USDA Crop Disaster Programs: Lessons Learned Can Improve Implementation of New Crop Assistance Program
Published: 2010-06-04T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: The U.S. Department of Agriculture's (USDA) Farm Service Agency (FSA) provides programs to help farmers recover financially from natural disasters. Congress has historically supplemented these programs with ad hoc programs that pay farmers who experienced crop losses. The 2008 farm bill established a program through 2011 to pay farmers who lose crops. To receive these payments, farmers must purchase coverage under federal crop insurance or the Noninsured Crop Disaster Assistance Program, and receive claims payments for losses. GAO was asked to evaluate (1) how FSA administered the crop disaster programs for losses from 2001 through 2007 and the results of payments under these programs and (2) what lessons FSA can learn from the previous crop disaster programs to manage its new crop disaster program. GAO reviewed statutes, regulations, and guidance; analyzed USDA data; and interviewed USDA officials.
section_title: What GAO Found
paragraphs: FSA largely used crop insurance data from USDA's Risk Management Agency (RMA) to calculate nearly $7 billion in crop disaster payments under the 2001 through 2007 ad hoc crop disaster programs. FSA made about $395 million in payments under these programs to 8,463 farmers who RMA identified as having received suspicious crop insurance claims payments in those same years. Almost half of crop disaster payments for farmers RMA identified as having suspicious crop insurance claims payments were in five states. RMA provides its annual list of suspicious claims payments to FSA state and county offices and to the insurance company selling the policy to the farmer for appropriate follow-up action. However, GAO previously reported that few suspicious claims payments resulted in a conviction for fraud. As reported, the factors considered when accepting a case for investigation and prosecution include sufficiency of the evidence, complexity of the case, whether the fraudulent activity is part of a pattern or scheme, and workload and resources that would be needed to investigate and prosecute the case. For 2001 through 2007, GAO could not use FSA's electronic data files to determine whether crop disaster payments complied with a statutory cap because the reliability of these files is undetermined for the purpose of assessing whether a crop disaster payment was in compliance with the cap. However, in using hard copy files to determine compliance with the cap, GAO found that payments to selected farmers were in compliance. Furthermore, FSA officials did not provide systems documentation, such as specifications and business rules on how FSA used data in its systems to calculate crop disaster payments. FSA's experience with ad hoc crop disaster programs shows that a lag--as much as 4 years--between the occurrence of a disaster-related crop loss and the application for a disaster payment for that loss prevented FSA county officials from verifying the cause of the loss. Under the new program, there will still be a lag before farmers can apply for a payment; in contrast, farmers have to file a crop insurance claim immediately after a loss and be subject to insurance verification. Without more timely eligibility determinations for the new crop disaster program, FSA county officials will be unable to verify that applicants experienced losses due to an eligible cause. In addition, insufficient documentation of the data systems FSA used for calculating and issuing payments under the ad hoc programs makes it difficult to validate the accuracy of those payments. A similar lack of documentation under the new program could hamper FSA officials' efforts to track payments and ensure the payments adhere to statutes, regulations, and FSA guidelines.

section_title: Letter
paragraphs: The U.S. Department of Agriculture (USDA) provides a safety net of  permanently authorized and regularly funded programs, including  federally subsidized crop insurance and emergency disaster loans, to help  farmers recover financially from natural disasters. Congress has  historically supplemented these ongoing programs in an ad hoc manner by  providing one-time payments through crop disaster programs that  compensate farmers for disaster-related crop losses they sustained. Most  recently, under three separate congressionally authorized ad hoc crop  disaster programs, USDA provided $7 billion in disaster payments to  farmers whose crops were damaged or destroyed by natural disasters from  2001 through 2007. The Food, Conservation, and Energy Act of 2008 (the  2008 farm bill) established and funded a $3.8 billion permanent trust fund,  and directed the Secretary of Agriculture to make crop disaster assistance  payments to eligible producers who suffer crop losses on or before  September 30, 2011, under a new program—the Supplemental Revenue  Assistance Payments Program. Under this new program, USDA—through  its Farm Service Agency (FSA)—began making payments in early 2010 for  crop losses incurred in 2008. Crop disaster payments are largely based on  data from USDA’s Risk Management Agency (RMA), which is responsible  for administering the federally subsidized crop insurance program. In  addition to crop disaster payments, farmers may also receive federal  assistance through crop subsidy programs and the crop insurance  program.
You asked us to review USDA’s ad hoc crop disaster assistance programs,  as well as the new crop disaster program. Accordingly, we determined (1)  how FSA administered its three crop disaster programs for crop losses  from 2001 through 2007 and the results of payments made under these  programs and (2) what lessons FSA can learn from its experience with the  previous three crop disaster programs for managing its new crop disaster  program.
To determine how FSA administered its crop disaster programs for crop  losses from 2001 through 2007 (the period covered by the three programs),  we reviewed statutes, regulations, and guidance related to the programs.  We also obtained and analyzed electronic data files from FSA to determine  how FSA applied statutes, regulations, and guidance in administering the  programs. To assess the reliability of the data in these files, we performed  electronic testing of the required data elements, reviewed existing  information, and interviewed knowledgeable FSA officials about the data  and the systems that produced them. We determined that the payment  data in the files were sufficiently reliable for the purpose of determining  the distribution of crop disaster payments by state, program, and type of  recipient. However, the reliability of FSA’s electronic data files is  undetermined for the purpose of assessing whether a crop disaster  payment complied with a statutory cap. In addition, to develop  nongeneralizeable examples of farmers receiving disaster payments for  crop losses, we first identified the four states with the highest amount of  total crop disaster program payments for all three programs: Kansas,  North Dakota, South Dakota, and Texas. We also selected North Carolina,  another state with high payment levels, to expand the geographic  dispersion of our review. We identified the 27 counties comprising the top  20 percent of the crop disaster payments FSA administered in each of  those five states. For these 27 counties, we interviewed FSA officials about  their experiences administering crop disaster programs. In addition, we  reviewed hard copy payment files for 75 selected farmers who received  disaster payments from among the 10 percent of farmers receiving the  largest payments under all three programs (i.e., 15 farmers from each  county that received the largest disaster payments under all three  programs in each of these five states).
Because FSA bases its disaster assistance payments largely on RMA data,  we also obtained information on crop insurance claims payments from  RMA. We interviewed RMA officials and reviewed relevant documentation  to assess the reliability of the RMA data and determined the data to be  sufficiently reliable for the purposes of our report. To determine what  lessons FSA can learn from its experience with past crop disaster  programs for managing the new crop disaster program, we reviewed  statutes, regulations, and guidance related to the new program. We also  interviewed FSA officials responsible for administering crop disaster  programs and FSA data experts responsible for developing the crop  disaster payment systems. A more detailed description of our scope and  methodology is presented in appendix I.
We conducted this performance audit from November 2008 through June  2010, in accordance with generally accepted government auditing  standards. Those standards require that we plan and perform the audit to  obtain sufficient, appropriate evidence to provide a reasonable basis for  our findings and conclusions based on our audit objectives. We believe  that the evidence obtained provides a reasonable basis for our findings  and conclusions based on our audit objectives.
subsections: section_title: Background
paragraphs: FSA has overall responsibility for administering crop disaster programs,  including ensuring that recipients meet eligibility requirements and do not  receive payments that exceed program limitations. FSA guidance directs  the agency to annually notify every farming operation—whether an  individual farmer or an entity, such as a corporation or a partnership—that  it must file documents, including a farm operating plan and an acreage  report, with its local FSA county office if the operation is seeking farm  program payments. These documents record farming information, such as  which crops are planted on each field, the farming practices used, and the  name of each individual with an interest in the farming operation. FSA  uses this information to determine farm program payments, including  payments for various agriculture disaster assistance programs.
According to USDA documents, agriculture-related disasters are common:  one-half to two-thirds of the counties in the United States have been  designated as disaster areas in each of the past several years. As shown in  figure 1, many counties received disaster designations for multiple years  from 2001 through 2007.
