United States Government Accountability Office

GAO Testimony 

Before the Subcommittee on General 

Farm Commodities and Risk Management, 

Committee on Agriculture, House of 

Representatives

CROP INSURANCE 

More Needs To Be Done to 

Reduce Program’s 

Vulnerability to Fraud, 

Waste, and Abuse 

Statement of Daniel Bertoni, Acting Director 

Natural Resources and Environment 

For Release on Delivery

Expected at 10:00 a.m. EDT 

Thursday, June 15, 2006

 

GAO-06-878T 
What GAO Found

United States Government Accountability Office

Why GAO Did This Study

Highlights

Accountability Integrity Reliability

June 2006

CROP INSURANCE

More Needs to Be Done to Reduce 

Program’s Vulnerability to Fraud, Waste, 

and Abuse 

Highlights of GAO-06-878T, testimony 

before the Subcommittee on General 

Farm Commodities and Risk 

Management, Committee on Agriculture, 

House of Representatives

The U.S. Dept. of Agriculture’s 

(USDA) Risk Management Agency

(RMA) administers the federal crop 

insurance program in partnership

with private insurers. In 2005, the 

program cost $2.7 billion, including

an estimated $117 million in losses 

from fraud, waste, and abuse. The 

Agricultural Risk Protection Act of

2000 (ARPA) provided new tools to

monitor and control abuses, such 

as providing RMA sanction 

authority to address program abuse 

and having USDA’s Farm Service 

Agency (FSA) inspect farmers’ 

fields. This testimony is based on 

GAO’s September 30, 2005, report,

Crop Insurance: Actions Needed 

to Reduce Program’s Vulnerability 

to Fraud, Waste, and Abuse (GAO05-528). GAO assessed (1) USDA’s 

processes to address fraud, waste,

and abuse, and (2) the extent to 

which the program’s design makes

it vulnerable to abuse.

What GAO Recommends

GAO suggested that the Congress 

consider reducing premium

subsidies to farmers who

repeatedly file questionable claims.

GAO recommended that USDA (1)

improve field inspections, (2) 

recover payments from operations 

that failed to disclose farmers’ 

ownership interests, (3) strengthen

oversight of insurers’ use of quality 

controls, and (4) issue regulations

for expanded sanction authority. 

USDA agreed with most of GAO’s

recommendations. However, it

stated that it had insufficient 

resources to conduct all 

inspections. 

RMA has taken a number of steps to improve its procedures and processes 

to address fraud, waste and abuse in selling and servicing crop insurance 

policies and has reported more than $300 million in savings from 2001 to 

2004. However, RMA is not effectively using all of its tools. GAO identified 

weaknesses in four key areas: 

• FSA inspections during the growing season are not being used to 

maximum effect. Between 2001 and 2004, FSA conducted only 64 

percent of the inspections RMA had requested. Without inspections, 

farmers may falsely claim crop losses. 

• RMA’s data analysis of the largest farming operations is incomplete. 

According to GAO’s analysis, in 2003 about 21,000 of the largest farming 

operations in the program did not report individuals or entities with an 

ownership interest in these operations as required. Without this 

information RMA was unaware of ownership interests that could help it 

prevent potential program abuse. FSA did not give RMA access to the 

data needed to identify such individuals or entities. USDA should be able 

to recover up to $74 million in improper claims payments. 

• RMA is not effectively overseeing insurance companies’ efforts to

control program abuse. GAO’s review of 120 cases showed that 

companies did not complete all of the required quality assurance reviews 

of claims and those that were conducted were largely paper exercises.

• RMA has infrequently used its new sanction authority to address 

program abuse. RMA has not issued regulations to implement its new 

sanction authority under ARPA and imposed only 114 sanctions from 

2001 through 2004, although it annually identifies about 3,000 

questionable claims, not all of which are necessarily sanctionable. 

RMA’s regulations to implement the crop insurance program, as well as 

some statutory requirements, create program design problems that hinder 

RMA’s efforts to reduce program abuse. For example, RMA’s regulations 

allow farmers to insure fields individually rather than all fields combined. 

