Summary
Federal crop insurance protects producers against losses from natural disasters. In 2004, the crop insurance program provided $47 billion in coverage, at a cost of $3.6 billion, including an estimated $160 million in losses from fraud and abuse. The U.S. Department of Agriculture's (USDA) Risk Management Agency (RMA) administers this program with private insurers. The Agricultural Risk Protection Act of 2000 (ARPA) provided new tools to monitor and control abuses, such as having USDA's Farm Service Agency (FSA) conduct field inspections. GAO assessed, among other things, the (1) effectiveness of USDA's processes to address program fraud and abuse and (2) extent to which the program's design makes it vulnerable to abuse.
While RMA employs a range of processes to help prevent and detect fraud, waste, and abuse and has reported more than $300 million in savings over the past 4 years in the crop insurance program, GAO found that RMA does not effectively use all the tools it has available. Inspections during the growing season are not being used to maximum effect. Between 2001 and 2004, FSA conducted only 64 percent of the inspections RMA had requested. Without inspections, producers may falsely claim crop losses. RMA's data analysis of the largest farming operations is incomplete. According to GAO's analysis, in 2003, about 21,000 of the largest farming operations in the program did not report individuals or entities with an ownership interest in these operations. As a result, USDA should be able to recover up to $74 million in claims payments. FSA did not give RMA access to the data needed to identify such individuals or entities. RMA is not effectively overseeing insurance companies' quality assurance programs. GAO's review of 120 cases showed that companies completed only 75 percent of the required reviews and those that were conducted were largely paper exercises. RMA has infrequently used its new sanction authority to address program abuses. RMA has not issued regulations to implement its new sanction authority under ARPA. RMA imposed only 114 sanctions from 2001 through 2004. Annually, RMA identifies about 3,000 questionable claims, not all of which are necessarily sanctionable. Eight recent crop insurance fraud cases, investigated by USDA's Office of Inspector General and resulting in criminal prosecutions between June 2003 and April 2005, reflect these issues. Totaling $3 million in insurance claims, these cases show how producers, sometimes in collusion with insurance agents and others, falsely claim prevented planting, weather damage, and low production. In some cases, producers hid or moved production from one field to another. Several of these cases also demonstrate the importance of having FSA and RMA work together to identify and share information on questionable farming practices/activities. RMA's regulations, as well as statutory requirements, create program design problems that hinder RMA officials' efforts to reduce program abuse. For example, RMA's regulations allow producers to insure fields individually rather than all fields combined. This option enables producers to "switch" reporting of yield among fields to either make false claims or build up a higher yield history on a field to increase its eligibility for higher insurance guarantees. High premium subsidies, established by statute, may also limit RMA's ability to control program abuse because the subsidies shield producers from the full effect of paying higher premiums associated with frequent or larger claims.
Recommendations
Our recommendations from this work are listed below with a Contact for more information. Status will change
from "In process" to "Implemented" or "Not implemented" based on our follow up work.
Director:
Team:
Phone:
Robert A. Robinson
Government Accountability Office: Natural Resources and Environment
(202) 512-9894
Matters for Congressional Consideration
Recommendation: To better protect the crop insurance program from fraud, waste, and abuse, Congress may wish to consider allowing RMA to reduce premium subsidies--and hence raise the insurance premiums--for producers who consistently have claims that are irregular in comparison with other producers growing the same crop in the same location.
Status: In process
Comments: When we determine what steps the Congress has taken, we will provide updated information.
Recommendations for Executive Action
Recommendation: To better ensure that field inspections are used to the maximum effect to address fraud, waste, and abuse in the federal crop insurance program, the Secretary of Agriculture should direct the Administrators of RMA and FSA to create an action plan to ensure that FSA field offices conduct all inspections called for under agency guidance.
Agency Affected: Department of Agriculture
Status: In process
Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.
Recommendation: To better ensure that field inspections are used to the maximum effect to address fraud, waste, and abuse in the federal crop insurance program, the Secretary of Agriculture should direct the Administrators of RMA and FSA to create an action plan to ensure that RMA informs FSA field inspectors of the suspect claim patterns that they are to investigate.
Agency Affected: Department of Agriculture
Status: In process
Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.
Recommendation: To better ensure that field inspections are used to the maximum effect to address fraud, waste, and abuse in the federal crop insurance program, the Secretary of Agriculture should direct the Administrators of RMA and FSA to create an action plan to ensure that FSA inspections are conducted in a timely manner, and inspection results are reported expeditiously to insurance companies.
Agency Affected: Department of Agriculture
Status: In process
Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.
Recommendation: The Secretary of Agriculture should promulgate regulations to implement its expanded authority under ARPA to impose sanctions.
Agency Affected: Department of Agriculture
Status: In process
Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.
Recommendation: The Secretary of Agriculture should direct FSA to share producer-derived information with RMA for data mining to administer and enforce the requirements of the crop insurance program.
Agency Affected: Department of Agriculture
Status: In process
Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.
Recommendation: The Secretary of Agriculture should direct RMA to determine if payments have been made to ineligible producers or to entities that failed to disclose ownership interests and, if so, to recover the appropriate amounts.
Agency Affected: Department of Agriculture
Status: In process
Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.
Recommendation: The Secretary of Agriculture should direct RMA to strengthen its oversight of the insurance companies' implementation of the quality control review system.
Agency Affected: Department of Agriculture
Status: In process
Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.
Recommendation: The Secretary of Agriculture should direct RMA to reduce the insurance guarantee or eliminate optional unit coverage for producers who consistently have claims that are irregular in comparison with other producers growing the same crop in the same location.
Agency Affected: Department of Agriculture
Status: In process
Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.