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Report to Congressional Requesters: 

December 2005: 

Livestock Market Reporting: 

USDA Has Taken Some Steps to Ensure Quality, but Additional Efforts Are 
Needed: 

[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-06-202] 

GAO Highlights: 

Highlights of GAO-06-202, a report to congressional requesters: 

Why GAO Did This Study: 

Livestock producers, with gross income of $63 billion in 2004, depend 
on USDA’s daily, weekly, and monthly livestock market news reports. 
These reports provide them and others in the industry with livestock 
and meat prices and volumes, which are helpful as they negotiate sales 
of cattle, hogs, lamb and meat products. Packers also use the average 
prices in these reports as a basis for paying some producers with whom 
the packers have contracts. In 1999, the Livestock Mandatory Reporting 
Act was passed to substantially increase the volume of industry sales 
transactions covered by USDA’s market news reports and thereby 
encourage competition in the industry. In the context of ongoing 
discussions about the renewal of this act, GAO reviewed (1) USDA’s 
efforts to ensure the quality of its livestock market news reports and 
(2) the coordination between two USDA agencies that are responsible for 
promoting competition in livestock markets. 

What GAO Found: 

While the U.S. Department of Agriculture (USDA) took important actions 
to produce quality livestock market news reports, GAO found that USDA 
could improve the reports’ transparency. Although packers with large 
plants must report all of their livestock transactions to USDA, GAO 
found that USDA market news reporters regularly excluded some 
transactions as they prepared USDA’s reports. For example, GAO’s 
analysis showed that from April through June 2005, USDA reporters 
excluded about 9 percent of the cattle transactions that packers had 
reported. When USDA excluded transactions, this sometimes changed the 
low, high, and average prices that USDA would have otherwise reported. 
However, USDA has not informed its readers of the extent of this 
practice. Moreover, USDA’s instructions for guiding its market news 
reporters as they prepared their reports lacked clarity and precision, 
leading to inconsistency in their reporting decisions. 

In addition, GAO found the accuracy of USDA’s livestock market news 
reports is not fully assured. About 64 percent of 844 USDA audits of 
packers—conducted over 36 months ending in April 2005—identified 
packers’ transactions that were inaccurately reported, unsupported by 
documentation, or omitted from packers’ reports. Moreover, some packers 
have not promptly corrected problems. Since 2002, USDA has sent 11 
packers 21 letters urging the packers to correct longstanding problems 
and warning them of the consequences of delay. Twice USDA has levied 
$10,000 fines on packers, but suspended the fines when these packers 
agreed to comply. As of September 2005, USDA had continuing issues with 
2 of the 11 packers. USDA officials noted that packers’ errors are 
relatively few compared to the large volumes of data that packers 
report daily. However, USDA has not (1) assessed the overall quality of 
packers’ data, (2) used its audit results to help focus future audit 
efforts, and (3) ensured that follow-up promptly resolves problems. 

Two USDA agencies have addressed competition in livestock markets—the 
Agricultural Marketing Service (AMS) and the Grain Inspection, Packers 
and Stockyards Administration (GIPSA). GAO found the coordination 
between these agencies to be limited, primarily due to the legal 
authority within which each operates. AMS has implemented the Livestock 
Mandatory Reporting Act. That act did not provide authority for AMS to 
share individual packer transaction data within USDA except for 
enforcement purposes. In two investigations, AMS provided packers’ data 
to GIPSA. GIPSA enforces the Packers and Stockyards Act and is 
responsible for addressing unfair and anti-competitive practices in the 
marketing of livestock. Furthermore, GAO found that GIPSA monitors 
cattle and hog markets by analyzing publicly available livestock market 
news reports—an approach that has limitations because it lacks the 
company-specific information that would be useful for detecting anti-
competitive behavior. 

What GAO Recommends: 

GAO recommends, among other things, that USDA improve the transparency 
of its market news reports, and its auditing of packers’ transactions. 
GAO provided a draft of this report to USDA for comment. USDA generally 
agreed with the report and stated it has started to implement the 
report’s recommendations. 

www.gao.gov/cgi-bin/getrpt?GAO-06-202.

To view the full product, including the scope and methodology, click on 
the link above. For more information, contact Robert A. Robinson at 
(202) 512-3841 or robinsonr@gao.gov.

[End of section] 

Contents: 

Letter: 

Results in Brief: 

Background: 

AMS Striving for Quality, but Has Faced Some Challenges: 

GIPSA and AMS Coordination Has Been Limited: 

Conclusions: 

Recommendations: 

Agency Comments and Our Evaluation: 

Appendixes: 

Appendix I: Objectives, Scope, and Methodology: 

Appendix II: Analysis of Transactions AMS Excluded From Reports: 

Appendix III: Additional Information Concerning AMS Warning Letters to 
11 Packers through September 2005: 

Appendix IV: Comments from the Department of Agriculture: 

Appendix V: GAO Contact and Staff Acknowledgments: 

Tables: 

Table 1: Cattle, Hog, and Beef Transactions Excluded from AMS Reports, 
April through June, 2005: 

Table 2: Cattle Transactions Excluded From AMS Reports, May through 
October, 2003: 

Table 3: Examples of Changes in Cattle Prices AMS Reported, May through 
October, 2003A: 

Table 4: AMS Market News Reporters' Instructions: 

Table 5: Content of ARC Audits of Packers: 

Table 6: Examples of ARC Audit Findings: 

Figures: 

Figure 1: Percent of Negotiated Cattle Transactions Excluded by Size of 
Lot, Dressed Basis, May through October, 2003

Figure 2: Percent of Negotiated Cattle Transactions Excluded by Size of 
Lot, Live Basis, May through October, 2003

Figure 3: Percent of Hog Transactions Excluded by Size of Lot, 
Negotiated Sales, October 2003 through March 2004

Figure 4: Distribution of Cattle Prices Before Exclusions, Dressed 
Steers, May through July, 2003

Figure 5: Distribution of Cattle Prices After All Exclusions, Dressed 
Steers, May through July, 2003

Figure 6: Range of Cattle Prices Before and After Excluded 
Transactions, Dressed Steers, May through October, 2003

Figure 7: Difference in Weighted Average Prices With and Without 
Transactions AMS Excluded for Market Reasons, Live Weight Cattle, May 
through October, 2003

Figure 8: Difference in Weighted Average Prices With and Without 
Transactions Excluded for Market Reasons, Dressed Weight Cattle, May 
through October, 2003

Figure 9: National Daily Direct Morning Hog Report: Differences of 
Weighted Average Prices With and Without Transactions Excluded, October 
2003 through March 2004: 

Abbreviations: 

AMS: Agricultural Marketing Service: 

ARC: Agricultural Marketing Service, Audit, Review, and Compliance 
Branch: 

GIPSA: Grain Inspection, Packers and Stockyards Administration: 

USDA: U.S. Department of Agriculture: 

Letter December 9, 2005: 

The Honorable Tom Harkin: 
Ranking Democratic Member: 
Committee on Agriculture, Nutrition, and Forestry: 
United States Senate: 

The Honorable Charles Grassley: 
United States Senate: 

Livestock producers' sales of cattle, hogs, and sheep to meatpackers 
are a significant component of the U.S. agricultural industry. In 2004, 
producers' gross income from these livestock totaled about $63 billion. 
For producers to be well prepared to negotiate a fair price for their 
livestock, they need to be able to track changes in livestock prices. 
For many years, producers have relied on the U.S. Department of 
Agriculture's (USDA) livestock market news reports, which until 2001, 
were based on livestock sales information obtained voluntarily from 
producers, packers, feedlot operators, and others. However, over the 
past several decades, producers and packers increasingly have made 
livestock sales through contracts that were not covered in USDA's 
livestock market news reports. By 1999, about 35 percent of cattle and 
60 percent of hogs were sold through such contracts. Because of these 
gaps in the coverage of USDA's livestock market news reports, many 
producers believed that they could no longer effectively assess 
livestock prices, negotiate with packers, or obtain a competitive price 
when they sold livestock. Some producers have been concerned that there 
have been "sweetheart" deals between packers and certain cattle 
feeders, that unreported livestock sales among packers have lowered 
livestock prices, and that reduced competition in the packing industry 
has adversely affected their livelihood. In 1999, Congress enacted the 
Livestock Mandatory Reporting Act to provide livestock market 
information that could be readily understood by producers, packers, and 
other market participants and to encourage competition in the 
marketplace for livestock and livestock products. Under the act and 
USDA regulations, packers with large packing plants[Footnote 1] were 
required to report to USDA all of their purchases of cattle, lamb, and 
hogs, as well as their sales of beef and lamb meat. Based on packers' 
reports of their transactions, USDA publishes about 100 various 
livestock market news reports, which are available over the 
Internet.[Footnote 2] 

In December 2004, when it was due to terminate, the Livestock Mandatory 
Reporting Act was extended until September 30, 2005. As of September 
30, 2005, USDA has continued the program as a voluntary, instead of 
mandatory, reporting program. Congress, as of December 2005, is 
considering proposed legislation to extend the mandatory 
program.[Footnote 3] 

USDA's Agricultural Marketing Service (AMS) administered the Livestock 
Mandatory Reporting Act and produced the livestock mandatory market 
news reports, among other market reports.[Footnote 4] Specifically, 
about 20 AMS market news reporters located in Des Moines, Iowa and St. 
Joseph, Missouri, reviewed the packers' livestock purchases and meat 
sales transaction data each day and completed AMS's reports. In 
addition, AMS staff visited packers' facilities several times a year to 
audit the accuracy of information that packers reported to AMS. Another 
USDA agency--the Grain Inspection, Packers and Stockyards 
Administration (GIPSA)--has a related responsibility. GIPSA is 
responsible, under the Packers and Stockyards Act, for addressing 
unfair and anti-competitive practices in the marketing of livestock. 
Among other things, GIPSA monitors competition in livestock markets and 
investigates complaints of unfair and anti-competitive practices under 
the act. 

In the context of the ongoing congressional discussions about the 
Livestock Mandatory Reporting Act and the quality of information in the 
reports it provides to producers, we reviewed (1) AMS efforts to ensure 
the quality of its livestock mandatory market news reports, and (2) the 
extent to which AMS and GIPSA coordinate their efforts to promote 
competition in livestock markets. 

To review AMS's efforts to ensure the quality of its livestock 
mandatory market news reports, among other things, we observed AMS's 
Market News Branch (Market News) reporters as they checked packers' 
transaction data prior to publication and prepared livestock mandatory 
market news reports for cattle, hogs, lamb, beef, and lamb meat. We 
reviewed AMS reporters' instructions for preparing livestock mandatory 
market news reports and assessed how AMS reporters used their 
instructions for cattle, hogs, lamb, beef, and lamb meat. We evaluated 
AMS's efforts to audit packers' records to ensure that packers were 
accurately reporting their transactions to AMS. In addition, we 
reviewed AMS's computer system documentation and conducted some limited 
tests of its performance. We found AMS computer-processed data to be 
sufficiently reliable for our purposes. To determine the extent of 
coordination between GIPSA and AMS, we reviewed their legislative 
authority, identified activities and investigations involving both 
agencies, reviewed investigation case file information, and discussed 
them with GIPSA and AMS officials. Our review focused on the livestock 
mandatory reporting program that terminated on September 30, 2005. 
Appendix I provides additional details on our objectives, scope, and 
methodology. We conducted our review between February and November 2005 
in accordance with generally accepted government auditing standards. 

