Federal Farm Programs: USDA Needs to Strengthen Controls to
Prevent Improper Payments to Estates and Deceased Individuals
(09-JUL-07, GAO-07-818).
Farmers receive about $20 billion annually in federal farm
program payments, which go to individuals and "entities,"
including corporations, partnerships, and estates. Under certain
conditions, estates may receive payments for the first 2 years
after an individual's death. For later years, the U.S. Department
of Agriculture (USDA) must determine that the estate is not being
kept open for payments. As requested, GAO evaluated the extent to
which USDA (1) follows its regulations that are intended to
provide reasonable assurance that farm program payments go only
to eligible estates and (2) makes improper payments to deceased
individuals. GAO reviewed a nonrandom sample of estates based, in
part, on the amount of payments an estate received and compared
USDA's databases that identify payment recipients with
individuals the Social Security Administration listed as
deceased.
-------------------------Indexing Terms-------------------------
REPORTNUM: GAO-07-818
ACCNO: A72207
TITLE: Federal Farm Programs: USDA Needs to Strengthen Controls
to Prevent Improper Payments to Estates and Deceased Individuals
DATE: 07/09/2007
SUBJECT: Cost analysis
Eligibility determinations
Erroneous payments
Federal regulations
Financial management
Internal controls
Overpayments
Program evaluation
SSA Death Master File
******************************************************************
** This file contains an ASCII representation of the text of a **
** GAO Product. **
** **
** No attempt has been made to display graphic images, although **
** figure captions are reproduced. Tables are included, but **
** may not resemble those in the printed version. **
** **
** Please see the PDF (Portable Document Format) file, when **
** available, for a complete electronic file of the printed **
** document's contents. **
** **
******************************************************************
GAO-07-818
* [1]Results in Brief
* [2]Background
* [3]Because Many FSA Field Offices Do Not Systematically Determi
* [4]Because FSA Does Not Have Appropriate Management Controls, I
* [5]FSA Made Millions of Dollars of Farm Program Payments to Dec
* [6]Complex Farming Operations and a Lack of Management Controls
* [7]Conclusions
* [8]Recommendations for Executive Action
* [9]Agency Comments and Our Evaluation
* [10]GAO's Comments
* [11]GAO Contact
* [12]Staff Acknowledgments
* [13]Order by Mail or Phone
Report to the Ranking Member, Committee on Finance, U.S. Senate
United States Government Accountability Office
GAO
July 2007
FEDERAL FARM PROGRAMS
USDA Needs to Strengthen Controls to Prevent Improper Payments to Estates
and Deceased Individuals
GAO-07-818
Contents
Letter 1
Results in Brief 4
Background 6
Because Many FSA Field Offices Do Not Systematically Determine the
Eligibility of Estates for Farm Program Payments, FSA Cannot Be Assured
That Payments Are Proper 10
Because FSA Does Not Have Appropriate Management Controls, It Cannot Be
Assured That It Is Not Making Payments to Deceased Individuals 14
Conclusions 20
Recommendations for Executive Action 21
Agency Comments and Our Evaluation 21
Appendix I Objectives, Scope, and Methodology 24
Appendix II Comments from the U.S. Department of Agriculture 27
GAO's Comments 33
Appendix III U.S. Department of Agriculture Farm Program Payments, Fiscal
Years 1999 through 2005 36
Appendix IV U.S. Department of Agriculture Estate Eligibility Reviews, by
State, Program Years 1999 through 2005 41
Appendix V GAO Contact and Staff Acknowledgments 43
Related GAO Products 44
Tables
Table 1: Estate Eligibility Reviews, Program Years 1999 through 2005 11
Table 2: Variation in Determinations FSA Made for Selected States, Program
Years 1999 through 2005 13
Table 3: USDA Estimates of Improper Payments, Fiscal Year 2006 17
Table 4: Farm Program Payments Made to Deceased Individuals through
Entities, Program Years 1999 through 2005 19
Table 5: Variation in Reviews Conducted by FSA, by State, Program Years
1999 through 2005 42
Figure
Figure 1: Number of Years and Value of Farm Program Payments Made after
Individuals' Deaths, Fiscal Years 1999 through 2005 15
Abbreviations
EQIP Environmental Quality Incentives Program
FSA Farm Service Agency
IPIA Improper Payments Information Act of 2002
OMB Office of Management and Budget
USDA U.S. Department of Agriculture
This is a work of the U.S. government and is not subject to copyright
protection in the United States. It may be reproduced and distributed in
its entirety without further permission from GAO. However, because this
work may contain copyrighted images or other material, permission from the
copyright holder may be necessary if you wish to reproduce this material
separately.
United States Government Accountability Office
Washington, DC 20548
July 9, 2007
The Honorable Charles E. Grassley
Ranking Member
Committee on Finance
United States Senate
Dear Senator Grassley:
Farmers receive about $20 billion annually in federal farm program
payments for crop subsidies, conservation practices, and disasters. Such
payments go to 1.7 million recipients, both individuals and "entities,"
including corporations, partnerships, and estates. Individuals may receive
farm program payments indirectly through as many as three entities.1 The
Agricultural Reconciliation Act of 1987 (1987 Act) limits payments to
individuals and entities that are "actively engaged in farming." We
reported in 2004 that because the U.S. Department of Agriculture's (USDA)
regulations ensuring that recipients are actively engaged in farming do
not specify measurable standards, they allow individuals with limited
involvement in farming to qualify for farm program payments.2 We
recommended that USDA strengthen its regulations for active engagement in
farming. Subsequently, in November 2006, we identified the need for better
oversight of farm program payments.3 Without better oversight to ensure
that farm program funds are spent as economically, efficiently, and
effectively as possible, we pointed out, USDA has little assurance that
these funds benefit the agricultural sector as intended.
From 1999 through 2005, USDA, through its Farm Service Agency (FSA), made
124 million payments totaling about $130 billion. Over $200 million of
this amount went to nearly 42,000 estates. Generally, under the 1987 Act,
once a person dies, farm program payments may continue to that person's
estate under certain conditions. However, if no estate is probated, or
once the estate is settled, the deceased person's heirs must qualify in
their own right in order to receive payments.
1Under this "three-entity rule," a person--an individual or entity--can
receive program payments through no more than three entities in which the
person holds a substantial beneficial interest. A person can receive
payments (1) as an individual and as a member of no more than two entities
or (2) through three entities and not as an individual. FSA defines a
substantial beneficial interest as 10 percent or more.
2GAO, Farm Program Payments: USDA Needs to Strengthen Regulations and
Oversight to Better Ensure Recipients Do Not Circumvent Payment
Limitations, [14]GAO-04-407 (Washington, D.C.: Apr. 30, 2004).
3GAO, Suggested Areas for Oversight for the 110th Congress,
[15]GAO-07-235R (Washington, D.C.: Nov. 17, 2006).
USDA regulations covering most farm program payments allow an estate to
receive payments for the first 2 years after the death of the individual
if the estate meets certain eligibility requirements for active engagement
in farming. That is, an estate must contribute (1) capital, land, or
equipment and (2) the personal representative or heirs of the estate must
contribute labor or management to the farming operation.4 Following the
initial 2 years, the estate will continue to be eligible for program
payments if it meets the active engagement in farming requirement and the
local field office determines that the estate is not being kept open
primarily to continue receiving program payments. Estates are commonly
kept open for longer than 2 years because of, among other things, asset
distribution and probate complications, and tax and debt obligations.
Under USDA regulations, for an estate to remain eligible for farm program
payments, FSA must annually determine that the estate is still active and
that obtaining farm program payments is not the primary reason it remains
open. FSA guidelines provide that each estate should provide documents
showing why it has not distributed its assets to its beneficiaries and why
it is still active for the current year. When property is completely
distributed from the deceased individual to his or her heirs directly or
through an estate, the payments to the individual who died must end.
However, the deceased individual's heirs may subsequently apply for
program payments in their own right and to receive payments must satisfy
the requirements for active engagement in farming.
FSA guidance directs county committee staff to annually notify individuals
and entities that they must file farm operating plans with their local
field office if they are seeking farm program payments. These plans
document the name of each recipient, the contribution each recipient makes
to the farming operation, and the share of profits and losses each
recipient will receive. The individual filing this plan certifies that, in
a timely manner, he or she will notify the local field office of any
changes in the information that could affect an eligibility determination,
such as the death of an individual in the farming operation. If timely
notification is not given, the farming operation is subject to forfeiture
of payments. Also, payments must be returned if they were based on
erroneous information or if the producer is otherwise not entitled to
them.
4Alternatively, the estate could qualify as actively engaged in farming as
a landowner if the estate receives rent or income for the use of the land
based on the land's production or the farming operation's operating
results.
You asked us to examine FSA's implementation of regulations to identify
improper payments to estates and deceased individuals. As agreed with your
office, we evaluated the extent to which FSA (1) follows its regulations
that are intended to provide reasonable assurance that farm program
payments go only to eligible estates and (2) makes improper payments to
deceased individuals.
