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28–515 PDF 2006

REVIEW OF EFFORTS TO ELIMINATE

WASTE, FRAUD, AND ABUSE IN

THE CROP INSURANCE PROGRAM

HEARING

BEFORE THE

SUBCOMMITTEE ON

GENERAL FARM COMMODITIES

AND RISK MANAGEMENT

OF THE

COMMITTEE ON AGRICULTURE

HOUSE OF REPRESENTATIVES

ONE HUNDRED NINTH CONGRESS

SECOND SESSION

JUNE 15, 2006

Serial No. 109–33

(

Printed for the use of the Committee on Agriculture

agriculture.house.gov
COMMITTEE ON AGRICULTURE

BOB GOODLATTE, Virginia, Chairman

RICHARD W. POMBO, California

Vice Chairman

TERRY EVERETT, Alabama

FRANK D. LUCAS, Oklahoma

JERRY MORAN, Kansas

WILLIAM L. JENKINS, Tennessee

GIL GUTKNECHT, Minnesota

ROBIN HAYES, North Carolina

TIMOTHY V. JOHNSON, Illinois

TOM OSBORNE, Nebraska

MIKE PENCE, Indiana

SAM GRAVES, Missouri

JO BONNER, Alabama

MIKE ROGERS, Alabama

STEVE KING, Iowa

MARILYN N. MUSGRAVE, Colorado

RANDY NEUGEBAUER, Texas

CHARLES W. BOUSTANY, JR., Louisiana

JOHN J.H. ‘‘JOE’’ SCHWARZ, Michigan

JOHN R. ‘‘RANDY’’ KUHL, JR., New York

VIRGINIA FOXX, North Carolina

K. MICHAEL CONAWAY, Texas

JEFF FORTENBERRY, Nebraska

JEAN SCHMIDT, Ohio

MICHAEL E. SODREL, Indiana

COLLIN C. PETERSON, Minnesota,

Ranking Minority Member

TIM HOLDEN, Pennsylvania

MIKE MCINTYRE, North Carolina

BOB ETHERIDGE, North Carolina

JOE BACA, California

ED CASE, Hawaii

DENNIS A. CARDOZA, California

DAVID SCOTT, Georgia

JIM MARSHALL, Georgia

STEPHANIE HERSETH, South Dakota

G.K. BUTTERFIELD, North Carolina

HENRY CUELLAR, Texas

CHARLIE MELANCON, Louisiana

JIM COSTA, California

JOHN T. SALAZAR, Colorado

JOHN BARROW, Georgia

EARL POMEROY, North Dakota

LEONARD L. BOSWELL, Iowa

RICK LARSEN, Washington

LINCOLN DAVIS, Tennessee

BEN CHANDLER, Kentucky

PROFESSIONAL STAFF

WILLIAM E. O’CONNER, JR., Staff Director

KEVIN J. KRAMP, Chief Counsel

JOHN HAUGEN, Communications Director

ROBERT L. LAREW, Minority Staff Director

SUBCOMMITTEE ON GENERAL FARM COMMODITIES AND RISK MANAGEMENT

JERRY MORAN, Kansas, Chairman

TERRY EVERETT, Alabama

FRANK D. LUCAS, Oklahoma

WILLIAM L. JENKINS, Tennessee

TIMOTHY V. JOHNSON, Illinois

Vice Chairman

MIKE PENCE, Indiana

SAM GRAVES, Missouri

JO BONNER, Alabama

STEVE KING, Iowa

MARILYN N. MUSGRAVE, Colorado

RANDY NEUGEBAUER, Texas

CHARLES W. BOUSTANY, JR., Louisiana

K. MICHAEL CONAWAY, Texas

JEFF FORTENBERRY, Nebraska

MICHAEL E. SODREL, Indiana

BOB ETHERIDGE, North Carolina,

Ranking Minority Member

JOHN T. SALAZAR, Colorado

JIM MARSHALL, Georgia

STEPHANIE HERSETH, South Dakota

G.K. BUTTERFIELD, North Carolina

CHARLIE MELANCON, Louisiana

JOHN BARROW, Georgia

EARL POMEROY, North Dakota

LEONARD L. BOSWELL, Iowa

RICK LARSEN, Washington

BEN CHANDLER, Kentucky

DAVID SCOTT, Georgia

JIM COSTA, California

TYLER WEGMEYER, Subcommittee Staff Director

(II)
(III)

C O N T E N T S

Page

Butterfield, Hon. G.K., a Representative in Congress from the State of North

Carolina, prepared statement ............................................................................. 5

Etheridge, Hon. Bob, a Representative in Congress from the State of North

Carolina, opening statement ............................................................................... 3

Moran, Hon. Jerry, a Representative in Congress from the State of Kansas,

opening statement ................................................................................................ 1

Peterson, Hon. Collin C., a Representative in Congress from the State of

Minnesota, opening statement ............................................................................ 3

Salazar, Hon. John, a Representative in Congress from the State of Colorado,

prepared statement .............................................................................................. 4

WITNESSES

Bertoni, Daniel, Acting Director, Natural Resources and Environment Division, Government Accountability Office ............................................................. 6

Prepared statement .......................................................................................... 44

Brown, Donald P., chief financial officer, Vega Imaging Solutions, LLC, Roseville, MN ............................................................................................................... 25

Prepared statement .......................................................................................... 39

Gould, Eldon, Administrator, Risk Management Agency, U.S. Department

of Agriculture ........................................................................................................ 5

Prepared statement .......................................................................................... 31

Little, Bert, associate vice president for academic research, executive director,

Center for Agribusiness Excellence, Tarleton State University, Stephenville,

TX .......................................................................................................................... 23

Prepared statement .......................................................................................... 59

Parkerson, Robert W., president, National Crop Insurance Services, Inc.,

Overland Park, KX ............................................................................................... 21

Prepared statement .......................................................................................... 40

SUBMITTED MATERIAL

Faleide, Lanny, president, AgriImaGis Technologies, statement ........................ 65
(1)

REVIEW OF EFFORTS TO ELIMINATE WASTE,

FRAUD AND ABUSE IN THE CROP INSURANCE PROGRAM

THURSDAY, JUNE 15, 2006

HOUSE OF REPRESENTATIVES,

SUBCOMMITTEE ON GENERAL FARM

COMMODITIES AND RISK MANAGEMENT,

COMMITTEE ON AGRICULTURE,

Washington, DC.

The subcommittee met, pursuant to call, at 10:05 a.m., in room

1300, Longworth House Office Building, Hon. Jerry Moran (chairman of the subcommittee) presiding.

Present: Representatives Johnson, Graves, Neugebauer,

Boustany, Conaway, Goodlatte, [ex officio], Etheridge, Salazar,

Herseth, Butterfield, Barrow, Pomeroy, Chandler, and Peterson,

[ex officio].

Staff present: Tyler Wegmeyer, Bryan Dierlam, Craig Jagger,

Elizabeth Parker, Callista Gingrich, clerk; Lindsey Correa, Clark

Ogilvie, and John Riley.

OPENING STATEMENT OF HON. JERRY MORAN, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF KANSAS

Mr. MORAN. The silence in the room would suggest that it is time

to come to order. And we will do that. This hearing of the Subcommittee on General Farm Commodities and Risk Management

will come to order.

We are here to review efforts to eliminate fraud, waste and abuse

in the crop insurance program, and I have a brief opening statement that I would like to make and then I will turn to the gentleman from North Carolina.

As I indicated, we are here today to address the issue of program

integrity within the Federal crop insurance system. Crop insurance

is a vital component for many farming operations throughout our

country, and this committee is charged with ensuring that the program is not only meeting the needs of producers, but that money

is not being drained from the program because of waste, fraud or

abuse.

I look forward to the testimony of our witnesses today to bring

us up to date on the current status of this issue and how we are

succeeding in regard to preventing these problems. We are particularly interested in the detection methods for waste, fraud and

abuse. I know that our witnesses have spent time preparing for to-
2

day’s hearing, and I am grateful for that, including the time they

spent yesterday in briefing us.

In order to ensure that the insurance options are available to

farmers, the Congress passed the Federal Crop Insurance Act in

1980 and created a unique partnership between the private insurance companies and the Federal Government within the crop insurance program. And although it is clearly not perfect, crop insurance

has become a critical component of the farm safety net.

Then, in 2000, we passed ARPA, the Agricultural Risk Protection

Act. We made substantial investments in Federal Crop Insurance

Program to make certain that the insurance is more accessible,

more affordable to our farmers across the country, and in an attempt to decrease the need to create costly ad hoc disaster assistance.

Congress also in that legislation took significant strides to protect this substantial investment by providing the Department of

Agriculture with the tools needed to better monitor the program for

waste, fraud and abuse.

ARPA contained several provisions that were designed to enhance the capacity of the USDA to recognize and respond to the

challenges of program compliance and integrity. These provisions

resulted from widespread concern from farmers about abuses in the

crop insurance program.

Although the challenge continues, it does appear to me that improvements have been made. Significant strides to curb waste,

fraud and abuse are recognized, but also recognized is the need

that this committee remain vigilant, that everything possible be

done within the industry to prevent these problems from occurring.

One of the biggest successes in minimizing waste, fraud and

abuse is Tarleton State University’s data mining program, and I

look forward to hearing the testimony of Dr. Little about the university’s commendable efforts. I realize mandatory funding for this

program expired at the end of fiscal year 2005 and the program

has been operating on annual appropriations. This program has

strengthened the integrity of our Federal Crop Insurance Program

and needs to again remain funded by mandatory dollars.

Spending on agriculture accounts for less than 1 percent of the

total U.S. budget, and we want to ensure that all of those dollars

are being put to the use for which they were intended. I believe the

Federal Crop Insurance Program and its governing agencies are

making significant efforts to preserve the integrity of the program

which is so vital to U.S. agriculture production, but is enough being

done? And does the Risk Management Agency have the authority

and tools necessary to detect and regulate cases of fraud and

abuse?

I know that our witnesses will be able to provide the subcommittee with answers to these questions, and I look forward to that discussion.

I now turn to the gentleman from North Carolina, ranking member of this committee, my friend, Mr. Etheridge.
3

OPENING STATEMENT OF HON. BOB ETHERIDGE, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF NORTH

CAROLINA

Mr. ETHERIDGE. Thank you, Mr. Chairman. And thank you for

convening the subcommittee for this important review of the crop

insurance industry.

As a Member of Congress, it is our responsibility to ensure that

the executive branch is wisely spending appropriations that we

vote for them to use every year on behalf of the farmers of this

country. That is why congressional oversight is so important.

Hearings like these are equally important. Unfortunately, I don’t

think we have enough of them. Oversight is not something we do

so that we can put out a report or a press release. Responsible

oversight must occur week after week after week, and that is important.

Mr. Chairman, I want to commend you for your dedication to

proper oversight and your work to ensure that crop insurance continues to be delivered for our farmers. As you have rightly said, it

is an important part of their package today, given the risks that

farmers take.

Crop insurance is a key component of the farm safety net, and

it is crucial that this subcommittee continues to stay abreast as to

the health of the industry. When waste, fraud and abuse are allowed to flourish, farmers lose confidence in the crop insurance system, and we just cannot allow that to happen, especially now when

the risks are so great.

I look forward to hearing from our witnesses, and I thank you

again, Mr. Chairman, for holding this hearing.

Mr. MORAN. I would recognize Mr. Peterson to give the any opening remarks that he would like to make.

OPENING STATEMENT OF HON. COLLIN C. PETERSON, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF MINNESOTA

Mr. PETERSON. Thank you, Mr. Chairman. And thank you for

calling this hearing.

Unfortunately, when the public hears that we are going to go

after waste, fraud and abuse, half the time they think we are not

going to do anything. So I want to associate my remarks with Mr.

Etheridge that we need to maybe ramp up our efforts at oversight.

And as you are well aware, Mr. Chairman, maybe as significant

a problem as the potential of abusing the program is the fact that

we have got some things that need to be fixed; and I hope that we

can spend some time this year getting ready for the farm bill debate to be able to get at some of the underlying problems that we

have with crop insurance that just aren’t taking care of a lot of producers, as we have heard in a some hearings across the country.

We have Mr. Don Brown from Minnesota, who is there working

on some stuff with an outfit in my district that has got some very

useful technology using multispectral digital photography that I

think will help us not only get at some of the abuse issues, but actually make it easier for us to administer crop insurance.

So I appreciate their being here today and your allowing them

to testify, because I think they are onto something here, and these
4

are some of the things that we need to do as we modernize and update this system and try to make it work for our producers.

So thank you for your leadership, and I hope we have more of

these hearings before we——

Mr. MORAN. Mr. Peterson, Mr. Etheridge, I would clearly indicate to both of you and to the other members of the subcommittee

that we would welcome the opportunity to have continued oversight

hearings. This is a subcommittee that meets regularly on the topic

of crop insurance and is certainly interested anytime we see topics

of interest, it is appropriate for our subcommittee to have oversight, and I am very interested in pursuing them.

We are delighted to accommodate you, Mr. Peterson, with the

presence of Mr. Brown. We look forward to what he has to say as

well.

The Chair would request that the other members of the subcommittee submit their opening statements for the record so that

we can begin the hearing.

[The prepared statements of Messrs. Salazar and Butterfield follow:]

PREPARED STATEMENT OF HON. JOHN SALAZAR, A REPRESENTATIVE IN CONGRESS

FROM THE STATE OF COLORADO

Thank you Chairman Moran and Ranking Member Etheridge for holding this important hearing today.

I want to start by stressing the importance of the Federal Crop Insurance Program is vital to the agriculture producers within my district.

While I realize there are some concerns with the crop insurance program, we

must work to protect the programs that support production agriculture so that we

as a country can have strong and secure food supply.

Crop insurance programs are very important to me personally as a farmer to help

insure my risk is minimized.

Many banks require farmers to have crop insurance to secure financing so that

they have the money to operate their farms.

Without the crop insurance program many farmers within my district would not

be farming today due to the recent drought.

With that being said I do have some problems with the complexities of the program.

Some of the insurance agents have expressed their concerns.

These agents often write car and home policies and have said that the crop insurance that they write is much more complex and the paper work is twice if not three

times that of a car or homeowner policy.

The crop insurance agents have also stated their concern under the conflicts of

interest.

I have a concern that an agent cannot be present when a crop adjuster is examining a crop due to many farmers not understanding all of the complexities of their

policies.