Results in Brief: 

AMS took several steps for producing quality livestock mandatory market 
news reports. Among other things, AMS developed a near real-time Web-
based reporting system with automated and manual screening of packers' 
transaction data, and established an audit surveillance program to 
ensure that packers report accurately. While important steps have been 
taken, AMS has not yet fully assured the transparency and accuracy of 
these reports. Concerning transparency, AMS has not informed readers of 
livestock mandatory market news reports that it regularly excluded 
certain transactions in an effort to present prevailing market 
conditions. Our analysis of AMS market news data shows, for example, 
that from April through June 2005, AMS reporters excluded about 9 
percent of the cattle transactions that packers reported to AMS. AMS 
officials explained that, in general, AMS excluded transactions that 
were outside the prevailing market price ranges to avoid reporting 
price ranges that would be too broad to be useful to market 
participants. They also said that AMS market news reports were intended 
to convey overall market conditions rather than precise statistics. 
According to our interviews with some agricultural economists, they and 
other readers of AMS market news reports were unaware of the extent of 
this practice and the effect this practice has on the prices that AMS 
reports. In addition, we found that AMS's instructions to reporters for 
excluding transactions lacked clarity and precision, and differed for 
cattle, hogs, lamb, beef, and lamb meat. AMS officials said that as a 
result of the information that we brought to their attention, they 
started improving AMS's instructions to reporters. AMS officials also 
said they would consider providing market news report readers with 
additional information about AMS's reporting practices. 

Concerning accuracy, the quality of AMS reports depends on the extent 
to which packers submit correct transaction information. However, AMS 
audits have frequently identified instances when packers incorrectly 
reported transactions. Of 844 AMS audits of packers, which were 
conducted over the 36 months ending in April 2005, 540--64 percent--
identified instances when packers did not report data to AMS correctly. 
AMS officials said that packers' reporting errors were of concern, but 
that considering the hundreds of thousands of pieces of transaction 
data that packers report each day, the errors identified by AMS audits 
were proportionately few. Nevertheless, a closer look at 86 AMS audits 
from June through September 2004 shows that AMS identified 46 instances 
when 22 packers submitted incorrect transaction data that AMS 
classified as possibly affecting the accuracy of AMS reports. Moreover, 
some packers did not promptly correct the problems that AMS identified. 
Between 2002 and September 2005, AMS sent 11 packers 21 warning letters 
because these packers delayed making corrections in their reporting of 
transactions. Eight of these warning letters were sent to six packers 
from January 2004 through September 2005; six letters involved cattle 
and two involved hogs. AMS twice levied $10,000 fines on packers, but 
suspended these fines provided the packers went a year without 
additional violations. Despite this record, AMS officials said that 
they have seen improvement in packers' reporting of transactions over 
the past 4 years, and that they believed that most packer transactions 
were accurately reported to AMS. However, AMS has not developed a 
method for evaluating the overall accuracy of the transaction data. To 
lend greater reliability to the reports, AMS officials said they would 
consider (1) auditing a statistical sample of transactions as a basis 
for assessing the overall quality of the transaction data, and (2) 
further assessing their audit results to develop strategies for 
improving packers' reporting of transactions. 

Coordination between GIPSA and AMS has been limited, primarily due to 
the legal authority within which each operates. AMS implemented and 
enforced the Livestock Mandatory Reporting Act while GIPSA implements 
and enforces the Packers and Stockyards Act. The Livestock Mandatory 
Reporting Act did not provide authority for AMS to share confidential 
packer transaction data within USDA unless the Secretary of Agriculture 
or the Attorney General directed AMS to disclose the information for 
enforcement purposes. GIPSA monitors cattle and hog markets by 
analyzing publicly available AMS livestock reports. This approach to 
market monitoring has limitations because it does not include company-
specific transaction data that would be useful for detecting anti-
competitive behavior. AMS provided packers' transaction data to GIPSA 
for two investigations after formal GIPSA requests for those data. Both 
investigations were closed by GIPSA without finding potential 
violations of the Packers and Stockyards Act. Nevertheless, in one of 
those investigations, which GIPSA closed in 2005, GIPSA found that a 
packer reported transactions to AMS that were not fully supported by 
documentation. Since our review of that case indicates there may be a 
further role for both agencies, we suggested, and GIPSA and AMS 
officials agreed, that both should consider further investigation on 
the propriety of certain low-price and other transactions. In November 
2005, an AMS official also told us that AMS started to obtain 
information from the packer to address these transactions. 

In anticipation of the extension of the Livestock Mandatory Reporting 
Act, we are making a number of recommendations to the Secretary of 
Agriculture to improve the transparency and accuracy of AMS livestock 
mandatory market news reports. 

Background: 

The Livestock Mandatory Reporting Act of 1999 amended the Agricultural 
Marketing Act of 1946. The act established a livestock marketing 
information program to (1) provide producers, packers and other 
industry participants with market information that can be readily 
understood; (2) improve USDA price and supply reporting services; and 
(3) encourage more competition in these markets. Under the act, packers 
were required to report livestock market information that had 
previously been voluntarily reported[Footnote 5] and new information 
not previously reported to the public--such as information about 
contract livestock purchases. Under the voluntary program, USDA 
employees, referred to as reporters, gathered information daily by 
talking directly with producers, packers, feedlot operators, retailers, 
and other industry participants; by attending public livestock 
auctions, visiting feedlots and packing plants; and taking other 
actions. Under the Livestock Mandatory Reporting Act, packers were 
instead required to report on their cattle and hog purchases, and their 
sales of beef.[Footnote 6] The act also authorized USDA to require that 
packers report on lambs. 

USDA implemented the Livestock Mandatory Reporting Act by establishing 
a livestock mandatory reporting program to collect packers' marketing 
information and disseminate it to the public through daily, weekly, 
monthly, and annual reports. Packers were required to electronically 
report hog purchases three times each day, cattle purchases twice each 
day, lamb purchases once daily, domestic and export sales of beef cuts 
twice daily, and sales of lamb carcasses and lamb cuts once daily. As 
of June 2005, 116 packers and importers were required to provide 
information under the Livestock Mandatory Reporting Act. 

Two branches of USDA's AMS administered the livestock mandatory 
reporting program--Market News and the Audit, Review, and Compliance 
Branch (ARC). Market News was responsible for collecting and generating 
market news reports from information supplied by packers. Market News 
reporters gathered and reviewed this data, contacted packers to resolve 
any questions they had, and prepared reports. Reporters were required 
to ensure that they did not breach the confidentiality of packers by 
providing information that would allow the public to identify an 
individual packer. In addition to preparing reports, Market News 
personnel interacted with any packers that AMS believed needed to make 
changes in reporting to comply with the Livestock Mandatory Reporting 
Act. 

To identify compliance problems, ARC personnel audited the transaction 
data of packing plants three times a year. When ARC found packers that 
were reporting incorrectly, ARC notified the Market News reporters, who 
were responsible for notifying and following up with packers until the 
packers reported correctly. The Secretary of Agriculture was authorized 
to assess a civil penalty of up to $10,000 a day per violation on a 
packer that violated the act. 

AMS Striving for Quality, but Has Faced Some Challenges: 

AMS designed its livestock mandatory market news reporting program with 
elements intended to ensure the quality of its news reports. USDA 
officials, for example, developed a Web-based reporting system with 
automated and manual screening of packer transaction data and 
established an audit surveillance program to ensure packers reported 
accurately. However, we found that while AMS had made progress, its 
livestock market news program fell short of ensuring reliability 
because AMS reporting was not fully transparent, and AMS audits of 
packers revealed some problems with the quality of packers' transaction 
data. 

Steps AMS Took to Ensure Quality: 

AMS developed a mandatory livestock market news reporting program 
incorporating a number of features to ensure quality. More 
specifically, AMS took the following steps to ensure the quality of its 
livestock mandatory market news reports: 

* AMS hired two contractors to assist in developing a rapid and 
reliable reporting system: Computer & Hi-Tech Management, Inc. was 
hired to assess the capability of the packing companies to provide 
electronic data; and PEC Solutions developed the computer software 
processes upon which the mandatory livestock reporting system is now 
based. AMS and PEC Solutions developed a software system that allows 
packers to provide their transaction data on web-based forms or to 
upload completed files into the reporting system data base. PEC 
Solutions prepared an industry guide to give packers instructions for 
correctly submitting transaction data. 

* PEC Solutions used programmers who did not participate in developing 
the systems to test the functioning of the system. AMS further tested 
the system using simulated production data, because packers had not 
started reporting actual data. As a further validation step, AMS staff 
manually calculated data for several reports and compared that data 
with data generated by the system. 

* AMS established computer based data security controls and 
computerized screening of packer transaction data to ensure it is being 
correctly reported. 

* AMS established an audit function to periodically test the accuracy 
of transaction data that packers submit to AMS by visiting packer 
facilities, checking documentation in support of reported transactions 
and testing the completeness of packers' reports. 

In addition, in May 2001, the Secretary of Agriculture appointed a top 
level USDA team--the Livestock Mandatory Price Reporting Review 
Team[Footnote 7]--to review problems in its calculations of certain 
boxed-beef prices.[Footnote 8] In addition to reviewing that problem 
and making related recommendations, most of which AMS adopted, the team 
assessed the overall integrity and accuracy of the program. This team 
found that for the most part, AMS had succeeded in gathering and 
reporting accurate data in a timely fashion. The team's major criticism 
was that AMS had not adequately tested its system to ensure it was 
accurately calculating data that packers had reported. Subsequently, 
AMS initiated further testing to ensure the accuracy of its reports. 
The team also found that AMS's plan for audit surveillance of packers 
was behind schedule due to difficulties in hiring qualified auditors. 
At that time AMS had conducted audits at only 19 of the 119 packer 
facilities it planned to reach. Since then, AMS has overcome these 
problems and conducted over 1,100 audits at packers' facilities. 

Extent of Transactions Excluded from AMS Reports Is Not Transparent: 

The Livestock Mandatory Reporting Act was intended to provide producers 
with readily understandable market information on a significant portion 
of livestock industry transactions. The quality of this information is 
especially important because livestock transactions negotiated each day 
may be influenced by AMS reported prices, and some contracts between 
packers and producers rely on the weighted average prices that AMS 
reports. AMS was authorized to make reasonable adjustments in 
information reported by packers to reflect price aberrations or other 
unusual or unique occurrences that the Secretary determined would 
distort the published information to the detriment of producers, 
packers, or other market participants.[Footnote 9] In addition, AMS 
should have adhered to the Office of Management and Budget and USDA 
guidelines for disseminating influential statistical and financial 
information with a high degree of transparency about the data sources 
and methods, while maintaining the confidentiality of the underlying 
information.[Footnote 10] In addition, AMS has recognized the 
usefulness of providing the public with information about the 
preparation of its market reports. 

We found that AMS reporters adjusted the transaction data that packers 
report in an effort to report market conditions, but this practice has 
not been made transparent. We observed that AMS reporters sometimes 
eliminated small numbers of apparent erroneous transactions, as would 
be expected. Significantly, however, we found that AMS reporters 
eliminated numerous low-and some high-priced transactions that they 
believed did not reflect market conditions, particularly when reporting 
on cattle. Our analysis shows that from April through June 2005, when 
livestock prices were declining somewhat, AMS reporters excluded about 
9 percent of the cattle transactions that packers had reported to AMS, 
about 3 percent of the reported beef transactions, and 0.2 percent of 
the reported hog transactions. Excluding small percentages of livestock 
or meat transactions may have had a small effect on the range of prices 
that AMS reported and a negligible effect on weighted average prices. 
However, as the percent of transactions excluded increased, so too did 
the possibility that AMS weighted average prices would be changed from 
what AMS would otherwise report. Table 1 provides more details about 
the transactions excluded during this period. 

Table 1: Cattle, Hog, and Beef Transactions Excluded from AMS Reports, 
April through June, 2005: 

Transactions. 