To address these issues, we reviewed USDA's regulations, FSA's guidelines,
and other management controls for implementing the provisions of the 1987
Act. We also spoke with FSA officials in headquarters, state offices, and
local field offices who are responsible for ensuring that (1) estates are
properly reviewed for eligibility and (2) payments are not made to
deceased individuals. To evaluate FSA's application of regulations and
guidance and to assess the overall effectiveness of its review process for
deciding whether estates are eligible to receive farm program payments, we
reviewed a nonrandom sample of estate eligibility determinations. To
identify estates for our nonrandom sample, we obtained and analyzed FSA's
computer databases for information on payment recipients from 1999 through
2005. The databases contained detailed information on payment
recipients--including Social Security numbers, payment amounts, the status
of recipients as individuals or members of entities, recipients' ownership
interests in entities, types of entities receiving payments, and
additional organizational details. The data showed 2,841 estates that had
received payments for more than 2 years between 1999 and 2005, thus
requiring FSA to conduct a determination of eligibility. Of these, we
examined 181 estates in 26 states and 142 counties. These estates included
the 162 (i.e., 162 of 2,841) that received over $100,000 in farm program
payments from 1999 through 2005. They also included the 16 estates (i.e.,
16 of 2,841) that (1) had received between $50,000 and $100,000 in farm
program payments during this period and (2) had at least one member
receiving payments through three other entities. Lastly, they included the
three estates (i.e., 3 of 2,841) that had at least one member who appeared
to be receiving payments through seven or more other entities. For each
estate selected, we obtained files from FSA field offices. These files
ideally would have included the following information to facilitate FSA's
determinations: letters testamentary from a probate court, minutes of the
FSA county committee meeting that approved eligibility,5 explanation
letters or documentation for the reason the estate remained active beyond
2 years, farm operating plans, and payment history. However, because the
documentation required for probated estates varies by jurisdiction, we
could not easily determine whether improper payments had been made to
estates. Furthermore, even in cases in which FSA had not done the required
annual determinations, or when relevant documentation was missing or
incomplete in the estate file, we could not determine whether improper
payments were made without examining each case in depth.
In examining the extent to which FSA makes improper payments to deceased
individuals after the date of their death, we matched the payment
recipients in FSA's databases with individuals that the Social Security
Administration has identified as deceased in its Death Master File. The
data match showed the number and dollar amount of payments FSA provided to
deceased individuals, either directly or indirectly through entities, from
1999 through 2005. We attributed payments made indirectly to individuals
based on each individual's ownership share in the entity.
We conducted our review from June 2006 through May 2007 in accordance with
generally accepted government auditing standards, which included an
assessment of data reliability and internal controls. Appendix I contains
more detailed information on our scope and methodology.
Results in Brief
FSA made farm program payments to estates more than 2 years after
recipients have died without determining whether the estates were being
kept open primarily for the purpose of receiving these payments, as its
regulations require. As a result, FSA cannot be assured that farm program
payments made to these estates are proper. We identified weaknesses in
FSA's eligibility determinations for 142 of the 181 estates we reviewed.
In particular, from 1999 through 2005, FSA did not conduct eligibility
determinations for 73, or 40 percent, of the 181 estates in our sample.
Sixteen of these 73 estates had each received more than $200,000 in farm
program payments, and 4 had each received more than $500,000. For the
remaining 108 estates, we identified several shortcomings with FSA's
determinations. Specifically, FSA did not make an annual eligibility
determination for every year in which it provided payments, as regulations
require. From 1999 through 2005, 69 of the 108 estates did not receive
determinations for every year in which they received payments, and some
FSA field offices approved groups of estates for payments without
reviewing each estate individually. Moreover, documentation supporting the
determinations was often either nonexistent or vague. For example, 20 of
the determinations had no documented explanation for why the estate
remained active. In other cases, FSA approved eligibility based on
insufficient explanations for why the estate remained open--such as the
heirs stating that they wanted to keep it open on the advice of a lawyer
or an accountant without specifying the reasons why. We also found that
although the minutes of FSA county committee meetings indicated approval
of payments to estates, the associated files did not contain critical
documents that might validate why the estates were still active for
reasons other than to obtain farm program payments. According to FSA field
officials, many eligibility determinations were either not done or not
done thoroughly, in part because of a lack of sufficient personnel and
time, as well as competing priorities for carrying out farm programs.
5FSA county committees are made up of three to five farmers, elected by
other farmers, to oversee the local operation of FSA programs, including
eligibility determinations.
FSA cannot be assured that millions of dollars in farm payments it made
are proper because FSA does not have management controls, such as computer
matching, to verify that it is not making payments to deceased
individuals. Instead, according to the FSA field officials, FSA relies on
self-certifications by farming operations that the information provided is
accurate and that the operations will inform FSA of any changes, including
the death of an operation's member. From 1999 through 2005, FSA paid $1.1
billion in farm program payments in the names of 172,801 deceased
individuals (either as an individual or as a member of an entity). Of this
amount, 40 percent went to individuals who had been dead for 3 or more
years, and 19 percent went to individuals who had been dead for 7 or more
years. Furthermore, complex farming operations consisting of multiple
entities increase the risk of improper payments to deceased individuals.
Farm program payments made to deceased individuals indirectly--that is, as
members of entities--represent a disproportionately high share of
post-death payments. We found that these payments to deceased individuals
through entities accounted for $648 million--or 58 percent of the $1.1
billion in payments made to all deceased individuals from 1999 through
2005--whereas payments to all individuals through entities accounted for
only 27 percent of all farm program payments. In one case, FSA paid a
member of an entity who has been deceased since 1995 over $400,000 in farm
program payments from 1999 through 2005.
We are making a number of recommendations to the Secretary of Agriculture
for improving FSA's ability to prevent improper payments to estates and
deceased individuals. Specifically, we are recommending that FSA ensure
that its field offices conduct all annual estate eligibility
determinations as required, implement management controls to verify that
individuals receiving farm program payments have not died, and determine
if program payments have been made to deceased individuals or to entities
that failed to disclose the death of a member and if so, recover the
appropriate amounts. In addition, we have referred the cases of improper
payments we identify in this report to USDA's Office of Inspector General
for further investigation.
We provided FSA with a draft of this report for review and comment. FSA
agreed with our recommendations and already has begun to take actions to
implement them. However, FSA did not agree with our use of the term
"improper payments" in the report. The agency stated that the payments we
describe do not meet the definition of improper payments under the
Improper Payments Information Act of 2002 (IPIA).6 We disagree. We believe
the payments we highlight in three examples in the report do meet the
definition of improper payments under IPIA. Furthermore, in these cases,
officials in FSA's field offices agreed with our findings and told us they
intend to recover the payments. For the remaining farm program payments
identified in the report, we continue to believe that the potential exists
for improper payments because of the lack of FSA management controls and
the complexity of some of the farming operations involved. Our detailed
response to USDA's comments appears at the end of this letter and
following USDA's written comments in appendix II.
Background
FSA provides benefits through various programs of the Farm Security and
Rural Investment Act of 2002.7 Appendix III provides a listing of USDA
farm programs and payments made from 1999 through 2005. The three-entity
rule applies to certain USDA payments, including direct and
counter-cyclical payments; loan deficiency payments and marketing loan
gains, under the Marketing Assistance Loan Program; and Conservation
Reserve Program payments.
6Pub. L. No. 107-300, 116 Stat. 2350 (2002).
7Pub. L. No. 107-171, 116 Stat. 134.
o Direct and Counter-Cyclical Payments Program provides two types
of payments to producers of covered commodity crops, including
corn, cotton, rice, soybeans, and wheat. Direct payments (formerly
known as production flexibility contract payments) are tied to a
fixed payment rate for each commodity crop and do not depend on
current production or current market prices. Instead, direct
payments are based on the farm's historical acreage and yields.
Counter-cyclical payments provide price-dependent benefits for
covered commodities whenever the effective price for the commodity
is less than a pre-determined price (called the target price).
Counter-cyclical payments are based on a farm's historical acreage
and yields, and are not tied to the current production of the
covered commodity.
o Marketing Assistance Loan Program (formerly known as the
Commodity Loan Program) provides benefits to producers of covered
commodity crops when market prices are low. Specifically, the
federal government accepts harvested crops as collateral for
interest-bearing loans (marketing assistance loans) that are due
in 9 months. When market prices drop below the loan rate (the loan
price per pound or bushel), the government allows farmers to repay
the loan at a lower rate and retain ownership of their commodity
for eventual sale. The difference between the loan rate and the
lower repayment rate is called the marketing assistance loan gain.
In lieu of repaying the loan, farmers may forfeit their crops to
the government when the loan matures and keep the loan principal.
In addition, farmers who do not have marketing assistance loans
can receive a benefit when prices are low--the loan deficiency
payment--that is equal to the marketing assistance loan gain that
the farmer would have received if the farmer had a loan. Finally,
farmers can purchase commodity certificates that allow them to
redeem their marketing assistance loan at a lower repayment rate
and immediately reclaim their commodities under loan. The
difference between the loan rate and the lower repayment rate is
called the commodity certificate gain.
o Conservation Reserve Program provides annual rental payments and
cost-share assistance to producers to help them safeguard
environmentally sensitive land. Producers must contractually agree
to retire their land from agricultural purposes and keep it in
approved conserving uses for 10 to 15 years.
Most farmers receive farm program payments directly from FSA as an
individual operator. However, some farmers use legal entities to
organize their farming operations to reduce their exposure to
financial liabilities or estate taxes or, in some cases, to
increase their potential for farm benefits. Some of the more
common ways farmers organize their operations include the
following:
o Corporations have a separate legal existence from their owners;
that is, the corporation, rather than the owners, is ordinarily
responsible for farm business debts and can be sued. As a result,
some individuals may incorporate their farm to protect their
personal assets.
o General partnerships are a simple arrangement of two or more
partners--individuals or entities--that do business together.
