Conservation Security Program: Despite Cost Controls, Improved USDA Management Is Needed to Ensure Proper Payments and Reduce Duplication with Other Programs
Released: 2006-04-28T00:00:00

Letter

Background

CSP, called for under section 2001 of the 2002 farm bill, is a voluntary conservation program that supports ongoing stewardship of private and tribal agricultural lands by providing payments to producers for maintaining and enhancing natural resources. According to USDA, CSP identifies and rewards those farmers and ranchers who are meeting the highest standards of conservation and environmental management on their operations, while creating powerful incentives for other producers to meet those same standards of conservation performance. In turn, the conservation benefits gained will help these farms and ranches to be more economically and environmentally sustainable while increasing natural resources benefits to society at large.

CSP provides financial and technical assistance to agricultural producers who advance the conservation and improvement of soil, water, air, energy, plant and animal life, and other conservation purposes on working lands. Such lands include cropland, grassland, prairie land, improved pasture, and rangeland, as well as forested land and other noncropped areas that are an incidental part of the agriculture operation. The program is available in all 50 states, the District of Columbia, the Commonwealth of Puerto Rico, Guam, the Virgin Islands of the United States, American Samoa, the Commonwealth of the Northern Marianna Islands, and the Trust Territory of the Pacific Islands. Under the farm bill, the program is open to all agricultural producers, regardless of size of operation, crops produced, or geographic location. CSP is administered by NRCS.

In implementing CSP, NRCS emphasizes soil and water quality as nationally important resource concerns because of the potential for significant environmental benefits from conservation treatment that improves their condition. Thus, although the farm bill required producers to treat at least one resource of concern under CSP, NRCS program regulations require producers to treat at least two resources—soil and water—to be eligible for the program. Producers can use CSP payments to fund a variety of soil and water quality conservation practices. Soil quality practices include crop rotation, planting cover crops, tillage practices, prescribed grazing, and providing adequate wind barriers. Water quality practices include conservation tillage, strip cropping, vegetative filter strips, terraces, grassed waterways, managed access to water courses, nutrient and pesticide management, prescribed grazing, and irrigation water management. In addition, under the farm bill and NRCS regulations, to be eligible for CSP, both the producer and the producer’s operation must first meet several basic eligibility criteria, including (1) the land must be private agricultural land, forested land that is an incidental part of an agricultural operation, or tribal land with the majority of the land located within a selected priority watershed; (2) the applicant must be in compliance with highly erodible land and wetlands provisions of the Food Security Act of 1985 and generally must have control of the land for the life of the contract; and (3) the applicant must share in the risk of producing any crop or livestock and be entitled to a share in the crop or livestock available for marketing from the operation.

The farm bill establishes three tiers or levels of participation. Each tier has a specified contract period and an annual payment limit and calls for a plan addressing resources of concern (as further delineated in NRCS regulations), as indicated in table 1.

In addition to these tiers, NRCS’s program regulations and sign-up announcements establish enrollment categories and subcategories. Under NRCS regulations, enrollment categories may be defined by criteria related to resource concerns and levels of historic conservation treatment, including a producer’s willingness to achieve additional environmental performance or conduct conservation enhancement activities. For the fiscal year 2005 sign-up, five enrollment categories (A through E) were used for cropland, pasture, and rangeland. For example, for cropland, the enrollment categories were defined by various levels of soil conditioning index scores and the number of stewardship practices and activities in place on the farm for at least 2 years. All applications that met the sign-up criteria were placed in an enrollment category, regardless of available funding. NRCS then funded all eligible producers enrolled in category A before funding producers in category B and subsequent categories until available funding was exhausted. If an enrollment category could not be fully funded, then the subcategories were used to determine application funding order within a category. For the fiscal year 2005 sign-up, 12 subcategories were used. These subcategories included factors such as whether (1) the applicant is a limited resource producer or a participant in an ongoing environmental monitoring program; (2) the agricultural operation is in a designated water conservation area or aquifer zone, drought area, or nonattainment area for air quality; or (3) the agricultural operation is in a designated area for threatened and endangered species habitat creation and protection.

The producer’s CSP contract identifies the type and amount of program payments that a producer will receive. NRCS has established criteria for calculating each of the four components of the program payment. For example, the stewardship component is based on the number of acres enrolled in CSP, the stewardship payment rate established for the watershed, and reduction factors based on the tier of enrollment. At a minimum, all CSP contract payments include amounts for the stewardship and existing practice components. To be eligible to participate in CSP, the producer must develop a conservation security plan (also known as a conservation stewardship plan) that identifies the land and resources to be conserved; describes the tier of conservation security contract and the particular conservation practices to be implemented, maintained, or improved; and contains a schedule for the implementation, maintenance, or improvement of these practices. This plan must be submitted to and approved by NRCS.

According to NRCS, about 1.8 million farmers and ranchers nationwide are potentially eligible for CSP. However, the agency has chosen a staged approach to implementing CSP, based on limiting program sign-ups to selected, priority watersheds each year. In part, this reflects CSP’s newness. As with any new program, there have been birthing and growing pains as the agency has grappled with developing program regulations, training its staff, outreaching to producers and stakeholder groups, and adjusting program implementation based on lessons learned from one program sign-up year to the next. NRCS also chose a staged approach in light of limited program funding—Congress authorized caps for total CSP funding in fiscal year 2004 and for salaries and expenses of personnel to carry out CSP in fiscal years 2005 and 2006—and the statutory limitation on the amount of CSP funding that can be used for technical assistance— NRCS cannot incur technical assistance costs in excess of 15 percent of the funds expended in a given fiscal year for CSP. According to NRCS, focusing on priority watersheds reduces the administrative burden on applicants and the costs of processing a large number of applications that cannot be funded. In addition, the agency notes that everyone in the United States lives in a watershed and, because each year producers in approximately one-eighth of the nation’s 2,119 watersheds will be eligible for the sign-up, all eligible producers will have the opportunity to participate over an 8-year period, subject to available funding.

NRCS held the first CSP sign-up in fiscal year 2004. Nearly 2,200 farmers and ranchers participated in the program that year with contracts covering nearly 1.9 million acres in 18 watersheds in 22 states. Producer payments totaled about $34.6 million in fiscal year 2004, and NRCS used about $5.9 million for technical assistance. For fiscal year 2005, NRCS approved over 12,700 CSP contract applications, covering nearly 9 million acres in 220 watersheds in 50 states and Puerto Rico. These 220 watersheds included the 18 watersheds covered by the fiscal year 2004 sign-up. Producer payments totaled about $171.4 million (including payments for contracts approved in 2004) in fiscal year 2005, and NRCS used about $30.2 million for technical assistance. In January 2006, USDA announced that it plans to offer CSP contracts to producers in an additional 60 watersheds during fiscal year 2006, with participants receiving an estimated $220 million (including payments for contracts approved in 2004 and 2005). More detail on the CSP payments made in fiscal years 2004 and 2005 is summarized in appendix II, including information on these payments by tier, payment type, and enhancement type. Figure 1 shows the watersheds included in the fiscal year 2004 and fiscal year 2005 CSP sign-ups.

In general, NRCS implements CSP by (1) offering periodic sign-ups in specific, priority watersheds across the Nation; (2) requiring producers to complete a self-assessment, including a description of conservation activities on their operations, to determine their eligibility for the program; (3) scheduling interviews with eligible producers in local NRCS field offices to review the producers’ applications; (4) determining which program tier and enrollment category an eligible producer may participate in; (5) selecting the enrollment categories to be funded for CSP contracts; (6) developing conservation security plans and contracts for the producers selected; and (7) making the associated payments. Appendix III provides a flowchart describing the CSP application and enrollment process in more detail. Applicants may submit only one application for each sign-up. Producers who are participants in an existing CSP conservation stewardship contract are not eligible to submit another application.

Many stakeholders refer to CSP as an “entitlement” program. However, the farm bill does not refer to the creation of any entitlements under the program. Moreover, the legislation provides the Secretary of Agriculture with discretion to establish additional eligibility requirements, provides that the Secretary must approve a producer’s conservation security plan before entering into a conservation security contract, and only states that payments “may” be received under three tiers of contracts. Thus, CSP is not an entitlement program.

Finally, many proponents of CSP maintain that this program will help U.S. producers stay competitive in the world market while providing significant societal environmental benefits. These proponents note that traditional farm commodity programs tend to distort trade and will thus face increasing pressure for reduction or elimination in the next round of World Trade Organization talks. However, they note, “green payments” programs such as CSP that are designed to promote conservation and stewardship of natural resources on working lands are more likely to survive in these talks. They also maintain that several European countries are far ahead of the United States in using green payments programs to provide financial assistance to their producers while promoting conservation and environmental stewardship. CSP is generally regarded as the most comprehensive green payments program developed in the United States, primarily because CSP promotes integrated, whole-farm planning for conservation.

Information on other USDA conservation programs is presented in appendix IV.

Estimates of CSP Costs Generally Increased because of Better Information on Program Implementation and Changes to the Time Frames Covered by the Estimates

Various factors explain why CBO and OMB estimates of CSP costs generally have increased over time. Of most importance, CBO and OMB officials indicated that little information was available regarding how the program would be implemented at the time of its inception in May 2002. Subsequent estimates have been better informed because USDA had developed and implemented program regulations and had data on the number of participants from program sign-ups. In addition, increases in estimated CSP costs also can be attributed to revising the time frames on which the estimates were based. In general, this involved replacing estimates from earlier years during which the program was not operational, or minimally operational, with later years during which the program is expected to be more fully operational.

Estimates of CSP Costs Generally Have Increased over Time

Over time, CBO and OMB each made several estimates of CSP costs for specified 10-year periods, and these estimates generally increased. CBO and OMB developed these estimates as part of their responsibilities for budget scoring (also known as scorekeeping). These responsibilities are discussed in appendix V. As reflected in figure 2, CBO and OMB estimates generally increased during the period 2001 through 2006, although at times the estimates dropped because of legislative actions to cap or limit CSP funding. Appendix VI also provides a more detailed time line of legislative actions and CBO and OMB 10-year estimates of CSP costs during the period 2001 through 2006.