Reported by packers; 
Cattle: Number: Transactions: 207,459; 
Hogs: Number: Transactions: 97,419; 
Beef: Number: Transactions: 831,622. 

Excluded by AMS; 
Cattle: Number: Transactions: 18,286; 
Cattle: Percent: Transactions: 8.8; 
Hogs: Number: Transactions: 153; 
Hogs: Percent: Transactions: 0.2; 
Beef: Number: Transactions: 22,436; 
Beef: Percent: Transactions: 2.7. 

Head count. 

Reported by packers; 
Cattle: Number: Transactions: 9,043,064; 
Hogs: Number: Transactions: 11,140,099; 
Beef: Number: Transactions: --; 
Beef: Percent: Transactions: --. 

Excluded By AMS; 
Cattle: Number: Transactions: 136,086; 
Cattle: Percent: Transactions: 1.5; 
Hogs: Number: Transactions: 17,431; 
Hogs: Percent: Transactions: 0.2; 
Beef: Number: Transactions: --; 
Beef: Percent: Transactions: --. 

Weight (lbs.) 

Reported by packers; 
Cattle: Number: Transactions: --; 
Cattle: Percent: Transactions: --; 
Hogs: Number: Transactions: --; 
Hogs: Percent: Transactions: --; 
Beef: Number: Transactions: 4,096,490,216. 

Excluded by AMS; 
Cattle: Number: Transactions: --; 
Cattle: Percent: Transactions: --; 
Hogs: Number: Transactions: --; 
Hogs: Percent: Transactions: --; 
Beef: Number: Transactions: 111,567,704; 
Beef: Percent: Transactions: 2.7. 

Source: GAO analysis of AMS data reported by packers on certain daily 
reporting forms. 

[End of table] 

In addition, our analysis shows that from May through October 2003, 
when cattle prices were rising and changing to greater extents, AMS 
reporters excluded about 23 percent of cattle transactions packers 
reported to AMS.[Footnote 11] Concerning hogs, during a period of 
rising prices between October 2003 and March 2004, we found that 0.1 
percent of hog transactions were excluded from AMS reports. Because AMS 
reports excluded significantly more cattle transactions, we performed 
further analyses on them. Tables 2 and 3 show (1) information about the 
cattle transactions that AMS excluded from certain livestock mandatory 
market news reports from May through October 2003, and (2) examples of 
12 days from this period showing the effects of the transactions that 
AMS excluded on the reported price ranges, and weighted average prices. 
During the period, AMS reporters' decisions to exclude transactions had 
some effect on the cattle data we analyzed in AMS reports on about one 
third of the days and almost no effects on the others. 

Table 2: Cattle Transactions Excluded From AMS Reports, May through 
October, 2003: 

Transactions: 

Reported by packers; 
Cattle: Number: 399,471. 

Excluded by AMS; 
Cattle: Number: 90,998; 
Cattle: Percent: 22.8. 

Head count: 

Reported by packers; 
Cattle: Number: 15,792,982. 

Excluded by AMS; 
Cattle: Number: 2,921,956; 
Cattle: Percent: 18.5. 

Source: GAO analysis of all AMS cattle data reported by packers on the 
Live Cattle Daily Report (Current Established Prices). 

[End of table] 

Table 3: Examples of Changes in Cattle Prices AMS Reported, May through 
October, 2003: 

Dollars per hundredweight. 

Date: May 5; 
AMS reported price ranges: $123-$126; 
GAO price ranges with transactions excluded by AMS: $122-$126; 
AMS reported weighted average price[A]: $123.30; 
GAO weighted average price with transactions excluded by AMS: $123.25; 
Change in weighted average price reported by AMS: $0.05. 

Date: May 16; 
AMS reported price ranges: $124-125; 
GAO price ranges with transactions excluded by AMS: $105-125; 
AMS reported weighted average price[A]: $124.63; 
GAO weighted average price with transactions excluded by AMS: $123.12; 
Change in weighted average price reported by AMS: $1.50. 

Date: May 19; 
AMS reported price ranges: $125-128; 
GAO price ranges with transactions excluded by AMS: $124-128; 
AMS reported weighted average price[A]: $126.16; 
GAO weighted average price with transactions excluded by AMS: $125.86; 
Change in weighted average price reported by AMS: $0.30. 

Date: June 12; 
AMS reported price ranges: $121-125; 
GAO price ranges with transactions excluded by AMS: $113-125; 
AMS reported weighted average price[A]: $123.37; 
GAO weighted average price with transactions excluded by AMS: $123.32; 
Change in weighted average price reported by AMS: $0.05. 

Date: July 11; 
AMS reported price ranges: $116.50-120; 
GAO price ranges with transactions excluded by AMS: $115-120; 
AMS reported weighted average price[A]: $119.05; 
GAO weighted average price with transactions excluded by AMS: $118.98; 
Change in weighted average price reported by AMS: $0.07. 

Date: August 1; 
AMS reported price ranges: $127-127; 
GAO price ranges with transactions excluded by AMS: $122.50-127; 
AMS reported weighted average price[A]: $127.00; 
GAO weighted average price with transactions excluded by AMS: $125.21; 
Change in weighted average price reported by AMS: $1.79. 

Date: August 11; 
AMS reported price ranges: $125-128; 
GAO price ranges with transactions excluded by AMS: $123-128; 
AMS reported weighted average price[A]: $126.28; 
GAO weighted average price with transactions excluded by AMS: $125.65; 
Change in weighted average price reported by AMS: $0.63. 

Date: Sept. 10; 
AMS reported price ranges: $135-145; 
GAO price ranges with transactions excluded by AMS: $131-145; 
AMS reported weighted average price[A]: $141.63; 
GAO weighted average price with transactions excluded by AMS: $141.37; 
Change in weighted average price reported by AMS: $0.26. 

Date: Sept. 29; 
AMS reported price ranges: $140-141; 
GAO price ranges with transactions excluded by AMS: $138-141; 
AMS reported weighted average price[A]: $140.25; 
GAO weighted average price with transactions excluded by AMS: $138.84; 
Change in weighted average price reported by AMS: $1.41. 

Date: Oct. 14; 
AMS reported price ranges: $170-182.75; 
GAO price ranges with transactions excluded by AMS: $150-182.75; 
AMS reported weighted average price[A]: $176.30; 
GAO weighted average price with transactions excluded by AMS: $175.83; 
Change in weighted average price reported by AMS: $0.47. 

Date: Oct. 15; 
AMS reported price ranges: $175-187; 
GAO price ranges with transactions excluded by AMS: $167-187; 
AMS reported weighted average price[A]: $180.48; 
GAO weighted average price with transactions excluded by AMS: $180.04; 
Change in weighted average price reported by AMS: $0.44. 

Date: Oct. 29; 
AMS reported price ranges: $155-158; 
GAO price ranges with transactions excluded by AMS: $155-180; 
AMS reported weighted average price[A]: $157.52; 
GAO weighted average price with transactions excluded by AMS: $160.27; 
Change in weighted average price reported by AMS: ($2.75). 

Source: Selected dates from AMS's Five Area Daily Weighted Average 
Direct Slaughter Cattle Report, Negotiated; and GAO analysis of AMS 
data for 35-65 percent choice steers, dressed weight as reported by 
packers on the Live Cattle Daily Report (Current Established Prices). 

[A] GAO replicated these AMS-reported average prices, ensuring that our 
calculations using AMS data produced similar results. For our 
calculations of average weighted price and price ranges, we included 
those transactions that AMS had excluded for market reasons, such as 
high or low price, or size of lots, but we did not include those 
transactions that AMS had removed because they thought them to be base 
prices. 

[End of table] 

Further details of our analyses are discussed in appendix I and shown 
in appendix II. 

AMS guidance for its reporters on eliminating transactions is limited, 
lacking clarity and precision. These instructions advise AMS reporters 
to review transactions which packers have reported each day, and to 
eliminate certain low-and high-priced transactions. AMS's varying 
instructions for reporters are described in table 4. 

Table 4: AMS Market News Reporters' Instructions: 

Cattle; 
* Narrow up price spreads, if possible, depending on how trade took 
place the previous week. Keep price ranges within $5 of the bulk of the 
trade and narrower, if possible; 
* Remove weights that are unusually high or low for an animal; 
* For cattle sold on formula, a market news reader should not see the 
lowest or highest cattle prices packers' reported. The lower prices 
should be the lower end of marketable cattle prices within explainable 
limits; and on the high side, the best price that would be reasonable 
and obtainable by marketing desirable type cattle. (GAO note: 
"explainable limits," "reasonable," and "desirable type" are not 
defined.) 

Beef; 
* Scan reports to determine whether prices fell in the expected range 
and eliminate small trades that are outside the expected price range 
for each item. Contact packers when large quantities of beef fall 
outside expected price range; 
* The expected price range for a beef item is to be based on historical 
and current price ranges for the item, current market conditions for 
the item, and overall beef market conditions; 
* Consider excluding trades when prices are not within close proximity 
of another packer. 

Hogs; 
* If there are problems with prices for barrows, gilts, or sows, 
contact the packer to verify the information. 

Lamb (live); 
* Review the data to determine if there are any high, low or 
questionable prices that need to be removed; 
* Separate the outliers. 

Lamb (meat); 
* Edit extremes for all price ranges in question; 
* Review the report and check any price ranges that appear out of line. 
(GAO note: "out of line" is not defined.) 

Source: AMS guidance for reporters. 

[End of table] 

Senior AMS supervisors review reporters' decisions to eliminate 
transactions, and AMS headquarters officials monitor the number of--and 
reasons why--transactions are being excluded by reporters. AMS 
officials explained, in general, their reviews and adjustments are 
intended to exclude transactions that are outside the prevailing market 
price ranges, and to avoid reporting ranges of prices that appear 
overly broad. Furthermore, Market News officials explained that this 
process is conducted because they believe that livestock market reports 
are intended to convey overall market conditions rather than precise 
statistics. Also, an AMS official noted that AMS Market News reporters 
mostly exclude low-price transactions involving small quantities, 
because those transactions often are lower quality animals or products. 
Concerning hogs, AMS's reporters of hog transactions said that they 
were verbally instructed to exclude few hog transactions by 
headquarters officials soon after the start of the program. AMS 
headquarters officials said that these verbal instructions were 
provided after one or more large packers complained that it appeared 
AMS was excluding transactions because of price alone.[Footnote 12] 

Given that AMS reporters' decisions to exclude transactions modified 
the prices they reported, AMS has not well-explained this practice to 
readers of AMS livestock market news. AMS's Web site does not address 
the subject, and AMS livestock mandatory market news reports are 
unqualified. Some agricultural economists who study the livestock 
market and other industry experts we interviewed said that they were 
not aware of the extent of adjustments that AMS made. An AMS official 
explained that AMS has not previously provided public information on 
this process because it would be difficult to capture the nuances of 
AMS's report preparation in a public document. Nevertheless, AMS 
previously acknowledged that it may be useful to provide information to 
the public about types of adjustments that it makes to its livestock 
mandatory market news reports.[Footnote 13] AMS officials also 
recognized that it would be desirable for AMS to improve its 
instructions for reporters and disclose more about its reporting 
practices to livestock market news report readers. Our review of AMS's 
database indicates that further analyses could provide AMS with more 
information about the reasons why reporters eliminate transactions, the 
consistency of reporting, as well as the extent of changes in AMS's 
presentation of prices. AMS's Livestock and Seed Program Deputy 
Administrator said that, as a result of the information we brought to 
his attention, he had started to improve the reporters' instructions. 