Partners are personally liable for their own conduct and for the
conduct of those under their direct supervision, as well as for
negligence, wrongful acts, and misconduct of other partners and
partnership employees. Partners are also personally liable for the
partnership's commercial obligations, such as loans or taxes.
o Joint ventures are two or more individuals who pool resources
and share profits or losses. Joint ventures have no legal
existence independent of their owners. Members in a joint venture
are personally liable for the farm's debts.
o Limited partnerships are an arrangement of two or more partners
whose liability for partnership financial obligations is only as
great as the amount of their investment. A limited partnership
must have at least one general partner who manages the farm
business and who is fully liable for partnership financial
obligations to be considered eligible for farm program payments.
o Trusts (irrevocable and revocable) are arrangements generally
used in estate planning that provide for the management and
distribution of property. A revocable trust is amendable by the
grantor during his or her lifetime who may also be the trustee and
beneficiary. An irrevocable trust is an arrangement in which the
grantor departs with ownership and control of property.
o Other types of entities that may qualify for farm program
payments under payment limitation rules include a limited
liability company--a hybrid form of a business entity with the
limited liability feature of a corporation and the income tax
treatment of a general partnership; a charitable organization; and
a state or political subdivision.
FSA is responsible for ensuring that recipients meet payment
eligibility criteria and do not receive payments that exceed the
established limitations. It carries out this responsibility
through its headquarters office, 50 state offices, and over 2,300
field offices.
IPIA requires the heads of federal agencies to annually review all
programs and activities that they administer, identify those that
may be susceptible to significant improper payments, and estimate
and report on the annual amount of improper payments in those
programs and activities. IPIA defines an improper payment as any
payment that should not have been made or that was made in an
incorrect amount, including any payment to an ineligible
recipient.
OMB defines significant improper payments as payments in any
particular program that exceed both 2.5 percent of total program
payments and $10 million annually. If a program's estimated
improper payments exceed $10 million in a year, IPIA and related
OMB guidance requires agencies to prepare and implement a plan to
reduce improper payments and report actions taken. Agencies are
required to report this information, among other things, annually
in their Performance and Accountability Reports. Specifically, OMB
guidance requires agencies to report on (1) the causes of improper
payments and corrective actions, (2) the steps the agency has
undertaken to ensure that agency managers are held accountable for
reducing and recovering erroneous payments, along with a realistic
timetable, and (3) any statutory or regulatory barriers that may
limit the agency's corrective actions in reducing improper
payments. In November 2006, we reported that federal agencies,
including USDA, need to improve their reporting of improper
payments under IPIA by better identifying programs susceptible to
improper payments and improving statistical sampling methodologies
to estimate improper payments made.8
8GAO, Improper Payments: Agencies' Fiscal Year 2005 Reporting under the
Improper Payments Information Act Remains Incomplete, [39]GAO-07-92
(Washington, D.C.: Nov. 14, 2006).
Because Many FSA Field Offices Do Not Systematically Determine
the Eligibility of Estates for Farm Program Payments, FSA Cannot
Be Assured That Payments Are Proper
While there are legitimate reasons for keeping estates open, we
found that FSA field offices do not systematically determine the
eligibility of all estates that have been kept open for more than
2 years, as regulations require, and when they do conduct
eligibility determinations, the quality of the determinations
varies. Without performing annual determinations, an essential
management control, FSA cannot identify estates being kept open
primarily for the purpose of receiving these payments and be
assured that the payments are proper.
We identified weaknesses in FSA's eligibility determinations for
142 of the 181 estates we reviewed. In particular, FSA did not
conduct any program eligibility determinations for 73, or 40
percent, of estates that required a determination from 1999
through 2005. Because FSA did not conduct the required
determinations, the extent to which estates remained open for
reasons other than for obtaining program payments is not known.
Sixteen of these 73 estates received more than $200,000 in farm
program payments and 4 received more than $500,000 during this
period. In addition, 22 of the 73 estates had received no
eligibility determinations during the 7-year period we reviewed,
and these estates had been open and receiving payments for more
than 10 years. In one case, we found that the estate has been open
since 1973. The following provides examples of estates that
received farm program payments but were not reviewed for
eligibility by FSA:
o A North Dakota estate received farm program payments totaling
$741,000 from 1999 through 2003, but FSA did not conduct the
required determinations.
o An Alabama estate received payments totaling $567,000 from 1999
through 2005, but FSA did not conduct the required determinations.
In this case, the estate has been open since 1981.
o Two estates in Georgia, open since 1989 and 1996, respectively,
received payments totaling more than $330,000 each, from 1999
through 2005. Neither estate received the required determinations
for any of the years we reviewed.
o An estate in New Mexico, open since 1991, received $320,000 from
1999 through 2005, but it did not receive any of the required
determinations.
According to FSA field officials, many determinations were either
not done or not done thoroughly, in part because of a lack of
sufficient personnel and time, as well as competing priorities for
carrying out farm programs. However, FSA's failure to conduct
appropriate eligibility determinations means that it has no
assurance that it is not making farm program payments to estates
that have been kept open primarily to receive these payments.
Even when FSA field offices determined estates' eligibility for
continued farm program payments, they did not always do so
consistently. For the remaining 108 estates, 39 had eligibility
determinations every year that a determination was required, while
69 had determinations at least once between 1999 and 2005, but not
with the frequency required by regulations. Table 1 shows the
number of years for which estates in our sample were required to
have annual eligibility determinations compared with the number of
years that FSA actually conducted determinations. The dark shaded
numbers highlight the number of estates that received all the
required annual eligibility determinations for the years that the
estate received farm program payments--a total of 39 estates.
Table 1: Estate Eligibility Reviews, Program Years 1999 through
2005
Number of years FSA should have conducted
eligibility reviews
Number of years FSA
actually conducted
eligibility determinations 1 2 3 4 5 6 7 Total
Estates
None 19 14 7 6 5 9 13 73
1 10 7 2 4 6 6 4 39
2 10 0 2 1 4 6 23
3 9 1 4 2 1 17
4 2 3 3 4 12
5 5 3 3 11
6 1 3 4
7 2 2
Total 29 31 18 15 24 28 36 181
Signifies the number of estates that received all required
determinations--a total of 39 estates.
Signifies the number of estates that received at least one, but
not all annual determinations--a total of 69 estates.
Source: GAO's analysis of FSA's data.
Note: Cells are left blank for years an eligibility determination
was not required.
As the table shows, the longer an estate was kept open, the fewer
determinations it received. For example, only 2 of the 36 estates
requiring a determination every year over the 7-year period
received all seven required determinations.
According to FSA guidelines, an estate should provide evidence
that it is still making required reports to the court to be
eligible for farm program payments. However, we found that FSA
sometimes approved eligibility for payments when the estate had
provided insufficient information--that is, information that was
either nonexistent or vague. For example, in 20 of the 108
determinations, the minutes of FSA county committee meetings
indicated approval of eligibility for payments to estates, but the
associated files did not contain any documents that explained why
the estate remained active. FSA also approved eligibility on the
basis of insufficient explanations for keeping the estate open. In
five cases, executors explained that they did not want to close
the estate but did not explain why. In a sixth case, documentation
stated that the estate was remaining active upon the advice of its
lawyers and accountants, but did not explain why.
Furthermore, some FSA field offices approved program payments to
groups of estates that were kept open after 2 years without any
apparent review. In one case in Georgia, minutes of an FSA county
committee meeting listed 107 estates as eligible for payments by
stating that the county committee approved all estates open over 2
years. Two of the estates on this list of 107 were part of the
sample that we reviewed in detail. In addition, another 10 estates
in our sample, from nine different FSA field offices, were also
approved for payments without any indication that even a cursory
review had been conducted.
Additionally, the extent to which FSA field offices make
eligibility determinations varies from state to state, which
suggests that FSA is not consistently implementing its eligibility
rules. Overall, FSA field offices in 16 of the 26 states we
reviewed made less than one-half of the required determinations of
their estates. For example, in Alabama and in Georgia, FSA field
offices made only 22 percent and 31 percent of the required
determinations for estates, respectively, compared with FSA field
offices in Kansas and Texas, which made 62 percent and 87 percent
of the required determinations, respectively. Table 2 shows, for
the 181 estates in our sample, the variation in FSA's conduct of
eligibility reviews from 1999 through 2005 in states that had five
or more estates to examine. Appendix IV shows the extent to which
FSA conducted estate eligibility determinations in each state in
our review.
Table 2: Variation in Determinations FSA Made for Selected States,
Program Years 1999 through 2005
Number of estates requiring Number of estates Percent
State determinations reviewed reviewed
Alabama 9 2 22.2
Arkansas 12 8 66.7
Georgia 16 5 31.3
Illinois 20 13 65.0
Kansas 13 8 61.5
Texas 63 55 87.3
Washington 8 3 37.5
Total 141 94 66.7
Source: GAO's analysis of FSA's data.
Note: This table presents the states in our sample that had at
least five estates to review from 1999 through 2005.
Under the three-entity rule, individuals receiving program
payments may not hold a substantial beneficial interest in more
than two entities also receiving payments. However, because a
beneficiary of an Arkansas estate we reviewed received farm
program payments through the estate in 2005, as well as through
three other entities, the beneficiary was able to receive payments
beyond what the three-entity rule would have allowed. FSA was
unaware of this situation until we brought it to officials'
attention, and FSA has begun taking steps to recover any improper
payments. Had FSA conducted any eligibility determinations for
this estate during the period, it might have determined that the
estate was not eligible for these payments, preventing the
beneficiary from receiving what amounted to a payment through a
fourth entity.