This option enables farmers to “switch” reporting of yield among fields to 

either make false claims or build up a higher yield history on a field to 

increase its eligibility for higher insurance guarantees. High premium 

subsidies, established by statute, may also limit RMA’s ability to control 

program abuse because the subsidies shield farmers from the full effect of 

paying higher premiums associated with frequent claims. 

Eight recent crop insurance fraud cases, investigated by USDA’s Office of 

Inspector General and resulting in criminal prosecutions between June 2003 

and April 2005, reflect the issues GAO noted. These cases show how farmers, 

sometimes in collusion with insurance agents and others, falsely claim 

prevented planting and low production. Several of these cases also 

demonstrate the importance of having FSA and RMA work together to 

identify and share information on questionable farming practices/activities.

www.gao.gov/cgi-bin/getrpt?GAO-06-878T.

To view the full product, including the scope 

and methodology, click on the link above. 

For more information, contact Daniel Bertoni 

at (202) 512-3841 or bertonid@gao.gov. 
Mr. Chairman and Members of the Subcommittee: 

I am pleased to be here today to discuss USDA’s efforts to address fraud, 

waste, and abuse in the Federal Crop Insurance Program. My testimony 

today is based on our September 2005, report to the Chairman of the 

Committee on Homeland Security and Governmental Affairs.1 As you 

know, federal crop insurance is part of the overall safety net of programs 

for American farmers. It provides protection against financial losses 

caused by droughts, floods, or other natural disasters. In 2005, the crop 

insurance program provided $44 billion in insurance coverage for over 200 

million acres of farmland at a cost of $2.7 billion to the federal 

government, including $117 million estimated by the U.S. Department of 

Agriculture’s (USDA) Risk Management Agency (RMA) to have resulted 

from fraud, waste, and abuse. 

RMA, which supervises the Federal Crop Insurance Corporation’s (FCIC) 

operations, has overall responsibility for administering the crop insurance 

program, including protecting against fraud, waste, and abuse. RMA 

partners with private insurance companies that sell and service the 

insurance policies. 

In part, to improve the integrity of the crop insurance program, Congress 

enacted the Agricultural Risk Protection Act of 2000 (known as ARPA). 

This act provided RMA and USDA’s Farm Service Agency (FSA) with new 

tools for monitoring and controlling program abuses. ARPA required the 

Secretary of Agriculture to develop and implement a coordinated plan for 

FSA to assist RMA in the ongoing monitoring of the crop insurance 

program and to use information technologies, such as data mining—the 

analysis of data to establish relationships and identify patterns—to 

administer and enforce the program. 

However, concerns have arisen that some farmers may have abused the 

crop insurance program by allowing crops to fail through neglect or 

deliberate actions in order to collect insurance and that some insurance 

companies have not exercised due diligence in investigating losses and 

paying claims. My testimony today focuses on two primary issues 

discussed in the September 2005 report: (1) the effectiveness of USDA’s 

procedures and processes to prevent and detect fraud, waste, and abuse in

 1

GAO, Crop Insurance: Actions Needed to Reduce Program’s Vulnerability to Fraud,

Waste, and Abuse, GAO-05-528 (Washington, D.C.: September 30, 2005).

Page 1 GAO-06-878T 
selling and servicing crop insurance policies, and (2) the extent to which 

program design issues may make the program more vulnerable to fraud, 

waste, and abuse.2

In summary, since the enactment of ARPA, RMA has taken a number of 

steps to improve its procedures and processes to prevent and detect fraud,

waste, and abuse in the crop insurance program. Most notably, RMA 

reports that data mining analyses and subsequent communication to 

farmers resulted in a decline of at least $300 million in questionable claims 

payments from 2001 to 2004. However, we found that RMA is not 

effectively using all of the tools it has available and that farmers and 

others can continue to take advantage of the program. We identified 

weaknesses in four key areas: (1) field inspections, (2) data mining 

processes that exclude many large farming operations when farmers do 

not report their interest in them, (3) quality assurance reviews conducted 

by insurance companies, and (4) imposition of sanctions. Weaknesses in 

these areas continue to leave the program vulnerable to questionable 

claims, and insurance companies and RMA cannot always determine the 

validity of a claim to minimize fraud, waste, and abuse. 