Since AMS reports help provide the industry with signals about when, 
where, and at what price to buy and sell livestock and meats, some 
industry participants may have been guided to somewhat different 
decisions on certain days if they had a greater understanding of AMS 
report content. In addition, the lack of transparency over the content 
and preparation of the livestock mandatory market reports may have also 
limited the confidence that some readers place in AMS reports. 

ARC Audits Identified Instances When Packers Reported to AMS 
Inaccurately: 

ARC regularly audited packers to provide assurance that the packers 
reported all of their transactions accurately and in compliance with 
AMS's regulations.[Footnote 14] The quality of AMS reports depends on 
packers submitting correct transaction information. Once every 4 
months, ARC auditors visited each of the 116 packers' plants, or 
associated company headquarters, to review livestock transaction 
data.[Footnote 15] These audits usually included: (1) a test of the 
completeness of the packer's reports, and (2) a detailed review of a 
sample of transactions to determine that each transaction in the sample 
was reported accurately and was supported by appropriate documentation. 
ARC has conducted over 1,100 audits at packers' facilities since 2001. 
Detailed information was available for 844 of these audits conducted 
over the 36 months ending in April 2005.[Footnote 16] Table 5 contains 
additional information about the content of ARC audits. 

Table 5: Content of ARC Audits of Packers: 

Type of audit: AMS's audit goal; 
Review of a full day of packer transactions: To ensure packers report 
complete information to AMS; 
Review of a sample of packer transactions reported to AMS: To ensure 
packers report accurate information to AMS in a timely manner. 

Type of audit: Information reviewed; 
Review of a full day of packer transactions: 
* Plant slaughter records; 
* Food Safety and Inspection Service slaughter records; 
* Sales invoices; 
* Bills of lading; 
* Documentation about why transactions not reported to AMS are not 
subject to the Livestock Mandatory Reporting Act; 
Review of a sample of packer transactions reported to AMS: 
* Plant slaughter records; 
* Sales invoices; 
* Bills of lading; 
* Original contracts, agreements, and receipts; 
* Other records relating to the purchase, sale, pricing, 
transportation, delivery, weighing, slaughter, or carcass 
characteristics of livestock. 

Type of audit: Frequency of review; 
Review of a full day of packer transactions: 
* Three times a year for plants whose records are reviewed at the 
plant; 
* Once a year for plants whose records are reviewed at company 
headquarters; 
Review of a sample of packer transactions reported to AMS: Three times 
a year. 

Source: AMS records. 

[End of table] 

Of the 844 AMS audits for which data were available, 540--64 percent--
identified one or more instances when it appeared that packers did not 
meet AMS reporting standards. The other 304 audits, or about 36 
percent, did not identify any such instances. AMS audits detected a 
wide variety of packer reporting inaccuracies such as the omission of 
livestock slaughtered, underreporting of purchases, delayed reporting 
of livestock purchases and meat sales, price inaccuracies, and the 
misclassification of transactions. While noting the frequency of AMS 
audit findings, AMS officials commented that packers' reporting errors 
were of concern. AMS officials also said that its audit results should 
be considered in the context of the volume of transactions that AMS 
reports--compared to the hundreds of thousands of pieces of transaction 
data that packers reported daily, the errors identified by AMS audits 
were relatively few. However, our review shows that AMS findings are 
based on audits of a small portion of packers' transactions, and it is 
likely that there have also been errors in packers' unaudited 
transactions. Furthermore, a closer look at 86 AMS audits completed 
from June through September 2004 shows that AMS identified 46 instances 
when 22 packers submitted incorrect transaction data that AMS 
classified as possibly affecting the accuracy of AMS reports. Table 6 
provides examples of AMS audit findings.[Footnote 17] 

Table 6: Examples of ARC Audit Findings: 

1. A packer incorrectly reported the weekly premiums it paid for its 
hogs on a live weight basis instead of a carcass weight basis. As a 
result, the weekly premium report was not accurate. An AMS reporter 
said this finding was significant at the time because only a small 
number of packers were reporting this weekly data and because the error 
could occur repeatedly. 

2. A packer did not report the purchase of 5 lots of cattle, totaling 
117 head. The packer explained that some of the cattle were unscheduled 
purchases from local producers but could not provide an explanation for 
the remainder. An AMS reporter said that unscheduled cattle purchases 
can present reporting difficulties for packers. AMS verified that the 
packer was reporting all its cattle purchases about 2 months after the 
audit was completed. 

3. A packer did not report slaughter information on 780 hogs that had 
been purchased on a live weight basis. 

4. A packer did not report two large loads of beef totaling 83,000 
pounds. An AMS reporter explained that this beef product--boneless beef 
trimmings--was sold in high volume, so that this omission was 
relatively insignificant provided that it rarely occurred. 

5. A packer was submitting its weekly data on slaughtered cattle early-
-on Thursday or Friday--instead of the following Monday as required, 
thereby not reporting the data in a manner consistent with other 
packers. 

6. A packer could not provide supporting documentation to verify the 
time that the price was established for its hog purchases. 

Source: GAO review of ARC audit reports and interviews with AMS staff. 

[End of table] 

AMS officials said many ARC audit findings were minor and usually had 
little effect, if any, on the accuracy of AMS reports. In addition, 
they also said that since 2001, packers had clearly improved their 
reporting of transactions. AMS officials said that because of the 
overall improvement in packers' reporting of transactions, they reduced 
the frequency of audits at each packer from four to three times a year. 
Our review provides some support for AMS officials' view that packers 
were reporting better than at the outset of the program. From May 2002 
through April 2005, the number of AMS audits with findings as a percent 
of total audits decreased each year, from 76 percent in 2002 to 55 
percent in 2005. In addition, the average number of audit findings per 
audit decreased from 1.8 to 1.4 over that period. Moreover, in the 
first quarter of 2005, AMS audits did not identify any problems that 
rose to its highest level of concern.[Footnote 18] Nevertheless, AMS 
classified 22 percent of the problems it identified in the first 
quarter of 2005 as possibly having some adverse effect on the accuracy 
of its reports. In addition, follow-up was sometimes lengthy on 
problems ARC auditors identified. Our analysis of follow-up efforts by 
AMS on the 86 audits it conducted between June through September 2004, 
showed that, on average, about 85 days[Footnote 19] elapsed between the 
date of an AMS audit and the date AMS recorded that the packer had made 
the needed corrections.[Footnote 20] 

AMS reporters frequently contacted packers to convey information about 
the correct way for packers to report. Their outreach was prompted both 
by audit findings and by reporters' reviews of the packers' data. When 
recurring reporting problems arose, headquarters officials issued 
internal guidance to clarify proper reporting procedures for both 
auditors and reporters. On at least two occasions, AMS reporters 
provided information from this internal guidance to packers to clarify 
proper reporting procedures.[Footnote 21] 

However, some packers, including three of the largest packers, did not 
promptly correct reporting problems that AMS identified. Since 2002, 
AMS sent 11 packers 21 letters to call to the packers' attention 
apparent delays in correcting reporting issues and warning the packers 
that penalties might be applied should there be further delays in 
addressing these issues. Of these, AMS sent 8 letters to 6 packers 
between January 2004 and September 2005, with 6 letters involving 
cattle and 2 involving hogs. In addition, twice AMS levied fines on 
packers of $10,000, although these fines were suspended provided these 
packers went a year without additional violations of the Livestock 
Mandatory Reporting Act. As of September 2005, AMS had continuing 
issues with 2 of 11 the packers that received AMS warning letters. 
Appendix III contains additional information on the issues leading to 
AMS warning letters to packers. 

While AMS audit reports identified many problems in packers' reporting 
of transactions, there are two reasons why the reports do not provide a 
clear basis for assessing the overall accuracy of packers' data which 
underlie AMS livestock mandatory market news reports. First, AMS did 
not select transactions for audit in a manner that would enable AMS to 
project the overall accuracy of packers' transaction data. Second, AMS 
did not develop analyses that demonstrate the overall accuracy of 
information in its reports. We explored two approaches with AMS 
officials to (1) obtain better indications of the overall accuracy of 
packers' transaction data, and (2) better direct future AMS audits. 

* First, AMS audits did not provide a basis for projecting the overall 
accuracy of packers' transaction data. Another approach, in which AMS 
would periodically audit a statistical sample of transactions, might 
provide a basis for projecting the overall accuracy of the 
transactions. 

* Second, AMS could analyze its audit results, focusing on findings of 
consequence and its follow-up efforts to address those findings. Such 
analyses could be useful for identifying the relative frequency of 
concerns with packers' transaction data, the types of recurring errors, 
the timeliness and consistency of auditor and market news follow-up on 
packer's actions to address reporting issues, and the overall 
effectiveness of AMS efforts to quickly resolve reporting issues. 

AMS officials indicated that these suggestions appeared to be 
reasonable and that they would consider taking both steps. 

Packers Sometimes Reported to AMS After Deadlines: 

AMS data show that from April through June 2005, 4 percent, 5 percent 
and 7 percent of selected cattle, beef and hog data, respectively, were 
received from packers by AMS after the deadlines set by the Livestock 
Mandatory Reporting Act. Nevertheless, AMS officials said that while 
some packers missed the reporting deadlines, most usually submitted 
their transaction data within minutes thereafter--giving AMS reporters 
enough time to include almost all transaction data in market news 
reports. In addition, AMS officials said that if some reporting 
deadlines and publication times set in the Livestock Mandatory 
Reporting Act were changed, this would help packers working on the west 
coast meet the reporting schedule and help AMS meet changing market 
conditions. 

GIPSA and AMS Coordination Has Been Limited: 

GIPSA and AMS coordination has been limited, primarily due to the legal 
authority within which each operates. 

* AMS implemented and enforced the Livestock Mandatory Reporting Act. 
While the Livestock Mandatory Reporting Act called for the 
establishment of a mandatory reporting program, it required information 
be made available to the public in a manner that ensured the 
confidentiality of the identity of persons and proprietary business 
information. Such information could not be disclosed except (1) to USDA 
agents or employees in the course of their duties under the Livestock 
Mandatory Reporting Act, (2) as directed by the Secretary or the 
Attorney General for enforcement purposes, or (3) by a court. AMS 
officials said that they have shared packer transaction data with GIPSA 
when requested for specific investigations. 

* GIPSA implements and enforces the Packers and Stockyards Act. GIPSA 
monitors livestock markets and investigates when it has reason to 
believe there have been violations of the act.[Footnote 22] 

Since 1999 when the Livestock Mandatory Reporting Act was adopted, 
there have been two cases where GIPSA formally requested access to a 
packer's transaction data from AMS for specific investigations. AMS 
provided access as GIPSA requested. One investigation involved hogs, 
and the other, lamb. In one case, opened in October 2002, GIPSA 
investigated whether a packer was manipulating reported prices in AMS's 
livestock mandatory reporting program to reduce its procurement costs. 
GIPSA did not identify a violation of the Packers and Stockyards Act, 
and closed this investigation in 2005. However, GIPSA identified 
instances in which the packer's reports of negotiated livestock 
purchases met the documentation standards of the Packers and Stockyards 
Act, but may not have met the standards of the Livestock Mandatory 
Reporting Act.[Footnote 23] In September 2005, GIPSA officials briefed 
AMS officials on their investigation, and suggested that AMS consider 
whether the packer was complying with the Livestock Mandatory Reporting 
Act. In response to our further questions about this case, officials of 
AMS and GIPSA said that they would consider additional inquiry or 
investigation under both statutes to determine if there have been 
repeated transactions reported to AMS for which the packer lacks 
certain documentation. In the second case, GIPSA investigated the 
possibility that a packer paid less for livestock as a result of 
providing undue preference to a select group of producers. GIPSA 
initiated this case in May 2002 and closed this case in September 2005. 