In order for a county to qualify for a USDA secretarial disaster designation,  a disaster must have caused a minimum loss of 30 percent of production of  at least one crop in the county. The secretarial disaster designation  process begins when an eligible disaster event, such as hail or drought,  occurs in a county. After monitoring and recording the disaster conditions,  local officials, including FSA county officials, contact their governor to  request a disaster designation for the county. Next, the governor submits a  written disaster designation request to the Secretary of Agriculture. As a  result of this request, FSA directs its county officials to complete a damage  assessment report to show whether the minimum loss requirement was  met. A state emergency board reviews the report, and if the report is  approved, it is forwarded to FSA’s national headquarters for the Secretary  of Agriculture’s approval or disapproval of the request. The approved  counties are designated as disaster counties.
subsections: section_title: RMA’s Role in Federal Crop Insurance
paragraphs: RMA has overall responsibility for administering the federal crop  insurance program, through the Federal Crop Insurance Corporation, and  in partnership with private insurance companies that share a percentage  of the risk of loss or opportunity for gain associated with each insurance  policy written. RMA is also to address program compliance issues,  including protecting the program against fraud, waste, and abuse. Under  the Agricultural Risk Protection Act of 2000, RMA uses information  technologies, such as data mining, to identify anomalous patterns of crop  insurance claims payments that are consistent with actions farmers could  take to obtain personal benefit through fraud or abuse of the crop  insurance program. RMA has identified 45 patterns of crop insurance  payments that it defines as anomalous, such as receiving payments while  experiencing high frequency of losses or high severity of losses in  comparison with surrounding farming operations; using poor farming  practices; or exhibiting irregular behavior with insurance agents or  adjusters that suggests collusion. RMA’s data mining does not identify  specific instances of fraud or abuse of the crop insurance program; rather,  it identifies anomalous patterns of crop insurance claims payments that  are consistent with the potential for fraud and abuse and considers these  payments as “suspicious.” RMA places farmers who exhibit such patterns  on an annual list, after the year in which the crop insurance claims  payments are made, to monitor their current or future farming practices.  Farmers may be on the list for multiple anomalous patterns in 1 year.
RMA provides its annual list to the appropriate FSA state offices for  distribution to FSA county offices, as well as to the insurance company  selling the policy to the farmer. Staff in FSA county offices advise the  selected farmers that they have been identified for an inspection as a  result of data mining and conduct field inspections during the growing  season. In conducting these inspections, FSA inspectors are to determine,  among other things, the tillage method used; weed control practices; type  and amount of fertilizer applied; weather conditions; and how the  inspected crop compares with others in the area. As a result of these  inspections and other information, RMA reported total cost savings from  2001 through 2007 of $564 million, primarily in the form of estimated  claims payments avoided: $140 million in 2005, $27 million in 2006, and $85  million in 2007.
RMA has the authority to impose sanctions against farmers, agents, loss  adjusters, and insurance companies that willfully and intentionally provide  false or inaccurate information to RMA or to insurance companies. RMA  also has the authority to disqualify farmers who have committed a  violation not only from the insurance program but also from most other  farm programs for up to 5 years. RMA also can refer suspicious crop  insurance claims payments to USDA’s Office of Inspector General, which  can open investigations and, when warranted, refer cases to the  Department of Justice for prosecution.
section_title: Ad Hoc Crop Disaster Programs, 2001 through 2007
paragraphs: Through supplemental appropriations, Congress authorized three  multiyear crop disaster programs for 2001 through 2007. The first program  provided financial assistance for crop losses that occurred in crop year  2001 or 2002. The second program provided assistance for losses in 2003  or 2004 or for losses in 2005 that resulted from a hurricane or tropical  storm during the 2004 hurricane season. The third program provided  assistance for crop losses in 2005, 2006, or 2007. Generally, under each  program, crop losses were eligible for crop disaster payments if the losses  resulted from any of the following: (1) damaging weather, such as drought,  excessive moisture, hail, freeze, tornado, or hurricane; (2) an adverse  natural occurrence, such as an earthquake; or (3) a condition related to  damaging weather or an adverse natural occurrence such as saltwater  intrusion, rationing of irrigation water, disease, or insect infestation.
The authorizing statutes and program regulations established payment  limitations and eligibility requirements for the three crop disaster  programs. For example, the statutes prohibited producers—who we refer  to as farmers in this report—from receiving a payment for more than 1  year for each of the multiyear disaster programs. In addition, USDA  regulations prohibited an individual farmer or member of a farming  operation from receiving a crop disaster payment greater than $80,000.  Regarding eligibility requirements, the statutes provided that farmers were  only eligible to receive crop disaster payments if they had previously  obtained federal crop insurance or coverage through FSA’s Noninsured  Crop Disaster Assistance Program for the crop that suffered weather- related damage. Specifically, for crops covered by the federal crop  insurance program (insured crops), farmers must have obtained crop  insurance coverage through that program. For crops for which insurance  was not available in the county where the crops were farmed  (noninsurable crops), farmers must have obtained coverage through the  Noninsured Crop Disaster Assistance Program. “Uninsured crops,” for the  purposes of this report, refers to crops for which coverage was available in  the county under either the federal crop insurance program or the  Noninsured Crop Disaster Assistance Program, but the farmer did not  purchase it. Not all uninsured crops were eligible for payment under the  crop disaster programs. Furthermore, a statutory payment cap prohibited  USDA from paying an individual or a farming operation for more than 95  percent of what the value of the crop would have been in the absence of  the loss (expected value). Specifically, the sum of the disaster payment,  the value of the salvageable crops, and any crop insurance payments could  not exceed 95 percent of the crop’s expected value in the absence of a  disaster.
section_title: Provisions under the Supplemental Revenue Assistance Payments Program
paragraphs: The 2008 farm bill authorized and funded a new disaster program for  losses in crop years 2008 through 2011. This new program provides funds  that will be available to assist farmers when disasters occur, without the  need for further congressional action. While the past crop disaster  programs separately considered each individual field, the new disaster  program considers aggregate losses on an entire farming operation, which  includes all land in all counties where a farmer planted or intended to  plant crops for harvest. To be eligible under the new program, a farming  operation must    be located in or contiguous to counties that received a USDA secretarial  disaster designation and have lost at least 10 percent of production on at  least one crop of economic significance; or incur eligible total crop losses of greater than 50 percent of the normal  production, including a loss of at least 10 percent of production on at least  one crop of economic significance.
Furthermore, farmers must have purchased either federal crop insurance  coverage or be covered under the Noninsured Crop Disaster Assistance  Program for all crops of economic significance on their farming operation  in order to qualify for a disaster payment. In addition, the 2008 farm bill  prohibits any individual or member of a farming operation from receiving  more than $100,000 per year in combined payments from the new crop  disaster program and other disaster programs for livestock and specialty  crops. See appendix II for additional information on the Supplemental  Revenue Assistance Payments Program.
section_title: Concerns about Potential Waste and Abuse in Federal Farm Programs Have Been Raised in the Past
paragraphs: USDA’s Office of Inspector General identified problems under the past  crop disaster programs. For example, in 2006, the Office of Inspector  General reported reviewing three FSA county offices, one of which issued  $103,065 in crop disaster payments to farmers who did not meet program  eligibility requirements under the 2001 through 2002 crop disaster  program. The Office of Inspector General found that in that county office,  FSA relied on verbal statements from some farmers to determine their  eligibility for crop disaster program payments. The Office of Inspector  General also found weaknesses in FSA’s management controls for the crop  disaster programs in all three FSA county offices in its review. For  example, the Office of Inspector General found that the three FSA county  offices were not following the program guidance for verifying the accuracy  of crop disaster payments—which states that FSA county offices are to  perform three types of reviews to ensure the accuracy of payments—nor  consistently interpreting or using data from RMA’s crop insurance  program when calculating crop disaster payments. The Office of Inspector  General recommended that FSA improve its training of county office  employees.