As shown in the figure, CBO made its first estimate of CSP costs—$3.7 billion for fiscal years 2002 through 2011—in December 2001, about 5 months before the farm bill was enacted (May 13, 2002). At the time, CBO based its estimate on the Senate’s version of the farm bill; the House of Representative’s version of the farm bill did not include provisions for CSP at that time. In early May 2002, just before the farm bill’s enactment, CBO estimated CSP costs to be $2 billion for the same 10-year period. CBO officials cited changes in the final bill’s provisions as the basis for the reduction in its estimate. They also cited an agreement they stated had been reached by members of the Senate Agriculture Committee that only $2 billion of the new funds to be made available for the farm bill’s conservation title would be used for CSP. The farm bill, as enacted, does not specifically include a $2 billion limit; however, it does include language that CBO officials said would result in reducing program costs to about $2 billion. OMB also made its first estimate of CSP costs—$5.9 billion for fiscal years 2002 through 2011—in May 2002, soon after the farm bill’s enactment. OMB officials said that, although they were aware of an agreement reached in the Senate to limit CSP funding to $2 billion, because this limit was not included in the final legislation, they disregarded it in making their cost estimate. As a result, OMB’s cost estimate was nearly three times larger than CBO’s estimate, although both estimates were made in May 2002, were based on the same farm bill provisions, and covered the same 10-year period.

As indicated by the figure, subsequent CBO and OMB estimates of CSP costs were more similar and generally increased, except in cases where one or both agencies’ estimates reflected legislative actions to cap or limit CSP funding. For example, in January 2003, CBO estimated CSP costs to be $7.8 billion for the 10-year period fiscal years 2004 through 2013. In February of that year, Congress enacted legislation that capped CSP funding at approximately $3.8 billion through fiscal year 2013 in order to, according to OMB, generate savings for drought disaster assistance. The following month, in light of this cap, OMB estimated CSP costs to be $3.8 billion for fiscal years 2004 through 2013. However, in January 2004, Congress repealed the $3.8 billion cap. As a result, subsequent OMB and CBO estimates increased substantially.

Congress acted again to cap CSP funding in October 2004, passing legislation to 1imit the program’s funding to approximately $6 billion for the 10-year period fiscal years 2005 through 2014. This action was taken to offset emergency supplemental appropriations for hurricane disaster assistance. Later that month, because of the cap, OMB estimated CSP costs to be $6 billion for the same period. However, in January 2004, about 9 months earlier, OMB had estimated the costs for this 10-year period to be $9.7 billion.

In 2005, both agencies estimated CSP costs to be $6.7 billion for the 10-year period fiscal years 2006 through 2015. In large measure, these estimates reflected the $6 billion legislative cap covering fiscal years 2005 through 2014. However, that cap was scheduled to expire at the end of fiscal year 2014, meaning the estimated costs for fiscal year 2015 were not subject to a cap. In February 2006, Congress repealed the $6 billion cap, replacing it with caps of $1.954 billion for fiscal years 2006 through 2010 and $5.650 billion for fiscal years 2006 through 2015. The estimate made by OMB in January 2006—$6.2 billion for fiscal years 2007 through 2016—anticipated this change. CBO’s March 2006 estimate for fiscal years 2007 through 2016 was $6.4 billion.

As More Information on CSP Implementation Became Available, Cost Estimates Increased

According to CBO and OMB officials, the primary reason for increases in their estimates of CSP costs over time is that subsequent estimates have been better informed. Specifically, subsequent estimates have been better informed by USDA’s development and implementation of program regulations and data from the results of program sign-ups. As a result, these estimates more accurately capture program costs, resulting in higher estimates.

At CSP’s inception in May 2002, little information was available about how it would be implemented and the expected level of producer participation. CBO and OMB officials noted that the farm bill provided a basic framework for CSP and only a very limited basis for cost estimation, giving USDA wide discretion on how to implement the program. Consequently, these officials had to rely on their professional judgment and past experience with estimating costs when making assumptions about key aspects of CSP, such as the level of participation, number of acres enrolled, land rental rates, and the amount and types of payments made. However, according to CBO and OMB officials, CSP’s uniqueness made this more difficult as these officials had not made cost estimates for a similar program in the past.

Later, NRCS’s development of CSP regulations provided key information on how the program would be implemented. In this regard, NRCS issued an advance notice of proposed rulemaking in February 2003; a proposed rule in January 2004; an interim final rule in June 2004; and an amended interim final rule in March 2005. For example, the proposed rule indicated that NRCS planned to limit enrollments to specific sign-up periods rather than allow continuous sign-ups; limit CSP enrollment to producers in selected, priority watersheds rather than offer nationwide enrollment for a given sign-up; and prioritize funding by way of enrollment categories to ensure that producers with the highest commitment to conservation are funded first. The amended interim final rule incorporates each of these elements. In addition, CBO and OMB officials had informal conversations with NRCS officials to obtain information on how the agency intended to implement the program. For example, CBO officials said that they learned that NRCS anticipated program participation would be greater than it originally expected and that enhancement payments would be a more important component of total producer payments than originally planned. OMB also reviewed and commented on NRCS’s proposed and interim final rules before their publication in the Federal Register. And CBO and OMB officials indicated that they conferred with one another from time to time to discuss issues related to estimating CSP costs, although the agencies arrived at their estimates independently.

Finally, CBO and OMB officials stated that after making their initial CSP cost estimates at the program’s inception, they had more time to develop subsequent estimates, including more time to gather and consider program implementation information. They also said that their future estimates of program costs will be even better informed as more data become available from each annual CSP sign-up, including data on program participation and the mix of payments made by tier and type.

Changing Time Frames Also Account for Increases in Estimates

CBO and OMB officials also attributed increases in their CSP cost estimates to revisions in the time frames on which the estimates were based. In making their initial estimates in May 2002, CBO and OMB took into account a time lag assumed for program development and implementation by NRCS, which included the time needed for rulemaking and public comment, training NRCS field staff, and outreach to producers and stakeholder groups. Thus, these initial estimates, covering the 10-year period fiscal years 2002 through 2011, included years in which the program was either not expected to be operational, such as fiscal years 2002 and 2003, or minimally operational, such as fiscal year 2004. For example, in CBO’s May 2002 estimate, the costs associated with these first 3 fiscal years totaled only $22 million. In contrast, CBO’s March 2004 estimate, covering a later 10-year period, fiscal years 2005 through 2014, assumed the program would be fully operational in each of these years. CBO’s cost estimates for the three additional fiscal years—2012, 2013, and 2014—totaled $3.1 billion.

Thus, the substitution of fiscal years 2012 through 2014 in the latter estimate for fiscal years 2002 through 2004 in the earlier estimate amounted to an increase of more than $3 billion and helps to explain, in part, why the subsequent estimate was greater. Table 2 provides further information on CBO estimates of CSP costs for various 10-year periods during fiscal years 2002 through 2016.

A similar pattern can be seen with OMB’s estimates. OMB’s May 2002 estimate, covering the 10-year period fiscal years 2002 through 2011, included fiscal years 2002, 2003, and 2004, years in which the program was assumed not to be implemented or only minimally implemented. OMB’s estimate for these 3 fiscal years was $98 million. In contrast, OMB’s January 2004 estimate, covering a later 10-year period, fiscal years 2005 through 2014, included three additional years, fiscal years 2012, 2013, and 2014. OMB’s estimate for these years was $4.049 billion. Thus, the substitution of fiscal years 2012 through 2014 in the latter estimate for fiscal years 2002 through 2004 in the earlier estimate amounted to an increase of about $3.95 billion and helps to explain, in part, why the subsequent estimate was greater. Table 3 provides further information on OMB estimates of CSP costs for various 10-year periods during fiscal years 2002 through 2016.

USDA Has Authority to Control CSP Costs and Has Established Cost Control Measures but Needs to Improve Internal Controls and Better Ensure Consistency in NRCS State Offices’ Determinations of Producer Eligibility

The farm bill provides USDA general authority to control CSP costs. While USDA’s NRCS has established several cost control measures under this statutory authority, its efforts to restrict program spending could be improved by addressing (1) weaknesses in internal controls used to ensure the accuracy of program payments and (2) inconsistencies in the wildlife resource criteria used by NRCS state offices to determine producer eligibility for Tier III, the highest CSP payment level. Furthermore, because of inconsistencies in wildlife resources criteria, NRCS cannot ensure that CSP is achieving its intended wildlife habitat benefits.

The Farm Bill Provides USDA Authority to Control CSP Costs

The farm bill establishes some eligibility requirements for CSP but gives USDA the authority to establish additional requirements that would enable it to control CSP costs, even absent legislative caps on CSP funding. For example, the farm bill establishes some producer and land eligibility requirements for CSP but also states that a payment under CSP “may” be received under three tiers of conservation contracts and that the Secretary of Agriculture “shall” determine and approve the minimum eligibility requirements for each tier—giving USDA the authority to establish additional eligibility requirements that would enable it to control program participation and, therefore, CSP costs. This provision, for example, gives the Secretary discretion to establish a tier eligibility requirement that a producer be located within a specified watershed. The Secretary also must approve a producer’s conservation stewardship plan—as meeting both the statutory eligibility requirements and any tier requirements—for the producer to be eligible to participate in CSP. In addition, the Secretary must ensure that the lowest cost conservation practice alternative is used to fulfill the purposes of the plan. Furthermore, the farm bill sets a payment limit for each tier level ($20,000 for Tier I; $35,000 for Tier II; and $45,000 for Tier III) but, in stating that payments shall be determined by the Secretary and shall not exceed such amounts, provides discretion to the Secretary to further limit the payment amounts.

NRCS Established Cost Control Measures in CSP Regulations Designed to Limit Program Enrollment and Payments

Under the statutory authority provided by the farm bill, NRCS has implemented a number of CSP cost control measures to restrain program spending, primarily by either restricting CSP enrollment or limiting payments to individual producers. For example, NRCS restricts CSP participation by limiting program enrollment each year to producers in specified, priority watersheds. In addition, NRCS limits annual stewardship payments to 25, 50, and 75 percent of the maximum amount that the farm bill allows for Tiers I, II, and III, respectively. Key cost control measures—found either in the farm bill, in CSP regulations, or in the program sign-up notice—in place for the fiscal year 2005 CSP sign-up are described in table 4.