GIPSA officials said that individual packer transaction data held by 
AMS would be useful for monitoring competitive behavior in livestock 
markets. However, because GIPSA could not obtain that confidential 
information unless the Attorney General or the Secretary directed 
disclosure of the information for enforcement purposes, GIPSA is making 
due with the publicly available AMS livestock market report data. This 
monitoring effort is limited because AMS reports do not include the 
company-specific transaction data that might reveal anti-competitive 
behavior. More specifically, GIPSA uses publicly available AMS report 
data in cattle and hog price monitoring programs to forecast market 
prices for comparison with actual prices. If there are notable 
differences, GIPSA officials attempt to assess whether economic 
conditions could be responsible. Should GIPSA find that a difference 
was not readily explained by economic conditions, then GIPSA would 
further investigate to determine if anti-competitive behavior of 
individual firms were involved. At such a point, GIPSA may request that 
AMS provide company specific livestock transaction data for GIPSA's 
investigation. GIPSA officials said that while this monitoring effort 
is less informative than one that would rely on company specific 
transaction data, their monitoring programs are relatively new and they 
have not identified better alternatives at this point. 

Conclusions: 

AMS has not achieved the level of transparency needed for establishing 
the reliability of its livestock market news reports--a level that 
would more fully disclose to market participants and observers its 
practices in reviewing packers' transactions, and the effects on AMS 
reports. Without further disclosure of its reporting practices, market 
participants are less informed than they should be about (1) AMS 
reporters' reviews, (2) AMS decisions on presenting prevailing prices, 
and (3) the results of AMS audits of packers' transactions. Also, the 
lack of precision and clarity in AMS's varying instructions for its 
reporters has led to inconsistent reporting approaches, which could 
adversely affect readers' confidence in AMS reports. AMS market news 
readers should have information that enables them to understand AMS's 
approach to reporting prices, and to have confidence that the 
approaches are based on sound statistical, economic, and reporting 
guidance. In addition, the problems which AMS audits identified in 
packers' transaction information warrant continued vigilance if the 
mandatory reporting program is renewed. Unless AMS takes some 
additional steps, it will not have information to (1) assess the 
overall accuracy of packers' transaction data, (2) focus its audit 
efforts on recurring significant problems, and (3) ensure that prompt 
and consistent action on audit findings is being taken. Concerning the 
GIPSA investigation in which GIPSA raised questions about a packer's 
documentation of its transactions, unless AMS and GIPSA complete 
further investigative work, neither agency can have assurance of the 
accuracy and propriety of the packers' transactions. 

Recommendations: 

Should Congress extend the Livestock Mandatory Reporting Act, we 
recommend that the Secretary of Agriculture direct the Administrator, 
Agricultural Marketing Service to: 

* Increase transparency by (1) reporting to market news readers on its 
reporters' instructions for making reporting decisions that reflect 
prevailing market conditions, (2) periodically reporting on the effects 
of reporters' decisions on AMS reported prices, and (3) reporting the 
results of its audit efforts. 

* Clarify AMS reporter's instructions to make them more specific and 
consistent by (1) consulting with packers, producers, agricultural 
economists, and other interested stakeholders, and (2) undertaking 
revisions that consider economic analyses of past reporting trends, 
livestock and meat market variations, and federal statistical and 
information reporting guidance. 

* Develop information about the overall accuracy of packers' 
transaction data by auditing a statistical sample of packers' 
transactions. 

* Further develop AMS audit strategies to identify recurring 
significant problems. 

* Address the timeliness and consistency of AMS reporters' efforts to 
follow-up on audit findings. 

We also recommend that the Secretary of Agriculture direct the 
Administrators of the Agricultural Marketing Service and the Grain, 
Inspection, and Packers and Stockyards Administration to further 
investigate the reporting practices of one packer's low-price purchases 
of livestock. 

Agency Comments and Our Evaluation: 

We provided USDA with a draft of this report for review and comment. In 
a memorandum dated November 18, 2005, we received formal comments from 
USDA's Acting Under Secretary for Marketing and Regulatory Programs. 
These comments are reprinted in appendix IV. We also received oral 
technical comments from AMS and GIPSA officials, which we incorporated 
into the report as appropriate. 

USDA generally agreed with our findings and recommendations, and 
discussed the actions it has taken, is taking, or plans to take to 
address our recommendations. Among other things, USDA stated that AMS 
would (1) prepare publicly available reports on the volume of 
transactions excluded by reporters and their effect on reported prices, 
and take steps to increase public awareness of reporting methods and 
processes; (2) clarify AMS reporters' instructions while following 
federal and departmental statistical and information reporting 
guidance; (3) post quarterly audit information to its website and 
identify additional audit information to add in the future; (4) develop 
auditing methods to allow conclusions to be drawn about overall data 
accuracy; (5) review its auditing methods to increase the overall 
effectiveness of the compliance program; and (6) conduct further 
inquiry into the issues raised during one of GIPSA's investigations. 

Concerning the transactions that AMS excluded from its market news 
reports, USDA agreed that 22.8 percent of cattle transactions were 
excluded from May to October 2003. USDA added that AMS reporters 
excluded some transactions during that period because its computer 
system could not differentiate between the base and net prices for 
certain cattle sales. Our review indicates that AMS exclusions for that 
reason were part of the story. More specifically, AMS reporters' log 
entries showed that of the transactions AMS excluded from May to 
October 2003, about 24 percent were excluded for reasons relating to 
base prices, while about 34 percent of the transactions were excluded 
to narrow the range of prices that AMS reported, and the remainder were 
excluded for a variety of other reasons such as small head count, small 
lots, low weight, mixed lots, or grade of cattle. In addition, AMS 
suggested that its programming change to differentiate base and net 
prices led to fewer exclusions-8.8 percent--during the April through 
June 2005 period. While we agree that is part of the explanation, we 
believe, if the livestock mandatory program is renewed, that AMS needs 
to focus on the bases and methods for excluding transactions, and 
especially the extent to which AMS will be excluding transactions when 
prices are again rapidly changing, such as they did in 2003. 

AMS also stated that care should be exercised when drawing conclusions 
about packer compliance because packers' errors are relatively few 
compared to the 500,000 data elements packers may have submitted on 
some days. We believe insufficient information is available to assess 
the overall quality of packer data. AMS audits only focused on a small 
portion of the data submitted by packers, and it is likely that 
packers' unaudited transactions contain errors as well. We continue to 
believe that packer reporting problems that AMS identified warrant 
continued vigilance should the program be renewed and recommend that 
AMS develop auditing methods to allow conclusions to be drawn about 
overall accuracy of packer's data. 

As agreed with your staffs, unless you publicly announce the contents 
of this report earlier, we plan no further distribution until 30 days 
from the report date. At that time, we will send copies of this report 
to interested congressional committees; the Secretary of Agriculture; 
the Under Secretary for Marketing and Regulatory Programs; the 
Administrators of the Agricultural Marketing Service and the Grain 
Inspection, Packers and Stockyards Administration; and other interested 
parties. We will also make copies available to others on request. In 
addition, the report will be available at no charge at GAO's 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. Key contributors to this report are 
listed in appendix V. 

Signed by: 

Robert A. Robinson: 
Managing Director, Natural Resources and Environment: 

[End of section] 

Appendixes: 

Appendix I: Objectives, Scope, and Methodology: 

Our objectives were to review the extent to which (1) the U.S. 
Department of Agriculture's (USDA) Agricultural Marketing Service (AMS) 
takes sufficient steps to ensure the quality of its livestock mandatory 
market news reports, and (2) AMS and the Grain Inspection, Packers and 
Stockyards Administration (GIPSA) coordinate efforts to encourage 
competition in livestock markets. 

To review AMS's steps to ensure the quality of its reports, we visited 
the two Market News Branch (Market News) field offices in Des Moines, 
IA, and St. Joseph, MO, and spoke with AMS reporters about their 
responsibilities related to mandatory price reporting and observed them 
as they prepared livestock mandatory reports for cattle, beef, hogs, 
lamb and lamb meat. To test AMS's computerized reporting system, we 
obtained and analyzed unpublished data from AMS's livestock mandatory 
reporting database for beef, cattle, and swine. For this analysis, we 
used data reported by packers through the Live Cattle Daily Report 
(Current Established Prices) (LS-113), Swine Daily Report (LS-119), and 
Boxed Beef Daily Report (LS-126) contained in AMS's livestock mandatory 
reporting database. We reviewed USDA documents on the report 
preparation and data storage system and analyzed the flow of data into 
and through the system. We performed electronic testing and validation 
of system data developed for us from data available in the AMS system. 
We found the data were sufficiently reliable to support our analyses. 
We also replicated elements of certain reports--the Five Area Daily 
Weighted Average Direct Slaughter Cattle Report and the National Daily 
Direct Morning Hog Report--that livestock experts told us were 
important to livestock producers. 

In addition, we examined transactions reporters excluded from AMS 
reports. First, we examined transactions made between April and June 
2005.[Footnote 24] More specifically, we reviewed data packers 
submitted on the Live Cattle Daily Report (Current Established Prices) 
(LS-113), Swine Daily Report (LS-119), and Boxed Beef Daily Report (LS-
126) and compared it with the reports published during this period. 
Second, we examined transactions AMS excluded from its reports during 
periods of rapidly rising cattle and hog prices--for cattle, 
transactions excluded by reporters for a key category of live and 
dressed cattle prices from May through October 2003; for hogs, those 
excluded from October 2003 to March 2004. To determine which 
transactions were eliminated for market reasons,[Footnote 25] we 
reviewed the reporter log field in the database. The logs identify 
transactions eliminated for various reasons, such as price, low price, 
high price, or lot size.[Footnote 26] We analyzed data from all days 
reported for this time period in the 35 to 65 percent choice steer 
grade of the Five Area Weighted Average Direct Slaughter Cattle 
Report.[Footnote 27] We then calculated the weighted average prices 
with and without the excluded transactions and the difference between 
these prices.[Footnote 28] In addition, we performed a statistical test 
to determine whether the difference between the prices, as a group, was 
statistically significant.[Footnote 29] 

We discussed how AMS performed audits to ensure packers were complying 
with the Livestock Mandatory Reporting Act provisions with AMS's Audit 
Review and Compliance (ARC) officials in USDA headquarters, and with 
auditors in both Des Moines and St. Joseph. As part of this effort, we 
obtained and reviewed the mandatory price reporting audit reports that 
ARC conducted from May 2002 through April 2005. In particular, we used 
ARC's database of audit reports to analyze the number of audits 
conducted over the time period, the number of findings related to those 
audits, and other information. ARC officials and our analysis indicated 
that the number of audit reports in the database closely approximated 
the number of audits conducted. We found this database to be 
sufficiently reliable for this purpose. Because this database did not 
provide specifics on the reasons AMS believed some companies were out 
of compliance, we performed a detailed review of all audit reports 
during one 4-month audit cycle from June through September 2004. We 
also obtained information from AMS Headquarters officials regarding the 
formal warning letters they sent packers and the penalties they 
assessed. 

We analyzed ARC's audit methodology for sampling transactions and the 
extent to which that sample of transactions could provide information 
on packer compliance and the accuracy of the reported prices. In 
addition, we reviewed ARC policy and procedures, the audit report 
database, and had discussions with ARC officials and auditors. 
Specifically, we interviewed ARC officials regarding their audit 
methodology with emphasis on their sampling methodology, and we 
reviewed their documentation on sample selection. Furthermore, to 
analyze the agency's sampling procedure, we compared the time between 
the audit field visit and the days selected for the audit of a full 
day's transactions, and the audit of a sample of transactions over the 
4-month audit cycle from June through September 2004. 