In addition, we and others have long raised concerns about the potential  for waste and abuse in the federal crop insurance program. For example,  in 2005, we reported that while RMA strengthened procedures for  preventing questionable crop insurance claims, the federal crop insurance  program remains vulnerable to abuse. We recommended that RMA  inform FSA’s inspectors on the details of claims that they are to  investigate, including the type of suspected fraudulent behavior. RMA  concurred with this recommendation and in 2006 took actions to  implement it. Specifically, RMA now provides detailed information to  FSA’s inspectors on the nature of each suspicious claim.
In 2008, we also identified strengthening the integrity and efficiency of  federal farm programs, including the crop insurance program, as a major  cost-saving opportunity for Congress and the administration. More  recently, USDA’s Office of Inspector General reported that RMA needs to  strengthen its quality assurance and compliance activities under the  federal crop insurance program to ensure compliance with program  requirements.
section_title: FSA Largely Based Crop Disaster Payments on RMA Data, Resulting in About $395 Million to Farmers RMA Identified as Having Received Suspicious Crop Insurance Payments
paragraphs: FSA largely used RMA crop insurance payment data to calculate nearly $7  billion in crop disaster payments under the three crop disaster programs  from 2001 through 2007. Of these crop disaster payments, about $395  million (almost 6 percent) were issued by FSA to individuals or entities  that RMA had identified as having received suspicious crop insurance  claims payments from 2001 through 2007.
subsections: section_title: FSA Relied Largely on RMA Data to Calculate Crop Disaster Payments
paragraphs: Under the three crop disaster programs from 2001 through 2007, FSA  calculated and issued crop disaster payments largely based on crop  insurance data from RMA for these years, but also information on farm  operating plans and production records from the farmers requesting  payment. According to the program guidelines, each FSA county office  received information from RMA that listed all individuals and entities who  had purchased insurance on a crop in that county. For the insured crops,  the disaster payment system used RMA data to prefill information on the  damaged crops, including the crop name, amount of damaged acres, and  value of any salvageable crops. For noninsurable crops and uninsured  crops, FSA employees used the farm operating plans and production  records to manually enter data into the system. Using the prefilled RMA  data or the manually entered data, the system in each county office  calculated an estimated crop disaster payment for each applicant.  Specifically, the system    determined the amount of the lost or damaged crops on each of the  payment applicant’s fields;    multiplied the amount of the lost or damaged crops on each field by a  payment rate—determined by whether the damaged crops were insured,  noninsurable, or uninsured—to calculate the maximum payment for each  field;   compared this maximum payment for each field with the statutory  percentage cap to ensure that the payment complied with this cap; and   combined all payments for each field and compared this maximum  allowable crop disaster payment with the $80,000 payment limit to ensure  payments complied with this limitation.
Once the FSA county office system determined the estimated maximum  allowable payment, the system transmitted the payment information to  FSA’s Application Development Center. According to staff at this center,  systems at the center then verified the payment amount by performing a  series of checks that ensured the payment did not exceed the statutory  payment cap and complied with applicable eligibility requirements and  payment limitations. If errors were found in the payment calculation or if  the payment did not comply with applicable eligibility requirements or  payment limitations, FSA Application Development Center staff said that  the payment amount was adjusted accordingly before FSA issued the final  payment.
Table 1 shows the number of recipients and the amount of payments for  each of the three programs.
We found that FSA data about the farming structure of the 2001 through  2007 crop disaster program payment recipients shows that the majority of  recipients were individuals. According to our analysis, individuals received  a total of about $4.9 billion in payments while entities received about $2.1  billion under the three crop disaster programs. See appendix III for  additional information on the distribution of payments under the 2001  through 2007 crop disaster programs.
section_title: Crop Disaster Programs Resulted in Payments to Farmers RMA Identified as Having Received Suspicious Crop Insurance Payments
paragraphs: Of the nearly $7 billion in payments made under the 2001 through 2007  crop disaster assistance programs, we found that FSA made about $395  million in crop disaster payments to farmers or entities that were  identified by RMA’s data mining as having received suspicious crop  insurance claims payments during that same period of time. In addition,  our review of hard copy files found that payments to 75 farmers in the five  selected states we reviewed complied with the statutory cap of 95 percent  of the expected crop value.
subsections: section_title: FSA Paid About $395 Million to Farmers under the 2001 through 2007 Crop Disaster Programs Largely on the Basis of Crop Insurance Payments RMA Had Identified as Suspicious
paragraphs: For crop losses from 2001 through 2007, FSA made about $395 million in  crop disaster payments to 8,463 individuals and entities that RMA  identified, through data mining, as having received payments for  suspicious crop insurance claims during the same time period. However,  in a 2005 report, we found that few suspicious claims payments resulted in  a conviction for fraud. We reported that while the number of USDA  Office of Inspector General referrals to the Department of Justice on  suspicious crop insurance claims payments had increased, the Department  of Justice declined more cases than it had accepted since 2000. According  to Department of Justice officials, the factors considered when accepting a  case include sufficiency of the evidence, complexity of the case, whether  the fraudulent activity is part of a pattern or scheme, and workload and  resources that would be needed to investigate and prosecute the case.  We also reported that insurance agents and company officials we  contacted believed that RMA needs to more aggressively penalize those  who abuse the program. Table 2 shows the five states with the largest  dollar amounts of crop disaster payments for recipients listed as having  suspicious crop insurance claims payments from 2001 through 2007. These  five states represent about 47 percent of the crop disaster payments to  farmers that RMA identified as receiving suspicious crop insurance  payments from 2001 through 2007.
By comparing RMA’s crop insurance data on suspicious payments with  FSA’s crop disaster payments, we identified payments made under the  crop disaster programs to farmers RMA identified as having received  suspicious crop insurance payments. The following are examples of  farmers who received crop disaster payments from 2001 through 2007 and  were identified by RMA as receiving suspicious crop insurance claims  payments:  In South Dakota, a farmer received almost $900,000 in crop disaster  payments that were based on suspicious crop insurance claims payments.  RMA put this farmer’s operation on its annual list because the farmer  received crop insurance payments while exhibiting such anomalous  patterns as (1) having at least 2 consecutive years of crop insurance claims  larger than those of similar farmers in the area and (2) frequently filing  prevented planting claims when compared with similar farmers in the  area.
A North Carolina farmer received about $720,000 in crop disaster  payments that were based on suspicious crop insurance claims payments.  RMA put this farmer’s operation on its annual list because the farmer  received crop insurance payments while exhibiting such anomalous  patterns as (1) having unusually large yields on some land while  experiencing severe losses on other land for the same crop during the  same year and (2) filing insurance claims for 2 consecutive years that were  significantly larger claims than those filed by similar farmers in the area.
One farmer who operated farms in Kansas received over $635,000 in crop  disaster payments that were based on suspicious crop insurance claims  payments. RMA put this farmer’s operation on its annual list because the  farmer received crop insurance payments while exhibiting such  anomalous patterns as (1) having a loss ratio 150 percent greater than  other farmers within the area and (2) experiencing abnormally large crop  insurance claims in comparison with similar farming operations in the  county and repeating this behavior for multiple years.
Similarly, the FSA county officials we interviewed identified some farmers  in their counties who received crop disaster payments that the FSA county  officials believed were based on suspicious crop insurance claims  payments. These FSA county officials told us that they were familiar with  the farmers in their county and could identify those who may have  received suspicious crop insurance payments, but because the county  officials received the crop insurance claim information several years after  the crop losses occurred, they could not verify the farmers’ crop losses  and relied on RMA data to issue the crop disaster payments. The FSA  county officials provided the following as examples:    One farmer in North Dakota received over $85,000 in disaster payments  under the 2001 through 2007 crop disaster programs, claiming that disaster  conditions caused losses to his crops. According to an FSA county official,  the farmer’s crop losses were likely due to poor farming practices because  this farmer did not fertilize his crops.
A farmer in North Carolina received almost $160,000 in disaster payments  from 2001 through 2007, including about $60,000 for tobacco that he  claimed was damaged or could not be harvested. According to an FSA  county official, although this farmer received crop insurance payments, he  did not have the required barn space to dry and cure the total amount of  tobacco planted and had not obtained contracts necessary to sell the  tobacco crop. The county official added that area farmers informed the  FSA county office that this farmer experienced crop losses as a result of  poor farming practices.