We also found that the program’s design, as laid out in RMA’s regulations 

or as required by statute, can impede RMA officials’ efforts to prevent and

detect fraud, waste, and abuse in a number of ways. In terms of RMA’s 

regulations, farmers can insure their fields individually instead of insuring 

all fields combined, which makes it easier for them to switch production

among fields, either to make false insurance claims or to build up a higher 

yield history on a particular field in order to increase its eligibility for 

higher future insurance guarantees. Moreover, companies participating in

the crop insurance program bear minimal risk on some of the policies they 

sell and service, giving the companies little incentive to rigorously 

challenge questionable claims on these policies. In terms of statutory 

requirements, RMA is obligated by law to offer farmers “prevented 

planting” coverage—coverage if an insured crop is prevented from being 

planted—but it is often difficult to determine whether the farmer had the 

opportunity to plant a crop. Furthermore, statutorily established premium 

subsidies are high and, therefore, may shield high-risk farmers from the 

full effect of paying higher premiums. 

 2

Our September 2005 report also addressed the effectiveness of USDA’s procedures to

assure program integrity in developing new crop insurance products. 

Page 2 GAO-06-878T 
Our report highlighted eight recent crop insurance fraud cases that reflect

some of the issues we identified. These cases, totaling $3.1 million in 

insurance claims, were investigated by USDA’s Office of Inspector General 

(OIG) and resulted in criminal prosecutions between June 2003 and April 

2005. The cases show how farmers, sometimes in collusion with insurance

agents and others, falsely claim prevented planting, weather damage, and

low production. Some of the cases show farmers hiding or moving 

production from one field to another. Several of these cases also 

demonstrate the importance of having FSA and RMA work together to 

identify and share information on questionable farming 

practices/activities. 

In our report, we made several recommendations to the Secretary of 

Agriculture to strengthen procedures and processes to prevent and detect 

fraud, waste, and abuse in the crop insurance program. We also noted that 

the Congress should consider allowing RMA to reduce premium subsidies 

for farmers who consistently have claims that are irregular in comparison 

with other farmers growing the same crop in the same location. 

In conducting their operations, farmers are exposed to both production 

and price risks. Over the years, the federal government has played an 

active role in helping to mitigate the effects of these risks on farm income 

by promoting the use of crop insurance. 

Background 

RMA administers the federal crop insurance program in partnership with 

private insurance companies that sell the insurance policies to farmers and 

adjust any claims. The companies also share in a percentage of the risk of 

loss or opportunity for gain associated with each insurance policy written. 

Under the program, participating farmers are assigned (1) a “normal” crop 

yield based on their actual production history and (2) a price for their 

commodity based on estimated market conditions. Farmers can then 

select a percentage of their normal yield to be insured and a percentage of

the price they wish to receive if crop losses exceed the selected loss 

threshold. In addition, under the crop insurance program’s “prevented

planting” provision, insurance companies pay farmers who were unable to

plant the insured crop because of an insured cause of loss that is general 

to their surrounding area, such as weather conditions causing wet fields, 

and that had prevented other farmers from planting fields with similar 

characteristics. These farmers are entitled to claims payments that 

generally range from 50 to 70 percent of the coverage they purchased, 

depending on the crop. 

Page 3 GAO-06-878T 
RMA establishes the terms and conditions that the private insurance 

companies selling and servicing crop insurance policies are to use through 

a contract called the standard reinsurance agreement (SRA). The SRA 

establishes the minimum training, quality control review procedures, and 

performance standards required of all insurance providers in delivering 

any policy insured or reinsured under the Federal Crop Insurance Act, as 

amended. 

RMA is responsible for ensuring that the federal crop insurance program is 

carried out efficiently and effectively and for protecting against fraud, 

waste, and abuse in the program. In this regard, RMA uses a broad range 

of tools, including RMA compliance reviews of companies’ procedures, 

companies’ quality assurance reviews of claims, data mining, and FSA 

inspections of farmers’ fields. Insurance companies must conduct quality 

assurance reviews of claims that RMA has identified as anomalous or of 

those claims that are $100,000 or more to determine whether the claims 

they have paid are in compliance with policy provisions. 