To determine the extent of coordination between GIPSA and AMS, we 
reviewed their legislative authority, identified activities and 
investigations involving both agencies, and reviewed GIPSA case file 
documentation from the competition-related investigations in which 
GIPSA obtained packers' transaction data from AMS. We met with USDA 
Headquarters officials from AMS and GIPSA. In Des Moines, we met with 
GIPSA's Packers and Stockyards Programs regional officials, and on 
separate occasions, spoke with GIPSA's Denver Regional Office officials 
regarding GIPSA and AMS coordination. 

During the course of our review, we identified and obtained the views 
of several industry groups and associations representing packers and 
producers. We also interviewed several nationally recognized economic 
experts knowledgeable about mandatory price reporting and related 
market issues. 

We conducted our review between February and November 2005 in 
accordance with generally accepted government auditing standards. 

[End of section] 

Appendix II: Analysis of Transactions AMS Excluded From Reports: 

Overall, from April 2005 through June 2005, we found approximately 8.8 
percent of cattle transactions, 0.2 percent of hog transactions, and 
2.7 percent of boxed beef transactions were eliminated. From May 2003 
to October 2003, a period of rapidly rising prices, we found that 
approximately 22.8 percent of all cattle transactions were excluded 
from AMS reports.[Footnote 30] Figure 1 shows that close to 95 percent 
of all excluded dressed weight cattle transactions from negotiated 
sales were smaller lots--groupings of cattle for sales purposes--of 
fewer than 25 cattle.[Footnote 31] However, as figure 2 shows, the 
proportion of negotiated live cattle transactions that were eliminated 
consisted of lots that were relatively larger than dressed cattle lots 
and more consistent in size; about 75 percent of lots were greater than 
the 0 to 25 lot category and over 10 percent were between 201 and 400 
head of cattle. Information on the size distribution of excluded lots 
is relevant because excluding large lots could have a relatively 
greater impact on weighted average prices reported by AMS than smaller 
lots. Also, the effects of excluding large lots could be greater in 
daily reports when trade volume is light, and an accumulation of 
excluded large lots could affect weekly and monthly reports. 

Figure 1: Percent of Negotiated Cattle Transactions Excluded by Size of 
Lot, Dressed Basis, May through October, 2003: 

[See PDF for image] 

[End of figure] 

Figure 2: Percent of Negotiated Cattle Transactions Excluded by Size of 
Lot, Live Basis, May through October, 2003: 

[See PDF for image] 

[End of figure] 

Market News reporters of hog trade eliminated significantly fewer 
transactions than the cattle reporters early on in the livestock 
mandatory reporting program. For hogs, from October 2003 to March 2004, 
we found that approximately 0.1 percent of transactions were excluded, 
which was less than 0.1 percent of all hogs. Figure 3 shows that, for 
negotiated sales, while nearly 40 percent of excluded transactions were 
smaller lots of 50 hogs or less, the largest category of slaughtered 
swine excluded--over 35 percent--were somewhat larger lots, in the 151-
200 head lot category. 

Figure 3: Percent of Hog Transactions Excluded by Size of Lot, 
Negotiated Sales, October 2003 through March 2004: 

[See PDF for image] 

[End of figure] 

Effects of Eliminating Transactions: 

During a sample period of rapidly rising prices, our analysis of cattle 
and hog livestock data shows that the elimination of transactions from 
Market News reports narrowed price ranges while having a limited, but 
frequently positive, effect on the average reported price.[Footnote 32] 
To illustrate this process, figures 4 and 5 show the differences in the 
distributions of cattle prices for dressed steers from May through July 
2003 and how reporters' exclusion of cattle transactions eliminated 
outlying prices and narrowed the range of prices. During this same time 
period, reporters' exclusions decreased the number of packer 
transactions from 4066 to 3334. Excluding these transactions narrowed 
the associated price range--the difference between the minimum and 
maximum price--from $117.95 to $16.50 per hundredweight. 

Figure 4: Distribution of Cattle Prices Before Exclusions, Dressed 
Steers, May through July, 2003[Footnote 33] 

[See PDF for image] 

Price in dollars per hundredweight. 

Note: The mean price or average price in the insert of the figure, 
unlike the other averages in this appendix, is not a weighted mean, or 
adjusted for head count. 

[End of figure] 

Figure 5: Distribution of Cattle Prices After All Exclusions, Dressed 
Steers, May through July, 2003: 

[See PDF for image] 

Price in dollars per hundredweight. 

Note: The mean or average price in the insert of figure, unlike the 
other averages in this appendix, is not a weighted mean, or adjusted 
for head count. 

[End of figure] 

Market News reporters' elimination of data for market reasons from 
reports between May and October 2003 had the effect of narrowing price 
spreads or ranges on a daily basis.[Footnote 34] For dressed steers, 
figure 6 shows the narrowing of the range of prices over this period 
before and after all excluded transactions, most of which were excluded 
for market reasons. As shown in the figure, price ranges before any 
excluded transactions during this period were from $2 to $20 per 
hundredweight while, after all market exclusions were made, the range 
decreased to between $0 and $12 per hundredweight. Market News 
reporters are instructed to exclude prices that are $5 above or below 
the market to narrow the range of reported prices and AMS record logs 
indicate that they do so. However, when prices are rising or falling 
rapidly, this practice may exclude some transactions that should 
reasonably be presented as reflecting the day-to-day variations in the 
market. Also, since these are national daily reports, price spreads 
tend to be larger since they encompass the full range of prices for all 
regions. 

Figure 6: Range of Cattle Prices Before and After Excluded 
Transactions, Dressed Steers, May through October, 2003: 

[See PDF for image] 

[End of figure] 

During May to October 2003, a period of rapidly rising cattle prices, 
we estimate that the effect of eliminating transactions for market 
reasons was negligible about two-thirds of the time, while for the 
remaining third the reported average prices were generally higher than 
they would have been had these transactions not been eliminated. For 
live cattle sales, figure 7 displays the differences between the 
average weighted daily prices after AMS exclusions (as reported in 
Market News reports) and the average weighted prices based on including 
the transactions that AMS had excluded for market reasons for 35-65 
percent choice steers from May through October 2003. The average 
weighted prices published by AMS for these dates were the same about 67 
percent of the time, higher 31 percent of the time, and lower 2 percent 
of the time over this period. This suggests, and Market News record 
logs confirm, that during this period when Market News reporters were 
excluding transactions, they were predominantly excluding transactions 
for reasons of lower price rather than high price. We found that over 
twice as many transactions were excluded for low price as for high 
price during this period. 

Figure 7: Difference in Weighted Average Prices With and Without 
Transactions AMS Excluded for Market Reasons, Live Weight Cattle, May 
through October, 2003: 

[See PDF for image] 

[End of figure] 

For 35 to 65 percent choice steers, dressed weight, figure 8 shows the 
differences between the daily weighted average prices reported by AMS, 
and the average prices that AMS would have reported if AMS reporters 
had not eliminated transactions for market reasons. These differences 
display a trend similar to the one we identified for live cattle 
prices. When we compared our calculations of the weighted average 
prices with those AMS reported, about 32 percent of the price 
differences were higher than those AMS would have reported; about 67 
percent were the same or about the same, and 1 percent were lower. This 
result indicates that market reporters of livestock were excluding a 
higher proportion of low prices during this period. AMS reporters may 
have excluded low prices more frequently during the period because 
prices were rising. What a reporter considered to be a high price 
during one week may have appeared to be a much lower price by the 
following week. Also, at the low end of the price ranges, transactions 
may have been excluded because the prices represented low-quality 
animals.[Footnote 35] 

Figure 8: Difference in Weighted Average Prices With and Without 
Transactions Excluded for Market Reasons, Dressed Weight Cattle, May 
through October, 2003: 

[See PDF for image] 

[End of figure] 

The effect of an excluded transaction on any particular day is 
determined by how large that transaction is compared to the size and 
number of transactions that took place on that day or that week, and 
how far it is from the range of reported prices. While each transaction 
alone may be considered a small lot, the total effect of a number of 
excluded transactions for this reason can cumulatively have a large 
effect on the weighted average price. 

To determine if there was an overall statistical difference between our 
replications of AMS prices and the prices we determined would have been 
reported had reporters not eliminated transactions for market reasons, 
we tested the two average weighted price series for both live and 
dressed cattle. We found that for both live and dressed weight cattle, 
there was a statistically significant difference in the weighted 
averages between reported AMS prices and the prices that would have 
been reported if exclusions had not been made for market 
reasons.[Footnote 36] 

Our analysis of data from AMS's daily hog reports from October 2003 to 
March 2004 showed that, for the reports that we examined, reporters 
frequently eliminated transactions that they believed to be errors that 
would potentially widen price ranges.[Footnote 37] However, unlike 
cattle, there were very few transactions eliminated from reports for 
market reasons. As a result, for hogs, price ranges with and without 
exclusions by market news reporters were more similar than for cattle. 
As illustrated in figure 9, the difference between prices reported by 
AMS and prices that would have been reported by Market News was notable 
on only 7 days for the National Daily Direct Morning Hog Report from 
October 2003 through March 2004. A similar analysis of the afternoon 
hog report shows the same pattern. 

Figure 9: National Daily Direct Morning Hog Report: Differences of 
Weighted Average Prices With and Without Transactions Excluded, October 
2003 through March 2004: 

[See PDF for image] 

[End of figure] 

[End of section] 

Appendix III: Additional Information Concerning AMS Warning Letters to 
11 Packers through September 2005: 

Packer Number: 1; 
ARC audits and warning letters: ARC Audits 8/13/02, and 12/17/02; 
1/21/03--Letter from Market News Branch Chief; 3/18/03--Letter from 
Deputy Administrator (in response to 2/10/03 letter from packer); 
5/13/03--Letter from USDA Office of General Counsel; 
Issues: 
* Daily lamb meat and carcass livestock sales not reported when prices 
were established; 
* Incorrectly rounded report sale prices to the nearest whole dollar; 
* Did not report all sales required by Livestock Mandatory Reporting 
Act; 
* Did not report weekly sales of imported boxed lamb products on the 
first reporting day of the week; 
Actions: 7/28/03--$10,000 fine assessed in a settlement agreement with 
AMS; fine suspended provided packer did not violate the Livestock 
Mandatory Reporting Act for 1 year; Subsequent audits showed the packer 
to be in compliance. 

Packer Number: 2; 
ARC audits and warning letters: ARC Audits 11/19/02, 3/25/03, 6/17/03, 
and 12/1/03; 1/29/03, 4/4/03, and 8/7/03--Letters from Market News 
Branch Chief; 
Issues: 
* Did not report daily lamb sales on the day they occurred; 
* Reported frozen boxed product as fresh; 
* Deducted average freight cost instead of actual freight cost; 
Actions: 5/17/04--$10,000 fine assessed in a Consent Decision and 
Order; fine suspended provided packer did not violate Livestock 
Mandatory Reporting Act for 1 year; Subsequent audits showed the packer 
to be in compliance. 

Packer Number: 3; 
ARC audits and warning letters: ARC Audits 7/9/02, 10/1/02, and 4/9/03; 
2/13/03--Letter from Market News Branch Chief; 4/24/03--Letter from 
Deputy Administrator; 
Issues: 
* Did not report information for committed cattle; 
* Did not correctly report the actual weight of the animal with the 
lowest and highest weight in each lot; 
* Incorrectly combined and reported cattle of similar class and 
classification as single lots; 
Actions: Corrections completed by 6/12/03. 

