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United States Government Accountability Office: 
GAO: 

Report to Congressional Requesters: 

July 2012: 

Farm Programs: 

Direct Payments Should Be Reconsidered: 

GAO-12-640: 

GAO Highlights: 

Highlights of GAO-12-640, a report to congressional requesters. 

Why GAO Did This Study: 

Through one facet of the farm safety net, USDA provides farmers and 
other producers with fixed annual payments, called direct payments, 
based on their farms’ historical crop production. Direct payments do 
not vary with crop prices or crop yields. In March 2011, GAO reported 
on observations and options regarding direct payments and suggested to 
Congress that they be eliminated or reduced. GAO was asked (1) to 
provide information regarding the geographic distribution and 
ownership characteristics of payment recipients, as well as the dollar 
amount of direct payments made for farms with acreage that qualified, 
and the amount and types of crops grown on such acreage for years 2003 
to 2011, and (2) to examine whether direct payments are aligned with 
principles significant to integrity, effectiveness, and efficiency in 
farm bill programs. To conduct this work, GAO analyzed USDA data and 
interviewed agency officials. 

What GAO Found: 

From 2003 through 2011, the U.S. Department of Agriculture (USDA) made 
more than $46 billion in direct payments to farmers and other 
producers. These producers planted varying percentages of acres that 
qualified for payments based on their historical planting yields and 
designated payment rates (qualifying acres). Cumulatively, USDA paid 
$10.6 billion—almost one-fourth of total direct payments made from 
2003 through 2011—to producers who did not, in a given year, grow the 
crop associated with their qualifying acres, which they are allowed to 
do. About 2,300 farms (0.15 percent of farms receiving direct 
payments) reported all their land as “fallow,” and producers did not 
plant any crops on this land for each year for the last 5 years, from 
2007 through 2011; in 2011, these producers received almost $3 million 
in direct payments. 

Direct payments generally do not align with the principles significant 
to integrity, effectiveness, and efficiency in farm bill programs that 
GAO identified in an April 2012 report. These payments align with the 
principle of being “distinctive,” in that they do not overlap or 
duplicate other farm programs. However, direct payments do not align 
with five other principles. Specifically, they do not align with the 
following principles: 

* Relevance: When the precursors to direct payments were first 
authorized in 1996 legislation, they were expected to be transitional, 
but subsequent legislation passed in 2002 and 2008 has continued these 
payments as direct payments. However, in April 2012, draft legislation 
for reauthorizing agricultural programs through 2017 proposed 
eliminating direct payments. 

* Targeting: Direct payments do not appropriately distribute benefits 
consistent with contemporary assessments of need. For example, they 
are concentrated among the largest recipients based on farm size and 
income; in 2011, the top 25 percent of payment recipients received 73 
percent of direct payments. 

* Affordability: Direct payments may no longer be affordable given the 
United States’ current deficit and debt levels. 

* Effectiveness: Direct payments may have unintended consequences. 
Direct payments may have less potential than other farm programs to 
distort prices and production, but economic distortions can result 
from these payments. For example, GAO identified cases where direct 
payments support recipients who USDA officials said own farmland that 
is not economically viable in the absence of these payments. 

* Oversight: Oversight of direct payments is weak. With regard to 
oversight, USDA has not systematically reported on land that may no 
longer be eligible for direct payments because it has been converted 
to nonfarm uses, as required for annual reporting to Congress. In 
addition, GAO identified weaknesses in USDA’s end-of-year compliance 
review process. For example, USDA conducts relatively few reviews and 
generally does not complete these reviews within expected time frames. 

Continuing to provide payments that generally do not align with 
principles significant to integrity, effectiveness, and efficiency in 
farm bill programs raises questions about the purpose and need for 
direct payments. 

What GAO Recommends: 

Congress should consider eliminating or reducing direct payments. GAO 
also recommends that USDA take four actions to improve its oversight 
of direct payments including developing a systematic process to report 
on land that may no longer be usable for agriculture, and considering 
ways to increase the number of cases selected for end-of-year reviews 
and completing these reviews in a timely manner. USDA generally agreed 
with two of GAO’s recommendations and disagreed with two others, 
stating that it believes its current processes or practices are 
adequate. GAO continues to believe that it is important for USDA to 
take the recommended actions. 

View [hyperlink, http://www.gao.gov/products/GAO-12-640]. For more 
information, contact Lisa Shames at (202) 512-3841 or shamesl@gao.gov. 