We informed FSA of the problems we uncovered during the course of
our review. According to FSA field officials, a lack of sufficient
personnel and time, and competing priorities for carrying out farm
programs explain, in part, why many determinations were either not
conducted or not conducted thoroughly. Nevertheless, officials
told us that they would investigate these cases for potential
receipt of improper payments and would start collection
proceedings if they found improper payments.
Because FSA Does Not Have Appropriate Management Controls, It
Cannot Be Assured That It Is Not Making Payments to Deceased
Individuals
FSA cannot be assured that millions of dollars in farm program
payments it made to thousands of deceased individuals from fiscal
years 1999 through 2005 were proper because FSA does not have
appropriate management controls, such as computer matching, to
verify that it is not making payments to deceased individuals. For
example, FSA is not matching recipients listed in its payment
database with individuals listed as deceased in the Social
Security Administration's Death Master File. In addition, complex
farming operations, such as corporations or general partnerships
with embedded entities, make it difficult for FSA to prevent
improper payments to deceased individuals. At present, FSA relies
on farming operations to advise the agency of any change in the
operation, including the death of a member that would affect
payments made to the operation.
FSA Made Millions of Dollars of Farm Program Payments to Deceased
Individuals from Fiscal Years 1999 through 2005
From fiscal years 1999 through 2005, FSA paid $1.1 billion in farm
program payments to 172,801 deceased individuals--either as
individuals or as members of entities, according to our matching
of FSA's payment databases with the Social Security
Administration's Death Master File. Of the $1.1 billion in farm
payments, 40 percent went to individuals who had been dead for 3
or more years, and 19 percent went to individuals who had been
dead for 7 or more years. Figure 1 shows the number of years in
which FSA made farm program payments after an individual had died
and the value of those payments. As the figure shows, for example,
FSA provided $210 million in farm program payments to deceased
individuals 7 or more years after their date of death.
Figure 1: Number of Years and Value of Farm Program Payments Made
after Individuals' Deaths, Fiscal Years 1999 through 2005
Note: Farm program payments made through entities are based on
program year data.
aIncludes payments made 1 day after death to 1 year after death.
Three cases illustrate how FSA's lack of management controls can
result in improper payments to deceased individuals. In the first
case, FSA provided more than $400,000 in farm program payments
from 1999 through 2005 to an Illinois farming operation on the
basis of the ownership interest of an individual who had died in
1995.9 According to FSA's records, the farming operation consisted
of about 1,900 cropland acres producing mostly corn and soybeans.
It was organized as a corporation with four shareholders, with the
deceased individual owning a 40.3-percent interest in the entity.
Nonetheless, we found that the deceased individual had resided in
Florida. Another member of this farming operation, who resided in
Illinois and had signature authority for the operation, updated
the operating plan most recently in 2004 but failed to notify FSA
of the individual's death. The farming operation therefore
continued to qualify for farm program payments on behalf of the
deceased individual. As noted earlier, FSA requires farming
operations to certify that they will notify FSA of any change in
their operation and to provide true and correct information.
According to USDA regulations, failure to do so may result in
forfeiture of payments and an assessment of a penalty. FSA
recognized this problem in December 2006 when the children of the
deceased individual contacted the FSA field office to obtain
signature authority for the operation. FSA has begun proceedings
to collect the improper payments.
9In addition, before the period of our review the operation received farm
program payments on behalf of the deceased individual from 1995 through
1998.
In the second case, FSA provided more than $200,000 in farm
program payments from 1999 through 2002 to an Indiana farming
operation on the basis of the ownership interest of an individual
who had died in 1993. According to FSA's records, the farming
operation was a corporation, and the deceased individual held
100-percent ownership interest in the entity. The corporation
operated farms in two counties, but upon the death of the
individual, the corporation failed to notify the FSA field office
in either county of the death. The corporation therefore continued
to receive farm program payments on behalf of the deceased
individual until 2002, when it filed a new farm operating plan
with FSA that no longer included the deceased individual as a
member. When we brought this case to the attention of FSA
officials, they were unaware that the individual had died in 1993
and acknowledged that FSA provided improper payments to the
farming operation from 1993 through 2002. According to agency
officials, they intend to take action against the farming
operation to recover the improper payments.
In the third case, FSA provided about $260,000 in farm program
payments from 1999 through 2006 to a corporation on the basis of
the ownership interest of an individual who had died in 1993.
According to FSA records, the farming operation had 14
shareholders, with the deceased individual holding a 14-percent
interest. We found that another member of this farming operation,
who had signature authority for the operation, updated the farm's
operating plan in 2004 but failed to notify FSA of the death of
this member who we found had resided in a metropolitan area
several hundred miles from the farm. The farming operation
therefore continued to receive farm program payments on behalf of
the deceased individual. FSA was unaware that the individual had
died in 1993, but said it would investigate and if improper
payments were made it would take action against the farming
operation to recover the payments.
USDA recognizes that its farm programs have management control
weaknesses, making them vulnerable to significant improper
payments. In its FY 2006 Performance and Accountability Report to
OMB, USDA reported that poor management controls led to improper
payments to some farmers, in part because of incorrect or missing
paperwork.10 In addition, as part of its reporting of improper
payments information, USDA identified six FSA programs susceptible
to significant risk of improper payments with estimated improper
payments totaling over $2.8 billion in fiscal year 2006, as shown
in table 3.
Table 3: USDA Estimates of Improper Payments, Fiscal Year 2006
Dollars in millions
Estimated improper Average percent
Program payments error rate
Direct and Counter-Cyclical Payments $424 4.96
Program
Conservation Reserve Program 64 3.53
Disaster assistance programsa 291 12.30
Noninsured Assistance Programb 25 22.94
Loan deficiency payments provided under
the Marketing Assistance Loan Program 443 9.25
Other benefits provided under the
Marketing Assistance Loan Program 1,611 20.26
Total/average $2,858 11.17
Source: USDA's FY 2006 Performance and Accountability Report.
Note: USDA's estimates include improper payments made to deceased
individuals but USDA does not separate these payments from other
improper payments.
aDisaster assistance payments are direct federal payments to crop
producers when either planting is prevented or crop yields are
abnormally low because of adverse weather and related conditions.
bThe Noninsured Assistance Program provides financial assistance
to producers of non-insured crops when low yields, loss of
inventory, or prevented planting occur due to natural disasters.
Assistance is limited to crops not eligible for coverage under the
federal crop insurance program.
10See U.S. Department of Agriculture, FY 2006 Performance and
Accountability Report (Washington, D.C.: Nov. 15, 2006).
Complex Farming Operations and a Lack of Management Controls Raise
the Potential for Improper Payments to Deceased Individuals
Farm program payments made to deceased individuals
indirectly--that is, as members of farming entities--represent a
disproportionately high share of post-death payments.
Specifically, payments to deceased individuals through entities
accounted for $648 million--or 58 percent of the $1.1 billion in
payments made to all deceased individuals from 1999 through 2005.
However, payments to individuals through entities accounted for
$35.6 billion--or 27 percent of the $130 billion in farm program
payments FSA provided from 1999 through 2005. Similarly, we
identified 39,834 of the 172,801 deceased individuals as receiving
farm program payments through entities when we compared FSA's
databases with the Social Security Administration's Death Master
File.
The complex nature of some types of farming entities, in
particular, corporations and general partnerships, increases the
potential for improper payments. For example, a significant
portion of farm program payments went to deceased individuals who
were members of corporations and general partnerships. Deceased
individuals identified as members of corporations and general
partnerships received nearly three-quarters of the $648 million
that went to deceased individuals in all entities. The remaining
one-quarter of payments went to deceased individuals of other
types of entities, including estates, joint ventures, limited
partnerships, and trusts. With regard to the number of deceased
individuals who received farm program payments through entities,
they were most often members of corporations and general
partnerships. Specifically, of the 39,834 deceased individuals who
received farm program payments through entities, about 57 percent
were listed in FSA's databases as members of corporations or
general partnerships. Table 4 shows the number and percent of farm
program payments FSA made to deceased individuals through entities
from 1999 through 2005.
Table 4: Farm Program Payments Made to Deceased Individuals
through Entities, Program Years 1999 through 2005
Dollars in millions
Payments to deceased
Deceased individuals individuals
Entity type Number Percent Total Percent
Corporationsa 14,197 35.6 $321.5 49.6
Estates 2,262 5.7 8.2 1.3
General partnerships 8,575 21.5 136.7 21.1
Irrevocable trusts 4,377 11.0 35.7 5.5
Joint ventures 2,073 5.2 19.4 3.0
Limited partnerships 2,391 6.0 30.7 4.7
Revocable trusts 3,866 9.7 28.8 4.4
Otherb 2,093 5.3 67.1 10.4
Total 39,834 100.0 $648.1 100.0
Source: GAO's analysis of FSA's data.
aIncludes limited liability companies.
bIncludes charitable organizations, individuals operating as a
small business, and individuals receiving payments through more
than one entity.
As we reported in 2004, some farming operations may reorganize to
overcome payment limits to maximize their program benefits.11
Large farming operations are often structured as corporations or
general partnerships with other entities embedded within these
entities. Deceased individuals are sometimes members of these
embedded entities. For example, as shown in table 4, 8,575
deceased individuals received payments through general
partnerships from 1999 through 2005. Of these, 687 received farm
program payments because they were members of one or more entities
that were embedded in the general partnership. Generally, these
partnerships are consistent with the 1987 Act, as amended, whereby
an individual can qualify for up to three payments by being a
member of three entities within one general partnership.