Some Fiscal Year 2004 CSP Contract Payments Exceeded Farm Bill Payment Limits

Some fiscal year 2004 CSP contract payments exceeded applicable payment limits established in the farm bill. As discussed, the farm bill limited annual contract payments to an individual or entity to $20,000 for Tier I; $35,000 for Tier II; and $45,000 for Tier III. However, we found that 409 (19 percent) of the 2,180 fiscal year 2004 CSP contract payments exceeded these limits. Specifically, 95 (12 percent) of Tier I payments exceeded $20,000; 209 (24 percent) of Tier II payments exceeded $35,000; and 105 (21 percent) of Tier III payments exceeded $45,000. (Tables 12, 13, and 14 in app. II show the distribution of fiscal year 2004 contract payments for Tiers I, II, and III, respectively.)

According to NRCS officials, these contract payments exceeded the statutory limits because they included an “advance” enhancement payment component. These officials noted that NRCS did not intend for this advance component to be included in the annual contract payment limit because it was a one-time payment. Furthermore, they said that any producer who received an advance enhancement payment would have that payment (generally limited to $10,000) offset through deductions over the remaining years of that producer’s CSP contract. For example, for a producer whose contract had 9 remaining years, NRCS would deduct one- ninth of the advance enhancement payment in each of these years. Thus, over the life of a contract, no producer would receive more than the maximum total possible payment (e.g., $450,000 over 10 years for a Tier III contract). NRCS officials explained that for the fiscal year 2004 CSP sign- up, NRCS, using its borrowing authority, obtained the maximum amount of funding available, or $41.443 million. However, because of lower than anticipated producer participation in CSP that year, NRCS did not need all of this money to make annual contract payments to producers. NRCS decided to use the remaining amounts—about $13.6 million—to make a one-time advance enhancement payment to most (2,070 of 2,180) of the producers enrolled in CSP that year. In addition, according to NRCS officials, in subsequent years, the offsetting deductions made for these fiscal year 2004 advance enhancement payments would result in more funding being available for new CSP contracts.

We plan to pursue with USDA’s Office of General Counsel the availability of remaining CSP funds for advance enhancement payments that, when included with annual contract payments, exceed the statutory payment limits.

Although NRCS Has Established Internal Controls, Weaknesses in These Controls Increase the Risk of Improper Payments

In addition to the cost control measures in the farm bill and CSP regulations, USDA and NRCS have established internal controls that help to ensure the accuracy and appropriateness of payments made through agricultural conservation programs, including CSP. These controls, also referred to as management controls, include the organizational policies and procedures used to reasonably ensure that (1) programs achieve their intended results; (2) resources are used consistent with agency and departmental missions; (3) programs and resources are protected from waste, fraud, and mismanagement; (4) laws and regulations are followed; and (5) reliable and timely information is obtained, maintained, reported, and used for decision-making. (More specific information on USDA and NRCS internal controls is presented in app. VII.) However, recent reviews of these internal controls done by NRCS’s Oversight and Evaluation (O&E) Staff and the USDA Inspector General raise concerns regarding the adequacy of some of these controls to preclude improper payments being made under CSP.

Although NRCS has established internal control guidance for CSP, implementation of these controls has sometimes been criticized. For example, in reviews it conducted in 2005, NRCS’s O&E staff found problems with several aspects of the agency’s implementation of CSP, including its implementation of some internal controls. (We examined draft reports related to these reviews in January 2006; NRCS considers the information contained in these drafts to be predecisional and subject to change pending management review and the agency’s preparation of management action plans describing its response to the reports’ recommendations.) In assessing internal controls, the O&E staff conducted work at NRCS field offices located in 18 watersheds (in 13 states) that were eligible for either the fiscal year 2004 or fiscal year 2005 CSP sign-up. Among other things, the staff found weaknesses in quality assurance and case file documentation. For example, the staff found that 12 of 13 NRCS state-level Quality Assurance Plans reviewed did not include specific CSP components such as those related to conservation planning and application, that NRCS’s Conservation Programs Manual (sec. 518.75 (b)) states must be included. In addition, the staff found that 33 of 55 fiscal year 2004 CSP contracts studied had not had a contract review. The Conservation Programs Manual (sec. 518.101) provides that “the designated conservationist will review the contract annually and document that the provisions of the contract are followed.” According to the O&E staff, the absence of a contract review could result in payments being made for enhancements that are not being done or not yet completed as scheduled in the producer’s conservation security plan.

Regarding case file documentation, the O&E staff found that many conservation stewardship plans were missing components. For example, most plans included components such as maps and map attribute information, but information needed to evaluate the effectiveness of a plan in achieving its environmental objectives was either missing or incomplete in up to 60 percent of the plans. The preparation of conservation stewardship plans is required by the farm bill and, according to the Conservation Programs Manual (sec. 518.70), this plan “is the basis for a conservation stewardship contract.” In general, a plan identifies the objectives for the associated contract, the time frames for implementing new practices, enhancements that will impact payment levels over the life of the contract, and additional measures needed to move to a higher tier level. In light of these findings, O&E staff offered several tentative recommendations related to revising NRCS’s written guidance documents, developing a checklist for staff to use in compiling conservation stewardship plans, improving management oversight, and providing staff further training.

In addition, other aspects of NRCS’s internal controls have been criticized. For example, in January 2005, the USDA Inspector General reported that (1) NRCS had neither identified the internal control measures in place to preclude, or detect in a timely manner, improper payments for the programs it administers, including CSP, nor did it know if the controls were in operation and (2) NRCS had not conducted risk assessments of potential improper payments for these programs. In addition, USDA reported several material weaknesses to its financial and accounting systems and information security program in its fiscal year 2005 Performance and Accountability Report. See appendix VII for further discussion of these matters.

In its planning documents, NRCS notes that the nation made a massive financial commitment to conservation in the 2002 farm bill and thus NRCS must manage the taxpayers’ money well, including documenting how these funds have been spent. Among other things, the agency said it would develop processes to better record obligations and improve the accuracy and timeliness of its financial information. However, until actions are completed to correct these internal control problems, NRCS cannot be certain that contract payments information for CSP and other programs is accurate. This increases the potential for improper payments being made under these programs.

Inconsistencies in State Office Determinations of Producer Eligibility for CSP Payments May Undermine NRCS Cost Controls and the Achievement of CSP’s Intended Wildlife Habitat Benefits

NRCS’s efforts to control program spending may be weakened by inconsistencies in NRCS state offices’ determinations of producer eligibility for the three CSP payment tiers. Several NRCS state officials expressed concerns about such inconsistencies, suggesting that some state offices may have been more lenient than their own state in determining producers’ eligibility for CSP payments. In particular, several NRCS state officials had specific concerns about inconsistencies in the wildlife habitat assessment criteria that NRCS state offices use, in part, to determine applicant eligibility for Tier III, the highest CSP payment level. The farm bill requires a producer to meet minimum standards for all applicable resource concerns on the entire agricultural operation, which would include wildlife habitat, to be eligible for Tier III payments.

For the fiscal year 2004 CSP sign-up, NRCS provided limited guidance to its state offices that were responsible for developing the assessment criteria that were used to determine whether a producer met minimum standards for protecting wildlife habitat. However, a post-sign-up debriefing of NRCS headquarters and state officials to identify lessons learned indicated that the state offices developed assessment criteria that were extremely variable, contributing to significant differences in the rate of CSP participation and payments at the Tier III level among the various watersheds included in the sign-up. According to documentation based on this debriefing, this variability in assessment criteria was attributed to (1) differences in the type of assessment criteria used (i.e., some states used targeted species assessment criteria while others used general wildlife assessment criteria) and (2) differences among the states’ general wildlife assessment criteria. Table 5 shows the Tier III participation and payment rates for each of these watersheds.

As shown in the table, the percentage of total contracts in Tier III varied from a low of 0 in one watershed to a high of 79 percent in another watershed. Part of this variation may be attributed to differences in land uses among watersheds. For example, land that is in an intensive agricultural use, such as cropland, tends to be less suitable as wildlife habitat than land that is not used intensively such as rangeland. However, even among watersheds in which CSP enrollments were over 90 percent cropland—Auglaize, Blue Earth, East Nishnabotna, Kishwaukee, Little, Little River Ditches, Lower Chippewa, Raystown, and St. Joseph—the percentage of total contracts in Tier III varied from 0 to 58 percent, and the percentage of payments going to Tier III contracts ranged from 0 to 75 percent.

In response to the variation in wildlife habitat assessment criteria used during the fiscal year 2004 sign-up and related differences in Tier III participation, NRCS’s Wildlife Team, responsible for technical matters concerning wildlife habitat under CSP, developed national guidance that NRCS state offices were to follow in creating their criteria for subsequent sign-ups. The national guidance was provided to state office staff during training sessions held before the fiscal year 2005 CSP sign-up.

The Wildlife Team developed the national guidance based on NRCS’s CSP regulations that state that the minimum requirement for wildlife habitat is considered achieved when a producer’s level of treatment and management results in an index value of at least 0.5 based on a general or species- specific habitat assessment guide. A Wildlife Team official said this 0.5 index value corresponds to 50 percent of the potential habitat for a given land area and stated that the national guidance was developed accordingly. He noted that, because habitat needs differ across the nation, it is not possible to develop one set of criteria that would work for the whole country and apply to all situations. Because of these differences, the national guidance instructs each state to define its own minimum criteria for each of the listed wildlife resource components in the national guidance based upon the state’s own unique set of conditions. For example, for rangeland, the national guidance identifies vegetative height management during nesting season as a component that must be addressed and instructs state offices to define the minimum foliage height of grasses. Despite this flexibility, the official said that the purpose of this national guidance was to avoid the wide variations in criteria that led to large discrepancies and inconsistencies in the fiscal year 2004 sign-up.

According to the national guidance, NRCS state offices’ general wildlife habitat assessment criteria for cropland must address the following six wildlife resource components: Amount of noncrop vegetative cover. These areas include woodlots, windbreaks, field corners, hedgerows, grassed areas, wetlands, or riparian areas managed for wildlife. According to the guidance, state offices must define a minimum percentage of noncrop vegetative cover within or adjacent to offered cropland fields. A state office’s criteria for this component must be met for each cropland field.