In commenting on crop disaster payments that they believed were based  on suspicious crop insurance claims payments, some FSA county officials  stated that they did not challenge or deny the applications for these crop  disaster payments because they expected the applicants would appeal any  challenge to USDA’s National Appeals Division. These officials added  that in their past experience with appeals, USDA rarely upheld FSA county  office decisions to deny payments. One official said that USDA generally  approved appeals related to crop disaster applications unless the FSA  county office produced evidence that the payment applicant did not meet  program eligibility requirements. The official added that he did not collect  such evidence because, at the time of the crop loss, he did not anticipate  that a disaster program would provide assistance for those crop losses.  However, according to our analysis of data from USDA’s National Appeals  Division, FSA was more likely to be favored in an appeal related to the  2001 through 2007 crop disaster programs than were the farmers. We  found the National Appeals Division upheld FSA’s denial of crop disaster  payment applications for about 72 percent of the appeals, and the division  overturned FSA’s denial, deciding that the farmer should have received a  crop disaster payment, for the remaining 28 percent.
section_title: Although Weaknesses Exist in FSA’s Data Systems, Hard Copy Files Show That Payments Complied with the Statutory Cap
paragraphs: Under the crop disaster programs from 2001 through 2007, a statutory  payment cap allowed FSA to provide a farmer up to 95 percent of the  expected value of the crop in the absence of a disaster. We found certain  weaknesses in FSA’s data systems, which precluded us from determining  whether FSA’s electronic data files are reliable for the purpose of  assessing whether a crop disaster payment complied with this statutory  cap. For example, FSA’s data systems (1) could not be reliably merged  using program year, tax identification number, tax identification number  type, FSA state code, and FSA county code to determine whether  payments complied with the statutory cap and (2) were not sufficiently  documented. However, we assessed hard copy payment files for 75  selected farmers in the five states and found that the payments made to  these farmers complied with the statutory payment cap.
We found that FSA could not provide documentation on how its systems  captured and processed data in order to calculate disaster payments for  crop losses from 2001 through 2007. Specifically, FSA officials could not  provide us with business rules, system specifications, or processing  algorithms associated with the payment calculations executed at FSA’s  Application Development Center in Kansas City, Missouri. Such  documentation is important because it typically translates policies and  procedures into specific, unambiguous rules that govern how data are  entered, validated, stored, processed, and reported. As such, the  documentation facilitates accurate and consistent implementation of  policies and procedures. Although FSA officials provided copies of  program guidance and described actions FSA has taken to ensure the  quality of the data it generates, they could not provide sufficient  documentation for us to verify the agency’s stated actions. For example,  FSA could not provide design specifications about the functional  requirements of the data systems it used to capture information about  disaster payments for crop losses from 2001 through 2007. Detailed design  specifications are important because they are used for developing  thorough test plans, maintaining the system, and ensuring that risks  associated with building and operating the system are adequately  controlled. Furthermore, FSA’s documentation of the crop disaster  program data systems does not meet Office of Management and Budget  documentation guidelines. These guidelines require federal agencies,  among other things, to identify and document business rules; information  relationships; and the functional requirements, capabilities, and  interconnections of the computer systems. FSA officials could not provide  documentation describing how its systems operated.
Also, for the purpose of assessing whether crop disaster payments  complied with the statutory cap, we performed a detailed review of hard  copy crop disaster payment files for 75 selected farmers who received  payments under all three crop disaster programs from the five counties  receiving the largest amount of crop disaster payments in each of five  selected states. According to our analysis, these 75 selected farmers  received payments that complied with the 95 percent statutory percentage  cap on all of their 2,263 fields that sustained crop losses from 2001 through  2007. Overall, as shown in table 3, 328 of these fields qualified for a  disaster payment that allowed the farmers to receive 95 percent of the  expected value of their crops for these fields.
We also found that the total payment received by the 75 selected farmers  for the three programs varied from $61,592 to $2,256,386. According to our  analysis of the hard copy files, 24 percent of the fields we reviewed  qualified for payments because disaster conditions prevented farmers  from harvesting any crops from the fields; 69 percent because disaster  conditions reduced the amount of crops produced on the fields; and 7  percent because disasters prevented farmers from planting crops on the  fields.
Forty-nine of the 75 selected farmers received payments for at least one  field they were unable to harvest. Furthermore, although not exceeding  the 95 percent cap, the crop disaster programs provided 37 of these 49  farmers—who grew crops such as corn, cotton, soybeans, and wheat—90  percent or more of the expected value of the crops. However, these  farmers did not incur harvesting costs for these fields. Based on our  review of two academic studies, about 15 percent of the cost of  producing such crops can be associated with harvesting the crops. Thus,  although these 37 farmers may have incurred about 85 percent of the cost  of producing these crops, crop disaster program payments allowed these  farmers to receive 90 percent or more of the expected value of the crops,  even though FSA offices reduced farmers’ crop disaster payments by a  certain percentage—known as the “unharvested” payment factor—to  reflect the fact that the farmers had not harvested these crops.
section_title: FSA Can Learn Lessons for the New Crop Disaster Program from Three Prior Programs
paragraphs: FSA’s experience with ad hoc crop disaster programs provides lessons  that could benefit the agency’s implementation of the new program. First,  under the past programs, FSA county officials could not verify the cause of  a crop loss because of the lag—as much as 4 years—between the  occurrence of a disaster-related crop loss and the application for a disaster  payment for that loss. Under the new program, FSA officials will still face  a lag time, and without more timely eligibility determinations, FSA county  officials will be unable to verify that applicants experienced losses due to  an eligible cause. Second, the lack of documentation in FSA’s data systems  for calculating and issuing payments under the ad hoc programs makes it  difficult to validate the accuracy of those payments. A similar lack of  documentation under the new program could hamper FSA officials’ efforts  to track payments and ensure the payments adhere to statutes,  regulations, and FSA guidelines.
subsections: section_title: Lack of Timely Eligibility Determinations Provides Lessons for New Crop Disaster Program
paragraphs: Under the ad hoc crop disaster programs from 2001 through 2007, USDA  regulations and program guidance specified disaster conditions—such as  hail, drought, or excessive rainfall—that qualified as eligible causes of  crop loss. As such, FSA county officials reviewed each payment  application to determine whether the crop loss was eligible for payment.  However, because the programs were enacted on an ad hoc basis after the  disaster-related crop losses, these application reviews took place as many  as 4 years after the losses occurred. With such a lag, we found that FSA  county officials could not take actions, such as conducting field  inspections, to validate whether the crops suffered damage as a result of a  qualifying disaster condition. Instead, the FSA county officials relied on  information farmers supplied on their disaster payment applications and  information from RMA, such as crop insurance payment records, to  determine if an eligible disaster condition caused a farmer’s crop losses.  Fourteen of the 27 FSA county officials we spoke with identified the  absence of making timely cause of loss eligibility determinations as a  concern under the 2001 through 2007 crop disaster programs, and many of  these county officials said that having the opportunity to determine the  eligibility of losses soon after the disaster would increase assurance that  crop disaster program payments are proper. This opportunity could exist  under the new Supplemental Revenue Assistance Payments Program.
Determining the cause of crop losses for each farmer will remain critically  important under the Supplemental Revenue Assistance Payments Program  because a farming operation must have lost at least 10 percent of  production on at least one crop of economic significance as a result of an  eligible disaster condition to qualify for a payment. Under the program,  FSA county officials are to determine crop loss eligibility at least 1 year  after crop losses occur because, under the new program guidelines, FSA  officials are to make this determination using annual market prices for  each crop to calculate payments, which are generally established at the  end of the crop year. As a result, crop disaster payment applicants can  submit their applications several months after their crop loss occurs, and  FSA officials will continue to depend on information from farmers and  RMA crop insurance data to determine whether applicants experienced  crop losses due to an eligible disaster condition. For example, a farmer  who planted corn in the spring of 2010 would not harvest that crop until  fall. Therefore, if a disaster destroyed the corn during the summer, the  farmer may wait until the fall of 2011—after the crop year for corn ended  and when FSA could determine the market prices needed to calculate a  payment and process a claim—before filing a loss claim. Without more  timely eligibility determinations, FSA county officials will not have the  opportunity to verify that payment applicants experienced crop losses due  to an eligible disaster condition. Because farmers know that, under the  new program, FSA cannot make determinations until the annual market  prices for each crop are available to calculate payments, there is no  incentive to file crop disaster claims when a crop loss occurs.