An insurance agent can be present when an adjuster is reviewing a claim under

their car or homeowner policy but cannot be there when there is a claim for crop

damage.

I am hopeful that as the crop insurance programs matures over time that we will

be able to control the abuse and fraud while still making the program work for the

farmers.

I look forward to hearing the testimony of the witnesses and identifying solutions

that will make this program function more effectively.

I hope we can resolve any issues that exist and help assist in keeping production

agriculture alive within the United States.

I thank the panel participants, Chairman Moran and Ranking Member Etheridge

for bringing this issue to the committee.
5

PREPARED STATEMENT OF HON. G.K. BUTTERFIELD, A REPRESENTATIVE IN CONGRESS

FROM THE STATE OF NORTH CAROLINA

Mr. Chairman. I realize that the Federal Crop Insurance Program plays a necessary and vital role in our Nation’s agricultural policy. The piece of mind and reassurance that this program gives to the producers all across this nation is invaluable.

However, as with all other programs that exist, the Federal Crop Insurance Program does not go with out error. Fraud and abuse have been all too common and

have tainted the pool of claims made every year on defected crops. I am pleased Mr.

Chairman, that you and Ranking Member Peterson have called this hearing today

to examine ways to eliminate such waste. The burden that this fraud has placed

on every producer and tax payer alike is just plain unfair.

Mr. Chairman, in my opinion, one way to examine the fraud and abuse of this

program is to first look at the Premium Discount Plan (PDP). This plan is thought

by many in my district to be an unsound plan. Many agents have gone as far as

to say that we don’t need it

The Premium Discount Plan allows insurance companies to cherry pick and only

give discounts to large farmers.

There was once a plan that gave the farmers a discount for not filing a claim

within 5 years. What ever happened to a simple plan such as that?

Mr. Chairman, I strongly believe that if we were to implement a strong, transparent policy that emphasized simplicity: we could begin to eliminate this abuse.

Mr. MORAN. With that, let us turn to our first panel. We are once

again delighted to have Mr. Eldon Gould, the Administrator of the

Risk Management Agency, U.S. Department of Agriculture, and

joining him at the table is Mr. Daniel Bertoni, the Acting Director

of the Natural Resources and Environmental Division of the Government Accountability Office.

Administrator Gould, welcome back. Third appearance? Is that

true?

Mr. GOULD. Third, correct.

Mr. MORAN. Third. We are delighted to have you here for your

third appearance and look forward to your testimony.

STATEMENT OF ELDON GOULD, ADMINISTRATOR, RISK

MANAGEMENT AGENCY, U.S. DEPARTMENT OF AGRICULTURE

Mr. GOULD. Thank you.

Mr. Chairman and members of the subcommittee, I am Eldon

Gould, Administrator of the USDA’s Risk Management Agency. I

am also a life-long farmer from northern Illinois. I appreciate the

opportunity to provide an update on the efforts of the RMA to continue to improve the integrity of the Federal Crop Insurance Program. Any discussion of program integrity must include an update

on our successes and challenges in implementing ARPA.

The Federal Crop Insurance Program itself is working as it was

intended and is working well. Program integrity is maintained

through prevention, detection and enforcement. Because they share

in risk, the approved insurance providers have a vested interest in

working with us to prevent fraud, waste and abuse. We have

worked closely with AIPs to strengthen program integrity, protect

taxpayer dollars and better ensure that those who deliberately

break the rules are caught and punished.

Our main compliance workload has increased substantially due

to the expansion of the Federal Crop Insurance Program and the

implementation of ARPA. The President’s fiscal year 2007 budget

proposal requested 15 additional staff to strengthen and expand

the compliance function.
6

In the area of enforcement, compliance continues to build relationships not only with the Federal agencies that assist directly

with prosecuting criminal activity, primary OIG investigations and

the Department of Justice, but also with State insurance departments and the National Association of Insurance Commissioners.

As part of the ARPA legislation, data warehousing and data mining techniques were explicitly identified as tools to be used by RMA

to strengthen the crop insurance program’s oversight efforts. RMA

is not only making significant progress in preventing fraud, waste

and abuse through the use of data mining; our data mining findings have also shown that a considerable majority of producers use

our risk management tools exactly as they were intended.

ARPA authorized program integrity funds for data mining purposes for a period of 5 years. That authorization expired in 2005.

Congress allocated $3.6 million in fiscal year 2006 so that data

mining could continue.

The House recently passed the 2007 Agriculture appropriations

bill, which includes language providing RMA with flexibility to use

other authorized funds for data mining.

A critical area of program integrity improvement is enhancing

the capability of RMA’s IT system. ARPA instituted new data reconciliation, data mining and other antifraud, waste and abuse activities that required the data to be used in a variety of new ways.

But the current IT system was not designed to handle these types

of data mining operations. In light of this, the 2007 budget includes

a proposal to require the AIPs to share in the cost to develop and

maintain a new IT system.

RMA is also working closely with FSA to simplify our joint reporting requirements. RMA is actively working on a Comprehensive Information Management System, known as CIMS, which will

simplify and improve the programs administered by RMA and FSA.

This project will provide an information system that allows RMA,

FSA and other USDA entities and AIPs to process, share and report on approved, common information.

In conclusion, the administration of the Crop Insurance Program

requires all interested parties working together to identify viable

insurance products and solutions that meet the needs of the agricultural community. Moreover, if the program is to continue to be

successful, the resources to provide the checks and balances necessary to guard against the risks of fraud, waste and abuse need

more focus and priority.

Again, I thank you for the opportunity to participate in this important hearing, and I look forward to responding to questions from

the members.

[The prepared statement of Mr. Gould appears at the conclusion

of the hearing.]

Mr. MORAN. Thank you, Mr. Gould.

Mr. Bertoni.

STATEMENT OF DANIEL BERTONI, ACTING DIRECTOR, NATURAL RESOURCES AND ENVIRONMENT, GOVERNMENT ACCOUNTABILITY OFFICE

Mr. BERTONI. Good morning, Mr. Chairman, members of the subcommittee. I am pleased to be here to discuss USDA ’s efforts to
7

address fraud, waste and abuse in the Federal Crop Insurance Program, which represents a vital safety net for American farmers.

USDA’s Risk Management Agency has overall responsibility for

administering the program in partnership with private insurance

companies. In 2005, the program provided $44 billion in coverage

at a cost of nearly $3 billion to the Federal Government, including

$117 million in improper payments. With the Agricultural Protection Act of 2000, or ARPA, Congress provided RMA and USDA’s

Farm Service Agency with new tools to deter program fraud. However, concerns remain that some producers are abusing the program for financial gain; and RMA and insurance companies do not

always diligently investigate such claims.

My testimony today is based on our prior work and focuses on

two key areas: the effectiveness of USDA’s procedures to prevent

fraud, waste and abuse and the extent to which program design

issues may increase RMA’s exposure to abusive practices.

In summary, while RMA has taken actions to strengthen the program through enhanced data mining, field contacts with farmers

and other means, weaknesses remain in four key areas: field inspections, data mining, quality assurance and the imposition of

sanctions.

First, although RMA uses various techniques to identify suspect

producers for annual onsite inspections, FSA staff are not conducting all required reviews. In fact, FSA completed only 64 percent of

3,000 requested inspections in 2004; and between 2001 and 2004,

field offices in nine States did not conduct any inspections.

Second, RMA’s data mining processes exclude comparisons of the

largest farming operation, such as joint ventures and limited partnerships, making it difficult to identify ownership interests. Thus,

members of multiple farming entities could move production from

one operation to another to file bogus claims without detection.

RMA has not systematically used key data maintained by FSA

to make such comparisons. However, we analyzed this data and

found that of 69,000 entities that had crop insurance policies in

both agency databases, 21,000, or 31 percent, failed to report all

ownership interests in the farming operation, resulting in nearly

$150 million in improper payments.

Third, we found that insurance companies were not always completing quality assurance reviews as required for anomalous claims

and those of $100,000 or more. In fact, reviews were conducted for

only 59 of 80 cases that we examined that met this criteria, and

these efforts were mainly paper exercises rather than a comprehensive analysis of the claim.

Fourth, although ARPA expanded RMA’s sanction authority for

producers, agents and adjusters who willfully and intentionally

provide false or inaccurate information or fail to comply with other

FCIC program requirements, this information is rarely used. Between 2001 and 2004, the agency identified about 3,000 farmers

annually with suspicious claims, but imposed only 114 sanctions.

Stakeholders we surveyed believe more could be done to penalize

those who abuse the program. At the time of our review, however,

RMA had not yet issued regulations for its expanded authority.

In addition to the problems we have identified in RMA’s processes, we also found that the program’s design can impede agency
8

efforts to prevent fraud and abuse. Program regulations will allow

farmers to insure fields individually with optional unit coverage,

making it easier to switch production among fields and make false

claims.

Program data, as well as case file reviews, show that production

switching is an ongoing source of program abuse. Complicating the

agency’s efforts is the fact that private insurers often bear minimal

risk on some policies, giving them less incentive to challenge questionable claims.

And finally, because of statutory requirements that farmers be

provided prevented planting coverage, internal premium subsidy

levels may create opportunities and incentives for continued program abuse. To illustrate, our case file reviews identified a number

of suspicious prevented planting claims, one of which we forwarded

to RMA for investigation. The agency ultimately directed the insurance company to seek reimbursement of this claim.

In conclusion, Federal crop insurance plays a crucial role in protecting the Nation’s farmers and crops. However, abuse by some

can cause all farmers to pay more for insurance and damage the

reputation of the program.

With ARPA, RMA has made progress in strengthening the program. However, our report makes several recommendations to correct continuing weaknesses and further strengthen the agency’s

ability to combat fraud and abuse. We also note that the Congress

should consider allowing RMA to reduce premium subsidies for

farms who chronically file suspicious claims.

Mr. Chairman, this concludes my statement. I am pleased to respond to any questions you or members of the subcommittee may

have. Thank you.

[The prepared statement of Mr. Bertoni appears at the conclusion of the hearing.]

Mr. MORAN. Mr. Bertoni, thank you very much.

Let me ask you initially, is there a series of GAO reports regarding waste, fraud and abuse at the Risk Management Agency that

predates the report that your testimony focuses on?

Mr. BERTONI. I wouldn’t say we have a body of work on waste,

fraud and abuse, but we have done some work on pieces of it.

Mr. MORAN. Is there a way to determine whether progress is

being made, based upon those reports? Are things getting better,

the same? Do we see implementation of your recommendations over

a period of time?

Mr. BERTONI. I don’t think we used the prior work to compare

where they are in terms of progress. I think really this is the first

time where we take a, let us say, top-to-bottom review of the processes.

Based on what they say they are going to do, there are indications of progress that I believe they are making. If they move forward and implement our recommendations, I think that would be

a substantial step toward improving program integrity in terms of

increased data mining, using more technology to extend their enforcement arm, using these on-the-ground field investigations to

really corroborate whether fraudulent activity is occurring.
9

And, of course, using sanction authority, it is a three-legged

stool. I think they go together, and they need to be used in that

manner.

Mr. MORAN. So, Mr. Bertoni, the benchmark that we would have

to look at in the future is really the September 2005 GAO report?

Mr. BERTONI. At least from our perspective, yes.

Mr. MORAN. And when would be an appropriate time for a second

GAO report of similar or the same issues?

Mr. BERTONI. We issued this less than a year ago, and every year

we do an update to our recommendations. So we maintain constant

contact with the agency in question to document and to follow the

progress for the recommendation. So we will be doing that in the

interim.

I would not suggest doing a follow-on review prior to a year, year

and a half out. But we will continually follow these recommendations, and we could certainly come back and give you an update in

testimony form as to where they are.

Mr. MORAN. I appreciate that.

Mr. Gould then, the recommendations Mr. Bertoni just testified

to and the ones that are contained in that September 2005 report,

I assume, Mr. Gould, you are familiar with those.

Can you describe to us what compliance activities have occurred,

what additional activity has occurred at RMA to meet the suggestions contained in that report?

Mr. GOULD. Yes, I certainly am aware of them, and we are taking dramatic steps to implement those recommendations to the extent that is possible.

There is some difference in our interpretation of those recommendations, but we are working to implement those, again, improve the program and prevent fraud, waste and abuse. Some of

those instances and those reports were categorized as waste, fraud

and abuse but in actuality they were just program errors, everyday

errors and omissions. So a little bit of that gets lumped into the

bad category where, in fact, it is, as I say, errors that come about

in the normal course of doing business.

On that subject, if I can have an extra couple of seconds there,

we are working closely with FSA to improve our reporting requirements and simplify our data reporting so that it is synonymous

with FSA; and I think that will cut down certainly the reporting

errors with numbers and that type of thing.

Mr. MORAN. Two follow-up questions, Mr. Gould: Are there recommendations that are contained in the GAO report that RMA disagrees with?

Mr. GOULD. There are a few, and we have ongoing discussions

with GAO on those issues, and some of them have been improved;

and that takes time to see the results, as you alluded to it in your

previous questions.

But, yes, we have ongoing discussion; at the same time we have

ongoing improvement.

Mr. MORAN. And you mentioned FSA. Do you now have access,

adequate access to FSA records for appropriate data mining and

other opportunities to review crop insurance for waste, fraud and

abuse?
10

Mr. GOULD. Well, we are probably one notch short of saying ‘‘adequate,’’ but we have improved access to FSA data, and we are

working to improve the access that we do have. And we are working closely with FSA on the CIMS project so that we can have common information available to RMA and FSA and, of course, the insurance companies.

Mr. MORAN. Is there still information at FSA that you are not

capable of acquiring, accessing?

Mr. GOULD. Well, I wouldn’t say it is not available. We are making sure we don’t have any security problems as the data gets

shared between different agencies and the companies. And so we

are concerned about, as I said, the security of that data, and what

can and should go to different companies.

So as part of the CIMS project, we are in the process of working

through those issues.

Mr. MORAN. Mr. Bertoni, my last question, because my time has

expired some time ago, but I also serve as a member of the House

Veterans’ Affairs Committee. We have had a series of hearings

with the potential disclosure of information concerning 26.5 million

veterans.

Are there issues you are aware of at RMA in regard to information technology and its security that we ought to be aware of?

Mr. BERTONI. No. But in my prior life, just before coming here,

I worked for another team and that is pretty much what I did. I

looked at security of Social Security numbers and identity information across Federal programs.