Size of noncrop vegetative cover. State offices must define a minimum dimension for these areas. According to a Wildlife Team official, an example is a minimum width.

Interspersion of noncrop vegetative cover. State offices must define a minimum distance from all parts of cropland fields to noncrop vegetative cover.

Condition of noncrop vegetative cover. Minimum standards for the composition and structure of the noncrop vegetative cover must be defined. Examples include minimum plant heights and restrictions on mowing.

Conditions for lakes, ponds, wetlands, and streams. Minimum conditions, such as buffer widths, must be defined Crop residue management. Minimum levels of crop residue must be defined.

According to Wildlife Team officials, the national guidance instructed each NRCS state office to develop wildlife habitat assessment criteria that consisted of questions corresponding to the wildlife resource components in the national guidance. For each component of the national guidance, these officials said these questions were to include specific criteria established by the state offices and were intended to determine if a CSP applicant was meeting these criteria and thus was addressing the wildlife habitat resource concern. In general, the phrasing and number of questions that state offices included in these assessment criteria, as well as the overall design of the assessment criteria, varied. For example, one state office’s assessment criteria had nine questions and required a “yes” response to each question. Another state office’s assessment criteria included six questions and required a “yes” response to each question.

In reviewing the wildlife habitat assessment criteria that NRCS state offices used in the fiscal year 2005 sign-up, we found that some NRCS state offices used criteria that were inconsistent with the national guidance. For example, the design of the assessment criteria used for cropland in three states made it possible for NRCS to determine that a producer was addressing the wildlife habitat resource concern even though that producer may not have met the state criteria for each of the six resource components identified in the national guidance. Although these three state offices’ wildlife habitat assessment criteria included a question or questions that generally related to each of the national guidance’s components, the state offices required “yes” responses to only five of the seven questions listed in the assessment criteria. Thus, in effect, these states did not require producer compliance with all aspects of their state criteria or, by extension, all six components of the national guidance. A Wildlife Team official explained that although NRCS has not undertaken a review to determine whether producers have qualified for Tier III payments under this scenario, based on informal discussions with field office staff, this official concluded that some producers received such payments during the fiscal years 2004 and 2005 sign-ups. In addition, another Wildlife Team official said it was particularly problematic that a producer could receive a Tier III payment in these states without meeting the state criteria related to the amount of noncrop vegetative cover. According to this official, this component of the national guidance is particularly important for cropland because it is intensively farmed and generally unsuitable for wildlife habitat. Thus, the creation or preservation of areas of noncrop vegetative cover associated with cropland is critical to providing adequate wildlife habitat.

As a result of these inconsistencies with the national guidance, producers in these states could qualify for Tier III payments even though they might not be providing habitat as intended by the national guidance and might not have qualified for Tier III payments in another state that used criteria that more closely followed the national guidance. In addition, the use of criteria that are inconsistent with the national guidance reduces NRCS’s ability to ensure that CSP is achieving its intended wildlife habitat benefits. If producers are not providing the wildlife habitat benefits intended by the national guidance, the environmental benefit achieved per dollar of CSP spending may be reduced, and CSP cost control measures would be weakened. Furthermore, some NRCS state officials said such variability in state assessment criteria could lead to pressures for more lenient payment eligibility determinations within their own states. According to these officials, when producers in a state that is conforming to the national wildlife habitat guidance see that other states are using more lenient criteria, they may pressure their NRCS state office to adopt more lenient criteria as well.

NRCS Wildlife Team officials agreed with our assessment that some NRCS state offices used wildlife habitat assessment criteria for the fiscal year 2005 sign-up that were not consistent with the national guidance. In addition, these officials said that NRCS should conduct field tests of states’ criteria to ensure that these criteria are consistent with the national guidance and to determine the extent to which Tier III contracts provide adequate wildlife habitat benefits. However, they cited time constraints as the primary reason that states’ criteria have not been field tested and they indicated, as of February 2006, that NRCS does not have plans to do this testing. Regarding reasons why some state offices have not developed criteria consistent with the national guidance, these officials noted that some state office officials hold the view that CSP is a working lands program and, therefore, should not place too much emphasis on wildlife habitat or force a producer to take land out of production in order to create the habitat needed to qualify for a Tier III payment. Some of the state officials we contacted corroborated this point. In addition, the Wildlife Team officials noted that some state office officials might not have understood what guidance they were supposed to follow during the fiscal year 2005 sign-up because NRCS’s Conservation Programs Manual—the principal source of guidance for NRCS field office staff for implementing conservation programs—had no explicit reference to the national guidance. Accordingly, the Wildlife Team officials said they had recommended to NRCS’s programs office that a reference to the national guidance be included in the manual. They opined that inclusion of this reference would emphasize the importance of the national guidance to the agency’s field staff.

Finally, some NRCS state officials also expressed concerns about other inconsistencies among state offices in determining producer eligibility for certain CSP payments. In particular, they cited inconsistencies in states’ determinations that producers are sufficiently addressing water quality issues. According to NRCS officials, the agency has been aware of this issue since the fiscal year 2004 sign-up when it relied on state-based standards to determine if CSP applicants were meeting eligibility requirements for water quality concerns. In the 2005 sign-up, to increase consistency, NRCS required its state offices to develop water quality checklists based on national criteria to assess applicant eligibility regarding water quality issues. These checklists were to address all critical water quality concerns, including those related to nutrients, pesticides, and sediment. In the 2006 sign-up, to further increase consistency, NRCS developed a national water quality eligibility “tool” that uses indices and scales to achieve an overall water quality assessment rating for each applicant. Using the tool, NRCS assigns points for an applicant’s current conservation activities and the level of water quality protection those activities provide.

Despite Legislative and Regulatory Measures That Lessen Possible Duplication between CSP and Other Programs, the Potential for Duplicate Payments Still Exists, and Such Payments Have Occurred

The farm bill and CSP regulations include various measures that reduce the potential for duplication between CSP and other USDA conservation programs. For example, as authorized in the statute, CSP can reward producers for conservation actions that they have already taken, whereas other programs generally provide assistance to producers to encourage them to take new actions intended to address conservation problems on working lands or to idle or retire environmentally sensitive land from production. In addition, USDA regulations establish higher minimum eligibility standards for CSP than exist for other programs, helping to differentiate the applicant pool for CSP from these programs. However, the possibility remains that producers could receive duplicate payments for the same conservation action from CSP and other programs, and such duplication has occurred. In addition, NRCS does not have a comprehensive process to preclude or identify such duplicate payments.

Farm Bill Provisions Lessen the Potential for Duplication

CSP operates under a number of statutory provisions that distinguish it from other USDA conservation programs and make duplicate payments less likely. Specifically, the farm bill explicitly prohibits duplicate payments under CSP and other conservation programs for the same practices on the same land. provides incentives to producers, through CSP’s Tier III payments, to address all applicable resource concerns on entire agricultural operations (i.e., whole-farm planning). provides that CSP may reward producers for maintaining conservation practices that they have already undertaken, whereas other programs generally provide assistance to encourage producers to take new actions to address conservation problems on working lands or to idle or retire environmentally sensitive land from agricultural production. establishes several types of CSP payments—stewardship, existing practice, and enhancement payments—that are unique to CSP and not offered under other programs.

In addition, other farm bill provisions reduce potential duplication by prohibiting certain payments from being made through CSP. For example, CSP payments cannot be made for construction or maintenance of animal waste storage or treatment facilities or associated waste transport or transfer devices for animal feeding operations. conservation activities on lands enrolled in the Conservation Reserve Program, the Wetlands Reserve Program, and the Grassland Reserve Program.

Furthermore, if a producer receives payments under another program— such as a commodity price support program—that are contingent on the producer’s compliance with requirements for the protection of highly erodible land and wetlands, the farm bill only authorizes a CSP payment on that land for practices that exceed those requirements.

NRCS Regulatory Measures and Procedures Further Distinguish CSP from Other Programs

In addition to farm bill provisions that reduce potential duplication, a number of NRCS regulatory measures and procedures further distinguish CSP from other USDA conservation programs. These include the following: NRCS’s CSP regulations and Conservation Programs Manual elaborate on statutory provisions that prevent producers from receiving payments under CSP for the same practice on the same land. For example, the manual states that a CSP participant may not receive CSP cost-share funding for new conservation practices that were applied with financial assistance from other USDA conservation programs. In addition, the manual states that a participant may not receive a CSP payment for enhancement activities if the participant is also earning financial assistance payments through other programs for the same conservation practice or action on the same land during the same year.

CSP regulations establish higher minimum eligibility standards for CSP than exist for other programs, helping to differentiate the applicant pool for CSP from the potential applicants for other programs. For example, to be eligible for a Tier I CSP contract, a producer must already have addressed water and soil quality to a minimum level of treatment. NRCS encourages producers who do not meet these higher standards to apply for assistance under other programs.

For the 2005 sign-up, NRCS limited CSP cost-share payments for new conservation practices to 50 percent (65 percent for beginning and limited-resource producers) of implementation costs. NRCS allows cost-share payments of up to 75 percent under the Environmental Quality Incentives Program (EQIP) and the Wildlife Habitat Incentives Program (WHIP). Thus, producers have a stronger financial incentive to apply for new conservation practice payments through EQIP or WHIP rather than CSP. In addition, NRCS has limited the number of conservation practices that are eligible for funding through CSP. In any given watershed, CSP payments for new conservation practices were only offered for up to about 20 of the approximately 200 conservation practices that can be funded through EQIP.

NRCS has encouraged enhancement payments for conservation actions that exceed the minimum treatment standards required for CSP eligibility. According to NRCS officials, emphasizing enhancements helps to differentiate CSP from other programs, such as EQIP and WHIP, which do not offer similar payments. As discussed, EQIP and WHIP payments generally assist producers in achieving a level of treatment that meets the minimum or nondegradation standard for a conservation activity, as defined by NRCS, which generally is less than the minimum treatment standard for CSP enhancements. Most CSP payments made in fiscal years 2004 and 2005 were for enhancements. In fiscal year 2004, enhancement payments and advance enhancement payments accounted for about 81 percent of total CSP payments. In fiscal year 2005, enhancement payments were 81 percent of total CSP payments.