The Congress enacted ARPA, amending the Federal Crop Insurance Act, in

part, to improve compliance with, and the integrity of, the crop insurance 

program. Among other things, ARPA expanded RMA’s authority to impose 

sanctions against farmers, agents, loss adjusters, and insurance companies 

that willfully and intentionally provide false or inaccurate information to 

FCIC or to an approved insurance provider. It also provided authority to 

impose civil fines for violations. ARPA also increased the percentage share 

of the premium the government pays for most coverage levels of crop 

insurance, beginning with the 2001 crop year. Although the percentage of

the premium the government pays declines as farmers select higher levels 

of coverage, the government contribution significantly increases for all 

levels of coverage, particularly for the highest levels of coverage. For 

example, the government now pays fully one-half of the premium for 

farmers who choose to insure their crop at 75-percent coverage. 

Page 4 GAO-06-878T 
RMA has taken a number of steps to improve its procedures and processes 

to prevent and detect fraud, waste, and abuse, such as data mining, 

expanded field inspections and quality assurance reviews. In particular, 

RMA now develops a list of farmers each year whose operations warrant 

an on-site inspection during the growing season because data mining 

uncovered patterns in their claims that are consistent with the potential 

for fraud and abuse. For example, the list includes 

• farmers, agents, and adjusters linked in irregular behavior that suggests 

collusion; 

• farmers who for several consecutive years received most of their crop 

insurance payments from prevented planting indemnity payments; 

RMA Has 

Strengthened 

Procedures for 

Preventing 

Questionable Claims, 

but the Program 

Remains Vulnerable 

to Potential Abuse 

• farmers who appear to have claimed the production amounts for multiple 

fields as only one field’s yield, thereby creating an artificial loss on their 

other field(s); and 

• farmers who, in comparison with their peers, have excessive harvested 

losses over many years.

Since RMA began performing this data mining in 2001, it has identified 

about 3,000 farmers annually who warrant an on-site inspection because of 

anomalous claims patterns. In addition, RMA annually performs about 100 

data manipulations to identify areas of potential vulnerability and trends in

the program. 

RMA also provides the names of farmers from its list of suspect claims for 

inspection to the appropriate FSA state office for distribution to FSA 

county offices, as well as to the insurance company selling the policy to 

the farmer. As a result of these inspections and other information, RMA 

reported total cost savings of $312 million from 2001 to 2004, primarily in 

the form of estimated payments avoided. For example, according to RMA, 

claims payments to farmers identified for an inspection decreased 

nationwide from $234 million in 2001 to $122 million in 2002. According to

RMA, some of the farmers on the list for filing suspect claims bought less 

insurance and a few dropped crop insurance entirely, but most simply 

changed their behavior regarding loss claims. 

However, our review showed that RMA is not effectively using all of the 

tools it has available and that some farmers and others continue to take 

advantage of the program, as the following discussion indicates. 

Page 5 GAO-06-878T 
Inspections during the growing season are not being used to maximum 

effect. Although FSA is assisting RMA as required under ARPA, by 

conducting field inspections, FSA is not doing so in accordance with 

USDA guidance. Between 2001 and 2004, farmers filed claims on about 

380,000 policies annually, and RMA’s data mining identified about 1 

percent of these claims as questionable and needing FSA inspection. 

Under USDA guidance, FSA should have conducted all of the requested 

inspections, but instead conducted only 64 percent of them; FSA 

inspectors said that they did not conduct all requested inspections 

primarily because they did not have sufficient time. Moreover, between 

2001 and 2004, FSA offices in nine states did not conduct any of the field

inspections RMA requested in one or more of the years. Until we brought 

this matter to their attention in September 2004, FSA headquarters 

officials were unaware that the requested inspections in these nine states

had not been conducted. Furthermore, FSA may not be as effective as 

possible in conducting field inspections because RMA does not provide it

with information on the nature of the suspected abusive behavior or the 

results of follow-up investigations. About 80 percent of the FSA inspectors 

we surveyed believe that receiving more information from RMA would 

help them be more effective in detecting fraud, waste, and abuse. Finally,

these inspections do not always occur in a timely fashion, which would 

help detect abuse during the growing season. Because of these problems, 

the insurance companies and RMA cannot always determine the validity of

a claim. 

RMA’s data analysis of the largest farming operations is incomplete. 

RMA’s data mining analysis excludes comparisons of the largest farming 

operations—including those organized as partnerships and joint ventures. 