So while that is an important issue, it is crucial, any agency that

is going to be data mining, analyzing personal information has to

have appropriate safeguards in place; and I would hope that is

being looked at in tandem with obtaining these records and ultimately marrying the FSA and RMA data together.

So there must be appropriate safeguards in place, and that

should be part of the plan as they move forward.

We have not looked at that, but certainly it is an important

issue.

Mr. MORAN. Thank you. I think we will explore that a little more

today and perhaps in the future.

Let me now turn to the gentleman from Minnesota, Mr. Peterson.

Mr. PETERSON. Thank you, Mr. Chairman. I want to thank Mr.

Etheridge for accommodating me here; I have got another meeting.

Mr. Gould, welcome to the committee, and by chance, it seems

like I am with you every other day here. So I want to read you

some language from a bill that we passed in 2006, the Agriculture

appropriations conference report that says ‘‘the conferees are aware

of aerial platform multispectral digital imaging and its potential

application in facilitating the accurate measurement of crop insurance claims. The conferees encourage the Secretary to consider the

development of a pilot program with the University of Minnesota

to advance the application this technology would provide to the

claims process.’’

Can you tell us what is being done at the Department and, specifically, your agency to address this provision on the Agriculture

appropriations conference report?
11

Mr. GOULD. We are using geospatial information to some degree

as we pursue claims and check up on claims, particularly those

that become more advanced.

We are not doing anything particular with the University of Minnesota because to date we have not received funding to pursue that

aspect.

Mr. PETERSON. Have you talked to them?

Mr. GOULD. Not since I have been on board.

Mr. PETERSON. Maybe you should.

Mr. GOULD. OK. Thank you. And I look forward to their upcoming testimony this morning.

Mr. PETERSON. Very good.

Also, Mr. Gould, the GAO report cites several comments from

FSA employees. FSA county directors believe that the information

obtained by FSA inspectors is not used by RMA or the companies

to deny claims to producers. The FSA inspectors believe that they

could do a more effective job if they received more information from

RMA on the questionable claim patterns data mining identified,

and there were also complaints apparently from FSA employees on

a lack of feedback from RMA.

What has been done to improve the level of communication between FSA and RMA since their support came out?

I guess if you agree with what was in this report, if you could

just kind of——

Mr. GOULD. We want to thank FSA for doing the work they do,

and the people down at the county level that make the onsite inspections. And we do use that information.

We maybe could do a little better about reporting back to them

what becomes of their inspections. And that information is available publicly, but maybe they don’t pursue it, and perhaps we don’t

do all we could to get that information back to them specifically.

But they are a key player in the whole spot inspection process,

and we do take results of those inspections and the results seriously and do pursue them.

And again, I guess maybe if they are not getting information, either they are not interested or we are not getting it back to them,

but we will pursue that.

Mr. PETERSON. Well, why would the county FSA directors believe

that their inspectors’ reports and information are not used by

RMA? Why do they think that if it is not being used to deny

claims?

Mr. GOULD. I think maybe the problem is that perhaps we just

distribute the information to the State FSA directors. And then obviously we depend upon the State FSA directors to get that information back down to the county level. So maybe we have an information gap or a process, a weakness there that we need to follow

up on.

Mr. PETERSON. So I guess my concern, more than who knows

what or who has got their nose out of joint is, you are using this

information to deny claims.

Is that what you are saying and that maybe the county doesn’t

know about it?

Mr. GOULD. That would be my suspicion. And if I could put my

producer hat on for a minute, I recognize the fact that the county
12

FSA offices and staff are under a lot of pressure to get their chores

done, as well as RMA’s. And so I could see where there could easily

be an information gap between what they have to do and what they

would like to do.

Mr. PETERSON. Thank you, Mr. Gould. And I look forward to

hearing how your meeting with the University of Minnesota goes.

Mr. GOULD. Thank you.

Mr. PETERSON. Thank you, Mr. Chairman.

Mr. MORAN. Gentleman from Texas, Mr. Conaway.

Mr. CONAWAY. Thank you, Mr. Chairman. I appreciate the hearing and looking forward to being able to contrast the great work

being down at Tarleton State University versus what might be

done at Minnesota.

Mr. Gould, on the claims process itself, is there a cutoff? Or how

do you judge which claims to aggressively pursue and which ones

not? Is it a dollar recovery basis that you use to decide that?

Mr. GOULD. Well, typically the $100,000 limit is where we separate the big ones from the small ones. The $100,000 ones and above

get undivided attention. Those under that get attention, but it

comes down to a matter of resources and time as to how aggressively we pursue those. And it is not only the dollar amount; but

it is how substantial the information of that is, and can it be substantiated as we move the process forward.

Mr. CONAWAY. Any analysis on your side as to what recovery levels would be if you had more resources, more investigators, to go

after the $50,000 to $100,000 claims with vigor? Do you look at

that to say, all right, Congress, if you would give us these resources, we could recover this?

Mr. GOULD. Well, I don’t know if I have got a good answer on

that. I do know that with data mining, we estimate that we save

$23 for every $1 we spend. And if I had a little money to invest

in data mining and claims adjustment, I think we would get a good

return on investment.

I don’t know where the cutoff point is, but I do know and that

after last week, just visiting our St. Paul regional office on compliance, I saw firsthand that there were opportunities that were going

untapped because of a lack of resources, both financial and human.

Mr. CONAWAY. Sure.

The chart at the end of your testimony shows a referral to final

action, range of 1 to 8 years. It would seem 8 years is a long time

to get this stuff finalized.

Is there anything we can do to shorten that up to something less,

or is 8 years the appropriate level?

Mr. GOULD. Well, it would seem to me that 8 years is a long

time, and we are trying to improve the process so that we can

tighten up those time frames. But at the same time, it is important

that we have the background and information and data to move a

case forward. And so sometimes it just takes time to do that.

I think, in visiting with our staff, that now it is 2 to 3 years is

a more likely time frame. Obviously, there are some that take

longer, and some of those obviously are at risk of the statute of limitations running out.

Mr. CONAWAY. Right.
13

The information with FSA needs to flow both ways. Are there

legal or regulatory burdens, barriers, with you sharing whatever

information you need to share with FSA and, vice versa, with FSA

sharing it back with you in this arena?

Mr. GOULD. As I alluded to before, I think that the two-way

street is improving. Both of us are concerned about the personal liability of sharing Social Security numbers and those type of things.

But we are doing all we can to work with FSA, and I think they

have got an attitude of cooperation to work with us. It is improving, and we hope to make it better; that is one of my goals and objectives.

Mr. CONAWAY. Do you have specific recommendations you would

make to the committee from a legislative standpoint that you see

would help with that effort? Or you may not have to say ‘‘yes’’ or

‘‘no’’ now, but at some point in time if there are frustrations you

are experiencing and they are because the law is a certain way, it

seems to make sense we ought to look at it to see if it still makes

sense.

Mr. GOULD. Well, there have been some concerns between the

two agencies, as we have tried to move the CIMS project forward,

but I think we have worked through most of those, and the project

is moving forward.

And again, I guess I sort of hate to keep harping on this, but it

is a fact of life that it is a resource issue not only with RMA, but

FSA as well, as we try to move a huge project forward, and then

with the limited resources we have and still have to do our everyday requirements as well.

Mr. CONAWAY. Let me finish off. It might be helpful in that regard in terms of asking for additional resources if you could

present to us some—at least some analysis. It is easy for anyone

to say, we need more money, we need more people, but I am a CPA

by background. It is a lot more helpful to have some hard information to look at based on your previous experiences to support that

request.

Mr. GOULD. Well, I would agree, and we have made that a priority. It is a priority of mine to substantiate those requests, not only

in terms of—I mentioned compliance people in my testimony, but

obviously our IT system is a weak link in our system as well.

And we will get that information.

Mr. CONAWAY. Thank you, Mr. Chairman. Yield back.

Mr. MORAN. Mr. Conway, thank you.

I recognize the gentleman from North Carolina, Mr. Etheridge.

Mr. ETHERIDGE. Thank you, Mr. Chairman.

Mr. Gould, let me go back just briefly to the issue of getting information. The GAO report mentioned that RMA’s inability to get

the complete view of things from some of the large farming operations is because it does not have access to FSA’s data or producers’ ownership interest in entities also involved in farming.

My question is, has FSA shared its preferred entity list with

RMA? And if not, what reason do they give for not sharing that information?

Mr. GOULD. We do share information with FSA. They give us

their entity list, and we give them our policy list, and obviously

there are always a number of entities that don’t match up just
14

right with our policies; and that is an ongoing problem, I guess is

the best way to say it.

But it comes down to, almost, everyday logistics. We have producers that provide or change insurance companies from year to

year. So we have a little mismatch there. And then the bigger problem, as I see it—and again, I learned this from being in St. Paul

last week—is that particularly larger producers who are intent on

maybe, I would say, ‘‘getting all the advantages’’ from the program

they can, actually arrange and rearrange their farm structure so

that the entities and the FSA ID numbers are difficult to track.

So, there is a lag time, and it takes a lot of manpower to sort

through those farm organizations back in the previous farm program. At least in the country, they used to be called a ‘‘Mississippi

Christmas tree.’’ but those are a challenge to sort through and sort

out the identities from a number of different farming entities.

Mr. ETHERIDGE. Well, the reason I ask that question is because

I am of the understanding that just last week, FSA released to two

newspapers of a nonprofit organization, in response to the Freedom

of Information Act, this information.

Mr. GOULD. I am sorry. I didn’t understand the question, Congressman.

Mr. ETHERIDGE. Well, the question was, was FSA releasing to

RMA the preferred entity list, and that is why you were trying to

answer?

Mr. GOULD. Yes, they do release the list.

Mr. ETHERIDGE. I went on to say that just last week, FSA released to two newspapers, under the Freedom of Information Act,

this information. So if you aren’t getting it, I would suggest you

check with the newspapers.

Mr. GOULD. Thank you. Yes, we are getting it.

Mr. ETHERIDGE. OK.

Mr. GOULD. It is not a question of getting information. It is the

laborious effort to match those ID numbers from those farmers up

with insurance policies so that the information all matches from

one agency to the other.

Mr. ETHERIDGE. OK. Well, I think that is important because that

is an area where a lot of slippage can come.

Mr. GOULD. That is right. And I think, again, if we could get to

the point where FSA and RMA could use the same reporting system, it would alleviate a lot of those problems, and slippage that

falls in the crack between the two agencies.

Mr. ETHERIDGE. Well, let me go back as a statement on something Mr. Peterson said about the issue with the local FSA directors.

It seems to me that feedback back down to those folks would

make it a lot easier for the information coming up if they were getting feedback; and an e-mail would probably work in that regard.

Let me move on to another question before my time runs out.

The GAO report suggests also that USDA should conduct a costbenefit analysis regarding FSA inspections on questions of crop insurance claims. Do you know if the Department has conducted such

an analysis? And if it has not done so, why not? And if so, what

were the results?
15

Mr. GOULD. We have not done that. We do follow up on those

FSA complaints, but we have not done a cost-benefit analysis.

Mr. ETHERIDGE. Why not?

Mr. GOULD. Again, it comes down to a matter of resources. You

do priorities and do what you think you do to get the most bang

for your buck, and that is one that we have not pursued.

Mr. ETHERIDGE. One great statesman in this country once said,

‘‘An ounce of prevention is worth a pound of cure,’’ and we tend to

deal with a lot of cure. It seems to me this is the kind of thing we

ought to be doing up front.

Mr. GOULD. Well, we do to the extent—on the prevention side,

producers that have reason—we have reason to be suspicious of do

get a letter from FSA saying that they are anomalous producers,

their cropping practices and results look a little different from their

neighbors. So from that standpoint, our data indicates that we do

see a good follow-through with the message that you are being

watched, you are being looked at. It affects those people’s behavior.

So we do do that.

But we agree, an ounce of prevention is worth a pound of cure.

Mr. ETHERIDGE. Thank you, Mr. Chairman. It seems to me we

still have a disconnect.

Mr. MORAN. The gentleman from Louisiana.

Mr. BOUSTANY. I have no questions.

Mr. MORAN. Thank you, Mr. Boustany.

The gentlewoman from South Dakota.

Ms. HERSETH. Thank you, Mr. Chairman. I want to thank you

and the ranking member for having the hearing, and our panelists

here today for their testimony and their insight into the questions

presented by members of the subcommittee.

If I could just follow up with both of you, Mr. Gould, you just

made the comment about what would be really helpful is the need

to have the same reporting system with FSA and RMA. And Chairman Moran mentioned he serves on the Veterans’ Affairs Committee, as do I; and we are very concerned about the lack of a centralized IT function and the lack of a strong CIO organization. And I

know that is something that I visited with Chairman Goodlatte

about, as well, in terms of, overall, what is happening at USDA.

But could either you or Mr. Bertoni talk about plans that either

are in place, strategies with the need for resources that will be—

to actually achieve sooner rather than later, something that results

in both RMA and FSA utilizing the same reporting system?

Mr. GOULD. Well, we are working again very diligently in that

effort, in that direction. As you mentioned, the CIO function, the

current CIO is helping coordinate and move this project along because we are concerned about security within the system.

And as I mentioned, I think most of your concerns would be addressed as we get the common information system up and running,

would make life much simpler ultimately for the producer; but certainly would increase the data integrity that not only FSA has, but

certainly RMA’s. And certainly this would refer back to the 578

which is the current form that is used for reporting that data.

Another thing: We talk a little bit about the future. I think it is

worthwhile pointing out that sometimes you wonder what we can

be doing today to make a difference, and one of those things we are
16

doing today, there is currently some discrepancy between the final

reporting dates for FSA and RMA. And we are working with FSA

to try to kind of move to a single reporting date, and I think that

will strengthen the integrity of the data that the farmer must report.

So if we have the same reporting date, the farmer is going to report the same information to FSA as he is to RMA, and it looks

like both agencies should be able to give some on their reporting

dates.

So we are moving in that direction, and maybe it doesn’t seem

like a big thing, but that is where an awful lot of the missed reporting comes from, and we are doing what we can to have that

in place for the 2007 crop year.

Ms. HERSETH. I appreciate that because I do think incremental

progress, as we try to advance a more comprehensive approach and

a centralized approach for an IT function, out of any of our agencies is very important.

I appreciate your talking about the change and making the

same—or at least a consistency in the reporting date helping a little bit.

Mr. GOULD. Thank you.