In contrast, under the federal crop insurance program, if farmers incur  crop losses and file a claim with their insurance agent or company, the  company assigns an adjuster who visits the farm at the time of the  disaster-related loss and, using RMA guidance, determines the percentage  of loss for the acres planted. The adjuster forwards the claim to the  insurance company, which verifies and recalculates the claim. If all  company and RMA requirements are met, the company pays the claim to  the farmer. According to RMA guidance, a farmer may destroy any of the  damaged crops or replant a new crop after the insurance adjuster has  inspected the farmer’s crop loss and provided written consent that the  farmer may take such actions. However, we have previously raised  concerns of fraud and abuse of the crop insurance program’s claims  adjustment process. For example, in 2005, we reported that crop  insurance fraud cases, investigated by USDA’s Office of Inspector General  and resulting in criminal prosecutions between June 2003 and April 2005,  show how farmers, sometimes in collusion with insurance agents and  others, falsely claim prevented planting, weather damage, and low  production. In addition, we found that several of these cases demonstrated  the importance of having FSA and RMA work together to identify and  share information on questionable farming practices and activities. Under  the Supplemental Revenue Assistance Payments Program, as under the  2001 through 2007 crop disaster programs, FSA county officials receive  information about crop losses at the time the farmer submits an  application for payment. As a result, FSA officials may become aware of  crop losses after the claims adjustment process and after farmers have  planted a new crop on their fields that suffered disaster-related damage.  Without notification of the crop losses closer to the time of the disaster,  FSA county officials will not have the opportunity to verify the eligibility  of crop losses.
section_title: Weaknesses in Data Systems Provide Lessons for New Crop Disaster Program
paragraphs: Under past crop disaster programs, FSA’s automated payment system used  information in multiple data systems to calculate and issue payments.  However, we identified limitations in this payment system that prevented  us from making a determination about the reliability of FSA’s data files for  the purpose of assessing the extent to which payments for the 2001  through 2007 crop disaster programs complied with the statutory payment  cap that limited payments to no more than 95 percent of the expected  value of the crop in the absence of a disaster. These limitations included a  lack of sufficient documentation and our determination that FSA’s data  systems could not be reliably merged using program year, tax  identification number, tax identification number type, FSA state code, and  FSA county code for this purpose. For additional information, see  appendix I.
We and others have previously reported on concerns with FSA’s  information technology systems. As we reported in 2008, FSA’s  information technology systems, which date to the 1980s, do not fully meet  the agency’s business needs or readily share data. In August 2009,  USDA’s Office of Inspector General reported that integration of USDA’s  information management systems, including FSA and RMA systems, could  improve the integrity of farm programs, such as the new crop disaster  program.
In the context of these information technology issues, in early 2010, FSA  began issuing payments for the new crop disaster program using an  interim payment system that has weaknesses. According to FSA  documents, because of the significant amount of data required to calculate  payments under the new crop disaster program, FSA does not expect to  complete the development of a fully automated payment system that will  allow the agency to issue timely payments to farmers who sustained crop  losses in 2008. As a result, FSA developed an interim payment system that  requires FSA county office staff to use a manual process to complete  applications and calculate payments for 2008 crop losses, storing each  application in a single spreadsheet maintained in FSA county offices. FSA  staff at each county office manually enter applicant data into this  spreadsheet to calculate applicants’ payments, and an independent official  verifies the accuracy of the data entry. According to program guidelines,  once the payment calculations are complete, the FSA county office staff  are to record the payment amounts in a Web-based system that  automatically issues the payments. FSA officials said that once the agency  fully develops the automated payment system, it plans to validate and  make any necessary adjustments to the payments calculated and issued  using the interim payment system. However, according to the FSA officials  responsible for implementing the new crop disaster program, the agency  did not develop a mechanism to link the final payment amounts in the  Web-based system to the application data in the spreadsheets maintained  in each FSA county office. Therefore, if USDA or an independent entity  sought to audit the payments under the new crop disaster program to  ensure they are proper, the auditor would have to manually review the  files in each of about 2,300 FSA county offices. Also, the program and the  auditors would not have the benefit of electronic edit checks to ensure the  accuracy of payments.
Furthermore, according to FSA officials, the agency is still in early  development stages of the final automated payment system and has not  developed documentation of the data systems or written business rules  that describe how the final automated system will calculate and issue  payments. However, according to FSA officials responsible for developing  the final payment system for the Supplemental Revenue Assistance  Payments Program, FSA plans to issue the necessary documentation,  including design specifications and functional requirements, and perform  system testing. As of March 2010, FSA officials were uncertain when this  documentation would be issued.
section_title: Conclusions
paragraphs: FSA helps the nation’s farmers recover financially from natural disasters.  For the three former ad hoc crop disaster programs, owing to the time  between when a disaster occurred and applications for disaster payments  were filed, FSA officials did not have the opportunity to verify whether an  eligible disaster condition caused farmers’ crop losses. Instead, FSA  officials relied largely on information from farmers and RMA to determine  the cause of crop losses. The Supplemental Revenue Assistance Payments  Program provides an opportunity to eliminate this problem. Under this  program, however, FSA county officials will not receive information about  crop losses until the time the farmer submits an application for payment,  which may occur after farmers have planted a new crop on their fields that  suffered disaster-related damage. Without notification of the crop losses  closer to the time of the disaster, FSA county officials will not have an  opportunity to make timely loss eligibility determinations. Such  determinations would reduce reliance on crop insurance information and  the potential for disaster payments for suspicious crop losses.
Because of limitations in FSA’s data systems, including insufficient  systems documentation and the inability to reliably merge files from these  systems using program year, tax identification number, tax identification  number type, FSA state code, and FSA county code, the reliability of FSA’s  electronic data files for the purpose of assessing whether payments under  the past crop disaster programs complied with relevant statutes and  regulations is undetermined. Many of the limitations in FSA’s data systems  will most likely continue under the new crop disaster program because  FSA county office staff are using a manual process to enter application  data into spreadsheets and payment data into a Web-based system, and  FSA does not plan to develop a mechanism to electronically link the final  payments to the supporting spreadsheets. Without such a mechanism to  link the Web-based system and the spreadsheets FSA uses to calculate and  issue payments under the new crop disaster program in an integrated way,  it will be difficult for USDA or audit organizations to evaluate the new  program and to ensure that payments are properly made.
section_title: Recommendations for Executive Action
paragraphs: We are making the following three recommendations to the Secretary of  Agriculture:  To better ensure that payments under the Supplemental Revenue  Assistance Payments Program compensate farmers who experienced  eligible crop losses, we recommend that the Secretary of Agriculture  implement procedures so that FSA county officials are notified at the time  of crop insurance claims for disaster-related losses so those officials have  an opportunity to verify that crop disaster payment applicants experienced  losses because of an eligible cause.
To ensure that crop disaster payments under the Supplemental Revenue  Assistance Payments Program can be assessed as to whether they comply  with relevant statutes and regulations, we recommend that the Secretary  of Agriculture direct the Administrator of the Farm Service Agency to    develop and maintain data system documentation, including written  business rules, of the interim payment system and the final automated  payment system that are used to calculate and issue crop disaster  payments; and   develop and implement a mechanism to link Web-based payments to the  application data in the spreadsheets maintained in the FSA county offices  that would result in an integrated interim payment system.
section_title: Agency Comments and Our Evaluation
paragraphs: We provided the Secretary of Agriculture with a draft of this report for  review and comment. We received written comments from the USDA  Under Secretary for Farm and Foreign Agricultural Services. In his  comments, the Under Secretary addresses only the first recommendation  and those findings with which USDA does not agree. With respect to the  recommendation that FSA county officials be notified at the time of crop  insurance claims for disaster-related losses, the comment letter states that  the Administrator of FSA does not have the authority to establish such a  notification process. Instead, the Under Secretary points out that the  Administrator of RMA would be the party responsible for alerting FSA  when crop insurance claims are filed. As a result of this comment, we  redirected the recommendation to the Secretary of Agriculture, who has  the authority to direct RMA to provide this information to FSA.