Furthermore, of the 172,801 deceased individuals identified as
receiving farm program payments, 5,081 received more than one
payment because (1) they were a member of more than one entity, or
(2) they received payments as an individual and were a member of
an entity.
11 [40]GAO-04-407 .
According to FSA field officials, complex farming operations, such
as corporations and general partnerships with embedded entities,
make it difficult for FSA to prevent making improper payments to
deceased individuals. In particular, in many large farming
operations, one individual often holds signature authority for the
entire farming operation, which may include multiple members or
entities. This individual may be the only contact FSA has with the
operation; therefore, FSA cannot always know that each member of
the operation is represented accurately to FSA by the signing
individual for several reasons. First, it relies on the farming
operation to self-certify that the information provided is
accurate and that the operation will inform FSA of any operating
plan changes, which would include the death of an operation's
member. Such notification would provide USDA with current
information to determine the eligibility of the entity to receive
the payments. Second, FSA has no management controls, such as
computer matching of its payment files with the Social Security
Administration's Death Master File, to verify that an ongoing
farming operation has failed to report the death of a member.
Conclusions
FSA has a formidable task--ensuring that billions of dollars in
program payments are made only to estates and individuals that are
eligible to receive them. Our review, however, demonstrates that
FSA field offices do not always conduct the necessary annual
determinations to ensure that estates are eligible to receive farm
program payments. FSA's performance of these determinations for
estates that have been kept open for more than 2 years could serve
as an effective deterrent to making improper program payments.
However, these determinations can only be a deterrent if they are
consistently and thoroughly conducted. As we have found, some FSA
field offices have failed to conduct eligibility determinations or
have not conducted them consistently and documented the results of
their determinations.
FSA has relied on farming operations to report the death of a
member whose ownership interest makes the operation eligible for
program payments. However, it appears that some individuals who
certify program eligibility forms for farming operations are
either not taking seriously their obligation to notify FSA of the
death of a member of the operation or are deliberately withholding
this information to maximize their receipt of farm program
payments. Our matching of FSA's farm payment database with the
Social Security Administration's Death Master File indicates that
FSA's reliance is misplaced, in at least some instances. We
previously reported that we found examples of farming operations
where recipients may circumvent the payment limits by organizing
large farming operations to maximize program payments. The complex
nature of these entities--such as entities embedded within other
entities--increases the potential that deceased individuals will
receive farm program payments because the status of these
individuals is not easy for FSA to ascertain. Currently, FSA does
not have effective management controls to verify that an
individual receiving farm program payments, either directly or
indirectly through an entity, is still alive. The lack of these
controls increases the risk of improper payments being made over
time.
The shortcomings we have identified underscore the need for
improved oversight of federal farm programs. Such oversight can
help to ensure that program funds are spent as economically,
efficiently, and effectively as possible, and that they benefit
those engaged in farming as intended.
Recommendations for Executive Action
To provide reasonable assurance that FSA does not make improper
payments to estates and deceased individuals, we recommend that
the Secretary of Agriculture direct the Administrator of the Farm
Service Agency to
o instruct FSA field offices to conduct all annual
estate eligibility determinations as required;
o implement management controls, such as matching
payment files with the Social Security
Administration's Death Master File, to verify that an
individual receiving farm program payments has not
died; and
o determine if improper program payments have been
made to deceased individuals or to entities that
failed to disclose the death of a member, and if so,
recover the appropriate amounts.
In addition, we have referred the cases we identify in this report
to USDA's Office of Inspector General for further investigation.
Agency Comments and Our Evaluation
We provided FSA with a draft of this report for review and
comment. FSA agreed with our recommendations and already has begun
to take action to implement them. For example, FSA has issued a
notice (Notice PL-158, May 31, 2007) to its field offices
emphasizing the current payment eligibility rules, procedures, and
review requirements for payments with respect to deceased
individuals and estates. This directive instructs these offices to
review the eligibility of all estates that have been open for more
than 2 years and requested 2007 farm program benefits.
Furthermore, according to FSA, it is currently working with the
Social Security Administration to obtain access to the Death
Master File of deceased individuals. FSA intends to develop a
process for matching its payment data against the Death Master
File on at least an annual basis. According to FSA, it will then
have a reliable means for identifying deceased individuals who may
also be payment recipients. In addition, once implemented, FSA
will no longer have to depend on the farming operation to notify
the agency of an individual's death.
Despite its concurrence with our recommendations, FSA did not
agree with our use of the term "improper payments" in this report.
FSA suggested that we revise the report to refer to the payments
as at most "questionable" in view of current eligibility
regulations, rather than improper. Specifically, the agency stated
that the payments we describe do not meet the definition of
improper payments under IPIA. We disagree. We believe three cases
we highlight in examples in the report do meet the definition of
improper payments under IPIA. IPIA defines improper payments as
any payment that should not have been made or that was made in an
incorrect amount (including overpayments and underpayments) under
statutory, contractual, administrative, or other legally
applicable requirements. This definition would include any payment
made to an ineligible recipient either directly or through an
entity. Our examples are consistent with this definition.
Furthermore, officials in FSA's field offices agreed with our
findings and told us they intend to recover the payments. For the
remaining farm program payments identified in the report, we
continue to believe that the potential exists for improper
payments because of the lack of FSA management controls and the
complexity of some of the farming operations involved. Under
current circumstances, FSA cannot be assured that millions of
dollars in farm program payments are going to those who met
eligibility requirements and thus should have received these
payments.
FSA's written comments are presented in appendix II. FSA also
provided us with suggested technical corrections, which we have
incorporated into this report, as appropriate.
As arranged with your office, unless you publicly announce its
contents earlier, we plan no further distribution of this report
until 30 days from its issue date. At that time, we will send
copies of this report to appropriate congressional committees; the
Secretary of Agriculture; the Director, OMB; and other interested
parties. In addition, this report will be available at no charge
on GAO's Web site at [16]http://www.gao.gov .
If you or your staff have any questions about this report, please
contact me at (202) 512-3841 or [17][email protected] . 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.
Sincerely yours,
Lisa Shames
Director, Natural Resources and Environment
Appendix I: Objectives, Scope, and Methodology
At the request of the Ranking Member of the Senate Committee on
Finance, we reviewed the Farm Service Agency's (FSA)
implementation of payment eligibility provisions to identify
improper payments to estates and deceased individuals.
Specifically, we evaluated the extent to which FSA (1) follows its
regulations that are intended to provide reasonable assurance that
farm program payments go only to eligible estates and (2) makes
improper payments to deceased individuals.
To determine how well FSA field offices carry out rules that
prohibit payments to ineligible recipients, we reviewed guidance
that FSA field offices use to determine farm program payment
eligibility, including relevant statutes and regulations and
agency policy, including the FSA Handbook on Payment Limitations,
1-PL (Revision 1). We reviewed relevant studies prepared by the
U.S. Department of Agriculture's (USDA) Office of Inspector
General and the Congressional Research Service, as well as our own
past reports. We also reviewed USDA's FY 2006 Performance and
Accountability Report to understand its assessment of internal
controls for its farm programs. In addition, we spoke with FSA
officials in headquarters, state offices, and local field offices
who are responsible for ensuring that (1) estates are properly
reviewed for eligibility and (2) payments are not made to deceased
individuals.
We obtained and analyzed FSA's computer databases for information
on payment recipients from 1999 through 2005. These databases
included FSA's Producer Payment Reporting System, Commodity
Certificate file, and Permitted Entity file. The databases contain
detailed information on payment recipients: Social Security
numbers, payment amounts, the status of recipients as individuals
or members of entities, their ownership interest in entities,
types of entity, and additional organizational details. The
databases also contain information on payments made under USDA's
farm programs, including the Direct and Counter-Cyclical Payments
Program, Marketing Assistance Loan Program, Conservation Reserve
Program, and Environmental Quality Incentives Program. We also
compiled data on farm program benefits provided through
cooperative marketing associations.1 Because our analysis covered
the years 1999 through 2005, it also included farm payments from
programs authorized before the Farm Security and Rural Investment
Act of 2002, such as production flexibility contract payments
authorized under the Agriculture Market Transition Act and market
loss assistance payments and crop disaster assistance payments
authorized under various ad hoc legislation. Appendix III provides
a list of USDA farm programs we reviewed.
1USDA provides benefits under the Marketing Assistance Loan Program
through cooperative marketing associations, an alternative delivery
system. Cooperative marketing associations obtain benefits on behalf of
their members who deliver a commodity to the cooperative for marketing on
a "pool" basis. Benefits, as well as marketing proceeds, are then
allocated to members according to their share of the commodity in the
pool. 7 C.F.R. pt. 1425.
To evaluate FSA's application of regulations and guidance to
assess the overall effectiveness of its review process for
deciding whether estates are eligible to receive farm program
payments, we reviewed a nonrandom sample of estate eligibility
determinations. To identify estates for our review, we analyzed
FSA's databases. The data showed that 2,841 estates had received
payments for more than 2 years between 1999 and 2005, thus
requiring FSA to conduct a determination of eligibility. Of these,
we examined 181 estates in 26 states and 142 counties. These
estates included the 162 (i.e., 162 of 2,841) that received over
$100,000 in farm program payments during this period. We also
selected the 16 estates (i.e., 16 of 2,841) that (1) had received
between $50,000 and $100,000 in farm program payments during this
period and (2) had at least one member receiving payments through
three other entities, which could indicate circumvention of the
three-entity rule. Lastly, we selected the three estates (i.e., 3
of 2,841) that had at least one member receiving payments through
seven or more other entities.