Ms. HERSETH. Can you tell me—and I am glad to know you are

working on that for the 2007 year, crop year. But how far away are

we from the same reporting system? Are we 2 years away, 5 years

away? Is it still in the planning stages? Does it depend on assessments by the CIO, data integrity?

Mr. GOULD. It is an ongoing process. It depends on the amount

of assessments by the CIO. There will be funding issues that will

be involved.

We are still designing the architecture for that program, but I

can just mention that the sponsorship of the program has been elevated to the Under Secretary level, so certainly, within our mission

here, it has gained a lot of visibility and new priority. I would like

to think it is going to be on board in 2 years, but in the mere 6

months I have been in Washington, I have come to appreciate the

fact that 2 years is not a very long time.

Ms. HERSETH. I appreciate that, and I know I haven’t given you

a chance to address the first question. Maybe you could for the

record, because I do want to fit in one more question before my

time is up, and that deals with what I have heard from some of

the FSA officials in South Dakota.

Some of our producers confirmed here in the GAO report about

the relative ease of abusing the Crop Insurance Program when a

producer and an agent work in concert with one another to increase the payout.

Mr. Gould, do you agree that this is a problem? And do you have

any specific recommendations for what RMA can do to help alleviate that problem?

Mr. GOULD. It is an ongoing, potential problem. It was addressed

in a GAO account audit a few years ago. We have taken significant

steps to alleviate that problem.

It is not only the producer and the agent, but the claims adjustor

as well, and we have taken some steps to address those concerns.

And some people think we have gone too far, but in fact, we think
17

we have struck a happy medium between what is practical and the

people who would be inclined to take advantage of the program.

In our data mining effort, we do look for those anomalies where

producers and agents and, to some extent, lost adjustment people

are involved in the same claim. So we are pursuing that.

Ms. HERSETH. I appreciate your efforts. And if it is possible to

share with the committee some more details about sort of the

happy medium that you think you have achieved in that regard in

response to the audit of a year or so ago, I would appreciate it.

I yield back, Mr. Chairman.

Mr. MORAN. Thank you. I thank the gentlewoman. You have

taken on the attribute of the gentleman from North Dakota, Mr.

Pomeroy, who always yields back after he has gone over his allotted time. Maybe it is a Dakota thing.

Ms. HERSETH. It must be.

Mr. MORAN. We are delighted to be joined by the chairman of the

full committee, the gentleman from Virginia, Mr. Goodlatte.

Mr. Chairman, do you have any questions?

The CHAIRMAN. I do. Thank you, Mr. Chairman. I appreciate

your holding this hearing. This is a subject that I have considerable

interest in, and I would like to ask Mr. Gould, do you make use

of the FSA production data to verify information submitted for insurance claims? And is this data part of your data mining efforts?

Mr. GOULD. Well, the farmer doesn’t report production data to

FSA. They only report acreage to FSA. So FSA has limited production data. The only production information they would have would

be as the producer would file for an LDP payment or something

like that.

The CHAIRMAN. Absolutely. That is my point, though. That information is all in the hands of FSA. And as a data mining process,

to go through and check to see what claims are being made for payments under various programs, match up with claims that are

being made with regard to insurance losses.

Mr. GOULD. Well, the problem with the FSA data and the LDP

payments is that they don’t track which entity that came from, just

producers’ total bushels. And they do require it comes from their

production, but not necessarily a particular entity; and a producer,

in particular if he is a livestock farmer, may not file an LDP claim

on all this production.

The CHAIRMAN. I understand that. But I would also think that

as you go about your efforts to detect waste, fraud and abuse that

this ability to do computer searches of other statistics that are

available to FSA and other agencies within the Department would

be a means for you to determine whether or not claims are well

founded or not. I was wondering if you do that; and if not, why not?

Mr. GOULD. Well, without knowing for sure what the particulars

are that FSA has available for data, my understanding is that they

do not track and store that data with a lot of, shall I say, availability. So I am a little hesitant to speak on their behalf.

The CHAIRMAN. I am not asking you to speak on their behalf. I

am interested in whether you or your agency has been in communication with this other agency of the U.S. Department of Agriculture on the ability to collaborate and share; that might determine whether or not claims are valid or not.
18

Mr. GOULD. When we pursue claims, we do talk to the FSA people and see if these are valid, and obviously, if they have any production information, we would take a look at that. Again, with

FSA’s limited production records, I am not sure how much they

would substantiate our claims process.

The CHAIRMAN. Let me take you a little further down the chain.

When you have found an instance where there is crop insurance

fraud, can you explain to the committee what your process is to

bring to conclusion a criminal prosecution? What do you do?

Mr. GOULD. Well, I am probably not the best person to answer

those, but we start by looking at suspected—actually start with, in

most cases, the anomalous producer. Or we may get a tip from our

hotline that the producer has suspicious activity, and then we follow up on that. And then that obviously becomes a collaborative effort with the insurance companies, and if it gets more involved,

that moves through the process.

And ultimately, if there is suspicious, fraudulent activity, it

comes to the Office of the Inspector General; they get involved. If

it is administrative, then it is the insurance companies and, ultimately, RMA that would pursue those cases.

If you need or want more detail of the exact process, I will have

to get back to you on that.

The CHAIRMAN. Well, thank you.

Mr. Bertoni, do you have any comments on either of those questions?

Mr. BERTONI. I just think basically the claim is developed initially referred to the OIG; and beyond that, they make a determination of whether that would go forward to the Department of

Justice, basic sequence.

I forgot your original question.

The CHAIRMAN. Well, my original question was with regard to

the data mining between various agencies within the Department

of Agriculture. Do you think there is sufficient coordination and cooperation between them to yield useful information? And if so, is

the RMA aggressively pursuing that?

Mr. BERTONI. At the time of our review, I would have to say ‘‘no.’’

based on what I am hearing now, there is a question. I think both

RMA and FSA have data that will complement their missions that

they both need, and as the agencies move forward in trying to integrate this and to design a system that captures data uniformly in

similar design fields, key information that they need to fulfill their

mission, you really have to think about system requirements and

how that is going to get you, at the end of the day, to a more effective program.

So that up-front coordination, discussion as to what do we need

to fulfill our missions and how do we get there, you really need to

think about that and fit that into our system requirements.

The CHAIRMAN. Mr. Chairman, if I might be an honorary Dakotan for a minute, I would like to ask one more question of Mr.

Gould and Mr. Bertoni.

Mr. MORAN. I am afraid we have set a new standard. But it is

you, Mr. Chairman, and you may.

The CHAIRMAN. I thank you very much. I would like to ask, Mr.

Gould, if you would explain the Army’s procedures when the agen-
19

cy receives a list of anomalous activities that is identified through

the data mining that is done by Tarleton State College.

Mr. GOULD. Actually, when we receive that list, you have to remember that those lists are only anomalous producers. There may

be a reason for that anomaly. We are not actually accusing anybody of anything at that point in time. But, actually, that goes to

the FSA office for verification of, why are these producers anomalous? And then after they verify that, that they are, they take a

look at a minimum of 10 percent of those. And then, depending on

what they find, and obviously, if they find those anomalies are suspicious of illegal activity, then we move the process forward. But,

initially, it all starts at the FSA office.

The CHAIRMAN. Do you find that information from Tarleton State

to be useful?

Mr. GOULD. Very much so. It is absolutely fascinating to go

through that information and see the way they pick that information apart to look for anomalies. And as they get more and more

refined in what they can do and do, I actually attended a presentation. We looked at our data mining group here about 2 weeks

ago. It is amazing, with the technology that is available, the things

that we have done, but even more amazing are the things that they

have on the drawing board and want to do in the future.

The CHAIRMAN. Very good. I think it is useful as well.

Thank you, Mr. Chairman.

Mr. MORAN. Thank you, Mr. Chairman. I believe we have made

the rounds of committee members on this question.

I had hoped to have a second round, and I know Mr. Etheridge

has a question. Could we have a very short round?

Mr. Etheridge, the gentleman from North Carolina. And I would

say we have been notified we have votes scheduled at 11:30, approximately, and we believe there is something in this committee

room beginning at 12:30. So probably 11:30 or 11:45 is kind of our

cutoff time.

Mr. ETHERIDGE. Thank you, Mr. Chairman. I will take less than

my time, so others will have time.

Mr. Gould, you cite figures of more than 400, even though we are

talking about waste, fraud and abuse. There are some numbers in

the report that you have cited figures of more than $456 million

in cost avoidance saved since 2001 due to data mining. My question

is, how is this figure calculated? And how do other compliance

methods compare to cost avoidance?

Mr. GOULD. Well, to answer your first question, that is simply

calculated by using data mining and finding out those producers

that were found to be filing fraudulent claims. And by having that

information up front and finding those opportunities, we did not

have to pay those claims.

Mr. ETHERIDGE. Let me try again. I understand part of it, but

I don’t believe I understood it all. How does that comply? You tried

to share with me how it complies with compliance. My question

was, how do you calculate that number?

Mr. GOULD. Well, simply by totaling up the claims that were

filed but found to be fraudulent and not paid. So it is not that we

paid the producer and got the money back; it is the fact that we
20

did not pay those claims the next year because of the information

that we had.

Mr. ETHERIDGE. I guess my follow-up question would be then,

have we always paid them then just because a claim came up?

Mr. GOULD. Have we always paid it before?

Mr. ETHERIDGE. Yes.

Mr. GOULD. I don’t think so.

Mr. ETHERIDGE. And I think that is what my question is: How do you balance that against the other one to come up with the $456

million number?

Mr. GOULD. Well, as I understand it, this is in addition to whatever we might have been doing previous to that; that claims that

were or fraudulent activities that were identified by hotline or FSA

or someplace else.

Mr. ETHERIDGE. I think I would like, if you would, have someone

in the agency just send me a note back, how that shows up. That

might be an easier way to do it.

Mr. GOULD. OK. Thank you.

Mr. MORAN. The gentleman from Louisiana, Mr. Boustany.

Mr. BOUSTANY. Thank you, Mr. Chairman.

I apologize for coming in late. And this may have been addressed

earlier. But in the GAO study, one of the recommendations was to

improve field inspections. And I would like some elaboration on

that. I noted here that only 64 percent of the inspections RMA had

requested had been done between 2001 and 2004. Could you elaborate on that, and maybe give me some background on what steps

are being taken to improve the efficiency of field inspections?

Mr. BERTONI. Yes. In our review, we found that they certainly

could do it, more of the required claims. They were not doing the

minimum amount that had been established. With the list that

goes out each year, each field office receives no more than 10

claims for investigation. In our experience, some of the offices were

one, two, three claims. And they are required to work those field

inspections. As we note, they weren’t being done. We also have

problems with the issue of timeliness, when they were doing—in

terms of, sometimes, after the crop had been harvested, you could

go out, and there would be nothing there.

Also, concern among the field staff that they weren’t getting very

good information on what they were supposed to look for. If they

knew what they were supposed to look for, they could perhaps target their investigation and be in and out more efficiently and be

done with it.

So we have three recommendations: Not only that they do more

inspections but that they bring out additional efficiencies from the

inspections that they do. So we understand there is a resource

issue here, but we also see opportunity in terms of increased efficiencies that we can work smarter and perhaps do more even within the existing budgetary restrictions.

Mr. BOUSTANY. Mr. Gould, do you want to comment on that?

Mr. GOULD. I don’t think I have a lot more to add. I think probably there are things that can be done more. From RMA’s standpoint, obviously, we are asking another agency to do this, so I am

sure they are going to take what their current workload is more

serious than what we ask them to do even though it is required
21

under ARPA that they do do that. So I am sure there is a disconnect there.

I understand that in some counties they do 100 percent of what

we ask, and others obviously drag their feet and drop the ball. And,

on average, that is what the GAO audit has shown, is that there

is more that can be done, and I won’t dispute that. It is another

agency that we are asking to fulfill those requirements. So we are

in a little bit of a handicap and awkward situation.

Mr. BOUSTANY. I thank you for your answers.

And, Mr. Chairman, I yield back.

Mr. MORAN. I thank the gentleman.

Let me make one follow-up. Mr. Bertoni, anything you heard this

morning from Mr. Gould or from members of the committee that

would cause you to have comments you would like to make to us,

direct us in a certain direction, things we ought to be aware of?

Any lights go off?

Mr. BERTONI. I guess to get back to the issue of again the data

sharing between FSA and RMA, to get at the ownership interests.

And I understand, I think Mr. Gould alluded to it, that some of

these folks can be very creative in how they report information.

Transposition of one digit on a Social Security number; using surnames, married names, false names. The ability to use data mining

to put these two databases together and to data mine that information can catch those types of manipulations. You can establish familial relationships. You can do algorithms that flip the Social Security number back and forth. You can look for variations on

names, and you can identify business relationships.

So I think if you put the FSA data together with RMA similar

to what we did was a basic tape match. It was not even a real-time

electronic transfer. If you put that information together, I think

you can do a better job of catching these types of—I won’t say

schemes—that are going on out there. So I think that is one point

I would like to make.

Mr. MORAN. Thank you very much. We thank both of you for

your testimony. We appreciate your being here this morning.

And I am going to call the second panel so we can hear their testimony before the votes. And that second panel consists of Mr. Robert W. Parkerson, who is the president of National Crop Insurance

Services, Inc., of Overland Park, Kansas; Dr. Bert Little, associate

vice president for academic research, executive director, Center For

Agribusiness Excellence at Tarleton State University in Stephenville, Texas; and, finally, Mr. Donald P. Brown, chief financial officer, Vega Imaging Solutions, LLC, Roseville, Minnesota.

Mr. Parkerson, if you are ready, we would be delighted to hear

from you.

STATEMENT OF ROBERT W. PARKERSON, PRESIDENT,

NATIONAL CROP INSURANCE SERVICES, INC., OVERLAND, KS

Mr. PARKERSON. Thank you, Mr. Chairman, for the opportunity

to give our testimony to this subcommittee. NCIS is a not-for-profit

trade association whose members include every crop insurance

company that participates in the Federal Crop Insurance Program,

and our offices are in Overland Park, Kansas.
22

NCIS has over 50 professionals on its staff. We compile, analyze

and report crop-hail data to State insurance departments in our capacity as a State licensed statistical agent and advisory organization. We conduct more than 20 research projects each year on behalf of the companies who help maintain the process of loss adjustment. As a result, our staff is continually writing and updating

policies, provisions, procedural manuals. Our staff also seeks to

work with RMA to improve underwriting procedures and eliminate

program vulnerabilities and adjusting losses.