CSP regulations and procedures also provide financial incentives for enhancements. Specifically, in order to receive a larger payment up to the full total payment allowed under each enrollment tier, a producer must agree to implement enhancements because of the limits on stewardship, existing practice, and new practice payments. Stewardship payments are capped under the farm bill and CSP regulations at $5,000 for Tier I, $10,500 for Tier II, and $13,500 for Tier III. Furthermore, CSP sign-up notices have limited existing practice payments to a flat rate of 25 percent of the stewardship payment for each tier and have limited new practice payments to $10,000 for each tier. As a result of these limits, the maximum total payment a producer could receive (i.e., the total of the stewardship, existing practice, and new practice payments) without an enhancement payment would be $16,250 for Tier I, $23,125 for Tier II, and $26,875 for Tier III. Therefore, in order to receive the full amount of CSP financial assistance available for an enrollment tier (e.g., $20,000 for Tier I; $35,000 for Tier II; and $45,000 for Tier III), the producer must agree to implement enhancements. In addition, to encourage participants to add new enhancements over the life of a contract, NRCS incorporated variable enhancement payments into the fiscal year 2005 CSP contracts that gradually reduce the annual payments for a contract’s base (initial) enhancements over the contract’s term. Thus, to compensate for this diminishing income, a producer would need to add new enhancements over the life of a contract.

Potential for Duplication Still Exists and Duplicate Payments Have Occurred

Despite farm bill and NRCS regulatory measures and procedures that lessen possible duplication between CSP and other programs, the potential for duplication still exists and has occurred with regard to CSP enhancement payments. For example, although some payments made through CSP are unique to that program, payments for new conservation practices or actions such as nutrient management can be made through CSP and other programs, creating the potential for duplicate payments. In addition, CSP payments for enhancement actions have the potential to overlap with payments under other programs for conservation practices. Regarding the latter possibility, we found a number of cases where duplicate payments had been made for CSP enhancements and conservation practices under other programs for the same conservation action on the same land during the same year. In addition, NRCS lacks a comprehensive process to identify potential duplicate payments or duplicate payments already made.

Table 6 summarizes the types of conservation payments available through CSP, EQIP, and WHIP.

As indicated in the table, the farm bill allows cost-share payments for the adoption of conservation practices that could be implemented through any of these programs, creating the possibility that a producer could receive duplicate payments for the same conservation practice under CSP and another program. In reviewing fiscal year 2004 contracts and payments data for CSP, EQIP, and WHIP, we did not find evidence of duplicate payments related to funding the adoption of the same conservation practice under CSP and another program on the same operation during the same year. However, the opportunity for such duplicate payments to have been made during fiscal year 2004 was very low because only four producers received CSP payments for the adoption of new conservation practices that year. NRCS officials said that, because the fiscal year 2004 contracts were approved in July 2004, the time remaining in the fiscal year was not sufficient for most CSP participants to implement new conservation practices and receive a payment. In addition, these officials said NRCS encourages producers to use programs other than CSP to obtain financial assistance for new conservation practices. As discussed, these other programs generally offer a higher cost share for new practices than offered under CSP. In the future, greater numbers of producers may receive CSP payments for new conservation practices, increasing the potential for duplicate payments.

The potential for duplicate payments also exists between CSP enhancement payments and conservation practice payments made under other programs. Each year, NRCS state offices develop lists of conservation actions eligible for CSP enhancement payments in their states. NRCS headquarters officials then review and approve the states’ lists. If the reviewing officials find that a proposed enhancement includes conservation actions that do not exceed the minimum standard for the related conservation practice, as defined by NRCS, they work with the NRCS state office to revise the proposed enhancement. However, some overlap may occur because a given conservation action can have a different purpose under another program. For example, several states offer CSP enhancement payments for the use of conservation crop rotation for the purpose of breaking plant pest cycles to reduce the need for pesticide applications. At the same time, these states offer EQIP funding for the use of conservation crop rotation for the purposes of reducing soil erosion, providing wildlife cover and food, and improving soil organic matter. This overlap increases the potential for a producer to receive two payments for the same conservation action on the same land during the same year. The farm bill prohibits payments under CSP and another conservation program for the same practice on the same land. The CSP manual elaborates on this provision, stating that a participant may not receive a CSP payment for enhancement activities if the participant is also earning financial assistance payments through other programs for the same practice or activity on the same land during the same year.

Our file reviews and analysis of NRCS payments data for calendar year 2004 showed that duplicate payments have occurred. Specifically, we found cases where a producer received duplicate payments from CSP and EQIP for performing the same conservation action on the same land during the same year. For example, in the course of performing limited file reviews at several NRCS field offices, we found that a producer had received a CSP enhancement payment and an EQIP conservation practice payment for the same conservation action—establishing a small grain cover crop—on the same tract of land during 2004. This producer also was scheduled to receive the same duplicate payments during 2005.

Furthermore, our analysis of 2004 payments data for CSP, EQIP, and WHIP revealed other cases in which a producer received a CSP enhancement payment and an EQIP payment for performing a similar conservation action during the same year. Our analysis of these data showed that 172 (or 8 percent) of the 2,180 producers who received a CSP payment in 2004 also received an EQIP payment that year as well. None of these 2,180 producers received a WHIP payment that year. In analyzing the conservation actions funded for the 172 producers who received both CSP and EQIP payments, we initially identified 72 producers who received payments that appeared to be for similar or related conservation actions and may have been duplicates. Specifically, in aggregate, these producers received a total of 121 payments under each program that were potentially duplicates. We then selected 11 of these producers, who in aggregate received a total of 12 payments under each program, for more detailed analysis. We discussed these 12 cases with NRCS field office officials to determine if any of these payments were made for implementing the same conservation action on the same land. In 6 of the 12 cases, a producer received a CSP enhancement payment and an EQIP payment for conservation actions that appeared to be similar (e.g., CSP and EQIP payments for nutrient management). In the other 6 cases, a producer received a CSP enhancement payment based on an index score that may have increased as a result of a conservation action for which the producer received an EQIP payment.

We discussed the first 6 cases—those in which a producer received a CSP enhancement payment for a conservation action and an EQIP payment for a similar conservation action—with NRCS field office officials. Based on these discussions, we determined that duplicate payments were made in 4 of these 6 cases. For example, in one instance, a producer received a CSP pest management enhancement payment of $9,160 for a conservation crop rotation. On the same parcel of land, the producer also received an EQIP payment of $795 for the same conservation action—conservation crop rotation. Regarding these 4 cases, in 2 instances, NRCS field office officials acknowledged that duplicate payments had occurred, i.e., that the producer received a CSP enhancement payment and an EQIP conservation practice payment for the same conservation action on the same land during the same year. In these cases, these officials said the duplicate payments resulted from simple error. In the other 2 cases, NRCS field office officials held the view that even though the payments were for the same conservation action, if they were made for different conservation purposes (e.g., a CSP-funded conservation crop rotation to break pest cycles and an EQIP-funded conservation crop rotation to improve soil quality), then they were not duplicates. However, the farm bill clearly prohibits payments under CSP and another conservation program for the same practice on the same land. In addition, NRCS’s Conservation Programs Manual elaborates on this provision, stating that a participant may not receive a CSP payment for enhancement activities if the participant is also earning financial assistance payments through other programs for the same practice or activity on the same land during the same year. NRCS state office and headquarters officials agreed with our interpretation that in such situations producers should not receive payments under both programs.

We also discussed the other 6 cases—those in which a producer received a CSP enhancement payment based on an index score that may have increased as a result of a conservation action for which the producer received an EQIP payment in the same year—with NRCS field office officials. In 4 of these cases, a producer received a CSP soil management enhancement payment based on a soil conditioning index score while also receiving an EQIP payment for conservation practices that reduce soil erosion. For each of these cases, these officials stated that the EQIP- funded conservation practice had contributed to increasing the soil conditioning index score and, as a result, had increased the CSP enhancement payment. For example, a producer may implement an EQIP- funded soil conservation practice that is factored into the calculation of a soil conditioning index score, increasing the index score from 0.2 to 0.5. If CSP soil management enhancement payments in that producer’s state increase by $1.16 per acre for each 0.1 increase in the soil conditioning index, the producer’s enhancement payment would increase by $3.48 per acre.

The NRCS field office officials we interviewed had mixed views as to whether these payments were duplicates. We believe such payments were, at least in part, duplicates. However, an NRCS headquarters official stated that such payments are not duplicates. According to this official, EQIP payments are intended to compensate producers for “input” costs associated with installing or initiating conservation actions, while CSP enhancement payments are intended to reward producers for conservation “outputs” (i.e., benefits derived from conservation actions). Therefore, the official said, such payments are not duplicates. We do not agree with this rationale. Payments for producer “input” costs under EQIP are made because of their resulting conservation “outputs,” and payments for CSP conservation “outputs” are made to compensate producer “input” costs. In other words, the programs are both compensating the same action but are doing so either before or after the fact. To receive payments from both for the same action would thus clearly be duplication. Moreover, we continue to consider such payments to be inconsistent with both the farm bill prohibition and NRCS’s guidance on duplicate payments.

In the other 2 cases related to index scores, the producers received CSP enhancement payments based on a wildlife habitat management index score while also receiving an EQIP payment for conservation practices that may improve wildlife habitat. In one of these cases, the EQIP-funded conservation practice was not taken into consideration in determining the index score because the practice did not affect habitat for the species of concern, bobwhite quail. In the other case, an NRCS field office official stated that, to prevent the payment from being a duplicate, he had not included the EQIP-funded conservation practice in calculating the index score. We agreed that duplicate payments had not occurred in these 2 cases.

NRCS headquarters officials stated the agency lacks a comprehensive process, such as an automated system, to either preclude duplicate payments or identify them after a contract has been awarded. Instead, these officials said that NRCS relies on the institutional knowledge of its field office staff and the records they keep to prevent duplicate payments. Several NRCS state officials noted that the field staff are familiar with the assistance that producers in their county receive under various programs and suggested that these staff would reject a CSP application for a conservation activity already financed through another program. However, reliance on the institutional knowledge of staff can be problematic, especially since NRCS reported in June 2003 that almost 50 percent of its field-level workforce would be eligible to retire in 5 years, representing a serious loss of knowledge, experience, and institutional memory as these employees are replaced with less-experienced, newly hired employees. In addition, because CSP sign-ups operate under a compressed time schedule, additional staff—who do not have knowledge of local producers’ prior and current participation in conservation programs—are often temporarily relocated from other parts of a state to assist in developing CSP contracts. These staff would not be familiar with local producers and their history of conservation program participation.