For each estate selected, we reviewed case file documents to
verify the basis for FSA field offices' decisions to grant
eligibility. Specifically, we obtained and reviewed files from FSA
field offices that ideally would have included the following
information to facilitate FSA's determinations: letters
testamentary from a probate court, minutes of the FSA county
committee meeting that approved eligibility, explanation letters
or documentation for the reason the estate remained active beyond
2 years, farm operating plans, and payment history. States and
counties vary widely in the amount and type of documentation they
require for probated estates. Consequently, we could not easily
determine whether improper payments were made to estates.
Furthermore, even in cases in which FSA had not done the required
annual determinations, or when relevant documentation was missing
or incomplete in the estate file, we could not determine whether
improper payments were made without examining each case in depth.
To evaluate the extent to which FSA makes improper payments to
deceased individuals, we compared recipients of farm program
payments in FSA's computer databases with individuals whose Social
Security numbers were listed in the Social Security
Administration's Death Master File, to identify post-death program
payments for individuals who were deceased. The Death Master File
contains information such as the name and Social Security numbers
of deceased individuals in the United States. We assessed the
reliability of FSA's data by (1) performing electronic testing of
required data elements, (2) reviewing existing information about
the data and the system that produced them, and (3) interviewing
agency officials knowledgeable about the data. We determined that
the data were sufficiently reliable for the purposes of our
review. Although we did not assess the reliability of the Social
Security Administration's Death Master File, it is the most
comprehensive list of death information available in the federal
government and is generally used by other government agencies and
researchers.
Using FSA's databases, we identified the 2.9 million individuals
who received payments, either directly or indirectly through an
entity, from 1999 through 2005. Payments were attributed to
members of an entity by apportioning the payments according to
each member's percentage share of that entity.2 Using these Social
Security numbers, we then compared these individuals with
individuals listed in the Social Security Administration's Death
Master File to determine the extent to which deceased individuals
may have received improper payments. The data match showed the
number and dollar amount of payments FSA provided to deceased
individuals from 1999 through 2005. To gain an understanding of
circumstances behind seemingly improper payments, we obtained
relevant documents from FSA, including farm operating plans and
acreage reports, for selected cases.
We conducted our review between June 2006 and May 2007 in
accordance with generally accepted government auditing standards.
2Because cooperative marketing associations, loan servicing agents, and
designated marketing associations only began reporting program benefits
provided to their members to USDA in 2007, we were unable to attribute
these benefits to individuals.
Appendix II: Comments from the U.S. Department of Agriculture
Note: GAO comments supplementing those in the report text appear at the
end of this appendix.
See comment 1.
See comment 1.
See comment 2.
See comment 5.
See comment 4.
See comment 3.
See comment 1.
See comment 6.
GAO's Comments
1. We believe the payments we highlight in three
examples in the report meet the definition of
improper payments under IPIA. IPIA defines improper
payments as any payment that should not have been
made or that was made in an incorrect amount
(including overpayments and underpayments) under
statutory, contractual, administrative, or other
legally applicable requirements. This definition
would include any payment made to an ineligible
recipient either directly or through an entity. Our
examples are consistent with this definition.
Furthermore, officials in FSA's field offices agreed
with our findings and told us they intend to recover
the payments. For the remaining farm program payments
identified in the report, we continue to believe that
the potential exists for improper payments because of
the lack of FSA management controls and the
complexity of some of the farming operations
involved. Under current circumstances, FSA cannot be
assured that millions of dollars in farm program
payments are going to those who met eligibility
requirements and thus should have received these
payments.
2. For each of the three examples discussed in the
report, we verified the accuracy of information in
FSA's payment system and discussed the estate with
the FSA field office where the estate was located.
Because the field offices have this information, we
do not understand why FSA does not believe the report
provided sufficient information to investigate these
cases further.
3. We would expect FSA field offices to have
appropriate documents to verify acceptable reasons
for keeping the estate open. These files could have
included the following information to facilitate
FSA's determinations: letters testamentary from a
probate court, minutes of the FSA county committee
meeting that approved eligibility, explanation
letters or documentation for the reason the estate
remained active beyond 2 years, and farm operating
plans. However, when annual determinations were not
done or relevant documentation was missing or
incomplete in the files, we could not determine with
certainty whether improper payments were made to
estates. As we discuss on page 4 of this report, the
wide variation in state and county documentation
required for probated estates made it difficult for
us to make eligibility determinations. We continue to
believe that the failure of FSA's field offices to
conduct annual determinations of eligibility
increases the risk of improper payments being made
over time.
4. FSA implies that because the $1.1 billion in farm
program payments paid to deceased individuals during
1999 through 2005 amounts to only 8/10 of 1 percent
of the total payments made during this period, the
amount is negligible. We disagree--a billion dollars
is not a negligible sum. In addition, this amount
represents only payments made to deceased individuals
during this specific period; it does not capture
payments made to deceased individuals before and
after this period. FSA is obligated to ensure that
program funds are spent as economically, efficiently,
and effectively as possible. The nation's current
deficit and growing long-term fiscal challenges
reinforce the importance of this obligation.
Implementing management controls, such as matching
payment files with the Social Security
Administration's Death Master File, to verify that an
individual receiving farm program payments has not
died is a simple, cost-effective means to achieve
this end.
5. FSA is correct that counter-cyclical payments may
be made for up to 3 years after an individual has
died. However, according to our analysis, only $46.5
million (4.2 percent) of the $1.1 billion in payments
made to deceased individuals from 1999 through 2005
were counter-cyclical payments made for the same
program year as the year in which the individual
died. Furthermore, a farming operation is subject to
forfeiture of payments, including counter-cyclical
payments, if it has not notified FSA of a change in
the farming operation, such as the death of an
individual who receives payments as a member of that
operation. Many deceased individuals who received
counter-cyclical payments during this period also
received payments under other programs for which FSA
should have been notified of the change in the
farming operation. However, the fact that an
individual was identified as deceased in our computer
matching indicates FSA was not informed that a change
in the farm operation had occurred, suggesting that
the farming operation was not eligible to receive any
of the payments, including the counter-cyclical
payments.
6. As noted in the report, the source for information
in table 3 (p. 17) is USDA's FY 2006 Performance and
Accountability Report. The improper payments and the
percent error rate for each program in table 3 are
USDA's estimates. We acknowledge that improper
payments made under the Noninsured Assistance Program
are not exclusively the result of payments made to
deceased individuals.
[This page left intentionally blank]
Appendix III: U.S. Department of Agriculture Farm Program Payments, Fiscal
Years 1999 through 2005
Program or payment name 1999 2000 2001
Agricultural Conservation $11,224,860 $4,196,928 $1,607,309
Program
Agricultural Management 0 0 0
Assistance Program
American Indian Livestock Feed 3,896,452 6,874,391 6,014,801
Programa
Apple and potato market loss 0 0 95,091,083
assistance programs
Bioenergy Program 0 0 5,067,405
Commodity certificate exchange 96,857,101 585,199,671 1,940,401,941
gainsb
Conservation Reserve Program 1,434,374,194 1,474,944,804 1,622,326,378
Conservation Security Program 0 0 0
Cottonseed Payment Program 0 77,626,725 81,379,925
Counter-cyclical payments 0 0 0
Crop disaster programsc 1,953,245,280 1,231,657,343 1,837,359,477
Dairy Market Loss Assistance 209,163,014 122,485,277 673,654,064
Programd
Direct payments 0 0 0
Emergency Conservation Program 37,035,860 60,549,402 34,827,766
Emergency Livestock Feed 269,490,514 188,118,895 427,206,152
Assistance Program
Emerging Markets Program 0 0 0