It is time I think to talk about some frank challenges facing the

MPCI program. First, there is a need to work together. RMA and

the industry can strengthen internal operations of the Federal Crop

Insurance Program if, in coordination with the companies, they

work together. Let me start by saying, what we can do as an industry and have been doing in the private sector, in one word, it is

education. We believe that better knowledge of this complex program both improves program compliance and enhances vigilance.

As part of our ongoing educational effort, NCIS annually sponsors

more than 30 schools on a variety of crop insurance issues. More

than 2,000 representatives attended these schools in 2005.

NCIS has held a program integrity conference in May of this

year in Overland Park. The conference centered on the crop insurance industry’s ability to reduce fraud, waste and abuse, and how

best to handle the issues in a growing and complex program. Senator Pat Roberts, RMA administrator Eldon Gould, Bert Little were

key speakers at this conference. Over 100 people from the crop insurance industry attended this day and a half long event. We look

forward to offering updated versions of this conference in 2007 and

following years.

The benefit of effective training is that errors can be avoided,

that uniformly and adjusting losses can be increased, thus leading

to higher confidence in the program. And there will be an appropriate discipline for those who intentionally do wrongdoing.

Through effective training, industry and RMA can work together to

improve this program.

When reviewing existing products or considering new products,

we must consider two questions that can be satisfactorily answered: Does the product serve legitimate risk management objectives of American farmers? And, does the product operate in a fashion that is consistent with public interest?

The second question means that, as a product is being developed,

it is essential to eliminate or at least to limit radical opportunities

for fraud, waste and abuse as it may arise. We must close potential

loopholes and guard against product intentions of fraud. Unquestionably, it is the duty of RMA, and we in the private sector are

willing to help and do want to help.

RMA must also find ways of dealing with the external pressures

of change. Change made to existing policies and procedures are

often driven by external pressures made without adequately taking

into account the timing of the change or the cost of the benefit or

the risk impact change may have on the program. RMA has kept

the industry as well informed as possible given its regulatory constraints, and we appreciate its willingness to do so. However, due

to haste or extreme short comment periods, the private sector often
23

had little opportunity to provide input or analysis before the

changes were made final.

The Agricultural Risk Protection Act of 2000, ARPA, introduced

important integrity tools. One is data mining. Another is the use

of the Farm Service Administration services in an effort to identify

potential program abuse.

We are great believers in data mining, but our members all have

a common concern with the implementation: They do not receive

this critical information oftentimes early enough to prevent or mitigate the losses.

We want to offer also some positive examples of the industry’s

effort to work with RMA on program integrity issues and related

concerns. NCIS is in regular contact with Mr. Gould and his staff,

and we have worked diligently toward resolving issues as they

arise in the program. Some of these have dealt directly with program vulnerabilities and, if not corrected, could have led to a program abuse. NCIS just recently worked with RMA in developing an

SRA appendix–3 type 57 record which will enable electronic transmissions to RMA of SRA required company quality control activities. This process will help both RMA and the companies monitor

and resolve quality control issues.

We also believe that data mining would be a useful tool to better

target areas of weakness and complement the review process laid

out in appendix 4 of the SRA.

And, finally, we must place in perspective examples of fraud,

waste and abuse. Fortunately, Mr. Little explained to our program

integrity conference just last month, fraud in the crop insurance is

quite low and is less than 1 percent of the total indemnity. This

is very good, because it is necessary and notable because this is

better than other property casualty insurance lines and experience.

It means that advocates for a strong public-private partnership can

confront their critics with more confidence in knowing that they

sell, service, manage agricultural risk in a superior fashion. This

also should permit all of us to have the patience to allow improved

educational efforts and better product development and review to

work. We all work smarter when we all work together.

Thank you, Mr. Chairman.

[The prepared statement of Mr. Parkerson appears at the conclusion of the hearing.]

Mr. MORAN. Thank you Mr. Parkerson.

Dr. Little.

STATEMENT OF BERT LITTLE, ASSOCIATE VICE PRESIDENT,

ACADEMIC RESEARCH, EXECUTIVE DIRECTOR, CENTER FOR

AGRIBUSINESS EXCELLENCE, TARLETON STATE UNIVERSITY, STEPHENVILLE, TX

Mr. LITTLE. Chairman Moran, Ranking Member Etheridge, and

members of the subcommittee, thank you for the opportunity to appear this morning before the committee and discuss the efforts to

eliminate fraud, waste and abuse in the Federal Crop Insurance

Program and, in particular, the data warehousing and data mining

efforts currently undertaken by the Center for Agribusiness Excellence for the Risk Management Agency.
24

I am Bert Little, associate vice president for academic research,

and professor of computer science and mathematics at Tarleton

State University which has been a member of the Texas A&M University system since 1917.

In this role, I also direct the Center for Agribusiness Excellence

which was founded at Tarleton specifically to address the section

of the Agricultural Risk Protection Act of 2000 that directs the Secretary of Agriculture to use data mining and data warehousing

technologies to improve integrity and compliance in the Crop Insurance Program.

In open competition in July 24, 2002, CAE won a 5-year USDA

contract to perform these tests laid out in sections and 515 subpart

(f) and 515 subpart (j)(2) of ARPA 2000.

The results of CAE’s work under ARPA 2000 were reported in

RMA’s annual reports on program compliance and integrity efforts

as required under section 515 subpart (i). I say with some pride

that the record of accomplishment by RMA and CAE under the

data mining program has been formidable. In its first two compliance and integrity reports, RMA reported that CAE saved the Federal Crop Insurance Program respectively $72 million and $110

million during crop years 2001 and 2002 through indemnities not

paid because of increased scrutiny of anomalous policies. RMA reported in its most recent data, January 2006, that CAE’s data mining efforts saved an additional $81 million for the year 2003, which

is the most recent year for which RMA has published their reports.

These savings were achieved through a number of coordinated initiatives, and I compliment RMA and its staff in its effective use of

this new tool at its command compliance arsenal.

We have worked with RMA to identify multi-year patterns that

signal suspicious or anomalous crop insurance claims. One specific

effort called the Spotcheck list follows a simple process to translate

this data into concrete program savings. Specifically, we place

schemes and specific producers identified as having participated in

those schemes on a Spotcheck list. This list is reviewed by USDA

RMA compliance staff which may add persons of interest to that

list. The Spotcheck list is then provided to the USDA’s Farm Service Agency, FSA, whose local county offices are asked to conduct

growing season inspections, GSIs, on the identified fields. At an

early point in the growing season, FSA sends letters notifying each

producer on the Spotcheck list that a growing season inspection

will be performed on his or her crop and an additional pre-harvest

visit may also be made. Not surprisingly, producers who are on the

Spotcheck list react to the information by backing off any contemplated abusive activities, resulting in drastic visible measurable

improvements in program performance.

All together, over the 5 years, 2001 through 2005, this one initiative, the Spotcheck list, produced indications of reductions in

unneeded indemnities of approximately $450 million. In the written testimony, you will find an illustration of this in appendix 2.

We believe that data mining as mandated under ARPA 2000 has

been a drastic success for Congress and for the USDA, RMA in particular. For an investment of $22.5 million, by February 28, 2007,

it has been conservatively estimated that the program savings of

over $450 million since December 2000 with the Spotcheck list
25

alone have been accomplished. The public interest argues strongly

that it should and must be continued.

Thank you, sir. And I yield back my time.

[The prepared statement of Mr. Little appears at the conclusion

of the hearing.]

Mr. MORAN. Thank you very much.

Mr. Brown.

STATEMENT OF DONALD P. BROWN, CHIEF FINANCIAL

OFFICER, VEGA IMAGING SOLUTIONS, LLC, ROSEVILLE, MN

Mr. BROWN. Mr. Chairman, Mr. Ranking Member, members of

the committee, thank you for having me here. With the previous

speakers all representing large organizations, it is reassuring that

someone with a small company on the cutting edge of technology

is invited to appear before you.

The company that I am a part of is bringing together technology

that 3 years ago would not have been possible for the purpose of

providing a tool for the crop insurance adjuster and for the producer and for the agency.

The type of imagery we produce is similar to what is produced

by satellite. It is called multi-spectral; it is individual cameras with

separate bands. This is of great importance, because with spectral

analysis of imagery you can evaluate the health of a crop. You can

divide it into categories across a field. And it is very visible. It is

not visible to the naked eye, but it is visible to the infra-red sensors. This has been known for a long time. This is not a new idea.

The Risk Management Agency has pointed it out in previous reports.

Let me give you an illustration by talking about an event that

took place a little over a year ago down in Iowa where we brought

together about 30 crop insurance adjusters. We took them to a

field. The farmer knew we were going to do it. The field had been

damaged by hail, and it had already been evaluated using the traditional ways of measuring a loss. We also asked each of the adjusters who were with us to evaluate that field as well. By traditional methods, on the ground, walking around, evaluating scoring,

they established the loss in that field was about 70 percent. The

multi-spectral analysis we provided showed that the loss was closer

to 35 percent. Now, this was a group, we took a group of adjusters

so that we weren’t dealing with one who was biased one way or the

other, but the average was about there.

Now, this was not a fraudulent claim in any way, but this was

a claim made by a farmer who ultimately agreed with the multispectral analysis that this was more appropriate than the traditional method. Now, I don’t want to go into the technology of the

cameras or the science. But we can do this today. This is not Star

Wars. This is not the future. We can do it today. We can do with

a single airplane; the airplane we have it in right now, about a half

a million acres a day we can cover. We could have that information

available on the Internet for the producer, for the adjuster, for

RMA, carefully indexed to CLU land unit descriptions certainly

within 72 hours. If it is really important, it can be done within 24

hours. Fully processed. And you don’t have to be a scientist to

evaluate it because the computer programs translate it in what is
26

called normalized digital vegetation index, which takes the mobile

bands and processes them into a new image. It doesn’t look like a

picture anymore, but it is an image that shows the field and allows

you to evaluate whether the crop is healthy or not.

We can do this. We do it right now. These are small companies

that have been working together. But I come here, and I have listened to the prior testimony, and that is the testimony about what

is being done. What I am proposing is what the future is all about.

The images, once you have them, have multiple uses in addition

to crop insurance. They can be used to evaluate best practices.

They can be used—if you have multiple years and the images are

compared, you can determine that some fields are just not good

fields. But this is the future, in my opinion. I hope that the committee will take advantage of this.

[The prepared statement of Mr. Brown appears at the conclusion

of the hearing.]

Mr. MORAN. Thank you, sir.

Mr. Brown, thank you very much. Let me ask you, what is the

impediment to what you described occurring.

Mr. BROWN. I have talked to the insurance companies, I talked

to the RMA. The question is, who is going to pay for it? But I don’t

think anyone denies the value of the technology. As I said, this is

not new science. The technology is not really very new. But there

are a number of things have come together over the last few years

that would allow it, and one of them of course are these massive

files in terms of storage, but now storage systems are commonplace.

Mr. MORAN. The cost for adjusting an acre under the methods

you described versus the traditional method, a significant difference?

Mr. BROWN. It would be significantly different, until we did it on

a large scale. But we have extrapolated numbers on the efficiency

of aircraft and processing, et cetera. We know how to do that. We

do it. I would say that you could easily have under $5 an acre for

the cost of providing this image to the adjuster. Now, that is relatively high because you are only going to do a small area. We

could drive that cost down under $1 an acre if we were doing it day

in and day out for multiple purposes.

If I may add one comment. I do not understand why the NAIP

imagery that the Federal Government requires every year is not

multi-spectral, because it would be very useful, and I believe Professor Little would agree, it would be very useful to have it. But

it is not required to be multi-spectral, it never was, and technology

has moved very fast. But it seems to me that is something that

should happen.

Mr. MORAN. We can explore that with the folks at USDA.

Mr. Parkerson, let me ask you a broad question. As we look at

the technologies that Mr. Brown and Dr. Little have described,

there appears to me to be opportunities for reducing waste, fraud

and abuse, and ultimate savings within the crop insurance system.

Whose responsibility is it to see that waste, fraud and abuse is

eliminated in the sense of who gains from that between RMA and

between the crop insurance companies? If we are going to ask that

this technology be employed, if we are going to go, for example,
27

pursue additional data mining, who gets the benefit? Is this accrued to the bottom line of the insurance companies? Does it accrue

to less money being spent by the taxpayers of this country? And

how you answer this question, in my mind, determines in part who

should be paying for additional efforts at reducing waste, fraud and

abuse.

Mr. PARKERSON. Well, thank you, Mr. Chairman.

My answer is, all of us.

Mr. MORAN. I am not surprised by that.

Mr. PARKERSON. Because, first of all, as I mentioned in our testimony, that as the product is developed by RMA, I think there

needs to be time and sufficient time when new products come out

to review it, not only within RMA but with the industry, to establish, are we doing the right things and are we closing the loopholes

on all of this before a product ever comes out? But then once it is,

it is the responsibility of the Federal Government and the industry

to make sure that this product and the policy, the procedures are

all followed in a manner that is best suited. And so it is everyone’s.

And then your response to—taxpayers benefit because it costs less

for the program.

Mr. MORAN. Can you divide that out for me? I think I know the

answer that your predilection will be to talk about that this is important for the taxpayers; it is important for RMA. But there clearly are bottom-line benefits to the crop insurance companies when

waste, fraud and abuse is eliminated. And if we reduce the cost of

the system of $1, how do you break down that dollar for who gets

the benefit? How much money of that dollar does the taxpayer

save, and how much money does the crop insurance companies or

industry save?

Mr. PARKERSON. Well, if we are all in partnership, as we are

talking about, I would think that it is both. I mean, I have not

been able—and it would be a good exercise to do—to break down

how much would be saved actually from government and the companies. But, again, it has to be an equal, I believe, balance between

the two.

Mr. MORAN. I appreciate your perspective. This is an interest to

me because it does seem to me as we look, for example, at funding

Dr. Little’s program, who should do the funding? And I think that

the traditional thought has been, ‘‘Let’s go to Congress, appropriate

some money, and pursue data mining.’’ but I also, at least from my

perspective—and these comments may generate conversation with

the crop insurance industry. But it does seem to me that perhaps

a significant amount of the savings accrues to the bottom line of

the company. And, therefore, what role, what responsibility does

the industry have to pay for fighting waste, fraud and abuse.