These entities may include individuals who are also members of one or 

more other entities. Because it does not know the ownership interests in 

the largest farming operations, RMA cannot readily identify potential 

fraud. For example, farmers who are members of more than one farming 

operation could move production from one operation to another to file 

unwarranted claims, without RMA’s knowledge that these farmers 

participate in more than one farming operation. RMA cannot make these 

comparisons because it has not been given access to similar data that FSA 

maintains. However, ARPA requires the Secretary of Agriculture to 

develop and implement a coordinated plan for RMA and FSA to reconcile

all relevant information received by either agency from a farmer who 

obtains crop insurance coverage. 

Using FSA data, we examined the extent to which (1) farming operations 

report all members who have a substantial beneficial interest in the 

Page 6 GAO-06-878T 
operation, (2) these farming operations file questionable crop insurance 

claims, and (3) agents or claims adjusters had financial interests in the 

claim.3

 We found that of the 69,184 entities that had crop insurance 

policies in 2003 and that were in both RMA’s and FSA’s databases, 21,310,

or about 31 percent, did not report one or more members who held a 

beneficial interest of 10 percent or more in the farming operation holding 

the policy—for a total of $224.8 million in claims paid. 

RMA should be able to recover a portion of these payments. According to

RMA regulations, if the policyholder fails to disclose an ownership interest 

in the farming operation, the policyholder must repay the amount of the 

claims payment that is proportionate to the interest of the person who was 

not disclosed.4

 The average ownership interest of the persons not 

disclosed for the 21,310 entities was 33 percent; as a result, RMA should be 

able to recover up to $74 million in claims payments. Our analysis of 

RMA’s and FSA’s databases for 2004 showed similar results. Of the 21,310 

entities failing to disclose ownership interest in 2003, we found 210 entities

with suspicious insurance claims totaling $11.1 million. In addition, we 

identified 24 crop insurance agents who sold policies to farming entities in 

which the agents held a substantial beneficial interest but failed to report 

their ownership interest to RMA as required.5

 These farming entities 

received $978,912 in claims payments in 2003 and 2004. 

RMA is not effectively overseeing insurance companies’ quality 

assurance programs. RMA guidance requires insurance companies to 

provide oversight to properly underwrite the federal crop insurance 

program, including implementing a quality control program, conducting 

quality control reviews, and submitting an annual report to FCIC. 

However, RMA is not effectively overseeing insurance companies’ quality 

 3

The Center for Agribusiness Excellence conducted this analysis at our request. The 

Center, located at Tarleton State University in Stephenville, Texas, provides research, 

training, and resources for data warehousing and data mining of agribusiness and 

agriculture data. The Center provides data mining of crop insurance data for RMA. 

4

7 C.F.R. § 457.8.

5

RMA guidance Manual 14, Guidelines and Expectations for Delivery of the Federal Crop

Insurance Program states that insurance companies must conduct conflict-of-interest 

reviews for all crop insurance claims of individuals directly associated with the federal 

crop insurance program. However, without knowledge that these insurance agents held a

substantial beneficial interest of 10 percent or more in entities that received claims 

payments, insurance companies may not have conducted the reviews in 2003 and 2004. As 

of August 2005, RMA could not confirm that these reviews had been conducted. 

Page 7 GAO-06-878T 
assurance programs, and for the claims we reviewed, it does not appear 

that most companies are rigorously carrying out their quality assurance 

functions. For example, 80 of the 120 insurance claim files we reviewed 

claimed more than $100,000 in crop losses or met some other significant 

criteria; RMA’s guidance states that the insurance provider must conduct a 

quality assurance review for such claims. However, the insurance 

companies conducted reviews on only 59 of these claims, and the reviews 

were largely paper exercises, such as computational verifications, rather 

than comprehensive analysis of the claim. RMA did not ensure that 

companies conducted all reviews called for under its guidance and did not 

examine the quality of the companies’ reviews. 

RMA has infrequently used its new sanction authority to address 

program abuses. Although ARPA expanded RMA’s authority to impose 

sanctions on farmers, agents, and adjusters who willfully and intentionally 

provide false or inaccurate information or fail to comply with other FCIC 

program requirements, RMA has only used this authority on a limited 

basis. RMA has identified about 3,000 farmers with suspicious claims 

payments—notable policy irregularities compared with other farmers 

growing the same crop in the same county—each year since the enactment 

of ARPA. While not all of these policy irregularities were necessarily 

sanctionable, RMA imposed only 114 sanctions from 2001 through 2004. 