Environmental Quality 92,062,452 95,202,256 92,128,786
Incentives Programe
Grasslands Reserve Program 0 0 0
Grassroots Source Water 0 0 0
Protection Program
Hard white wheat incentive
payments 0 0 0
Karnal bunt fungus compensation
payments 1,426,124 1,392,898 103,083
Klamath Basin water payments 0 0 0
Lamb Meat Adjustment Assistance
Programf 0 2,516,681 18,692,049
Livestock Compensation Programg 3,985,184 22,963,155 44,476,583
Loan deficiency paymentsh 3,468,059,489 6,376,810,238 5,467,029,107
Market Access Program 0 183,731 63,001,400
Market loss assistance payments 2,811,228,359 10,924,186,869 4,645,364,213
Marketing loan gains 1,487,290,059 1,051,012,216 721,295,170
Milk Income Loss Contract
payments 0 0 0
Milk Income Loss Transition
Program 0 0 0
Noninsured Assistance Programi 52,408,755 36,300,893 60,432,706
Oilseed Payment Programj 0 459,927,711 920,885,679
Peanut Marketing Assistance
Program 0 55,049,077 117,841,300
Peanut Quota Buy-out Program 0 0 0
2002 2003 2004 2005 Total
$779,327 $(20,257) $(22,175) $(777) $17,765,214
2,931,841 3,549,373 1,364,417 950,169 8,795,800
2,186,408 0 0 473,247 19,445,300
19,043 166,512,140 153,593 0 261,775,859
60,703,365 148,137,098 150,436,473 99,076,283 463,420,623
929,629,241 308,736,262 1,456,993,125 1,223,575,959 6,541,393,299
1,778,628,324 1,755,206,253 1,796,767,076 1,788,444,977 11,650,692,007
0 0 0 281,127,805 281,127,805
0 49,834,565 14,588 0 208,855,803
0 1,745,225,805 803,461,729 2,799,538,213 5,348,225,747
235,365,230 1,869,337,985 748,830,900 2,806,953,550 10,682,749,765
1,722,115 1,204,615 598,526 337,566 1,009,165,178
0 4,149,832,019 5,289,289,888 5,235,904,151 14,675,026,058
30,195,494 44,760,627 22,177,233 56,918,356 286,464,739
(129,387) (33,187) 100,330,773 69,684,832 1,054,668,592
2,509,523 1,608,478 0 0 4,118,002
109,147,456 164,913,676 288,867,512 297,598,069 1,139,920,207
0 0 1,348,981 2,767,584 4,116,565
0 0 0 3,191,760 3,191,760
0 0 9,023,427 3,166,216 12,189,643
6,197,098 3,022,159 0 0 12,141,362
25,430 0 0 0 25,430
27,863,580 17,586,607 5,395,203 14,247,253 86,301,374
110,399,054 1,203,311,592 (467,556) (108,096) 1,384,559,915
5,287,046,329 666,486,952 573,886,091 3,870,181,854 25,709,500,060
99,345,621 95,485,882 124,004,633 33,542,876 415,564,144
1,157,868 (470,359) (779,398) (755,675) 18,379,931,878
636,104,440 190,745,265 114,559,845 321,066,062 4,522,073,056
61,339 1,220,761,113 220,703,438 7,006,604 1,448,532,494
51,485 559,861,054 6,844,214 1,931,887 568,688,641
179,507,950 237,573,300 122,717,376 107,826,455 796,767,434
194,199 (20,557) 5,541 (2,905) 1,380,989,667
29,959 0 0 0 172,920,335
0 1,220,317,818 24,989,195 22,302,136 1,267,609,149
Program or payment name 1999 2000 2001
Production flexibility 5,477,740,513 5,059,047,323 4,101,650,681
contract payments
Small Hog Operation 119,796,535 3,427,613 1,360
Payment Program
Soil and Water 0 0 2,790
Agricultural Assistance
Program
Sugarcane Payment Programk 0 0 105,677,357
Tobacco Disaster 0 2,697,221 470,849,679
Assistance Programl
Tobacco Buyout Program 0 0 0
Trade Adjustment 0 0 0
Assistance for Farmers
Tree Assistance Program 6,641,204 2,008,117 530,970
Wetlands Reserve Program 939 4,710 15,610,939
Wildlife Habitat 0 0 0
Incentives Program
Wool & Mohair Market Loss (4,975) (300) 45,336,483
Assistance Program
Other programsm 5,962,635 6,131,614 191,939,583
Total $17,541,884,547 $27,850,515,460 $23,807,786,218
2002 2003 2004 2005 Total
3,971,755,013 (292,942,256) (8,252,201) (2,005,089) 18,306,993,984
(5,000) 0 0 0 123,220,508
4,574,638 2,694,734 1,859,399 1,133,091 10,264,651
88,452,205 0 55,800,000 (1,569) 249,927,993
5,924,085 (1,668) (532) (261) 479,468,524
0 51,122,236 5,033 (80) 51,127,189
0 0 9,739,427 14,669,796 24,409,222
(10,767) (524) 1,739,917 3,547,835 14,456,752
19,040,526 21,572,999 18,094,066 9,163,339 83,487,518
0 0 0 8,406,507 8,406,507
358,574 (76,838) (8,136) (1,153) 45,603,655
15,430,977 17,092,297 1,483,445 1,744,112 239,784,665
$13,607,192,583 $15,622,927,258 $11,941,955,066 $19,083,602,940 $129,455,864,072
Source: GAO's analysis of FSA's and Natural Resources Conservation
Service's data.
Notes: For commodity certificate exchange gains and payments made
under the Marketing Assistance Loan Program through cooperative
marketing associations, we used program year data. Totals may not
add due to rounding. Negative payments represent receivables due
to over-disbursements and other payment anomalies in a prior year.
aIncludes the American Indian Livestock Assistance Program.
bIncludes cotton user marketing certificate gains.
cIncludes the Apple & Potato Quality Loss Program, Sugar Beet
Disaster Program, Quality Loss Program, Crop Loss Disaster
Assistance Program, Florida Nursery Losses Program, Florida
Hurricane Charley Disaster Program, Disaster Reserve Flood
Compensation Program, Florida Hurricane Nursery Disaster Program,
Florida Hurricane Vegetable Disaster Program, Multi-Year Crop Loss
Disaster Assistance Program, North Carolina Crop Hurricane Damage
Program, Nursery Losses In Florida Program, and Single Year Crop
Loss Disaster Assistance Program, as well as Disaster Supplemental
Appropriation payments, Crop Disaster North Carolina payments,
Crop Disaster Virginia payments, and 1999 Citrus Losses In
California.
dIncludes the Dairy Indemnity Program, Dairy Options Pilot
Program, and Dairy Production Disaster Assistance Program.
eIncludes the Interim Environmental Quality Incentives Program
(EQIP) For Colorado River Salinity Control Program, Interim EQIP
For Great Plains Conservation Program, as well as Automated
Conservation Program Environmental Long Term payments, and Interim
EQIP Annual Agreement for Agricultural Conservation Program
payments.
fIncludes the Ewe Lamb Replacement and Retention Program.
gIncludes the Livestock Assistance Program, Livestock Indemnity
Program, Avian Influenza Indemnity Program, Cattle Feed Program,
Pasture Flood Compensation Program, and Pasture Recovery Program.
hIncludes "loan deficiency payment-like" grazing payments for
wheat, barley, oats, and triticale.
iIncludes supplemental appropriations for the Noninsured
Assistance Program.
jIncludes supplemental appropriations for the Oilseed Payment
Program.
kIncludes the Sugar Payment-In-Kind Diversion Program.
lIncludes the Tobacco Loss Assistance Program and the Supplement
Tobacco Loss Assistance Program.
mIncludes the Yakima Basin Water Program, Flood Compensation
Program for Harney County Oregon, Fresh Market Peaches Program,
Idaho Oust Program, Livestock Compensation Program- Grants For
Catfish Producers, Limited California Cooperative Insolvency
Program, New Mexico Tebuthiuron Application Losses Program, New
York Onion Producers Program, Potato Diversion Program, Poultry
Enteritis Mortality Syndrome Program, Seed Corn Purchase
Containing CRY9C Protein Program, Specialty Crops-Base State
Grants Program, Specialty Crops-Value Of Production Program, and
State Commodity Assistance Program, as well as Consent Decree
payments and Interest Penalty payments.
Appendix IV: U.S. Department of Agriculture Estate Eligibility
Reviews, by State, Program Years 1999 through 2005
Table 5 shows the variation by state in FSA's conduct of
eligibility determinations from 1999 through 2005 for the 181
estates in our sample. Not all states are represented because we
chose estates based on criteria other than location. Our sample of
181 estates included the 162 that received over $100,000 in farm
program payments during this period. We also selected the 16
estates that (1) received between $50,000 and $100,000 in farm
program payments during this period and (2) had at least one
member receiving payments through three other entities, which
could indicate circumvention of the three-entity rule.1 In
addition, we selected the three estates that had at least one
member receiving payments through seven or more other entities.
1Under the "three-entity rule," a person--an individual or entity--can
receive program payments through no more than three entities in which the
person holds a substantial beneficial interest. A person can receive
payments (1) as an individual and as a member of no more than two entities
or (2) through three entities and not as an individual. FSA defines a
substantial beneficial interest as 10 percent or more.
Table 5: Variation in Reviews Conducted by FSA, by State, Program
Years 1999 through 2005
Number of estates Number of estates Percent of
State requiring review reviewed estates reviewed
Alabama 9 2 22.2
Arizona 1 0 0
Arkansas 12 8 66.7
California 1 0 0
Colorado 2 2 100.0
Georgia 16 5 31.3
Illinois 20 13 65.0
Iowa 1 1 100.0
Indiana 4 2 50.0
Kansas 13 8 61.5
Kentucky 2 0 0
Louisiana 3 1 33.3
Minnesota 1 0 0
Mississippi 3 0 0
Missouri 1 0 0
Montana 4 1 25.0
North Carolina 1 0 0
North Dakota 4 3 75.0
Nebraska 4 1 25.0
New Mexico 1 0 0
Oklahoma 2 2 100.0
Oregon 2 0 0
South Carolina 1 0 0
South Dakota 2 1 50.0
Texas 63 55 87.3
Washington 8 3 37.5
Total 181 108 59.7
Source: GAO's analysis of FSA's data.
Appendix V: GAO Contact and Staff Acknowledgments
GAO Contact
Lisa Shames (202) 512-3841 or [18][email protected]
Staff Acknowledgments
In addition to the individual named above, James R. Jones, Jr.,
Assistant Director; Hamid E. Ali; Kevin S. Bray; Thomas M. Cook;
Stephanie K. Fain; Ronald E. Maxon, Jr.; Jennifer R. Popovic; and
Carol Herrnstadt Shulman made key contributions to this report.
Related GAO Products
Improper Payments: Agencies' Efforts to Address Improper Payment
and Recovery Auditing Requirements Continue. [19]GAO-07-635T .
Washington, D.C.: March 29, 2007.
Improper Payments: Incomplete Reporting under the Improper
Payments Information Act Masks the Extent of the Problem.