Packer Number: 4a; 
ARC audits and warning letters: ARC Audits 8/28/02, and 10/17/02; 
3/11/03, and 7/1/03--Letters from Market News Branch Chief; 
Issues: 
* Submitted average net price data on a live weight basis rather than a 
carcass basis for prior day hog report; 
* Incorrectly reported prices for daily hog report; 
* Did not submit base price on a plant delivered basis for buying 
station purchases; 
* Incorrectly reported base prices--some hogs purchased on a live 
weight basis were converted to a carcass weight basis; 
Actions: Corrections completed by 7/29/03. 

Packer Number: 4b; 
ARC audits and warning letters: ARC Audits 3/2/05, and 6/15/05; 
7/12/05--Letter from Market News Branch Chief; 
Issues: 
* Reported incorrect base price for 3 of 8 randomly selected hog lots; 
* Numerous data entry errors; 
* Incorrectly deducted from the reported price money placed in escrow 
for repayment to the producer at a later time; 
* Incorrectly reported some daily purchase data as prior day purchases; 
* Incorrectly submitted some morning daily purchase data as afternoon 
purchases; 
* Incorrectly submitted price data on packer-owned hogs with prior day 
slaughter data; 
* Incorrectly reported live weight data on hog carcass purchases; 
* Did not report purchase data for two lots of hogs; 
Actions: Corrections completed by 8/11/05. 

Packer Number: 5; 
ARC audits and warning letters: ARC Audits 12/5/02, 3/12/03,; 6/10/03, 
8/18/03, and 11/5/03; 12/30/03--Letter from Market News Branch Chief; 
Issues: 
* Did not report yield grade data for weekly packer-owned lamb report ; 
Actions: Corrections completed by 2/17/04. 

Packer Number: 6; 
ARC audits and warning letters: 4/26/04--Letter from Market News Branch 
Chief; 
Issues: 
* Did not submit daily hog data to AMS beginning in September 2002; 
Actions: Corrections completed by 6/2/04. 

Packer Number: 7; 
ARC audits and warning letters: ARC Audits12/4/02, and 2/25/04; 
4/26/04--Letter from Market News Branch Chief; 
Issues: 
* Did not report live cattle purchases due to computer system problems 
with two reporting fields; 
Actions: Corrections completed by 6/2/04. 

Packer Number: 8; 
ARC audits and warning letters: ARC Audits 6/12/02; 7/24/02, and 
9/4/02--Letters from Market News Branch Chief; 
Issues: 
* Incorrectly submitted base price for hogs purchased on a live weight 
basis; 
* Incorrectly reported the net price for formula cattle; 
* Incorrectly reported cattle premiums and discounts for daily and 
weekly formula purchase reports; 
* Submitted estimates for grade, dressing percent, and weight when 
actual information was available; 
* Improperly reported premiums as negative and discounts as positive 
for weekly cattle report; 
* Submitted cattle base prices instead of net prices on weekly report 
due to error in recordkeeping system not accounting for premiums and 
discounts; 
Actions: Corrections completed by 3/11/04. 

Packer Number: 9; 
ARC audits and warning letters: ARC Audits 4/8/03, and; 9/14/04; 
8/20/04, and 3/8/05--Letters from Market News Branch Chief; 6/30/05--
Letter from USDA Office of General Counsel; 
Issues: 
* Did not report the quantity of cattle committed and delivered; 
* Did not report the quantity of cattle delivered in a timely manner; 
* Did not maintain purchase records that show evidence of cattle and 
beef purchase times; 
* Did not correctly report all cattle information twice each day--
provided incorrect cattle classification codes; 
* Did not report total beef sales twice each day; 
Actions: Issue pending; 
Market News reviewing results from 9/15/05 audit and will determine if 
further action is warranted. 

Packer Number: 10; 
ARC audits and warning letters: ARC Audits 1/12/05, and; 5/18/05; 
6/29/05--Letter from Market News Branch Chief; 
Issues: 
* Did not report delivered cattle at time of delivery; 
* Did not include all deductions in cattle carcass prices; 
* All cattle incorrectly reported as dairy bred; 
* Incorrectly submitted feedlot live weight instead of total carcass 
weight for a weekly cattle report; 
Actions: Issue pending; 
Market News reviewing current information provided by packer. 

Packer Number: 11; 
ARC audits and warning letters: ARC Audit 3/31/04, and 4/1/04; 2/1/05--
Letter from Market News Branch Chief; 
Issues: 
* Committed cattle from local producers not reported at correct time; 
* Did not report all required committed cattle data; 
Actions: Corrections completed by 2/16/05. 

Source: GAO analysis of USDA warning letters and legal agreements with 
packers. 

[End of table] 

[End of section] 

Appendix IV: Comments from the Department of Agriculture: 

USDA: 

United States Department of Agriculture: 
Agricultural Marketing Service: 
1400 Independence Avenue, SW: 
Room 302, STOP 0203: 
Washington, DC 20250-0203: 

EXECUTIVE TRANSMITTAL MEMORANDUM: 

TO: Mr. Robert A. Robinson: 
Managing Director, Natural Resources and Environment: 
Government Accountability Office: 

THROUGH: Chuck Lambert: 
[Signed by Chuck Lambert]
Acting Under Secretary: 
Marketing and Regulatory Programs: 

FROM: 
Kenneth C. Clayton: 
[Initialed by Kenneth C. Clayton]] 
Associate Administrator: 
Agricultural Marketing Service: 

November 18, 2005: 

SUBJECT: Response to GAO Audit Report: 

Attached is the Marketing and Regulatory Program's response to the 
draft report titled, "Livestock Market Reporting: USDA Has Taken Some 
Steps To Ensure Quality, But Additional Efforts Are Needed." Thank you 
for the opportunity to provide comments. If you have any questions, 
please contact Frank Woods at 202-720-8836. 

Attachment: 

U.S. Department of Agriculture: 
Statement of Action on the U.S. Government Accountability Office Draft 
Report GAO-06-202, "Livestock Market Reporting: USDA Has Taken Some 
Steps To Ensure Quality, But Additional Efforts Are Needed" 

November 17, 2005: 

In 1999 the Livestock Mandatory Reporting Act (Act) was passed to 
substantially increase the volume of industry sales transactions 
covered by USDA's market news reports. Livestock producers, with gross 
income of $63 billion in 2004, rely on USDA's livestock market news 
reports to provide them, and others in the industry, with livestock and 
meat price and volume information. This information is used in 
negotiating sales of cattle, hogs, lamb, and meat products. Packers 
also use the average prices in these reports as a basis for paying some 
producers with whom the packers have contracts. In this review, GAO has 
examined USDA's efforts to ensure the quality of its livestock market 
news reports and has developed six recommendations for strengthening 
the program. 

General Comments: 

AMS generally agrees with the findings and recommendations made by GAO. 
AMS officials believe that the program has resulted in the release of 
comprehensive information on pricing, purchasing, and supply and demand 
conditions, which in turn has improved the transparency of the 
marketplace. Significant improvements have been made to the program 
since its inception and revisions will continue to be made as necessary 
to improve the value of the information. 

GAO Recommendation 1: 

To improve the livestock mandatory market news program, AMS should 
increase transparency by (1) reporting to market news readers on its 
reporters' instructions for making reporting decisions that reflect 
prevailing market conditions, (2) periodically reporting on the effects 
of reporters' decisions on AMS reported prices, and (3) reporting the 
results of its audit efforts. 

USDA Response: 

It has been longstanding AMS policy to make the market news reporting 
process as transparent as possible. To further improve the transparency 
surrounding the Livestock Mandatory Price Reporting (LMR) program, AMS 
will take several steps to further educate market news readers about 
the general guidelines followed by AMS reporters in making reporting 
decisions. AMS will prepare and make public periodic reports on the 
volume of submitted transactions that are excluded by reporters and the 
effect that such exclusions had on net price distributions on all 
reported commodities. AMS will expand awareness of LMR reporting 
methods and processes by posting additional information on the AMS 
website, through presentations at key industry meetings, as well as 
meetings of agricultural economists and other industry analysts. 

In the earlier years of the LMR program AMS discovered that its 
electronic reporting system did not provide for adequate 
differentiation between base and net prices in packer cattle formula 
and forward contract submissions. The LMR statute requires that packers 
report a base price when it is established as well as a final net price 
that incorporates all premiums and discounts for formula and forward 
contract transactions. As originally designed, AMS's electronic 
reporting program was incapable of distinguishing between such base and 
net prices. Consequently, reporters excluded base price information to 
eliminate likely double reporting. As GAO has properly noted, some 22.8 
percent of cattle transactions were excluded by reporters from 
published reports during the May through October 2003 period in many 
cases to guard against double reporting. In February 2004, programming 
was completed on AMS's electronic reporting system that allowed AMS to 
electronically separate base and net price information. The transaction 
exclusion rate immediately dropped and was at a level of 8.8 percent 
during the April through June 2005 period when GAO conducted its 
review. 

During the April through June 2005 period, 87.4 percent of the 
transactions that were still being excluded involved 5 head or less; 
56.8 percent of the transactions excluded contained only 1 head. Total 
volume excluded by reporters during this same period was 1.5 percent of 
the total volume reported by packers. 

With respect to reporting the results of LMR audit efforts, AMS has 
already taken steps to provide additional information to the public. 
For example, in July 2005, a document was posted on the AMS website 
that describes audit procedures, provides information about the number 
of audits that were conducted during the first quarter of 2005, and 
cites examples of the types of noncompliances that were found. AMS will 
continue posting quarterly audit information on the website and 
identify additional information regarding the audit activity that can 
be added in the future. 

GAO Recommendation 2: 

AMS should clarify reporter's instructions to make them more specific 
and consistent by (1) consulting with packers, producers, agricultural 
economists, and other interested stakeholders, and (2) undertake 
revisions that consider economic analyses of past reporting trends, 
livestock and meat market variations, and federal statistical and 
information reporting guidance. 

USDA Response: 

AMS has already begun the process of clarifying AMS reporter's 
instructions to make them more specific and consistent and will 
continue these efforts in consultation with economists and other 
interested stakeholders as appropriate. AMS will also review and follow 
Federal and Departmental statistical and information reporting guidance 
to the extent that they are applicable to the information that is 
published under the LMR program. 

GAO Recommendation 3: 

AMS should develop information about the overall accuracy of packers' 
transaction data by auditing a statistical sample of packers' 
transactions. 

USDA Response: 

AMS believes that the current compliance program has played an integral 
role in improving packers' compliance with the Act, which is the main 
purpose of the LMR compliance program audits. While the report 
indicates that for a 36-month period ending in April 2005, 64 percent 
of packer audits identified instances in which a noncompliance of some 
type was documented, AMS believes it is important to recognize the 
relative significance of each of those noncompliances. Moreover, AMS 
believes a better context for viewing noncompliances would be against 
the number of submitted data elements for which a noncompliance might 
occur--approximately 500,000 each day. AMS also would suggest that with 
the LMR program having been operational for less than five years, 
during which time additional system modifications had to be made, some 
care should be exercised in drawing broad conclusions about overall 
packer compliance. 

AMS does agree that developing information about the overall accuracy 
of the data submitted by packers would be useful. Additional or 
modified auditing methods will be developed and applied to allow 
conclusions to be better drawn about overall data accuracy. 

GAO Recommendation 4: 

AMS should further develop audit strategies to identify recurring 
significant problems. 

USDA Response: 

As part of the current audit process, AMS auditors review historical 
audit information and look for any patterns that may surface within a 
given packer's submissions. To better identify recurring reporting 
problems, AMS agrees to review its auditing methods to increase the 
overall effectiveness of the LMR compliance program. This may entail 
revising the method by which audit samples are selected, undertaking 
additional audits at plants that demonstrate a higher number of 
noncompliances, and conducting additional analyses with the information 
that is obtained during the audit process to identify any widespread 
reporting problems. 

