of the approved yield and 55 of the price

election (50/55), despite the policyholder's timely filed

application. It was discovered that the approved insurance provider imposed an additional timing requirement

on the sales agent for transmitting the application to the

approved insurance provider that led to the coverage

error. Over $7,000 in indemnities in error were issued as

initial findings to the approved insurance provider.

Outcomes 

Board of Contract Appeals

Approved insurance providers are afforded the opportunity to dispute RMA findings in accordance with 7 C.F.R.

400.169(b).The Deputy Administrator for Compliance

makes a final administrative determination.That determination may be appealed to USDA’s Board of Contract

Appeals (BCA) in accordance with 7 C.F.R. part 24. BCA

decisions are final within USDA and approved insurance

providers must appeal to the BCA before they can sue

FCIC in the district court for any matter arising from the

SRA.

During FY 2001, 11 RMA cases, representing $3.5 million

in discrepancies and interest, were either decided or settled. Six cases were decided in favor of FCIC for $2.5

million, and five cases were settled for $992,860.

BCA Cases Settled in 2001 

BCA settlements occur when both parties consent and

agree. Both parties then request that the BCA appeal be

dismissed.

Reconditioned California Raisins

An approved insurance provider did not use proper procedures for determining if raisins were reconditioned.

Production-to-count raisins were rejected by packers and

then sold “as is” to reconditioners, who eventually reconditioned the raisins and then sold them back to packers

for a profit.The approved insurance provider failed to

verify and correct the insured’s share of the raisins when

completing the claim.The case was settled for $600,000.

Indiana Corn/Soybean Hidden Production

An Indiana producer hid his 1991 corn and soybean production from the loss adjuster.The approved insurance

provider requested relief under MGR-001, which allows

relief to the approved insurance provider because of

fraud and other conditions. In this case the request for

relief under MGR-001 was denied because it was filed

late.The approved insurance provider appealed to BCA.

RMA settled the BCA case by granting relief under

MGR-001 in the amount of $57,446.

Michigan Corn/Soybean Hidden Production

A Michigan producer hid his 1994 corn and soybean production from the loss adjuster.The approved insurance

provider requested relief under MGR-001. In this case

the request for relief under MGR-001 was denied

because it was filed late.The approved insurance provider

appealed to BCA. RMA settled the BCA case by granting

relief under MGR-001 in the amount of $24,094.

South Carolina Tobacco Hidden Production

A South Carolina tobacco producer misrepresented his

1992 tobacco production to a loss adjuster.The loss

adjuster would have discovered the misrepresentation if

he had followed proper procedures.The case was settled

for $18,000.

RMA Program Compliance and Integrity Annual Report to Congress 47
BCA Cases Decided in 2001

BCA decisions are made in writing, and authenticated

copies of the decisions are forwarded to both parties.

Case decisions are made solely upon the record presented to the BCA.

Texas Coastal Bend Multiple Indemnities

Certain producers in the Coastal Bend area of Texas

were receiving two or more indemnities for crop losses

on the same acreage during the 1996 growing season.

The crops involved were cotton, grain sorghum, and corn

that failed to emerge because of drought. RMA argued

that it was a poor farming practice to plant in a drought

and issued findings against the approved insurance

provider.The BCA issued a decision that denied the

approved insurance provider’s appeal and required the

approved insurance provider to repay $1,511,607 plus

over $700,000 in interest.

Improper Grape Procedures

RMA determined that an approved insurance provider

did not use proper procedures on CY 1995 grapes and

table grapes for late-filed and invalid applications.The

company sales agent did not obtain the required producer certificates (pre-acceptance worksheets and preacceptance inspections or a statement certifying that

linkage applied) from the insured or by the approved

insurance provider. Findings were issued and appealed.

The BCA issued a decision dismissing the appeal and the

approved insurance provider was required to repay

$241,714.

Louisiana Corn Producer Errors

A producer from Louisiana committed errors during the

processing of a 1995 corn prevented-planting claim,

resulting in both indemnity and premium overpayment.

RMA issued findings and the approved insurance provider

appealed.The BCA issued a decision dismissing the

appeal with prejudice and required the approved insurance provider repay $77,443.

Conclusion

RMA has been very busy in the last 15 months implementing the provisions of Section 515, Program

Compliance and Integrity, of the Act.This effort has

resulted in early and promising results as delineated in

this report.As RMA works toward full implementation of

the Act, it must be constantly vigilant over the everchanging environment of the FCIC program. In conjunction with our partners, the approved insurance providers,

and ally, FSA, lessons learned regarding crop insurance

will assist RMA in refining the FCIC program for producers and taxpayers alike.The accomplishments of the past

15 months are only a first step in the continuous process

of evaluating and improving the prevention and deterrence of waste, fraud, and abuse in the FCIC program.

48 RMA Program Compliance and Integrity Annual Report to Congress