Mr. PARKERSON. Well, if we are going to do that, I think it is important that companies be brought in and have more control over

what we are going to do, if they are going to pay for it, to be quite

truthful. We feel that we are doing quite a bit on our parts in trying to educate and bring everybody forward to understand the policies and the procedures as they change every year. So if that is the

case, then I think that we need to have the companies more involved in this data mining.
28

We have a process at NCIS with computers on the private sector side. It was reported that we have $40-some billion, I think it was

$44 billion in liability on the MPCI side. But when you threw in

the private sector crop-hail products, you will have pretty close to

$59, almost $60 billion in liability when you add on those private

properties or private programs.

So the companies are interested in doing that. And if we are

going to take on more liability, I think we are willing to take on

more responsibility.

Mr. MORAN. Thank you, Mr. Parkerson.

The only other comment I would make, and no response required, but oftentimes as a Member of Congress, waste, fraud and

abuse results in the complaints that farmers have with the crop insurance system. Things I hear about farming practices that are

prohibited, often the explanation from RMA or from the crop insurance agent is, well, that came about as a result of ARPA trying to

cut down on waste, fraud, abuse, things like multiple cropping, the

requirement that we actually harvest our crop even though we

know it is going to cost more money to harvest than it is worth.

So it is some of the things that seem to me to lack common sense

when it comes to farming practices and our requirements are often

explained away by, well, we have to take care of that because

somebody is abusing the system. And I look forward to working

with RMA and the industry to try to find ways that we can eliminate waste, fraud and abuse without making farmers spend a lot

of money to their detriment.

The gentleman from Minnesota, Mr. Peterson.

Mr. PETERSON. Thank you, Mr. Chairman. We tried to get an

earmark to get this pilot program off and were unsuccessful, so we

ended up getting this language in there. And, again, the bottom

line is the money problem. But, Mr. Chairman, to follow up on

what you were just talking about, this will probably get people

stirred up, too. If you are in business to make money, and what

Mr. Brown talked about is not fraud, it is wrong—the systems give

you the wrong answer. So if you are in business to make money

and you can get your claim cut from 70 percent to 35 percent and

it costs you a couple bucks an acre, that sounds like a money-making deal to me. Right? I mean, so why are we doing that? Well,

some people say to me that we are subsidizing you guys too much

so you don’t care. Is that what is going on here, that we have got

the government backing this up so much and taking all the risk off

that you don’t have to do the best business practice because the

government will take care of it and the farmers won’t get affected

and everybody is happy?

Mr. PARKERSON. Are you asking me? And I will tell you no. But

I have not seen Mr. Brown’s—anything that he has produced nor

have I seen any of the pictures, and I have no idea what the costs

are. This is the first time I have met the gentleman.

So if we are going to take a look at that, I think that Mr. Brown

needs to bring it to the industry, and we need to evaluate it. I don’t

know of many of the companies that have been approached by Mr.

Brown, or the cost. But at $5 an acre on 100 acres, we have got

a little bit of cost there. And if you go by thousands—and you may

or you may not have a claim, either. So we are trying to figure that
29

out. And I have not, like I said, seen anything. But we would be

interested in talking to them. There have been other approaches in

imagery that have already been put into use, and some of the companies are looking at and doing their own efforts in trying to evaluate that. So it is nothing that we are walking away from. It is fairly new; he has said it is new, and we are looking at them.

Mr. PETERSON. Well, one of the main reasons I want Mr. Brown

to have an opportunity to testify is so that people become aware

that this technology is out there. I think they are on to something,

and I think we could get a lot better information to Mr. Little and

other people working on this to get a more accurate system. And

it may mean that we have less people working at USDA, at your

companies. But that would be a good thing if we get a better result.

Mr. PARKERSON. If you get a better result, I don’t think anybody

would disagree with you.

Mr. PETERSON. So part of what I wanted to do here today is spur

along this dialogue. And we appreciate that Mr. Gould is going to

look into it a little bit.

Mr. PARKERSON. Well, I think it would be key if Mr. Gould looks

into it. I think that the industry, again, if the industry—and they

have worked very hard at taking on responsibility. We talk about

the program and the companies taking almost 80 percent of the liability. And our testimony reflects the point that we would like to

be more involved in the design and in the issues that come about.

We have some difficulty with the way things are set up when RMA

develops a program, for an example. They can’t talk to us until it

comes out and is made public. But then, oftentimes, when we

spend the appropriate time, we find those errors, or we find it

when we can take into consideration the people are actually out

there working on that particular crop or actually delivering it, and

the adjuster.

So we are working constantly. And as I said, NCIS with the company’s help, have given us the money, are creating new—adjusting

and looking at new procedures all the time. We have got 20 schools

now going on with major universities across this Nation, and we

are looking at new hybrids and new changes in how the plants

grow and what the responsibilities would be at different times. And

those are all things that we are taking into consideration. So I

don’t want you to think that we are just sitting there happy. We

know that we need to continue to move forward and experiment

and try these things.

Mr. MORAN. The gentleman from Texas, Mr. Conaway.

Mr. CONAWAY. Thank you, sir.

Just real quick: Bert, welcome to DC It is good to see you again.

And Tarleton University is located contiguous to Mr. Neugebauer’s

left, to my district as well.

I just want to bring attention to a sentence out of Mr. Gould’s

testimony earlier in reference to the CAE. And that is that, since

employing these technologies at CAE, RMA has achieved substantial program savings through proactive efforts to identify program

vulnerabilities and abuse.

Bert, would you give us one quick snapshot example of something you guys have done that helped save that? In other words,

just walk us through how you find an anomaly just real quick.
30

Mr. LITTLE. The advantage that we have over what individual insurance companies would be able to do is that we have the universe of data. We have the entire Nation’s crop insurance data.

And what we are able to do then is construct a national baseline,

and then we look for those individuals who pop up and stand head

and shoulders above the baseline. Those are anomalies. The level

of confidence that we accept those at is one in 10,000 because we

are working with such large amounts of data. So we have very high

confidence in the things we label as anomalies, and that is the

process by which we identify them.

Mr. MORAN. For a Texan, Dr. Little, you speak quickly, and that

is a good thing today.

The gentleman from North Carolina, Mr. Etheridge.

Mr. ETHERIDGE. Thank you, Mr. Chairman.

Mr. Parkerson, just one question for you, please. Regarding

GAO’s criticism that RMA cannot adequately review your members’

quality control methods because the agency has not developed

standards of which to judge, is this an accurate statement? Do your

members know the standards by which the quality reviews they

undertake will be judged as sufficient to make sure we don’t have

fraud and abuse?

Mr. PARKERSON. I think that companies, sir, are taking on, as I

said, more and more responsibility and they are looking continually

for this. Our efforts, the companies’ efforts in giving our group and

our association the money to work on fraud, waste and abuse, and

education and training I think shows that they definitely know

that this is a key thing that they need to do, and we are not about

to have the erosion of this program jeopardized by fraud, waste and

abuse. So they are putting up their efforts and are willing to work.

I think that part of the key effort is, I made the statement that

we are getting Mr. Little’s information a little too late out in the

field a lot of times to mitigate or stop any of the wrongdoing. And

I think, again, that has to be—the companies have to be brought

more in to the picture than just RMA, FSA working together, because we are the ones that ultimately where the road and the rubber all meet. And we are willing to do that without a doubt.

Mr. ETHERIDGE. So you are saying this is not an accurate statement?

Mr. PARKERSON. No, I don’t think it is.

Mr. MORAN. The gentleman from Louisiana.

Mr. BOUSTANY. Thank you, Mr. Chairman. Just a couple questions.

First, Dr. Little, you may have already answered my question

when Mr. Conaway asked his. And I was just curious to know

whether you have any geographic or regional gaps in your database.

Mr. LITTLE. Gaps? No. We have the entire Nation.

Mr. BOUSTANY. Thank you.

And for Mr. Brown. The multi-spectral imagery analysis sounds

very intriguing to me, and you gave one example where it provided

a lower estimate of crop damage. Is that a fairly consistent finding?

And do you have some specific baselines or data for specific crops?

Mr. BROWN. Mr. Chairman, sir, Ranking Member, Representative, we haven’t done this on a systematic basis because our tech-
31

nology is very new, but we have the ability to replicate images over

time of a field and to place them very precisely. That was one demonstration; it was a blind demonstration. We had no idea how it

was going to turn out, but it proved the case. And I think that most

of the adjusters who were in the room agreed that the way they

are settling claims right now, imagine standing in the middle of a

square mile of crop and trying to figure out what is damaged, what

is not, it is pretty rough to try to do.

We are able—and the adjuster doesn’t have to really understand

much about this. We are able with the computer to tell within a

tenth of an acre what is in each category. Now, what we did, there

was seven to, I believe, eight categories, from no damage to total

loss. We could do 30 categories. I mean, just tell the computer to

divide it separately. But it divides each of the categories down to

within a tenth of an acre of accuracy.

So I don’t know that I am the person to have the answer to how

to use this and how best to integrate it into the work of RMA and

the insurance companies. I do know that Dr. Little and I have discussed this, and he said he would like to have this data added to

his database because, over time, you will find patterns that relate

to particular fields. So I was invited here I think to put the topic

on the table because technology has moved very fast in this area,

and we are using it right now. We are using it today down in South

Carolina for the oyster beds along the coast and are about to complete that project.

Mr. BOUSTANY. Gentlemen I thank you for your answers.

And I yield back.

Mr. MORAN. Mr. Boustany, thank you very much.

Let me say some magic words. First of all, thank you for your

testimony. I apologize for the voting schedule, but I think we have

a good understanding of what both Dr. Little and Mr. Brown wanted to tell us about their technology, and we have access to Mr.

Parkerson, I am sure, in the future. So thank you all for your testimony. Thank you for your time today.

Without objection, the record of today’s hearing will remain open

for 10 days to receive additional material and supplementary written responses from the witnesses to any question asked by a member of the panel.

The hearing of the Subcommittee on General Farm Commodities

and Risk Management is adjourned.

[Whereupon, at 11:49 a.m., the subcommittee was adjourned.]

[Material submitted for inclusion in the record follows:]

STATEMENT OF ELDON GOULD

Mr. Chairman and members of the subcommittee, I am Eldon Gould, Administrator of USDA’s Risk Management Agency (RMA). I am also a life-long farmer in

northern Illinois, with a 1,500-acre corn, soybeans and wheat farm and a 700-sow

farrow-to-wean hog operation.

I appreciate the opportunity to provide an update on the efforts of RMA to continue to improve the integrity of the Federal crop insurance program. Any discussion of program integrity must include an update on our successes and challenges

in implementing the Agricultural Risk Protection Act of 2000 (ARPA). In fulfillment

of the mandates of ARPA, and under the direction of the Federal Crop Insurance

Corporation (FCIC) Board of Directors (Board), RMA continues to promote an aggressive agenda to bring new and innovative insurance products to the agricultural

community, to validate the utility of current insurance products, to ensure outreach
32

to small and limited resource farmers, to promote equity in risk sharing and to

guard against fraud, waste and abuse within the program.

Through the private sector delivery system, the program in 2005 provided produc- ers with over $44 billion in protection on approximately 246 million acres through

about 1.2 million policies. There are 22 plans of insurance available and nearly 30

new insurance products under various stages of evaluation or development. Approximately 80 percent of acres of major program crops are insured, with many at higher

levels of coverage. For 2005, crop insurance provided approximately $2.5 billion in

indemnity payments to farmers and ranchers.

PROGRAM INTEGRITY

The Federal crop insurance program itself is working as it was intended and it

is working well. That is not to say that more cannot be done, especially with regard

to reducing program fraud, waste and abuse. More can, should and must be done.

RMA is responsible to the American taxpayer and works diligently to be a good

steward of the tax dollar. America’s farmers and America’s taxpayers deserve a

flexible, fair and fraud-free program. Program integrity is maintained through prevention, detection and enforcement.

RMA’s efforts to maintain program integrity within the Federal crop insurance

program are comprised of numerous activities and initiatives: Quality Control and

Assurance, Data Mining, Sanctions and Enforcement, IT System Improvements,

Conflicts of Interest Guidelines and Program Simplification.

RMA is continually seeking new and creative ways to work with the other regulatory bodies, government agencies and the companies, agents and producers to ensure the integrity of the Federal crop insurance program. RMA compliance reviews

continue to reveal that there is only a small number of producers who have been

involved in fraud or illicit activity. While no level of criminal or abusive behavior

is acceptable, RMA continues to believe the number of persons involved in criminal

activity is relatively small.

Because they share in risk, the approved insurance providers (AIPs) have a vested

interest in working with us to prevent fraud, waste and abuse. We have worked

closely with the AIPs to strengthen program integrity, protect taxpayer dollars, and

better assure that those who deliberately break the rules are caught and punished.

The vast majority of people in the Federal crop insurance program-farmers, insurance agents, loss adjustors, industry professionals and government employees-are

honest, hard-working men and women acting with the highest integrity and competence.

EMPHASIZING PREVENTION THROUGH BETTER QUALITY CONTROL AND ASSURANCE

RMA’s Compliance function workload increased substantially due to the expansion

of the Federal crop insurance program and the implementation of ARPA. The President’s Fiscal Year (FY) 2007 budget proposal requested 15 additional staff to

strengthen and expand the compliance function, including addressing audits conducted by the USDA Office of Inspector General (OIG) and auditing insurance companies for improper payments.

RMA is emphasizing prevention through better quality control and assurance,

while still aggressively pursuing program abuse by assisting USDA’s OIG and the

Department of Justice. Improvements in quality controls and investigations continue to be assisted by new and better technology, specifically the use of data mining, remote sensing, geospatial information technologies and other computer-based

resources. It is important to note that RMA must refer all cases of suspected criminal activity to the OIG for investigation. We have provided this Subcommittee with illustrations showing the amount of time it can take to prosecute criminal activity in the

crop insurance program. As depicted in the attached slides, even the most vigorous

prosecutions can take several years to complete. The result is that in many cases,

the statute of limitations has run out and no further action is possible. While all

parties involved continue to work toward improving the process, there is little doubt

that the amount of time required to correctly address criminal misconduct by a

small number of policyholders does not effectively serve as a deterrent, except in

the most public of cases.

The renegotiation of the 2005 Standard Reinsurance Agreement (SRA) signaled

significant changes in the way RMA will ensure program compliance in the future.