GAO Recommendation 5: 

AMS should take further steps to address the timeliness and consistency 
of AMS reporter's efforts to follow up on audit findings. 

USDA Response: 

In January 2005, AMS developed new procedures for following up on audit 
findings, which the Agency believes has greatly improved the audit 
process. These procedures include the establishment of timeframes by 
which noncompliances should be corrected and specified severity levels 
for designating the significance of noncompliances. These changes have 
already allowed AMS to better focus resources on the most significant 
noncompliances so that they can be addressed as quickly as possible. 

AMS notes GAO's finding that for audits conducted between June and 
September 2004, an average of some 85 days elapsed between the date of 
an AMS audit and the date AMS recorded that the packer made the needed 
changes. With the procedures already implemented, AMS believes the 
timeframe for making changes has and will continue to decline. Even so, 
it remains important to recognize that the time needed for a packer to 
make a correction greatly depends on the complexity of the issue and 
whether the packer has appropriate in-house IT personnel to make the 
necessary changes or whether that service must be contracted out. In 
addition, at times it may be necessary for AMS to first make a change 
to the LMR system so that packers can then make their needed changes. 

GAO Recommendation 6: 

The Administrators of AMS and GIPSA should further investigate the 
reporting practices of one packer's low-price purchases of livestock. 

USDA Response: 

AMS and GIPSA concur with GAO's recommendation to conduct further 
inquiry into issues raised by GIPSA's investigation. GIPSA's 
investigation examined documentation obtained directly from the packer 
relative to transactions submitted to AMS under the requirements of 
LMR. During the period of time investigated, GIPSA examined all 
transactions for which the packer's documentation did not match prices 
reported to AMS under LMR. GIPSA did not find supporting documentation 
in the packer's records for a limited number of low price transactions 
submitted under LMR. However, GIPSA did not find a pattern of low price 
transactions associated with the documentation discrepancies that would 
support finding a violation of the Packers and Stockyards Act. AMS will 
take additional steps in the LMR audit process to evaluate submissions 
that have transactions at the low end of the market. GIPSA will review 
the current practices of the packer discussed in the GAO report to 
determine if its current buying practices are in compliance with the 
Packers and Stockyards Act. 

[End of section] 

Appendix V: GAO Contact and Staff Acknowledgments: 

GAO Contact: 

Robert A. Robinson, (202) 512-3841: 

Acknowledgements: 

In addition to the individual above Charles Adams, Assistant Director, 
Aldo Davila, Barbara El Osta, Paige Gilbreath, Kirk Menard, Lynn 
Musser, Karen O'Conor, Alison O'Neill, Vanessa Taylor and Amy Webbink 
made key contributions to this report. 

(360547): 

FOOTNOTES 

[1] Under the act and AMS regulations, packers who slaughter an average 
of at least 125,000 cattle, 100,000 hogs, or 75,000 lambs per year over 
the last 5 years were required to provide market information to USDA. 
Packers were required to electronically report their livestock 
purchases and sales one to three times each business day depending on 
the species. 

[2] See http://www.ams.usda.gov/marketnews.htm 

[3] See S. 1613, 109TH Cong. (1st Sess. 2005); H.R. 3408, 109TH Cong. 
(1st Sess. 2005). 

[4] AMS also provides market reports about fruits, vegetables, and 
specialty crops; milk and other dairy products; cotton and tobacco; 
grain and hay; poultry and eggs. AMS reports include information on 
prices, volume, quality, and condition for specific markets and 
marketing areas. These data are disseminated within hours of collection 
via the Internet, and made available through electronic means, in 
printed reports, by telephone recordings, and through the news media. 

[5] AMS continues to collect and report much livestock market 
information on a voluntary basis. 

[6] The act did not require packers to report on sales of pork 
products. 

[7] This team included, among others, USDA's Chief Economist, the 
Associate Administrator of the National Agricultural Statistics 
Service, USDA's Associate Chief Information Officer, and the 
Chairperson, Interagency Livestock Estimates Committee. See U.S. 
Department of Agriculture, Livestock Mandatory Price Reporting System 
Report to the Secretary of Agriculture (Washington, D.C., July 2001). 
This report contained recommendations on data entry, data analysis, 
audit performance, and the confidentiality of proprietary company 
information. In addition, in 2004 USDA's Inspector General also 
recommended improvements in AMS's computer system controls; see USDA, 
Audit Report-Agricultural Marketing Service Livestock Mandatory Price 
Reporting System-Application Controls (Washington, D.C., Dec. 2004). 

[8] Among other things, this team reviewed USDA's erroneous reporting 
of cutout values for choice and select boxed beef carcasses and the 
major components of carcasses. 

[9] 7 U.S.C. § 1636(e). 

[10] Office of Management and Budget (OMB), Guidelines for Ensuring and 
Maximizing the Quality, Objectivity, Utility, and Integrity of 
Information Disseminated by Federal Agencies (Washington, D.C. Feb. 22, 
2002). USDA's guidelines were issued in response to OMB's guidelines. 
Both call for agencies to maximize the quality, objectivity, utility 
and integrity of information, including statistical information that 
they disseminate to the public. Also, both OMB and USDA guidelines 
recognize that transparency does not override other compelling 
interests such as confidentiality protections. 

[11] According to AMS reporters' log notes, cattle were excluded for 
various reasons such as price, low price, high price, base price, or 
lot size. 

[12] AMS officials said that they did not have correspondence or 
documentation about these complaints or their instructions to staff 
that report on hogs. 

[13] 65 Fed. Reg. 75,464, 75,479 (Dec 1, 2000). 

[14] AMS officials told us that since September 2005, their auditors 
have continued to visit packer facilities to monitor the quality of 
livestock data. 

[15] ARC auditors review records at packers' plants or company 
headquarters, depending on the location of records and officials that 
can answer auditors' questions. During an audit, AMS may review more 
than one plant's records at a time. 

[16] AMS did not retain documentation on about 260 audits conducted 
prior to March 2002 due to a computer system failure that deleted ARC 
audit information. 

[17] ARC also conducted a few investigative audits at the request of 
Market News. In one, for example, ARC determined that several packers 
did not have a process for ensuring the timely reporting of livestock 
trades, and did not have documentation that trades occurred at the time 
they were reported. All but one of the packers corrected this problem 
within in a few months, but the other took almost a year. 

[18] AMS's highest level of concern involved packers not submitting 
information or submitting incorrect information that likely would 
affect the accuracy of AMS reports. AMS's second level of concern 
involved packers making inadvertent omissions or inaccuracies that 
could affect the accuracy of AMS reports. AMS had three other levels of 
concern relating to lesser potential infractions that were unlikely to 
affect AMS's reports. 

[19] The calculation of 85 days did not include data related to follow-
up on five unresolved compliance issues. 

[20] The Livestock Mandatory Reporting Act terminated in October of 
2004 and was subsequently reauthorized in December 2004. This lapse in 
authority likely had some effect on AMS and packers' efforts to address 
reporting issues. 

[21] For example, shortly after mandatory reporting started, packers 
often incorrectly reported freight costs and premium payments. AMS 
developed internal guidance about how these costs should be reported 
and provided this guidance to packers. 

[22] GIPSA is responsible for addressing unfair and anti-competitive 
practices in the marketing of livestock. Among other things, the act 
prohibits packers from engaging in or using any unfair, unjustly 
discriminatory or deceptive practice or device, or making or giving any 
undue or unreasonable preference or advantage to a person or locality. 
See GAO, Packers and Stockyards Programs: Actions Needed to Improve 
Investigations of Competitive Practices, GAO/RCED-00-242 (Washington, 
D.C. Sept. 21, 2000). 

[23] In some instances, GIPSA found that the packer's negotiated 
purchases were of small lots that had set the low price AMS reported. 
As expected, the livestock in these transactions were of lower quality 
than most on the market, and also of lesser quality than the packer's 
large volume purchases. 

[24] During this period, cattle prices were falling somewhat from a 
high plateau of the two previous years. Hog prices were also declining 
somewhat during this period. 

[25] For cattle, we focused this component of our analysis only on 
those transactions eliminated because of market reasons, excluding 
those reporters recorded as errors that were deleted as part of the AMS 
quality control process. For hogs, we examined the weighted average 
prices with and without transactions excluded by AMS reporters for all 
reasons. 

[26] When market reporters exclude a transaction, they are to include 
the reason, their name, and the date and time in a data field called 
the "record log." In order to screen out obvious price errors due to 
situations like decimal place errors, damaged animals, or live animals 
reported as dressed, etc., we set boundaries to screen out extremely 
high or low prices. 

[27] Market News reports summary data such as price, volume, and price 
ranges that are sorted according to several key characteristics of 
livestock transactions. The transaction characteristics that represent 
reporting are class of cattle, selling basis, quality grade, and 
purchase type. Beef grades include higher quality grades such as Prime, 
Choice, Select, and lower categories such as Standard and Commercial. 
Packers report to AMS the percentage of cattle in a lot that they 
expect to grade at Choice or better, and these lots are assigned 
categories of 0-35 percent, 35-65 percent, 65-80 percent, and over 80 
percent. According to a USDA report, the 35-65 percent Choice category 
is the most common quality class. For a small number of days, we could 
not precisely replicate the actual average weighted price with the one 
reported because of adjustments, rounding differences or the inclusion 
of data that was reported late. We did not include in our analysis 
those days where we could not closely replicate AMS prices. 

[28] Each price is a weighted average price for that day where the 
weights are quantities of cattle in each transaction. 

[29] In order to do this, we used the "Proc t-test," a programming 
routine in the Statistical Analysis System (SAS) package to see if the 
difference between paired sets of data is statistically significant. In 
this case the paired sets of data that we examined are the weighted 
average prices with and without the adjustments to the data made for 
market reasons. 

[30] Cattle are either sold live or dressed weight. Cattle sold live 
(live weight) are weighed immediately before slaughter, and dressed 
carcass (dressed weight) cattle are weighed after slaughter. 

[31] For figures 1 and 2--representing the distributions of cattle 
excluded--we used the categories of steers, heifers, and mixed 
steer/heifer lots for both live and dressed weight cattle. Lots of 
steers and heifers bring much higher prices than cows and other dairy 
herds and are major categories of the CT100, the cattle market report 
that we examined. 

[32] Our analysis focused on a period of rapidly rising prices; the 
impact of eliminating transactions in a declining market may differ. 

[33] These prices are not weighted average prices as calculated for the 
mandatory livestock reports, but represent all actual transaction 
prices as reported by the packers. Each figure is a description of the 
percentage that each reported price category represents during this 
period. While figure 4 displays all transaction prices before any 
exclusions, figure 5 displays the distribution for the same period 
after all exclusions by market reporters had been made for all reasons. 

[34] These price ranges were taken from the data provided by packers on 
the Live Cattle Daily Report (Current Established Prices) (LS-113) for 
selected days from each week, May through October 2003 for dressed 
weight steers (35-65% Choice). 

[35] Some agricultural economists suggested that it would be helpful if 
there were information in AMS reports about the distribution of 
livestock price ranges, and one commented that it would be helpful if 
AMS were to provide additional details about the quality of livestock 
being traded. 

[36] The "t-test" determined that the differences in the means between 
the two price series for live weight and dressed cattle were 
statistically significant at the 0.01 and 0.10 levels, respectively. 

[37] We examined the National Daily Direct Morning Hog Report (HG 202) 
and the National Daily Direct Afternoon Hog Report (HG 203), and 
calculated the difference between the weighted average price for hogs 
with and without exclusions by market reporters for all reasons. 

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