A number of NRCS officials acknowledged the need for a comprehensive process to prevent duplicate payments and said NRCS is considering a modification of CSP contract information stored in the Program Contracts System (ProTracts), NRCS’s contract management information system, that would allow the agency to identify potential duplicate payments before CSP contracts are approved. For example, these officials said NRCS is considering a modification to ProTracts that would flag a planned CSP enhancement payment that may duplicate a conservation practice payment made under another program, such as EQIP. However, these officials said such a modification could require adding more detailed information on enhancement payments to ProTracts than currently exists within the system. By the same token, these officials also acknowledged a need to develop a process to efficiently identify duplicate payments—such as those we found—already being made under CSP contracts issued in fiscal years 2004 and 2005. At present, NRCS does not know the extent of these duplicate payments or their aggregate dollar value. Although the total dollar amount of duplicate payments may be relatively small at present, in the future, as the program grows to include more participants, the frequency and total dollar value of duplicate payments could become significant. Furthermore, since CSP and EQIP offer producers multiple- year contracts, these duplicate payments, if undetected, would continue in subsequent years. To the extent that duplicate payments are being made, the effectiveness of CSP and the other programs involved is undermined and, because of limited funding, some CSP enrollment categories or subcategories that otherwise would have been funded may not be funded. As a result, some eligible producers may not receive CSP payments that they otherwise qualify for and would have received in the absence of these erroneous payments.

Finally, NRCS has authority to recover duplicate payments. CSP contracts, by way of reference, include a clause stating that CSP participants cannot receive duplicate payments. Under a CSP contract, as required in the farm bill, a producer agrees that on violation of any term or condition of the contract the producer will refund payments and forfeit all rights to receive payments or to refund or accept adjustments to payments, depending on whether the Secretary of Agriculture determines that termination of the contract is or is not warranted, respectively.

Conclusions

Despite farm bill provisions and NRCS actions to control CSP costs, inconsistencies in the wildlife habitat assessment criteria used by NRCS state offices for determining producer payments in the highest CSP payment category may undermine these cost controls. Specifically, some state offices have used criteria less stringent than those outlined in the NRCS national guidance, potentially resulting in Tier III payments to producers who are not providing the wildlife habitat benefits intended by the national criteria. Based on NRCS officials’ observations and the weaknesses we found in some state offices’ criteria, we believe it is highly likely that such payments have occurred. Currently, NRCS does not systematically review and field check its state offices’ criteria so that inconsistencies with the national guidance can be detected and the agency can determine whether Tier III contracts are providing the wildlife habitat benefits intended. Furthermore, because there is no reference to the national guidance in NRCS’s Conservation Programs Manual, some NRCS state and field offices may not know what wildlife habitat assessment criteria to follow or may fail to appreciate the importance of the national guidance.

In addition, despite farm bill provisions and NRCS regulations and procedures designed to prevent CSP from duplicating payments made by other conservation programs, the potential for duplication still exists, and duplicate payments for the same practice or activity on the same land have occurred. Duplicate payments reduce the effectiveness of the programs involved and, because of limited funding, may result in some producers not receiving program benefits for which they are otherwise eligible. For these reasons, NRCS also should use its authority to recover duplicate payments already made. At present, NRCS lacks a comprehensive process, such as an automated system, to identify payments that are potential duplicates before they are made. The agency also lacks an effective way to identify duplicate payments already made under existing CSP contracts.

Without question, NRCS’s challenge in implementing CSP—a new, unique, and complex conservation program—has been formidable. However, we believe that factors such as the substantial increase in conservation funding authorized by the 2002 farm bill; the extent of agriculture’s continuing contribution to impaired soil, water, air, and wildlife habitat; and the importance of farmers and ranchers as stewards of the nation’s natural resources underscore the need for NRCS to manage CSP in a way that ensures consistent program implementation nationwide, achieves intended environmental benefits, and prevents duplicate payments.

Recommendations for Executive Action

To improve NRCS’s implementation of the Conservation Security Program, we recommend that the Secretary of Agriculture direct the Chief of NRCS to take the following four actions: Review and field check each NRCS state office’s wildlife habitat assessment criteria to ensure that states use consistent criteria and achieve the habitat benefits intended by the national guidance; Include a reference to the national guidance for wildlife habitat assessment criteria in NRCS’s Conservation Programs Manual; Develop a comprehensive process, such as an automated system, to review CSP contract applications to ensure that CSP payments, if awarded, would not duplicate payments made by other USDA conservation programs; and Develop a process to efficiently review existing CSP contracts to identify cases where CSP payments duplicate payments made under other programs and take action to recover appropriate amounts and to ensure that these duplicate payments are not repeated in fiscal year 2006 and beyond.

Agency Comments and Our Evaluation

We provided a draft of this report to NRCS for review and comment. We received written comments from NRCS’s Chief, which are reprinted in appendix VIII. Among other things, NRCS stated that our report provides valuable information that will help NRCS to improve implementation of CSP. NRCS also provided us with suggested technical corrections, which we have incorporated into this report, as appropriate.

NRCS generally agreed with our findings and recommendations and discussed the actions that it has taken, is taking, or plans to take to address our recommendations. Regarding our first two recommendations, while acknowledging that problems exist, NRCS indicated that it recently has taken or is considering corrective actions other than those suggested in our recommendations. For example, because some NRCS state offices have not fully adhered to the agency’s national guidance for wildlife habitat assessment criteria, NRCS said that it issued a national bulletin to all of its state offices during the fiscal year 2006 CSP sign-up to reemphasize the guidance that these offices must use in developing their wildlife habitat assessment criteria. However, while the promulgation of this bulletin should be helpful, we still believe that NRCS should review and field check each state office’s assessment criteria to ensure its adherence to the national guidance. In the second case, in lieu of including a reference in its Conservation Programs Manual, NRCS said that it is proposing that NRCS wildlife biologists develop a special technical note that would describe how the national guidance for wildlife habitat assessment criteria should be used by NRCS state offices. Again, while we support this step, we still believe that the inclusion of a reference in the Conservation Programs Manual to the national guidance would help to emphasize its importance to NRCS state and field-level employees.

Regarding our third recommendation, NRCS indicated that other automation features will be developed and incorporated into NRCS’s contracting software to avoid duplicate payments. In the meantime, NRCS said that it had implemented other procedures to help eliminate the occurrence of duplicate payments. For example, for the fiscal year 2006 sign-up, NRCS is requiring applicants to complete a form that asks an applicant to certify whether or not they are receiving payments from another conservation program on any of the land being offered for enrollment in CSP. In addition, NRCS said it plans to revise the CSP contract appendix to include a statement about prohibitions on duplicative payments. Regarding our fourth recommendation, NRCS said that it has improved management oversight to cross-check payments made to CSP participants and participants under other conservation programs to determine if duplicative payments have been made. If duplicative payments have been made, NRCS said it has contracting procedures that can be utilized to recover the payments.

We also provided a draft of this report to CBO and OMB for review and comment. These agencies provided us with suggested technical corrections, which we incorporated into the report, as appropriate.

We are sending copies of this report to interested congressional committees; the Secretary of Agriculture; the Director, CBO; the Director, OMB; and other interested parties. We also will make copies available to others upon request. In addition, the report will be available at no charge on the GAO Web site at http://www.gao.gov.

If you or your staff have any questions about this report, please contact me at (202) 512-3841 or robinsonr@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made major contributions to this report are listed in appendix IX.

Objectives, Scope, and Methodology

At the request of the Chairman, Senate Committee on Appropriations, we reviewed issues related to the U.S. Department of Agriculture’s (USDA) implementation of the Conservation Security Program (CSP). Specifically, we determined (1) why Congressional Budget Office (CBO) and Office of Management and Budget (OMB) cost estimates for CSP generally increased over time; (2) what authority USDA has to control CSP costs and what cost control measures are in place; and (3) what legislative and regulatory measures exist to prevent duplication between CSP and other USDA conservation programs, and what duplication, if any, has occurred.

To determine why CSP cost estimates have increased, we interviewed CBO and OMB officials and reviewed documentation they provided. At each agency, we spoke with budget analysts about their agency’s estimating practices, including the types of data, assumptions, and models used to prepare cost estimates. We did not attempt to re-estimate or audit the CBO or OMB estimates or data discussed in this report. For comparison purposes, we also interviewed USDA officials, including Natural Resources Conservation Service (NRCS) and Economic Research Service officials, and reviewed documentation they provided related to NRCS’s benefit-cost assessments of CSP. NRCS prepared these assessments in conjunction with its issuance of interim final and amended interim final rules for the program, published in the Federal Register in June 2004 and March 2005, respectively. In addition, we interviewed officials at the Congressional Research Service (CRS) and reviewed documentation they provided, including CRS reports that discuss CSP cost and implementation issues.

We also sought the views of other interested stakeholder organizations, such as farm, conservation, and environmental organizations, as to why the estimated costs of CSP have risen substantially. These organizations included the American Farm Bureau Federation, the National Association of Conservation Districts, the Soil and Water Conservation Society, the Sustainable Agriculture Coalition, the Theodore Roosevelt Conservation Partnership, the Wildlife Management Institute, Ducks Unlimited, and Environmental Defense. At each organization, we interviewed knowledgeable officials and reviewed documentation they provided.

To determine USDA’s authority to control CSP costs and the cost control measures in place, we reviewed relevant authorizing and appropriations legislation and related legislative history. This legislation includes the Farm Security and Rural Investment Act of 2002 (the farm bill); USDA appropriations acts for fiscal years 2004, 2005, and 2006; and other legislation that capped CSP funding for the 11-year period, fiscal years 2003 through 2013, and for the 10-year period, fiscal years 2005 through 2014. In addition, we interviewed USDA officials and reviewed documentation they provided at NRCS, the Economic Research Service, the Office of the General Counsel, and the Office of Budget and Program Analysis. We also reviewed USDA’s budget explanatory notes for fiscal years 2004 through 2007; NRCS’s CSP regulations and associated public comments and benefit- cost assessments; and NRCS’s Conservation Programs Manual and related guidance pertaining to CSP implementation. Furthermore, we interviewed officials and reviewed documentation they provided at farm, conservation, and environmental organizations and at CRS.