RMA enhanced the reporting and monitoring of AIPs and their affiliates with respect to financial solvency and program integrity. The 2005 SRA was structured to

place a larger responsibility on AIPs for internal controls in part to recognize the

requirements of new laws, such as Sarbanes-Oxley, that are placed on the compa-
33

nies. These changes, along with Compliance’s new oversight methodology, are intended to increase the percentage of policies processed without errors in the future.

Data mining is now a primary tool used by Compliance to isolate and detect policies

that are anomalous in comparison to other policies with similar characteristics so

that they can be targeted for review.

In the area of enforcement, Compliance continues to build relationships not only

with the Federal agencies that assist directly with prosecuting criminal activity, primarily OIG Investigations and the Department of Justice, but also with State insurance departments and the National Association of Insurance Commissioners. This

approach is aimed at reducing both common errors and controlling the potential for

abuse on the front end of the program and more effectively prosecuting or taking

other administrative actions on those persons found to be in violation of the program rules.

In a time of limited resources and increased responsibilities, effective internal controls provide a significant cost-benefit compared to identifying and prosecuting program abuse alone.

DETECTION VIA DATA MINING

RMA is making significant progress in preventing fraud, waste and abuse through

the expanded use of data mining. As part of the ARPA legislation, data warehousing

and data mining techniques were explicitly identified as tools to be used by RMA

to strengthen the crop insurance program’s oversight efforts. RMA contracts with

the Center for Agribusiness Excellence (CAE) at Tarleton State University to develop these technologies. Since employing these technologies in 2001, RMA has

achieved substantial program savings through proactive efforts to identify program

vulnerabilities and abuse.

One such effort combines the strengths of data mining technologies and the farmlevel knowledge of another USDA agency, the Farm Service Agency (FSA), to identify and monitor those producers whose crop insurance losses are not consistent

with those of their neighbors. This effort alone has achieved savings of more than

$456 million dollars since the 2001 crop year. More importantly, these savings are

achieved without RMA or FSA having to issue administrative sanctions or engage

in lengthy and costly criminal investigations to curb program abuse. The savings

from this effort alone represent a $23 return for every dollar spent by RMA on data

mining since its inception. Our analysis shows that this change in claims behavior

for most producers persists for several years, resulting in overall savings that are

even higher over a longer-term period.

In addition, CAE conducts internal data mining research for RMA to assist compliance and underwriting efforts and any other research deemed necessary by the

agency to improve the effectiveness and efficiency of the crop insurance program.

CAE currently produces approximately 160 such research products per year for

RMA, including products such as crop simulation models, planting date studies and

methods for correctly identifying high-risk land.

Data mining findings also demonstrated that the considerable majority of producers participating in the crop insurance program used the risk management tools we

offer exactly as they were intended. CAE, using an analysis technique known as a

decision tree, classified the entire crop insurance book of business into a range of

behavior, from those producers who almost never had losses to those who had frequent and severe losses. Through this method, CAE was able to demonstrate that

most producers used the risk management tools as intended and only a small percentage of producers exhibited behavior that warranted future review.

RMA also uses data mining to verify compliance with established rules and regulations. For example, data mining identified policies where a comparison of past

claims and production data indicated that AIPs had often failed to use claim production data to establish future approved yields, as required by regulation. RMA is providing this information to the AIPs to assist them in correcting producer data for

subsequent crop years.

Outside audit bodies such as the USDA’s OIG and the General Accountability Office (GAO) have also recognized our success with the use of data warehousing and

data mining technologies. OIG recommended that USDA employ data mining in

other farm programs. Further, both OIG and GAO have been customers, using CAE

on occasion to assist them with audits of farm programs.

The benefits from using data warehousing and data mining technologies have increased every year since its inception. RMA expects the benefits generated from

using these technologies to continue and plans to expand its use of data mining

technologies to all areas of the program in the near future.
34

ARPA authorized program integrity funds for data mining purposes at a cost

equal to $3.6 million a year for a period of five years. That authorization expired

in fiscal year 2005. Congress, through the appropriations process, allocated $3.6 million in fiscal year 2006 so that data mining would continue. The President’s fiscal

year 2007 Budget included $3.6 million in the agency’s administration and Operations account. The House recently passed the fiscal year 2007 agriculture appropriations bill, which includes language providing RMA with flexibility to use other

authorized funds for data mining.

ENFORCEMENT

RMA continues to make progress in the Administrative Sanctions arena. In 2005,

RMA imposed 24 sanctions on producers, agents and loss adjusters found to have

violated approved policies and procedures. For 2006, RMA has imposed 28 sanctions

thus far. RMA publishes a list of imposed sanctions on its Web site as a reminder

to program participants that maintaining integrity is critical.

We are improving the timing and quality of our sanctions requests as well. As

of June 6, 2006, USDA’s Office of General Counsel (OGC) has declined only two

sanctions referrals due to insufficient evidence in 2006. In 2005, OGC declined 10

such cases. This improvement is attributable to Compliance personnel becoming

more proficient at identifying evidence and establishing cases that will pass legal

sufficiency requirements.

The number of pending sanctions cases has also decreased. We currently have 50

requests for administrative sanctions pending, compared with 57 at the end of 2005.

Finally, modifications to the Administrative Sanctions regulations that were identified in a recent GAO report have been drafted and are in clearance, as RMA

agreed to when GAO issued its report. These regulations will formalize the sanctions authority Congress provided RMA in ARPA.

In 2005, GAO audited RMA’s overall compliance activities for 2005, and recommended areas for improving our compliance efforts. GAO made several recommendations that RMA accepted and is working to implement. However, data

mining remains central to our compliance efforts because it is cost efficient and cost

effective.

Within current resources, compliance managers also continue to concentrate on

the mission-critical tasks of evaluating and improving new processes to prevent and

deter fraud, waste and abuse in the crop insurance program. We have dedicated significant resources to building and adapting a reporting and tracking system to complement and integrate the oversight mandates established by ARPA.

While RMA, FSA and the AIPs have prevented tens of millions of dollars of improper payments through these and other measures, RMA is constantly identifying

ways to balance competing needs to make our products fraud-proof while seeking

to provide responsive, useful risk protection to farmers. We still have work to do

and improvements to make, but we are making good progress in our fight against

program abuse.

IT SYSTEM IMPROVEMENTS

A critical area in program integrity improvement is enhancing the capability of

RMA’s IT system. ARPA also instituted new data reconciliation, data mining and

other anti-fraud, waste and abuse activities that require the data to be used in a

variety of new ways. The current IT system was not designed to handle these types

of data operations. Consequently, the data must be stored in multiple databases,

which increases data storage costs and processing times, and increases the risk of

data errors.

In light of this, the 2007 Budget includes a proposal to require the AIPs to share

in the cost to develop and maintain a new IT system. The AIPs would be assessed

a fee based on one-half cent per dollar of premium sold. The fee is estimated to generate an amount not to exceed $15 million annually. After the IT system has been

developed, the assessment would be shifted to maintenance and would be expected

to reduce the annual appropriation.

CONFLICT OF INTEREST SUPPLEMENTARY GUIDANCE

RMA recognizes that certain types of interactions between agents, loss adjusters

and policyholders pose serious conflict of interest challenges to the integrity of the

crop insurance program. RMA investigations and independent audits by OGC and

GAO have identified instances where crop insurance claims have been influenced by

such conflicts.
35

The 2005 SRA contained new and enhanced provisions that strengthened RMA’s

ability to prevent and detect those conflicts of interest that might adversely affect

program integrity. Specifically, the SRA strengthened provisions that 1) prohibited

certain conduct by agents during the loss adjustment process, and 2) required increased conflict of interest disclosure by agents, loss adjusters and AIP employees.

To assist the AIPs in implementing new SRA provisions dealing with prohibited

activities of agents during loss adjustment, RMA worked closely with AIPs and

agents to develop a comprehensive guidance document that reflected tough but

workable standards. RMA issued the resulting Managers Bulletin in October 2005.

The reaction of the crop insurance industry, agent associations and oversight bodies

has generally been very positive to these standards.

After addressing this first area of concern, RMA has now turned to the problem

of developing guidance on conflict of interest disclosure. The SRA requires that all

AIP employees and affiliates disclose any potential conflicts of interest to the AIPs

and, in turn, to RMA. RMA has listened to the comments of the industry regarding

conflict of interest disclosure to ensure that guidance will contain a workable standard that will be consistent across all AIPs and will provide important information

for RMA’s data mining efforts. A draft of this guidance has been cleared internally

and will soon be released to the industry for comment.

SIMPLIFICATION OF THE FEDERAL CROP INSURANCE PROGRAM

In addition, simplification of the program is a priority of both RMA and the FCIC

Board. As new programs have been added, more complexities have arisen.

As an initial priority, RMA is developing a Combination policy, which combines

the existing Actual Production History, Crop Revenue Coverage, Income Protection,

Indexed Income Protection and Revenue Assurance plans of insurance into one consolidated plan. We have been working on this for some time now, and the proposed

rule is in the final stage of the clearance process. We believe this change will provide producers a broader array of insurance options in a more straightforward process and improve product delivery and operations.

RMA is also working closely with FSA to simplify our joint reporting requirements. The two agencies have so many issues and requirements in common and we

interact so much that it makes great sense for us to work together to ease the reporting burden on the farmer and on the agencies. Our objective is to vastly improve

the reporting accuracy between the companies and FSA.

RMA is actively working on the second phase of a project to implement section

10706 of the 2002 Farm Bill to assist the Secretary of Agriculture in developing a

Comprehensive Information Management System (CIMS), which will simplify and

improve the programs administered by RMA and FSA. This project will provide an

information system that allows RMA, FSA other USDA entities and AIPs to process,

share and report on approved common information. The second phase of the project

focuses on the sharing and analysis of existing RMA and FSA producer and acreage

data. Recommendations have been provided to both RMA and FSA for subject matter experts to review elements for producers, land locations, crops and acreage reporting.

RMA continues to move forward with the CIMS project. The following CIMS services have been tested and are ready for implementation:

oReturning of FSA producer and acreage data to participating AIPs for 19 pilot

counties for 2006;

oEnabling FSA pilot county offices to access RMA data through a web-based process;

oProviding management reports; and

oAdding of discrepancies in producer reported information in RMA and FSA accepted data added to the CIMS web services.

In March 2006, a ‘Notification Area’ was added to the CIMS web interface to allow

FSA County Offices and AIPs to communicate on data issues identified by CIMS.

Administration of the crop insurance program requires all interested parties

working together to identify viable insurance products and solutions that meet the

needs of the agricultural community. Moreover, if the program is to continue to be

successful, the resources to provide the checks and balances necessary to guard

against the risks of fraud, waste and abuse need more focus and priority.

RMA continues to improve and update the terms and conditions of existing crop

insurance policies to enhance coverage and efficacy of the policies, as well as to clarify and define insurance protection and the duties and responsibilities of the policyholder and AIPs to improve the understanding, use and integrity of the program.

When I accepted this position, Secretary Johanns charged me with administering

the crop insurance program in a timely and farmer-friendly manner. I take this
36

charge very seriously. I will work with the insurance companies, agents’ groups,

crop-specific groups and, of course, the Congress, to meet our common goals of providing effective insurance products, processing timely and accurate claims when

losses occur and identifying and eliminating fraud, waste and abuse in the program

to the greatest extent possible. Thank you all for the support provided by the Subcommittee to help improve program integrity within the crop insurance program.

We have much to be proud of and much to look forward to in continuing to work

together.

Again, thank you for the opportunity to participate in this important hearing. I

look forward to responding to questions on these issues.
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39

STATEMENT OF DON BROWN

Chairman Moran, Ranking Member Etheridge and members of the committee,

thank you for the opportunity to testify today about ways to improve the crop insurance program. The continued availability of affordable insurance protection is vital

to the future of agriculture, but as you are keenly aware, the current crop insurance

system has pervasive and persistent inefficiencies that negatively impact our farmers and the Nation’s taxpayers.

Waste, fraud and abuse in the crop insurance program is a serious problem. It

has been recognized by the Department of Agriculture for many years. The 1999

GAO Report ‘‘USDA needs a better estimate of improper payments to strengthen

controls over claims’’ estimated that the US Government was paying out $100 million a year in erroneous claim adjustments. Additionally, the report suggested that

it was plausible that fraudulent claims could reach $200 million to $500 million per

year.

The Risk Management Agency has taken steps to address waste, fraud and abuse

in the crop insurance program, but a system still does not exist that can accurately

and effectively verify crop insurance claims.

In recent years, digital camera technology has advanced to the point where multispectral digital photography is affordable, transferable and accessible. A multiple

camera array mounted on an airplane, can image hundreds of thousands of acres

of farmland in a few hours. This imagery and the accompanying data can be used

to accurately measure the health of a crop. This technology provides a definitive tool

with which insurance adjustors can measure crop loss.

Let me take a step back and review the current procedure for reviewing a claim.

I am sure you are aware that if the dollar figure of a claim is below a certain

threshold amount, in many instances an adjustor is not even sent to verify the

claim. In those cases where an adjustor does visit the site, he or she may drive hundreds of miles to a farm in his or her region. The claims adjustor would literally

walk up and down rows of planted crop and sample the field for damage. The adjustor would then estimate the amount of crop loss for the entire field. Visualize an

adjustor in the middle of a section—640 acres of crops—trying to estimate with any

accuracy the level of insured loss. It is a daunting challenge. In order to settle the

claim he or she must hazard a guess. With nothing other than experience and the

naked eye, the producer and the insurer arrive at a number.

Today, our company—in partnership with others—has developed a proven ability

to automate this process and give crop insurance adjustors a tool to measure the

insurable loss in a timely and fair way. With multi-spectral digital imagery, the

claims adjustor does not even have to leave the office. With a little training, an adjustor can look at a data file, calculate the amount of crop loss in minutes and finalize their report. The farmer is provided with a very precise mapping of the field

showing the areas of total loss and the areas of marginal or no loss. The guesswork

is taken out and the adjustor and the farmer can feel comfortable with the final settlement.

How does this technology work? We deploy a flight crew to fly very precise flight

lines at predetermined altitude over the target area. We collect images about every

4–7 seconds with four cameras that are triggered simultaneously. Each camera captures an identical image but through a precision filters—red, green, blue, and false

infrared. The first three filters cover the part of the light spectrum visible to the

human eye, the last filter that part not visible to humans.

By manipulating the four bands it is possible to measure, very accurately, the relative health of the vegetation. This measurement is a function of the reflectance and

absorption of the sun off the surface of the leaf. This technique is well proven and

has been cited by the Department of Agriculture as an effective tool to prevent fraud

in the crop insurance program.