USDA disagreed with two statements in the draft report. First, USDA  disagreed with our statement that FSA officials did not provide systems  documentation, such as specifications and business rules on how FSA  used data in its systems to calculate crop disaster payments. While we  appreciated FSA officials’ cooperation in discussing the agency’s data  systems with us, these officials could not provide 7 of the 10 items we  requested in order to understand how FSA’s data systems operate. Instead,  FSA referred us to handbooks for each of the crop disaster programs, but  these handbooks are standard operating procedures for county office staff  to implement each program and do not take the place of systems  documentation. Second, USDA also did not agree with our statement that,  under the 2001 through 2007 crop disaster programs, FSA made payments  that are questionable because they were made to individuals and entities  identified by RMA’s data mining as having received suspicious crop  insurance claims payments during that same period of time. We modified  this text to be consistent with our characterization of FSA payments in the  rest of the report.
USDA also provided technical comments, which we incorporated into the  report as appropriate. USDA’s written comments and our responses are  presented in appendix IV.
We are sending copies of this report to appropriate congressional  committees; the Secretary of Agriculture; the Director, Office of  Management and Budget; and other interested parties. The report also will  be available at no charge on the GAO Web site at http://www.gao.gov.
If you or your staffs have any questions about this report, please contact  me at (202) 512-3841 or shamesl@gao.gov. Contact points for our Offices  of Congressional Relations and Public Affairs may be found on the last  page of this report. Key contributors to this report are listed in appendix V.
section_title: Appendix I: Objectives, Scope, and Methodology
paragraphs: Our objectives were to determine (1) how the U.S. Department of  Agriculture’s (USDA) Farm Service Agency (FSA) administered its crop  disaster programs for losses from 2001 through 2007 and the results of  payments under these programs and (2) what lessons FSA can learn from  its experience with the previous crop disaster programs for managing its  new crop disaster program.
subsections: section_title: Objective 1
paragraphs: To determine how FSA administered its crop disaster programs for crop  losses from 2001 through 2007, we reviewed statutes, regulations, and  guidance, such as the FSA Handbook on the Crop Disaster Program, 5- DAP (Revision 2), as well as relevant studies prepared by the USDA’s  Office of Inspector General and the Congressional Research Service and  our own past reports. In addition, we spoke with relevant USDA officials  in headquarters and in FSA’s Application Development Center in Kansas  City, Missouri.
Because FSA bases its disaster assistance payments largely on USDA’s  Risk Management Agency (RMA) data, we also obtained information on  suspicious crop insurance claims payments identified by RMA, which is  responsible for administering the crop insurance program, and the Center  for Agribusiness Excellence, which is an independent organization that  conducts data mining on crop insurance and farm program data.  Specifically, RMA uses data mining to identify patterns in crop insurance  claims payments that are consistent with the potential for fraud and abuse.  For example, these patterns include  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 claims;  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 fields; and  farmers who, in comparison with their peers, have excessive harvested  losses over many years.
We compared RMA information with FSA records of crop disaster  payments to identify payments to farmers that RMA identified as receiving  suspicious crop insurance claims payments from 2001 through 2007.
Specifically, we identified crop disaster payments made to farmers who  RMA identified as receiving suspicious crop insurance payments for at  least 1 year of the crop disaster program under which the farmer received  a disaster payment. We interviewed agency officials and reviewed relevant  documentation to assess the reliability of the RMA data and determined  the data to be sufficiently reliable for the purposes of our report.
We also obtained and analyzed data files from FSA to determine how FSA  applied legal requirements and policy directives articulated in the statutes,  regulations, and guidance in administering the programs. Specifically, we  obtained the following data files:    Producer Payment Reporting System file, which contains summary  information on farm program payments made to individuals and entities;   crop disaster program payment history file, which contains information on  the dollar amount of crop disaster program payments;   crop disaster program crop loss application file, which contains  information from the applications that farmers submit when applying for  crop disaster program payments;   crop disaster program crop prices file, which contains the crop prices  used to calculate payments under the crop disaster programs;   USDA National Agricultural Statistics Service crop prices file, which  contains crop prices used to calculate payments under multiple federal  farm programs; and   permitted entity file, which contains information on individuals and  entities receiving farm program payments.
We used these data to determine the distribution of crop disaster program  payments to recipients. To assess the reliability of these data, we    obtained and reviewed the available documentation about the data  elements in the data files;    performed electronic testing on the data elements that we used;  reconciled the two sources of crop disaster program payment data— Producer Payment Reporting System and crop disaster program payment  history records—by matching common data elements including FSA state  code, FSA county code, and tax identification number;    worked with FSA Application Development Center staff to determine how  to merge all of the data files because FSA did not have written business  rules or overall system documentation;   discussed our results from merging these data files with officials in FSA’s  Production, Emergency, and Compliance Division and in FSA’s  Application Development Center, which administers and oversees the crop  disaster program payments; and   compared the results of merging all data files to FSA county office hard  copy payment records that contain the calculations for the statutory  payment cap.
We also attempted to use FSA’s data files to determine if any payments  exceeded the statutory payment cap of no more than 95 percent of the  crop’s expected value in the absence of a disaster. More specifically, the  sum of the disaster payment, the value of the salvageable crops, and any  crop insurance payments cannot exceed 95 percent of the crop’s expected  value. In attempting to determine whether payments exceeded the  statutory cap of 95 percent of the crop’s expected value in the absence of a  disaster, we merged the crop disaster program crop loss records and crop  disaster program payment history records. We found that the crop disaster  payment crop loss application records could not be reliably merged with  the crop disaster program payment history records using the following  data elements—program year, tax identification number, tax identification  number type, FSA state code, and FSA county code. We also found  discrepancies between the data that resulted from merging the data files  and the hard copy payment records that we obtained for selected farmers.  Specifically, we found discrepancies in some of the data elements— insurance payments and expected values of production from the crop  disaster program crop loss application records, as well as crop prices that  FSA uses to calculate the statutory payment cap. A potential complex  alternative method for using FSA’s data systems to compare crop disaster  payments to statutory payment caps might have permitted a comparison of  estimated disaster payments with statutory payment caps. Even if this  alternative method were viable, additional research would have been  necessary to reach a different conclusion about the reliability of FSA’s  data systems for the purpose of determining the extent to which actual  disaster payments met statutory payment caps. This additional research  would have required data reliability assessments of additional specific  data elements, an examination of the differences between estimated and  actual disaster payments at the detail and summary levels, and validating  calculated fields not saved or recorded by FSA. We did not fully pursue  this alternative method owing to insufficient documentation of FSA’s data  systems and a consideration of the large amount of time and effort it  would have required. Therefore, the reliability of FSA’s electronic data  files for the purpose of assessing whether a crop disaster payment  complied with a statutory cap is undetermined.
In summary, (1) the payment data from the reconciled crop disaster  program payment data—Producer Payment Reporting System and crop  disaster program payment history records—were sufficiently reliable for  determining the distribution of crop disaster payments by state, program,  and type of recipient and (2) the reliability of FSA’s electronic data files  for the purpose of assessing whether payments under the past crop  disaster programs complied with relevant statutes and regulations is  undetermined.
In addition, we identified the four states with the highest dollar amount of  total crop disaster program payments: Kansas, North Dakota, South  Dakota, and Texas. We also selected North Carolina, another state with  high payment levels, to expand geographic dispersion. We identified the 27  counties representing the top 20 percent of the crop disaster payments  FSA administered in each of those five states. We interviewed FSA  officials in each of these 27 counties about their experiences administering  crop disaster programs. Within each of these 27 counties, we identified the  farmers representing the top 10 percent of total crop disaster payments  and randomly selected 15 of these farmers in each county that received  disaster payments under all three programs, and we collected their  payment records from the FSA county office that administered their  payments. Although these farmers were selected randomly from the top 27  counties in these five states, because this selection does not constitute a  probability sample of farmers receiving crop disaster payments, it is not  generalizable to a larger population.