Concerning cost control measures, we also examined NRCS internal management controls (internal controls) related to ensuring that CSP cost control measures are properly and consistently implemented and that CSP contract payments are accurately determined and tracked. In particular, we focused on controls related to the agency’s (1) verification of producer- reported data used to determine program eligibility and payment levels; (2) monitoring of producer implementation of CSP contract provisions; and (3) oversight of program implementation by its field offices, including oversight of the offices’ compliance with legislative and regulatory program provisions. To do this, we interviewed NRCS officials and reviewed documentation they provided at the Operations Management and Oversight Division of the Office of Strategic Planning and Accountability. This documentation included NRCS’s General Manual and Conservation Programs Manual. It also included an internal draft study prepared by the division’s Oversight and Evaluation Staff regarding CSP’s implementation. Among other things, this draft study discusses internal controls related to the program’s application process, payment tier designation criteria, and award of contracts across tiers and designated watersheds. In addition, we reviewed USDA’s Management Control Manual and Management Accountability and Control Regulation. Furthermore, we reviewed, from USDA, relevant Office of Inspector General reports and the fiscal year 2005 performance and accountability report; and, from NRCS, the strategic plan for fiscal years 2003 through 2008; the fiscal year 2003 performance plan; performance reports for fiscal years 2003 and 2004; the fiscal year 2004 accomplishments report; and business plans for fiscal years 2004 and 2005.

Finally, concerning cost controls and related internal controls, we conducted structured interviews with the relevant NRCS official(s)— usually the CSP program manager or Assistant State Conservationist in a given NRCS state office—who had primary responsibility for implementing CSP in each of the 18 priority watersheds included in the fiscal year 2004 sign-up. These 18 watersheds also were among the 220 watersheds included in the fiscal year 2005 sign-up. For these interviews, we first developed and pretested a data-collection instrument to guide the interviews. In developing the instrument, we met with officials in NRCS headquarters and reviewed documentation they provided to gain a thorough understanding of CSP implementation issues and related internal controls. To pretest the instrument, we contacted NRCS officials in Indiana and Pennsylvania who were involved in the fiscal year 2004 sign-up. After conducting the pretest, we interviewed the respondents to ensure that (1) the questions were clear and unambiguous, (2) the terms we used were precise, (3) the questions asked were independent and unbiased, and (4) answering the questions did not place an undue burden on the agency officials interviewed. On the basis of feedback from the pretests, we modified the questions as appropriate. We then conducted the structured interview by phone with NRCS officials representing each of the 18 watersheds. Table 7 lists the 18 watersheds included in the fiscal year 2004 sign-up, the lead NRCS state office for each watershed, and the number of CSP contracts awarded in each watershed.

We did not conduct structured interviews with officials representing the lead offices for all 220 priority watersheds included in the fiscal year 2005 sign-up because (1) time frames for completing this sign-up and awarding contracts fell beyond the time frames for completing this portion of our work and (2) the 18 watersheds covered by our interviews were included in both the fiscal year 2004 and fiscal year 2005 sign-ups and provided wide geographic coverage.

To determine what legislative and regulatory measures exist to prevent duplication between CSP and other programs and what duplication, if any, has occurred, we reviewed relevant authorizing legislation and program regulations and interviewed USDA officials and reviewed documentation they provided at NRCS, the Economic Research Service, the Office of the General Counsel, and the Office of the Inspector General. We also included questions in our structured interviews regarding potential duplication between CSP and other programs. In addition, we interviewed NRCS officials responsible for developing a plan to coordinate USDA’s land retirement and agricultural working land conservation programs to achieve the goals of (1) eliminating redundancy, (2) streamlining program delivery, and (3) improving services provided to agricultural producers. As required in the farm bill, USDA was to have submitted a report by December 31, 2005, to the Senate Committee on Agriculture, Nutrition, and Forestry and the House Committee on Agriculture that describes this plan and the means by which USDA will achieve these goals. As of March 2006, USDA was still preparing this report (USDA officials indicated that the plan and report will be one-in-the-same document).

Furthermore, to identify potential duplication, we visited and conducted file reviews at NRCS field offices in two of the watersheds—Lower Chippewa and St. Joseph—that were included in the fiscal year 2004 and fiscal year 2005 sign-ups. We selected these watersheds based on several factors, including (1) their similarity to most of the other 18 watersheds included in both sign-ups in terms of the predominant type of land use (i.e., cropland), (2) the relatively high number of financial assistance contracts provided to producers in these watersheds under CSP and other USDA conservation programs, and (3) the availability of NRCS field staff to meet with us at the time. In addition, our selection of watersheds reflected a wide variation in the percent of total payments made to producers in each watershed under Tier III, the highest CSP payment category—41 percent in Lower Chippewa versus 75 percent in St. Joseph. Finally, the Lower Chippewa watershed lies entirely within the state of Wisconsin; in contrast, the St. Joseph watershed straddles three states—Indiana, Michigan, and Ohio—and thus multiple NRCS state offices were involved in implementing CSP in this watershed (Indiana was the lead office). In each watershed, we visited two NRCS county offices to review the contract files of producers who received a CSP payment in fiscal 2004 and an Environmental Quality Incentives Program (EQIP) payment or a Wildlife Habitat Incentives Program (WHIP) payment in one or more years during fiscal years 2002 through 2004. We chose the offices visited because they had made relatively large numbers of payments under these programs.

We also obtained and analyzed data from NRCS’s Program Contracts System (ProTracts) electronic database regarding calendar year 2004 payments made under CSP and two other USDA conservation programs— EQIP and WHIP. In particular, we compared payment information for CSP and EQIP to identify producers who received payments under both programs that year. We then did further analysis to determine cases in which it appeared a producer had received payments under both programs for the same conservation practice or activity, on the same land, in the same year. We discussed payments received by 11 producers with NRCS officials to determine the actual extent of duplication, if any. We selected these 11 producers from a cross section of states—Nebraska, Oklahoma, Oregon, and South Carolina. In general, these states had the highest number of cases of potential duplication. In each state, we contacted NRCS field office officials in the county with the largest number of cases to discuss whether the payments were duplicates. Our choice of these producers, states, and counties was not intended to be representative for projection purposes. Finally, we interviewed officials and reviewed documentation they provided at farm, conservation, and environmental organizations, CRS, the U.S. Fish and Wildlife Service in the Department of the Interior, and the U.S. Environmental Protection Agency; conducted a literature search to identify relevant studies and articles; and attended a CSP training workshop at USDA headquarters.

We conducted our review between February 2005 and February 2006 in accordance with generally accepted government auditing standards. We conducted a data reliability assessment of the fiscal years 2004 and 2005 payments data for CSP, EQIP, and WHIP and determined the data to be sufficiently reliable. For the data obtained from the other sources noted above, we did not independently verify the data, but we discussed with these sources, as appropriate, the measures they take to ensure the accuracy of these data. For the purposes for which the data were used in this report, these measures seemed reasonable.

CSP Payments Information for Fiscal Years 2004 and 2005

Tables 8 through 14 summarize Conservation Security Program (CSP) payments information for fiscal year 2004. Tables 15 through 18 summarize similar information for fiscal year 2005, including payments for new and existing (2004) contracts. Table 19 summarizes information on the acres enrolled in CSP by land type during these fiscal years. Although the farm bill called for the establishment of CSP in fiscal year 2003, the Natural Resources Conservation Service (NRCS) held the first program sign-up in fiscal year 2004, after developing program regulations, training its field staff, and introducing the program to producers and stakeholder groups. Information on CSP payments for fiscal year 2006 was not available at the time of our review.

To develop tables 8 through 18, we used payments information from NRCS’s Program Contracts System (ProTracts). Among other things, ProTracts is used to manage and monitor the CSP application, contracting, and payment process. ProTracts is a feeder system into the U.S. Department of Agriculture’s (USDA) Foundation Financial Information System (Foundation System), the department’s official accounting system for making payments for current and prior year programs. The Foundation System records obligations and payments made and is the source of data used in financial statements for all USDA programs. In general, the payments data in the Foundation System is considered official, whereas payments data in ProTracts is considered preliminary until it has been checked, corrected, and migrated to the Foundation System. For this reason, payments data taken from these systems may not be consistent. However, in order to separate CSP payments data by tier, payment type, and enhancement type, it was necessary to use data from ProTracts; this level of detail or disaggregation was not possible using data from the Foundation System.

CSP Application and Enrollment Process Flowchart

Ijority of gricltre opertion in terhed nnonced for the ign-p?

Wit for fre ign-p.

Eligiility: Ind eligile? Doe prodcer re rik of prodcing crop or livetock nd entitled to re? Other (ign-pecific).YeI prodcer in complince with highly erodile lnd & mpbuster?

I prodcer willing to meet complince requirement?

Has prodcer completed elf-assssment inclding enchmrk inventory?

I prodcer willing to complete elf- assssment?

Tier III minimm requirement re met.

Are ll pplicable rerce concern ddressed to the minimm level of tretment on the entire gricltre opertion?

Tier II minimm requirement re met.

Are ll oil quality nd wter quality concern ddressed to the minimm level of tretment on the entire gricltre opertion?

Are ll oil quality nd wter quality concern ddressed to the minimm level of tretment on the prt of the gricltre opertion?

I prodcer willing to ddress oil quality nd wter quality on the prt of the gricltre opertion?

Plce in enrollment ctegory based on enchmrk inventory.

Tier I minimm requirement re met.

Refer prodcer to other pproprite conervtion progr.

Develop conervtion ecrity plnd contrct, determine progrm pyment.

Wit for fre ign- when rerce concern re ddressed.

Implement contrct.