According to RMA officials, RMA requested and imposed few sanctions 

because it had not issued regulations to implement its expanded authority 

under ARPA. Without regulations, RMA has not established what 

constitutes an “FCIC requirement” and how it will determine that a 

violation has occurred or what procedural process it will follow before 

imposing sanctions. Insurance agents we surveyed and company officials 

we contacted believe that RMA needs to more aggressively seek to 

penalize those farmers, agents, and adjusters who abuse the program. 

RMA officials told us that they will give priority to issuing regulations 

implementing the sanctions authorized under ARPA. 

Page 8 GAO-06-878T 
While RMA can improve its day-to-day oversight of the federal crop 

insurance program in a number of ways, the program’s design, as laid out 

in RMA’s regulations or as required by statute, hinders officials’ efforts to 

administer certain program provisions to prevent fraud, waste, and abuse,

as the following discussion indicates. 

RMA’s regulations allow farmers the option of insuring their fields 

individually rather than combined as one unit. Under RMA’s regulations, 

farmers can insure production of a crop on each optional unit or insure an 

entire basic unit. Farmers may want to insure fields separately out of 

concern that they would experience losses in a certain field because of 

local weather conditions, such as hail or flooding. If farmers instead 

insured their entire crop in a single basic insurance unit, the hail losses 

may not have caused the production yield of all units combined to have 

been below the level guaranteed by the insurance and, therefore, would 

not warrant an indemnity payment. Although optional units provide 

farmers added protection against loss, this coverage option increases the

potential for fraud and abuse in the crop insurance program. 

Insuring fields separately enables farmers to “switch” production among 

fields—reporting production of a crop from one field that was actually 

produced on another field—either to make false insurance claims based 

on low production or to build up a higher yield history on a particular field 

in order to increase its eligibility for higher future insurance guarantees. 

Of the 2,371 farmers identified through data mining as having irregular 

claims in 2003, 12 percent were suspected of switching production among 

their fields. Furthermore, in our review of claim files, we identified 10 

farmers with patterns of claims associated with this type of fraud. 

According to a 2002 RMA study, relative losses per unit increase as the 

number of separately insured optional units increases.6

 However, 

according to an RMA official, gathering the evidence to support a yieldswitching fraud case requires considerable resources, especially for large

farming operations. 

In some cases, insurance companies have little incentive to rigorously 

challenge questionable claims. Insurance companies participating in the 

crop insurance program share a percentage of the risk of loss or 

RMA’s Regulations 

and Some Statutory 

Requirements Hinder 

Efforts to Reduce 

Abuse in the Crop 

Insurance Program 

 6

Final Research Report For Multiple Year Coverage, Task Order # RMA-RED-01-06, Watts 

and Associates, Inc., June 27, 2002. 

Page 9 GAO-06-878T 
opportunity for gain on each insurance policy they write, but the federal

government ultimately bears a high share of the risk. Under the SRA, 

insurance companies are allowed to assign policies to one of three risk 

funds—assigned risk, developmental, or commercial. The SRA provides 

some criteria for designating policies to these funds. For the assigned risk 

fund, the companies cede up to 85 percent of the premium and associated

liability for claims payments to the government and share a limited portion 

of the gains and losses on the policies they retain. For the developmental 

and commercial funds, the companies cede a smaller percent of the 

premium and associated liability for claims payments to the government 

and share a larger portion of the gains and losses on the policies they 

retain.7

Economic incentives to control program costs associated with fraud, 

waste, and abuse are commensurate with financial exposure. Therefore, 

for policies placed in the assigned risk fund, companies have far less 

financial incentive to investigate suspect claims. For example, in one claim 

file we reviewed, an insurance company official characterized the farmer 

as filing frequent, questionable claims; however, the company paid a claim 

of over $500,000. The official indicated that if the company vigorously 

challenged the claim, the farmer would have defended his claim just as 

vigorously, and the company would have potentially incurred significant 

litigation expenses, which RMA does not specifically reimburse. With this 

cost and reimbursement structure, in the company’s opinion, it was less 

costly to pay the claim. 