Because we could not reliably merge the data files to determine whether  payments complied with the statutory payment cap, we reviewed the hard  copy payment records for 75 farmers. To select these 75 farmers, we  identified the county administering the largest dollar amount of disaster  payments within each of our five selected states and analyzed the payment  records we collected for 15 farmers in each of these five counties to  determine the total payments each of the 75 farmers received through crop  insurance payments, sales of salvageable crops, and crop disaster  payments. We then compared this total with the farmer’s expected value of  production in the absence of a disaster to arrive at the total value as a  percent of expected production. We analyzed field-level disaster payment  data for these selected farmers. A field, in this report, refers to the lowest,  detailed level at which a crop loss is defined and includes RMA- and FSA- defined crop characteristics such as the crop price, farming practices,  insurance coverage, and planting period for units and subunits that  describe contractual relationships or different crop yields associated with  the acreage or producer share. For example, a field might be a farmer’s 20  acres (not necessarily contiguous) devoted to a corn crop—but it would  only be classified as a “field” if that farmer filed a claim and received a  disaster payment for that specific corn crop.
section_title: Objective 2
paragraphs: To determine what lessons FSA can learn from its experience with past  crop disaster programs for managing the new crop disaster program, we  reviewed relevant statutes, regulations, and guidance, including the FSA  Handbook on the Supplemental Revenue Assistance Payments Program,  SURE-1. We also interviewed FSA officials from the agency’s Production,  Emergency, and Compliance Division; FSA’s Application Development  Center in Kansas City, Missouri; and the counties in the five states we  examined. We asked these officials to identify challenges, if any, they  faced in administering past programs and spoke with them about their  plans for administering the new program. We analyzed this information to  determine how FSA could use lessons learned to manage the new  program.
We conducted this performance audit from November 2008 through June  2010, in accordance with generally accepted government auditing  standards. Those standards require that we plan and perform the audit to  obtain sufficient, appropriate evidence to provide a reasonable basis for  our findings and conclusions based on our audit objectives. We believe  that the evidence obtained provides a reasonable basis for our findings  and conclusions based on our audit objectives.
section_title: Appendix II: Supplemental Revenue Assistance Payments Program
paragraphs: The Food, Conservation, and Energy Act of 2008 (the 2008 farm bill)  created the Supplemental Revenue Assistance Payments Program to assist  farmers for crop losses incurred on or before September 30, 2011. Under  the program, USDA provides crop disaster payments based on a farmer’s  revenue from all crops in all counties. That is, the program considers the  impact of a disaster on a farmer’s entire operation, including revenue  losses from crops that sustained damage, as well as revenue gains from  crops that were successfully grown and harvested. In general, if the  farmer’s revenue is less than a guaranteed level of revenue, which is based  on the farmer’s production history, the farmer receives a payment. In  contrast, if the farmer’s revenue is equal to or greater than the guaranteed  level of revenue (i.e., revenue losses are offset by revenue gains) the  farmer does not receive a payment.
subsections: section_title: Eligibility Requirements and Payment Limitations
paragraphs: To be eligible under the new program, a farming operation must be located  in or contiguous to counties that received a USDA secretarial disaster  designation (see fig. 2 for the counties that met this requirement in 2008),  and have lost at least 10 percent of production on at least one crop of  economic significance. Eligible disaster conditions include damaging  weather, weather-related disease, and weather-related insect infestation.  Alternatively, a farming operation must incur eligible total crop losses of  greater than 50 percent of the normal production, including a loss of at  least 10 percent of production on at least one crop of economic  significance.
Furthermore, farmers must have purchased either federal crop insurance  coverage or be covered under the Noninsured Crop Disaster Assistance  Program for all crops of economic significance on their farming operation  in order to qualify for a disaster payment. The Supplemental Revenue  Assistance Payments Program considers revenue losses or gains from  crops that are eligible for coverage through crop insurance or the  Noninsured Crop Disaster Assistance Program. However, an amendment  to the 2008 farm bill extended the date by which the federal crop  insurance program and the Noninsured Crop Disaster Assistance Program  required farmers to purchase coverage for their 2009 crops to be eligible  for payment. Also, the Supplemental Revenue Assistance Payments  Program includes an income eligibility requirement that prohibits any  individual or a farming operation with an average adjusted gross income  that exceeds $2.5 million, over the previous 3 tax years immediately  preceding the applicable crop year, from receiving program payments,  unless 75 percent or more of their income is from farming. For 2009 and  subsequent crop years, individuals and entities with an average adjusted  gross income of $500,000 or more, excluding income from farming, are not  eligible to receive payments.
In addition, there are two basic payment limitations under the  Supplemental Revenue Assistance Payments Program. First, the 2008 farm  bill prohibits any person from receiving more than $100,000 in combined  payments from the Supplemental Revenue Assistance Payments Program;  the Livestock Forage Program; the Livestock Indemnity Program; and  Emergency Assistance for Livestock, Honeybees, and Farm-raised Fish.  Second, the 2008 farm bill limits payments by prohibiting a farmer’s  guaranteed revenue level from exceeding 90 percent of the farmer’s  expected revenue in the absence of a disaster.
section_title: Payment Calculation
paragraphs: USDA calculates payments under the Supplemental Revenue Assistance  Payments Program by comparing a farmer’s total revenue with the  farmer’s guaranteed level of revenue. If the farmer’s total revenue is less  than the guaranteed level of revenue, the payment is equal to 60 percent of  the difference between the two. In order to calculate the payment amount,  USDA must determine the total revenue and the guaranteed level of  revenue. A farmer’s total revenue includes the actual value of all crops,  crop insurance payments, and other farm program payments, including  other disaster payments and some farm subsidy payments. A farmer’s  guaranteed level of revenue equals the sum of the guaranteed revenue the  farmer will receive from each crop. For insured crops, the guaranteed  revenue is based on the level of crop insurance coverage the farmer  purchased for each crop. Higher levels of crop insurance coverage result  in higher guaranteed revenue for that crop. For crops covered by the  Noninsured Crop Disaster Assistance Program, the guaranteed revenue is  based on the crop price, the number of acres the farmer planted or  intended to plant, and the amount of harvested crops.
section_title: Special Provisions for 2008 Payments
paragraphs: The American Recovery and Reinvestment Act of 2009 expanded eligibility  and increased the benefits farmers could receive for the 2008 crop year.  The act created an extension of the date by which farmers must have  purchased crop insurance coverage or coverage through the Noninsured  Crop Disaster Assistance Program for their 2008 crops to be eligible for  payment. Regarding increased benefits, the statute allowed farmers to  receive potentially larger payments by altering the method for calculating  a farmer’s guaranteed revenue.
section_title: Appendix III: Selected Information on Distribution of 2001 through 2007 Crop Disaster Program Payments
paragraphs: FSA administered a total of $6.9 billion in payments for the three crop  disaster programs from 2001 through 2007. The state receiving the largest  dollar amount in payments under the three programs was Texas, which  received a total of $867.5 million in crop disaster payments under the 2001  through 2007 programs. Table 4 shows the dollar amount of crop disaster  payments that states received under each of the three programs and as a  combined total for all three programs from 2001 through 2007.
More recipients of 2001 through 2007 crop disaster program payments  (80,129 recipients) received a total of $1,001 to $2,000 under the three  programs combined than any other payment level. In addition, the  recipients of total crop disaster payments from 2001 through 2007 that  were larger than $1 million received an average payment of $1.3 million.  Table 5 shows the number of recipients and their total payments under the  2001 through 2007 crop disaster programs, distributed by total payment  size.