[20]GAO-07-254T . Washington, D.C.: December 5, 2006.
Improper Payments: Agencies' Fiscal Year 2005 Reporting under the
Improper Payments Information Act Remains Incomplete.
[21]GAO-07-92 . Washington, D.C.: November 14, 2006.
Financial Management: Challenges Continue in Meeting Requirements
of the Improper Payments Information Act. [22]GAO-06-581T .
Washington, D.C.: April 5, 2006.
Financial Management: Challenges Remain in Meeting Requirements of
the Improper Payments Information Act. [23]GAO-06-482T .
Washington, D.C.: March 9, 2006.
Financial Management: Challenges in Meeting Governmentwide
Improper Payment Requirements. [24]GAO-05-907T . Washington, D.C.:
July 20, 2005.
Financial Management: Challenges in Meeting Requirements of the
Improper Payments Information Act. [25]GAO-05-605T . Washington,
D.C.: July 12, 2005.
Financial Management: Challenges in Meeting Requirements of the
Improper Payments Information Act. [26]GAO-05-417 . Washington,
D.C.: March 31, 2005.
Farm Program Payments: USDA Should Correct Weaknesses in
Regulations and Oversight to Better Ensure Recipients Do Not
Circumvent Payment Limitations. [27]GAO-04-861T . Washington,
D.C.: June 16, 2004.
Farm Program Payments: USDA Needs to Strengthen Regulations and
Oversight to Better Ensure Recipients Do Not Circumvent Payment
Limitations. [28]GAO-04-407 . Washington, D.C.: April 30, 2004.
Strategies to Manage Improper Payments: Learning From Public and
Private Sector Organizations. [29]GAO-02-69G . Washington, D.C.:
October 1, 2001.
Farm Programs: Changes to the Marketing Assistance Loan Program
Have Had Little Impact on Payments. [30]GAO-01-964 . Washington,
D.C.: September 28, 2001.
Farm Programs: Information on Recipients of Federal Payments.
[31]GAO-01-606 . Washington, D.C.: June 15, 2001.
Financial Management: Billions in Improper Payments Continue to
Require Attention. [32]GAO-01-44 . Washington, D.C.: October 27,
2000.
GAO's Mission
The Government Accountability Office, the audit, evaluation and
investigative arm of Congress, exists to support Congress in
meeting its constitutional responsibilities and to help improve
the performance and accountability of the federal government for
the American people. GAO examines the use of public funds;
evaluates federal programs and policies; and provides analyses,
recommendations, and other assistance to help Congress make
informed oversight, policy, and funding decisions. GAO's
commitment to good government is reflected in its core values of
accountability, integrity, and reliability.
Obtaining Copies of GAO Reports and Testimony
The fastest and easiest way to obtain copies of GAO documents at
no cost is through GAO's Web site ( [33]www.gao.gov ). Each
weekday, GAO posts newly released reports, testimony, and
correspondence on its Web site. To have GAO e-mail you a list of
newly posted products every afternoon, go to [34]www.gao.gov and
select "Subscribe to Updates."
Order by Mail or Phone
The first copy of each printed report is free. Additional copies
are $2 each. A check or money order should be made out to the
Superintendent of Documents. GAO also accepts VISA and Mastercard.
Orders for 100 or more copies mailed to a single address are
discounted 25 percent. Orders should be sent to:
U.S. Government Accountability Office 441 G Street NW, Room LM
Washington, D.C. 20548
To order by Phone: Voice: (202) 512-6000 TDD: (202) 512-2537 Fax:
(202) 512-6061
To Report Fraud, Waste, and Abuse in Federal Programs
Contact:
Web site: [35]www.gao.gov/fraudnet/fraudnet.htm E-mail:
[36][email protected] Automated answering system: (800) 424-5454 or
(202) 512-7470
Congressional Relations
Gloria Jarmon, Managing Director, [37][email protected] (202)
512-4400 U.S. Government Accountability Office, 441 G Street NW,
Room 7125 Washington, D.C. 20548
Public Affairs
Paul Anderson, Managing Director, [38][email protected] (202)
512-4800 U.S. Government Accountability Office, 441 G Street NW,
Room 7149 Washington, D.C. 20548
(360718)
[41]www.gao.gov/cgi-bin/getrpt?GAO-07-818 .
To view the full product, including the scope
and methodology, click on the link above.
For more information, contact Lisa Shames at (202) 512-3841 or
[email protected].
Highlights of [42]GAO-07-818 , a report to the Ranking Member, Committee
on Finance, U.S. Senate
July 2007
FEDERAL FARM PROGRAMS
USDA Needs to Strengthen Controls to Prevent Improper Payments to Estates
and Deceased Individuals
Farmers receive about $20 billion annually in federal farm program
payments, which go to individuals and "entities," including corporations,
partnerships, and estates. Under certain conditions, estates may receive
payments for the first 2 years after an individual's death. For later
years, the U.S. Department of Agriculture (USDA) must determine that the
estate is not being kept open for payments.
As requested, GAO evaluated the extent to which USDA (1) follows its
regulations that are intended to provide reasonable assurance that farm
program payments go only to eligible estates and (2) makes improper
payments to deceased individuals. GAO reviewed a nonrandom sample of
estates based, in part, on the amount of payments an estate received and
compared USDA's databases that identify payment recipients with
individuals the Social Security Administration listed as deceased.
[43]What GAO Recommends
GAO recommends that USDA conduct all required annual estate eligibility
determinations, implement management controls to verify that an individual
receiving program payments has not died, and determine if these payments
have been made to deceased individuals or to entities that failed to
disclose the death of a member, and if so, recover the appropriate
amounts. USDA agreed with these recommendations and has begun actions to
implement them.
USDA has made farm payments to estates more than 2 years after recipients
died, without determining, as its regulations require, whether the estates
were kept open to receive these payments. As a result, USDA cannot be
assured that farm payments are not going to estates kept open primarily to
obtain these payments. From 1999 through 2005, USDA did not conduct any
eligibility determinations for 73, or 40 percent, of the 181 estates GAO
reviewed. Sixteen of these 73 estates had each received more than $200,000
in farm payments, and 4 had each received more than $500,000. Also, for
the 108 reviews USDA did conduct, GAO identified shortcomings. For
example, from 1999 through 2005, 69 of the 108 estates did not receive
annual reviews for every year of payments received, and some USDA field
offices approved groups of estates for payments without reviewing each
estate. Furthermore, 20 estates that USDA approved for payment eligibility
had no documented explanation for keeping the estate open.
USDA cannot be assured that millions of dollars in farm payments are
proper. It does not have management controls to verify that it is not
making payments to deceased individuals. For 1999 through 2005, USDA paid
$1.1 billion in farm payments in the names of 172,801 deceased individuals
(either as an individual recipient or as a member of an entity). Of this
total, 40 percent went to those who had been dead for 3 or more years, and
19 percent to those dead for 7 or more years. Most of these payments were
made to deceased individuals indirectly (i.e., as members of farming
entities). For example, over one-half of the $1.1 billion payments went
through entities from 1999 through 2005. In one case, USDA paid a member
of an entity--deceased since 1995--over $400,000 in payments for 1999
through 2005. USDA relies on the farming operation's self-certification
that the information provided is accurate and that the operation will
inform USDA of any changes, such as the death of a member. Such
notification would provide USDA with current information to determine the
eligibility of the entity to receive the payments. The complex nature of
some farming operations--such as entities embedded within other
entities--can make it difficult for USDA to avoid making payments to
deceased individuals.
Number of Deceased Individuals Receiving Farm Payments through Entities,
1999-2005
References
Visible links
14. http://www.gao.gov/cgi-bin/getrpt?GAO-04-407
15. http://www.gao.gov/cgi-bin/getrpt?GAO-07-235R
16. http://www.gao.gov/
17. mailto:[email protected]
18. mailto:[email protected]
19. http://www.gao.gov/cgi-bin/getrpt?GAO-07-635T
20. http://www.gao.gov/cgi-bin/getrpt?GAO-07-254T
21. http://www.gao.gov/cgi-bin/getrpt?GAO-07-92
22. http://www.gao.gov/cgi-bin/getrpt?GAO-06-581T
23. http://www.gao.gov/cgi-bin/getrpt?GAO-06-482T
24. http://www.gao.gov/cgi-bin/getrpt?GAO-05-907T
25. http://www.gao.gov/cgi-bin/getrpt?GAO-05-605T
26. http://www.gao.gov/cgi-bin/getrpt?GAO-05-417
27. http://www.gao.gov/cgi-bin/getrpt?GAO-04-861T
28. http://www.gao.gov/cgi-bin/getrpt?GAO-04-407
29. http://www.gao.gov/cgi-bin/getrpt?GAO-02-69G
30. http://www.gao.gov/cgi-bin/getrpt?GAO-01-964
31. http://www.gao.gov/cgi-bin/getrpt?GAO-01-606
32. http://www.gao.gov/cgi-bin/getrpt?GAO-01-44
33. http://www.gao.gov/
34. http://www.gao.gov/
35. http://www.gao.gov/fraudnet/fraudnet.htm
36. mailto:[email protected]
37. mailto:[email protected]
38. mailto:[email protected]
39. http://www.gao.gov/cgi-bin/getrpt?GAO-07-92
40. http://www.gao.gov/cgi-bin/getrpt?GAO-04-407
41. http://www.gao.gov/cgi-bin/getrpt?GAO-07-818
42. http://www.gao.gov/cgi-bin/getrpt?GAO-07-818
*** End of document. ***