Quoting from the Department of Agriculture ‘‘Risk Management Agency Report to

Congress in 2003, ‘‘Protecting Farms, Preventing Fraud’’: ‘‘Unlike aerial photographs taken with film, these special digital images capture a light wavelength invisible to the human eye that is displayed as different shades on a photographic

image. By monitoring the reflection of light radiated from the ground, infrared images can detect the health of a crop. The healthier the vegetation, the brighter red

the image appears in the photograph. But what makes the technology even more

valuable is that infrared sensing detects not only variations in plant life, but also

the soil condition beneath the plants.’’

The report goes on to say, ‘‘It is our belief that this technology will become a tool

of great significance nationwide in monitoring crop conditions and compliance, and

in influencing how growers conduct their growing practice.’’
40

To analyze the data, it is not necessary for several thousand adjustors to become

experts in multi-spectral analysis. The computer processes these overlapping images

into a new image called a Normalized Digital Vegetation Index (NDVI). These images can be categorized in to eight categories depicting the health of the crop—a

spectrum from healthy to total loss. For precision agriculture functions, these images can be further broken down into more than 30 bands or categories. These images will give adjustors a verifiable tool to use in calculating crop damage.

Remote sensing imagery is able to cover and analyze a larger ground area than

any human effort on the ground could handle, even if allowed far greater amounts

of time. These significant savings in time, money and labor costs would lead to

greater efficiency in the program and would also allow ground investigators to focus

more clearly- and more quickly- on the potential trouble spots identified by the images.

In closing, I would encourage members of the committee and the Department of

Agriculture to explore ways to use this exciting new technology. I believe a small

investment in a structured pilot project would yield substantial cost savings to the

Federal Government by eliminating significant amounts of waste, fraud and abuse

in the crop insurance program.

Thank you for your time and attention to this important topic.

[Editor’s note: Mr. Brown submitted the following clarification for

the record:]

I am writing to clarify and revise testimony I gave before your subcommittee on

June 14th. As the hearing was about to be adjourned, one of the other panelists referred to a comment that I had made concerning the cost of multi-spectral imagery

if it were to be used as a tool in the loss adjusting process. Somehow, I seem to

have faIled to communicate accurately the anticipated costs of this imagery per

acre.

For the type of multi-spectral imagery that Vega Imaging Solutions and our partners provide, the anticipated price is approximately $0.75 per acre. In addition to

being cost effective, the turnaround time for Vcga Imaging Solutions services is 72

hours. Typical turnaround time for conventional aerial photography is 2-3 months.

The introduction of multi-spectral, high-resolution, closely-rectified digital imagery into the claims settlement process will have a major impact on the issue of

waste, fraud, and abuse in the Federal Crop Insurance Programs

Thank you for allowing me to clarify this portion of my testimony.

STATEMENT OF ROBERT W. PARKERSON

Mr. Chairman, my name is Robert W. Parkerson. I serve as president of National

Crop Insurance Services (NCIS), on whose behalf my testimony is presented today.

I would like to thank the subcommittee for the opportunity to present this testimony.

NATIONAL CROP INSURANCE SERVICES

NCIS is a nonprofit trade association whose member companies include every crop

insurance company that participates in the Federal crop insurance program. NCIS

has worked actively with the Risk Management Agency (RMA) as an approved contractor and with the Board of the Federal Crop Insurance Corporation (FCIC) as

an expert reviewer. We have received thirteen risk management education grants

or research awards over the last several years and have served as expert reviewers

on six projects.

NCIS is also a licensed statistical agent and advisory organization for Crop-Hail

insurance in all required states, and assists the crop insurance industry in meeting

the regulatory requirements of the individual states. This is accomplished by filing

the appropriate material and statistical information with respective state insurance

departments. Further, NCIS serves as liaison with individual state insurance departments through active participation with the National Association of Insurance

Commissioners (NAIC).

In 2005, NCIS member companies wrote more than $3.9 billion in MPCI and related revenue products premium and over $434 million in private Crop-Hail insurance products premium. The potential liability under both programs was $59 billion.

The protection provided represents approximately 80 percent of the total acres

planted to principal crops in the United States. NCIS member companies service

policies that encompass all farmers participating in the Federal and private programs, including limited resource and socially disadvantaged farmers. In partner-
41

ship with the government, our participating member companies are the safety net

that equitably provides risk management to the American farmer.

For those of us working in the crop insurance industry, our livelihoods depend on

the integrity of this program. Without program integrity, farmers would not have

the safety net they so richly deserve. We have all worked too hard and achieved

too much to allow the slightest erosion of integrity to cause the downfall of this program.

The program’s accomplishments-widespread participation, efficient, low cost delivery, and the continuing growth of the crop insurance program—must not be jeopardized by fraud, waste, and abuse.

A MATURE FEDERAL PROGRAM AND ITS CHALLENGES

We tend to forget that multiple peril crop insurance has reached a mature stage

of development. Here are some fundamental facts that we often repeat:

• A very significant portion of insurable acres actually are covered, and this has

been so for a number of years.

• On a fairly constant basis the MPCI program has come to provide risk management protection against liability in excess of $40 billion annually.

• The program’s actuarial soundness has steadily improved under RMA’s stewardship.

• The MPCI program has evolved over the past decade so that now twenty two

plans of insurance are available covering 110 crop policies.

These are convincing signs of a mature program.

With this level of maturity, it is time for some frank talk about challenges facing

the MPCI program. Those challenges center on enhancing program integrity. We

want to offer our thoughts on internal and external avenues for improvement.

First, working together, RMA and the industry can strengthen internal operation

of the Federal crop insurance program. Let me start by telling you what we can do,

and have been doing, in the private sector. In one word, it is education. We believe

that better knowledge of this complex program both improves program compliance

and enhances vigilance. That is the reason NCIS, on behalf of its member companies, is committed to a broad based and continuing education program to help combat fraud, waste, and abuse.

NCIS held a Program Integrity Conference on May 22–23, 2006, in Overland

Park, Kansas. This conference centered on the crop insurance industry’s ability to

reduce fraud, waste, and abuse and how best to handle these issues in a growing

and complex program. Senator Pat Roberts, RMA Administrator Eldon Gould, and

Bert Little were key speakers at this conference. Over 100 people from the crop insurance industry attended this day-and-a-half long event. Representatives from the

NAIC, the Federal Bureau of Investigation, the International Center for Ethics in

Business, the USDA Office of Inspector General, NCIS, and crop insurance companies spoke on various issues dealing with fraud, waste, and abuse. We look forward

to offering updated versions of this conference in 2007 and following years.

The private sector firmly believes that educational efforts can be key deterrents

to fraud, waste, and abuse. The Federal crop insurance program is complex, and improving understanding of its terms and operation should help limit fraud, waste,

and abuse. Everyone involved-our policyholders, agents, adjusters, RMA personnel,

and company employees-all need to understand the program and recognize that

their individual actions affect the integrity of the entire crop insurance program. On

a whole, agents who sell crop insurance and loss adjusters who determine the

amount of indemnities payable are honest and dedicated professionals. As a result

of their dedication, America’s farmers can be assured that program options will be

accurately explained to them at time of purchase, and that losses will be adjusted

fairly and accurately in the event of damage.

Moreover, through proper education, company employees, agents, and adjusters

are becoming better equipped to recognize behavior outside the bounds of program

compliance. Knowing this encourages agents, adjusters, and producers to behave in

an ethical manner. The benefits of effective training are that errors can be avoided,

that uniformity in adjusting losses can be increased, thus leading to higher confidence in the program, and that there will be appropriate discipline in those rare

instances of intentional wrongdoing. Through effective training, industry and RMA

can work together to improve the program.

The ever-growing complexity of the crop insurance program and the capacity of

agents, adjusters, company personnel and even RMA to keep up with it continues

to be a concern for many of us involved in the industry.
42

A mature program certainly does not mean that initiatives to develop innovative

products should end. Nor does it mean that we should forget the need to be vigilant

about the way existing products are operating. When we review existing products

or consider new ones, however, we must be certain that two questions can be answered satisfactorily: (1) Does the product serve legitimate risk management objectives of America’s farmers; and (2) does the product operate in a fashion that is consistent with the public interest? The second question means that, at the product development stage, it is essential to eliminate, or at least to limit radically, opportunities for fraud, waste, and abuse to arise. We must close potential loopholes and

guard against distortion before products are introduced. Unquestionably, this is the

duty of RMA, and we in the private sector can and should help.

The significance of this second question—is the product consistent with the public

interest—can be illustrated by anticipated introduction of the ‘‘Combo Policy’’ in

2009. The goal is to have a product which helps simplify the program and makes

it more user-friendly for the farmer. Getting this new product introduced is taking

longer than anyone desired or anticipated. Rather than complaining about delays,

however, we want to use introduction of this anticipated product to deal with program integrity issues. First, we hope that the extended internal review this product

is receiving means that RMA is working hard to close any potential policy loopholes

before publication of a proposed rule for public comment. Second, we hope that RMA

also is taking this time to assure that this product, when introduced, will be accompanied by complete, meaningful handbooks for implementing it and adjusting losses.

Third, it is imperative that, once a proposed rule is published, an ample period for

public comment is provided. Fourth, the crop insurance industry and producer

groups should offer probing and constructive comments. Finally, RMA needs to listen carefully to the comments offered by those who will sell and service the ‘‘Combo

policy’’ and by those who will purchase it as an enhanced risk management tool.

If these steps are followed, the final product should be relatively error free and

should enhance program integrity and not call it into question. We look forward to

working closely together with RMA during the implementation phase of the ‘‘Combo

Policy.’’

Two internal RMA personnel issues also are significant aspects of reducing fraud,

waste, and abuse. First, RMA needs to have sufficient personnel to accomplish the

tasks Congress has assigned to it. Second, RMA needs the resources to deal with

the loss of institutional knowledge from staff retirements, including some anticipated in the next to 10 years. The ability to replace these key individuals with

skilled and knowledgeable personnel is critical, but we fear it may prove difficult

for RMA.

RMA also must find better ways for dealing with external pressures for change.

Changes made to existing policies and procedures are often driven by external pressures and made without adequately taking into account the timing of the changes,

or the cost benefit or the risk impact changes may have on the program. As a result,

changes of this nature frequently result in unintended consequences. RMA has kept

the industry as well informed as possible, given its regulatory constraints, and we

appreciate its willingness to do so. However, due to haste or extremely short comment periods, the private sector has often had little opportunity to provide input or

analysis before some changes are released as final. It is difficult to make comments

on or discuss an issue when all of the facts may not be known, or potential impacts

have not been sufficiently thought through. This makes it difficult at times to work

together. Examples of this type of situation include the Basic Provisions policy language dealing with prevented planting due to drought or failure of irrigation water

supply and the 2005 Apple Crop Policy provisions. The 2006 Nursery Crop Provisions and the 2007 Florida Fruit Tree Crop Provisions are two current examples

where it is still too soon to fully realize whether there may be any problems. Recently, NCIS sponsored a loss adjustment training school in Lake Mary, Florida, on

the Nursery and Florida Fruit Tree policies in an effort to ensure that all adjusters

are adequately trained regarding the extensive changes made to these policies. We

believe these represent examples where external pressures have led or may lead to

unwise program decisions. We must recognize that there are financial consequences

and program integrity consequences when external pressures result in a program

change that has not withstood the normal rigors of development, review, and testing

an insurance product requires.

The Agricultural Risk Protection Act of 2000 (ARPA) introduced important program integrity tools. One is data mining, and another is use of Farm Service Agency

(FSA) resources in an effort to identify potential program abuse. We are believers

in data mining, but our members have a common concern about its implementation—they do not receive critical information early enough to prevent or mitigate

losses. Use of FSA resources has potential, but our members are not convinced this
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change materially has benefited the program, again because the companies often do

not receive FSA’s input in a timely fashion. We believe delayed receipt of FSA information unquestionably deprives insurance providers of data needed to deal

proactively with program abusers. It is vitally important that RMA, FSA, and industry work together in the implementation of ARPA.

We want to offer some positive examples of the industry’s efforts to work with

RMA on program integrity issues and related concerns.

NCIS is in regular contact with Mr. Gould and his staff and we have worked diligently together to resolve issues as they arise in the program. Some of these have

dealt directly with program vulnerabilities that, if not corrected, could lead to program abuse. NCIS worked with RMA in developing an SRA appendix III Type 57

record system which will enable electronic transmission to RMA of SRA required

company quality control activities. This process will help both RMA and the companies monitor and resolve quality control issues. Even though this process has been

successful, there are still some issues to be resolved. Certain review processes still

take a random approach towards discovering program vulnerabilities. We believe

data mining would be a useful tool to better target areas of weakness and complement the review processes as laid out in appendix IV of the SRA and other FCIC

approved procedural manuals. We want to sit down with RMA and follow up on discussions of processes and methods that would allow us all to all ‘‘work smarter.’’

We believe the concepts and basic fundamentals that underlie AGR, AGR-Lite,

GRP, and GRIP are an important part of this program and can fill a need for many

farmers in the country. However, we do have some concerns with how they work.

Recently, NCIS formed a workgroup of industry members that met to discuss many

of the concerns associated with the AGR and AGR-Lite program. Currently, this

workgroup is working with RMA in identification of areas of concern and with recommendations to strengthen the program. RMA has been working on issues in the

GRP and GRIP programs and NCIS met with them to discuss our concerns related

to these programs.

Finally, we must place in perspective examples of fraud, waste, and abuse. Fortunately, as Dr. Little explained to our program integrity conference at the end May,

fraud in crop insurance is quite low, and is less than 1 percent of total indemnities

paid. This is very good, because it is noticeably less than what other property/casualty insurance lines experience. It means that advocates of a strong public-private

partnership can confront their critics with the confidence of knowing that they sell,

service, and manage agricultural risks in a superior fashion. This also should permit

all as to have the patience to allow improved educational efforts and better product

development and review to work.

Crop insurance is an effective risk management tool for growers to protect themselves. Growers must have confidence in the stability of the program and purchase

adequate coverage. We and RMA fortunately can offer growers a financially sound

and stable program.

As an industry we take seriously our responsibility to deliver the Federal Crop

Insurance Program with integrity and fairness, and we have a long history of being

proactive in addressing issues of fraud, waste, and abuse. We shall continue to be

proactive.
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