Finally, when reviewing the farming structure of the 2001 through 2007  crop disaster program payment recipients, we found that the majority of  recipients were individuals. Individuals received a total of about $4.9  billion in payments, while entities received about $2 billion under the crop  disaster programs from 2001 through 2007. Table 6 shows the number of  recipients and the payments they received under each crop disaster  program and for all three programs combined, distributed by type of  recipient.
section_title: Appendix IV: Comments from the U.S. Department of Agriculture
paragraphs: The following are GAO’s comments on the U.S. Department of  Agriculture’s letter, dated May 18, 2010.
subsections: section_title: GAO’s Comments
paragraphs: 1. We appreciate FSA officials’ cooperation in discussing the agency’s data  systems with us. In April 2009, we visited USDA’s Application  Development Center in Kansas City, Missouri; interviewed officials  responsible for each program file; and requested documentation for all  files used in determining payments under each of the crop disaster  programs. Specifically, in order to understand how FSA’s data systems  operate, we requested 10 items: (1) descriptions of all data elements, (2)  code values for each variable, (3) key required to join the files, (4) system  documentation required to use the data field both within and between  files, (5) business rules, (6) tables showing the relationships between the  various files, (7) data descriptions, (8) state and county codes, (9)  information on how each file is related to the other files, and (10) process  flow charts that should provide system details. FSA provided the first  three items requested but not the remaining seven. Instead, FSA referred  us to handbooks for each of the crop disaster programs, but these  handbooks are standard operating procedures for county office staff to  implement each program and do not take the place of systems  documentation. As late as March 5, 2010, we asked FSA officials about  systems specifications and user requirements for the ad hoc crop disaster  programs and the Supplemental Revenue Assistance Payments Program.  These officials stated that they may not have provided these documents,  but even if they had, the documents for the ad hoc disaster assistance  programs would not be usable for our purposes since they were not  official, and the documents for Supplemental Revenue Assistance  Payments Program are in the initial phases of development. Under these  circumstances, we stand by our statement that FSA officials could not  provide systems documentation, such as specifications and business rules  on how FSA used data in its systems to calculate crop disaster payments.  2. We made these technical changes as appropriate.  3. We recognize that FSA received claims for disaster-related crop losses,  and the funds to pay for these losses, years after these crop losses  occurred. We modified the text to be consistent with our characterization  of FSA payments in the rest of the report.  4. We revised this report to note that FSA inspects fields for practices in  addition to those we discussed in a draft of this report.  5. We do not question FSA’s approval of crop disaster payments. Instead,  we recommend that FSA county officials be notified at the time of crop  insurance claims for these losses so these officials have an opportunity to  verify that crop disaster payment applicants experienced losses because of  an eligible cause. In general, we did not seek to validate individual  applications for crop disaster payments.  6. In this report, we focused on FSA’s crop disaster payments and not on  RMA’s crop insurance claims payments. FSA bases its crop disaster  payments primarily on RMA’s crop insurance data. As we noted in this  report, we found that about 6 percent of FSA’s crop disaster payments  went to farmers who were identified by RMA’s data mining as having  received suspicious crop insurance claims payments during that same  period.  We did not follow up on whether farmers had acted fraudulently  or whether RMA took any actions to obtain refunds of crop insurance  claims payments because these issues were not the focus of this report.   7. We acknowledge that the data systems for the ad hoc crop disaster  programs are complex and include numerous data files. Nonetheless,  reconciling the information in farmers’ disaster applications and their  payments was important in addressing part of our first objective: how FSA  administered its three ad hoc crop disaster programs for crop losses from  2001 through 2007. To this end, in February 2009, we met with FSA  Wharton County, Texas, officials to understand how, within a county  office, the estimated disaster payments were calculated. In April 2009, we  visited USDA’s Application Development Center to discuss the files we  needed, and how the files should be linked to determine how the actual  payments were calculated. At that time, center officials explained that the  system—files and their linkages—was not well documented. On several  occasions, we requested information on the formulas and variables used to  recreate the actual payments, but center officials did not respond to our  requests. Because center officials could not provide us with  documentation for business rules and file specifications (see response to  comment 1), we asked these officials if we could use specific variables— tax identification number, tax identification type, FSA state code, and FSA  county code—maintained in the history file to determine whether  payments complied with the statutory cap that payments not exceed 95  percent of the crop’s expected value in the absence of the disaster. These  officials noted that this approach should provide the information we  needed. From July 2009 through December 2009, we found discrepancies  in this approach and contacted center officials to gain additional  clarification on this approach. In each case, center officials continued to  confirm that this approach seemed reasonable. In October 2009, we  provided center officials with a list of farmers whose payments appeared  to exceed the statutory cap, resulting in overpayments, but FSA did not  provide comments. In December 2009, we provided FSA headquarters  officials with a more refined list of farmers who appeared to have been  paid in excess of the statutory cap. FSA headquarters officials responded  that they would investigate the farmers on this list. In December 2009,  these officials examined the apparent overpayments, found that the  payments were made correctly, and informed us that the originally agreed  upon approach would not provide us with accurate calculations. Because  we had already invested significant time and resources on the approach  FSA had told us represented a reasonable approach, and because we still  lacked adequate documentation of the system, we used hard copy  payment files for 75 selected farmers in five states to determine if these  farmers’ payments complied with the statutory payment cap. For these 75  farmers, we found that the payments complied with the cap.
As USDA observes, the system, and its internal coding, used to calculate  payments (and determine compliance with the payment cap) is very  difficult to understand. Although these systems are difficult to understand,  delays in and lack of responses to our questions further complicated our  analyses. We also agree with USDA that eligibility conditions that are not  well documented are very difficult to discern. Finally, although we  requested that all files cover the same time periods, FSA did not provide us  with consistent files.  8. We revised this report to reflect the use of the unharvested payment  factor. As we note, however, even with the use of this factor, farmers may  still have received payments that exceeded their costs of producing these  crops.  9. In response to USDA’s comment that FSA has limited resources for  developing the automated payment system for 2008, we revised this report  to more clearly acknowledge that FSA verifies the data entries.  Furthermore, as we state in this report, FSA officials said that once the  agency fully develops the automated payment system, it plans to validate  and make any necessary adjustments to the payments it calculates and  issues using the interim payment system.  10. We revised this report to recommend that the Secretary of Agriculture  implement procedures so that FSA county officials have timely notice of  crop insurance claims for disaster-related losses.
section_title: Appendix V: GAO Contact and Staff Acknowledgments
subsections: section_title: Staff Acknowledgments
paragraphs: In addition to the individual named above, Thomas Cook, Assistant  Director; Kevin Bray; Richard Brown; Arturo Cornejo; Kristin Hughes;  Paula Moore; Carol Herrnstadt Shulman; Kiki Theodoropoulos; and James  W. Turkett made key contributions to this report.
section_title: Related GAO Products
paragraphs: Crop Insurance: Opportunities Exist to Reduce the Costs of  Administering the Program. GAO-09-445. Washington, D.C.: April 29,  2009.
Information Technology: Agriculture Needs to Strengthen Management  Practices for Stabilizing and Modernizing Its Farm Program Delivery  Systems. GAO-08-657. Washington, D.C.: May 16, 2008.
Supplemental Appropriations: Opportunities Exist to Increase  Transparency and Provide Additional Controls. GAO-08-314.  Washington, D.C.: January 31, 2008.
Agricultural Conservation: Farm Program Payments Are an Important  Factor in Landowners’ Decisions to Convert Grassland to Cropland.  GAO-07-1054. Washington, D.C.: September 10, 2007.
Suggested Areas for Oversight for the 110th Congress. GAO-07-235R.  Washington, D.C.: November 17, 2006.
Crop Insurance: Actions Needed to Reduce Program’s Vulnerability to  Fraud, Waste, and Abuse. GAO-05-528. Washington, D.C.: September 30,  2005.
Crop Insurance: USDA Needs to Improve Oversight of Insurance  Companies and Develop a Policy to Address Any Future Insolvencies.  GAO-04-517. Washington, D.C.: June 1, 2004.
Agricultural Conservation: USDA Needs to Better Ensure Protection of  Highly Erodible Cropland and Wetlands. GAO-03-418. Washington, D.C.:  April 21, 2003.