RMA and insurance companies have difficulty determining potential 

abuse associated with prevented planting coverage. Under the Federal

Crop Insurance Act, as amended, RMA must offer prevented planting 

coverage. RMA allows claims for prevented planting if farmers cannot 

plant due to an insured cause of loss that is general in the surrounding 

area and that prevents other farmers from planting acreage with similar 

characteristics.8

 Claims for prevented planting are paid at a reduced level, 

recognizing that farmers do not incur all production costs associated with

planting and harvesting a crop. However, determining whether farmers 

 7

In 2003, companies placed about 19 percent of the policies they wrote in the assigned risk 

fund and about 69 percent in the commercial fund. However, for those farmers on RMA’s 

inspection list, about 47 percent of the policies were in the assigned risk fund, and 38

percent were in the commercial fund. 

8

7 C.F.R. § 457.8.

Page 10 GAO-06-878T 
can plant their crop may be difficult. Annually, RMA pays about $300 

million in claims for prevented planting. 

Twenty-five of the FSA county officials that provided us written comments 

on this issue reported that they believe some farmers in their county who

claimed prevented planting losses never intended to plant or did not make 

a good faith attempt to plant their crop. Additionally, in some cases, it 

appears that the insurance company’s claims adjusters may not exercise 

due diligence in evaluating prevented planting claims. For example, a 

farmer in south Texas received claims payments of over $21,000 for 

prevented planting claims for corn in 2003 and 2004. The farmer claimed 

that excess rainfall made his fields too wet to plant. However, according to

a June 2004 FSA field inspection report, there was no evidence the farmer 

had made any attempt to prepare the fields for planting in either the 2003 

or 2004 growing season. Among other things, the FSA inspection report 

noted, and photographs showed, the fields contained permanent grasses 

and 5-foot tall weeds, as well as large hay bales from the prior growing 

season. In response to our review, RMA investigated the 2003 and 2004 

prevented planting claims for this farmer and subsequently directed the 

insurance company to seek reimbursement for the 2003 claims payment. 

High premium subsidies may inhibit RMA’s ability to control program 

abuse. To encourage program participation, ARPA increased premium 

subsidies—the share of the premium paid by the government—but this 

increase may hamper RMA’s ability to control program fraud, waste, and 

abuse. Premium subsidies are calculated as a percentage of the total 

premium, and farmers pay only between 33 to 62 percent of the policy 

premium, depending on coverage level. High premium subsidies shield 

farmers from the full effect of paying higher premiums. Because premium 

rates are higher in riskier areas and for riskier crops, the subsidy structure 

transfers more federal dollars to those who produce riskier crops or farm 

in riskier areas. 

In addition, premium rates are higher for farmers who choose to insure 

their fields separately under optional units, rather than all fields combined, 

because the frequency of claims payments is higher on the separately

insured units. Again, however, because of high premium subsidies, farmers 

pay only a fraction of the higher premium. Thus, the subsidy structure 

creates a disincentive for farmers to insure all fields combined. Over onehalf (56 percent) of the crop insurance agents responding to our survey 

believed that charging higher premiums for farmers with a pattern of high

or frequent claims would discourage fraud, waste, and abuse in the crop 

insurance program. 

Page 11 GAO-06-878T 
Some of the issues we identified are reflected in eight recent crop 

insurance fraud cases that USDA’s Office of Inspector General (OIG) 

investigated and that resulted in criminal prosecution between June 2003 

and April 2005. The cases show how a few farmers, sometimes in collusion 

with others, falsely report planting, claims of damage, and production to 

try to circumvent RMA’s procedures. In some cases, farmers hid 

production or switched it from one field to another. Several of these cases

also demonstrate the importance of having FSA and RMA work together to 

identify and share information on questionable farming 

practices/activities. Table 1 summarizes these eight cases, which 

accounted for $3.1 million in fraudulent claims payments. These cases 

were researched and analyzed by our Office of Forensic Audits and 

Special Investigations. 