Other Key USDA Conservation Programs

In addition to to the Conservation Security Program (CSP), the U.S. Department of Agriculture (USDA) manages a number of other conservation programs. In general, these other programs (1) help farmers and ranchers address existing environmental problems by paying for a portion of the cost of needed conservation practices or structures; (2) keep land in farming or grazing by purchasing rights to part of the land, such as development rights through easements; or (3) idle or retire environmentally sensitive land, such as highly erodible land or wetlands, from production. In contrast, CSP is focused on operations that already have addressed environmental problems and have achieved a high level of environmental stewardship, while keeping the land in production. Producers cannot receive CSP payments and payments under another USDA conservation program for the same conservation practices or activities on the same land. However, producers can use assistance received under other USDA programs, as well as assistance received under state or private conservation programs, to arrive at a high level of stewardship necessary to participate in CSP. Table 20 describes other key USDA conservation programs.

Explanation of Budget Scoring

Budget scoring or scorekeeping is the process of estimating the budgetary effects of pending and enacted legislation and comparing them with a baseline, such as a budget resolution, or to any limits that may be set in law. Scorekeeping tracks data such as budget authority, receipts, outlays, the surplus or deficit, and the public debt limit. The process allows Congress to compare the cost of proposed budget policy changes with existing law in order to enforce spending and revenue levels agreed upon in the budget resolution. The congressional budget committees and the Congressional Budget Office (CBO) score legislation in relation to levels set by Congress in concurrent budget resolutions. The Office of Management and Budget (OMB) also scores legislation for the purposes of developing the President’s annual budget proposal, executing the budget, and providing the President with estimates of the budgetary impacts of pending legislation awaiting the President’s signature (or veto).

Budget scorekeeping guidelines are used by the congressional budget committees, CBO, and OMB (the “scorekeepers”) in measuring compliance with the Congressional Budget and Impoundment Control Act of 1974, as amended, and the Balanced Budget and Emergency Deficit Control Act of 1985, as amended. The purpose of the guidelines is to ensure that the scorekeepers measure the effects of legislation on the deficit consistent with established scorekeeping conventions and with specific legislative requirements regarding discretionary spending, direct spending, and receipts. These guidelines are reviewed annually by the scorekeepers and revised as necessary to adhere to that purpose. The guidelines are contained in Appendix A of OMB Circular No. A-11.

In general, CBO prepares costs estimates for all bills other than appropriations bills when they are reported by a full committee of either House of Congress. However, CBO also prepares cost estimates for proposals at other stages of the legislative process at the request of a committee of jurisdiction, a budget committee, or the congressional leadership. For example, CBO may prepare cost estimates for a series of bills to be considered by a subcommittee, including draft bills not yet introduced, or for amendments to be considered during committee markups. Similarly, it may prepare cost estimates for floor amendments and for bills that pass one or both Houses. For appropriations bills, CBO provides estimates of outlays that would result from the provision of budget authority. CBO also provides the budget and appropriation committees with frequent tabulations of congressional action on both spending and revenue bills so that Congress can know whether it is acting within the limits set by the annual budget resolution. After CBO cost estimates have been transmitted, they may be revised to correct errors or to incorporate new or updated information. OMB also may revise its estimates for similar reasons.

The Director, CBO, transmits by letter all formal budget and mandate cost estimates of legislative proposals and all requested analyses. Scorekeeping data published by CBO include, but are not limited to, status reports on the effects of congressional actions and comparisons of these actions to targets and ceilings set by Congress in the budget resolutions. Weekly status reports are published in the Congressional Record for the Senate during the weeks it is in session and status reports for the House of Representatives are published at least monthly when the House is in session. CBO is also required to produce periodic scorekeeping reports on at least a monthly basis pursuant to section 308(b) of the Congressional Budget and Impoundment Act of 1974, as amended. OMB scorekeeping data generally are not published.

Time Line of Legislative Actions and CBO and OMB 10-Year Estimates of CSP Costs

December: Fnding ncpped $.7 illion (FY 2002-2011)

May: Fnding ncpped $2.0 illion (FY 2002-2011) $5.9 illion (FY 2002-2011) $7. illion (FY 2004-201) $. illion 11-yer c(FY-201) $. 2004-201) $41.4 million 1-yer cp (FY 2004) led $. illion 11-yer c$9.7 illion (FY 2005-2014) $.9 illion (FY 2005-2014) $6.0 illion 10-yer c(FY 2005-2014) $6.0 illion (FY 2005-2014) $202.4 million 1-yer cp on sarie nd peronnel expen (FY 2005)

January: Fnding cpped except for 2015 $6.7 illion (FY 2006-2015)

March: Fnding cpped except for 2015 $6.7 illion (FY 2006-2015) $259 million 1-yer cp on sarie nd peronnel expen (FY 2006)

January: Fnding cpped except for 2016 $6.2 illion (FY 2007-2016) $1.95 illion 5-yer cp (FY 2006-2010) nd $5.65 illion 10-yer c(FY 2006-2015)

March: Fnding cpped except for 2016 $6.4 illion (FY 2007-2016)

Farm Security and Rural Investment Act of 2002, Pub. L. No. 107-171, 116 Stat. 134 (2002).

Agricultural Assistance Act of 2003, Pub. L. No. 108-7, tit. II, § 216, Stat. 538, 546 (2003).

Description of USDA and NRCS Internal Controls and the Results of Reviews of These Controls

Federal agencies have been required for over 20 years to establish and assess internal controls in their programs and financial management activities pursuant to the Federal Managers’ Financial Integrity Act of 1982 and other legislative and administrative initiatives. Furthermore, the Improper Payments Information Act of 2002 requires each agency to annually review all programs and activities the agency administers and to identify those that may be susceptible to significant improper payments. To ensure that programs are managed with integrity and that program operations comply with these requirements, the U.S. Department of Agriculture (USDA) issued a departmental regulation, Management Accountability and Control, and a related departmental manual, Management Control Manual. The departmental regulation establishes departmentwide policy for internal controls. The manual discusses specific controls, including separation of duties, reconciliation of records from two sources, reconciliation of records with physical inventories, limiting access (e.g., authorizations on data systems), providing supervision, documentation of processes and procedures, written delegations of authority, analyzing and reporting on risk, and periodic reviews of performance. As a USDA agency, the Natural Resources Conservation Service (NRCS) is to follow the internal control guidance in this regulation and manual.

NRCS also has established agency-specific guidance on internal controls, found principally in its General Manual and its Conservation Programs Manual. The General Manual establishes NRCS policy for effectively guarding against waste, loss, and misuse of program resources. Specifically, it outlines the process through which the agency complies with governmentwide requirements for internal management control. The Conservation Programs Manual provides specific policy, guidance, and operating procedures for implementing the Conservation Security Program (CSP) (and other programs). For example, the manual sets procedures for key program controls such as the documentation required from an applicant and the conduct of CSP eligibility determinations and contract compliance reviews. The manual also discusses specific responsibilities for program implementation as they relate to internal controls. For example, within each state, the NRCS State Conservationist is responsible for ensuring compliance with internal controls, including separation of duties related to contract approval and payment certification. In addition, this official is responsible for designating in writing the authorized NRCS representative for obligating program funds, disbursing payments, and acting as Contracting Officer.

USDA’s Office of Inspector General (IG) issued a report in January 2005 that examined NRCS’s compliance with the Improper Payments Information Act of 2002. Among other things, the IG found that NRCS had not taken sufficient action to comply with the act and related guidance set forth by OMB and USDA’s Office of the Chief Financial Officer. In summary, the IG found that NRCS had neither identified the internal control measures in place to preclude, or detect in a timely manner, improper payments nor did it know if the controls were in operation. In addition, the IG noted that NRCS had not conducted adequate risk assessments of potential improper payments for the programs it administers, including CSP. According to the IG, NRCS officials stated that risk assessments were not completed because they did not have the time or personnel to perform them. These officials also said that they misinterpreted the guidance regarding what they needed to do to comply with the act. Accordingly, the IG recommended that NRCS conduct more thorough risk assessments of all programs with outlays of $10 million or more (includes CSP) and develop an estimated error rate by (1) developing criteria for identifying program vulnerabilities, (2) determining acceptable risk levels, (3) ranking the risk factors, and (4) establishing controls to ensure their timely and accurate completion. NRCS agreed with the IG’s recommendations and indicated that it would take corrective actions by April 30, 2005. In February 2006, IG officials indicated that the IG had not assessed the adequacy of these actions, including NRCS’s preparation of risk assessments.

In a January 2004 report, GAO found that significant, pervasive information security control weaknesses exist at USDA, including serious access control weaknesses, as well as other information security weaknesses. Specifically, USDA had not adequately protected network boundaries, sufficiently controlled network access, appropriately limited mainframe access, or fully implemented a comprehensive program to monitor access activity. In addition, weaknesses in other information security controls, including physical security, personnel controls, system software, application software, and service continuity, further increase the risk to USDA’s information systems. As a result, sensitive data—including information relating to the privacy of U.S. citizens, payroll and financial transactions, proprietary information, agricultural production and marketing estimates, and mission critical data—are at increased risk of unauthorized disclosure, modification, or loss, possibly without being detected. Accordingly, GAO recommended that USDA establish a comprehensive security management program, including (1) ensuring that security management positions have the authority and cooperation of agency management to effectively implement and manage security programs, (2) completing periodic risk assessments for systems, (3) completing information security plans and establishing policies and procedures on the basis of identified risks, (4) ensuring that employees complete security awareness training, (5) implementing ongoing tests and evaluations of controls, (6) completing system certifications and accreditations, and (7) developing corrective action plans that clearly tie to identified weaknesses. USDA concurred, but as of January 2006, USDA had not yet fully implemented these recommendations.

Furthermore, USDA’s fiscal year 2005 performance and accountability report discusses material weaknesses related to USDA’s financial and accounting systems and information security program. Among the material weaknesses identified in the report are NRCS’s application controls for its Program Contracts System (ProTracts). To address this weakness, NRCS plans to take a number of actions in fiscal year 2006, including (1) documenting the ProTracts change control process; (2) documenting changes to the ProTracts software; (3) establishing a ProTracts testing process; (4) establishing a formally approved document for the ProTracts payment specifications; and (5) establishing a schedule for the systematic reconciliation of ProTracts appropriations, obligations, and payments with amounts recorded in the department’s Foundation Financial Information System.

Comments from the U.S. Department of Agriculture

Appendix VIII

The following are GAO’s comments on the letter from the U.S. Department of Agriculture dated April 10, 2006.