Recently Prosecuted 

Crop Insurance Fraud 

Cases Highlight 

Program 

Vulnerabilities 

Table 1: Crop Insurance Fraud Cases Investigated by the USDA/OIG and Resulting in Criminal Prosecution, June 2003 to April 

2005 

Case Fraud allegation How detected Collusion

Fraudulent 

claims payments

1. Failure to plant. OIG/RMA/FSA identified 

irregularities through joint data 

mining effort and follow-up 

inspection. 

Possible. Insurance adjuster indicted 

for falsely verifying losses. 

$57,155

2. False claim of crop damage 

from hail, heat, and drought. 

RMA and FSA received

complaints and initiated review. 

Possible. Insurance policy purchased

from agency owned by a sister-in-law. 

39,826

3. False claim of crop damage 

from excessive moisture. 

OIG initiated. Fraud detection 

survey of grain elevator disclosed 

irregularities. 

No. 435,087

4. Failure to plant. FSA filed complaint with RMA. Yes. Insured was also agent and issued 

policies through his agency. Insurance 

adjusters falsified forms. Seed dealers 

also provided false receipts. 

630,000

5. False claim of crop damage. RMA noticed suspicious 

adjustments in grain quality by

grain elevator company. 

Yes. Farmer and grain elevator 

operator. 

1,000,000

6. False crop yield history to 

inflate insurance claim. 

OIG hotline complaint. Yes. Insurance agents pled guilty to 

falsifying insurance documents. 

a

7. No ownership interest in 

crops; underreporting of 

crop yield. 

OIG hotline complaint. No. 19,000

8. Failure to plant; false claim 

of moisture damage; 

concealing production. 

Bankruptcy fraud investigation

revealed insurance fraud. 

Ongoing investigation of insurance 

representatives. 

$912,364

Source: GAO’s analysis of USDA and U.S. Department of Justice case information.

a

Data not available. 

Page 12 GAO-06-878T 
In conclusion, Mr. Chairman, federal crop insurance plays an invaluable 

role in assuring the nation’s farmers that their crops will be protected from 

natural disasters. However, fraud, waste, and abuse can result in higher 

program costs and hurt the reputation of the program. In recent years, 

with the assistance of the new tools in ARPA, RMA has made progress in 

strengthening a number of program elements and thereby reducing fraud,

waste, and abuse, as well as the amount of funds paid in error. 

Still, the weaknesses we identified in how RMA, FSA, and insurance 

companies carry out their program responsibilities continue to leave the 

program vulnerable to questionable claims and missed opportunities to 

prevent losses to the federal government. In addition, RMA may be able to 

reduce program vulnerability and costs by improving aspects of the 

program’s design. 

In our report, we said that the Congress may wish to consider allowing 

RMA to reduce premium subsidies—and hence raise the insurance 

premiums—for farmers who consistently have claims that are irregular in

comparison with other farmers growing the same crop in the same 

location. We made eight recommendations to the Secretary of Agriculture 

to strengthen program oversight and reduce vulnerability to fraud, waste 

and abuse, including improved sharing of information between RMA and 

FSA, improved inspection practices, regulations to implement sanctions, 

and stronger oversight of companies’ quality control procedures. USDA 

agreed to act on most of our recommendations. However, it disagreed with 

our recommendation to ensure that FSA field offices conduct all 

inspections called for under agency guidance, stating that FSA did not 

have sufficient resources to complete all of these inspections. USDA also 

disagreed with our recommendation to reduce the insurance guarantee or 

eliminate optional unit coverage for farmers who consistently have filed 

claims that are irregular in comparison with other farmers growing the 

same crop in the same location. We continue to believe that it is 

reasonable for USDA to use all tools at its disposal and that our 

recommendations will reduce the federal crop insurance program’s 

vulnerability to fraud, waste, and abuse. 

Mr. Chairman, this concludes my prepared statement. We would be happy 

to respond to any questions that your or other Members of the 

Subcommittee may have. 

Page 13 GAO-06-878T 
Contact points for our Offices of Congressional Relations and Public 

Affairs may be found on the last page of this statement. For further 

information about this testimony, please contact Daniel Bertoni, Acting 

Director, Natural Resources and Environment, (202) 512-3841 or by email 

at bertonid@gao.gov. Key contributors to this statement were Ron Maxon, 

Thomas Cook, and Carol Herrnstadt Shulman. 

Page 14 GAO-06-878T 

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