[End of section] 

Contents: 

Letter: 

Background: 

Varied Producers, Who Are Geographically Concentrated, Received More 
Than $46 Billion in Direct Payments from 2003 through 2011: 

Direct Payments Do Not Align with Certain Principles: 

Conclusions: 

Matter for Congressional Consideration: 

Recommendations for Executive Action: 

Agency Comments and Our Evaluation: 

Appendix I: Objectives, Scope, and Methodology: 

Appendix II: Principles Significant to the Integrity, Effectiveness, 
and Efficiency of Farm Bill Programs: 

Appendix III: Ownership Characteristics of Land for Which Direct 
Payments Were Made: 

Appendix IV: Analysis of Direct Payment Crops Grown Compared with Base 
Acreage Allocations: 

Appendix V: Analysis of Extent to Which Producers Did Not Grow Any of 
the Crop Associated with Their Base Acres in a Given Year: 

Appendix VI: Analysis, by State, of the Number of Farms Fallow from 
2007 through 2011 and the Value of Direct Payments Made to Producers 
for These Farms in 2011: 

Appendix VII: Comments from the U.S. Department of Agriculture: 

Appendix VIII: GAO Contact and Staff Acknowledgments: 

Related GAO Products: 

Tables: 

Table 1: Status of FSA's End-of-Year Reviews for 2008 and 2009, as of 
September 2011: 

Table 2: Amounts by Which FSA Reduced Direct Payments for Selected 
Reasons in 2010 and 2011: 

Table 3: Changes in Ownership of Land for Which Direct Payments Were 
Made, All Covered Crops: 

Table 4: Ownership Characteristics, All Covered Crops, Corn, Cotton, 
Oats, Rice, Soybeans, and Wheat, 2011: 

Table 5: Planted Acres of Base Acre Crop as a Percentage of Base 
Acres, from 2003 through 2011: 

Table 6: Cumulative Value of Direct Payments Made for Which the Crop 
Associated with the Base Acres Was Not Grown in a Given Year from 2003 
through 2011: 

Table 7: Number of Farms Where Producers Planted No Crop of Any Type 
from 2007 through 2011 and Value of Direct Payments Received by These 
Producers in 2011, by State: 

Figures: 

Figure 1: How Direct Payments Are Calculated: 

Figure 2: Direct Payments by County, 2011: 

Figure 3: Distribution of "Fallow" Farms--Those That Did Not Grow Any 
Crop of Any Type--Each Year from 2007 through 2011 for Which Direct 
Payments Were Made: 

Abbreviations: 

ACRE: Average Crop Revenue Election: 

CCC: Commodity Credit Corporation: 

FSA: Farm Service Agency: 

GDP: gross domestic product: 

OIG: Office of Inspector General: 

USDA: U.S. Department of Agriculture: 

2008 Farm Bill: The Food, Conservation, and Energy Act of 2008: 

[End of section] 

United States Government Accountability Office: 
Washington, DC 20548: 

July 3, 2012: 

Congressional Requesters: 

From 2006 through 2010, the U.S. Department of Agriculture (USDA) 
spent about $13 billion annually on federal programs to support farm 
income, assist farmers after disasters, and conserve natural 
resources. Through one facet of this farm safety net, USDA provides 
farmers and other producers with fixed annual payments--called direct 
payments--based on their farms' historical crop production. USDA makes 
these payments regardless of whether these producers grow crops, as 
long as they and their farms meet certain eligibility criteria. 
Amounting to nearly $5 billion annually since 2002, direct payments do 
not vary with crop prices, crop yields, or producers' incomes. 
[Footnote 1] Unlike other major farm programs, which compensate 
farmers for declines in price or for lost crops, direct payments go to 
farmers regardless of risk factors. Direct payments were most recently 
authorized in the Food, Conservation, and Energy Act of 2008 (2008 
Farm Bill), and without future action, will expire in September 2012. 
USDA's Farm Service Agency (FSA) is responsible for administering 
direct payments and for ensuring that recipients of such payments meet 
eligibility criteria, and that payment limitations and other 
applicable provisions are applied. 

Increased national budget deficits, record levels of farm income and 
prices for major crops, and sensitivity within the agricultural 
industry and among the public to potentially unnecessary budget 
outlays have heightened concerns about the viability of and need for 
direct payments. In March 2012, the President's fiscal year 2013 
budget called for the elimination of direct payments, noting that more 
than 50 percent of direct payments go to farmers with more than 
$100,000 in income and questioning whether taxpayers should continue 
to "foot the bill."[Footnote 2] For 2011, USDA reported that net farm 
income was a record $98.1 billion. For 2012, USDA estimates that net 
farm income will decline to $91.7 billion--still the second highest 
level on record. Moreover, according to USDA, the top 5 earnings years 
for the past 3 decades have occurred since 2004, attesting to the 
recent profitability of farming. Furthermore, farmland values, another 
measure of farm prosperity, increased by 85 percent from 2003 through 
2011. Since August 2011, the trade associations of five major crops 
for which the bulk of direct payments are made--corn, cotton, wheat, 
rice, and soybeans--have stated that direct payments may need to be 
eliminated in favor of other elements of the government-subsidized 
farm safety net. In addition, in our March 2011 report on overlap and 
duplication in federal programs, we made several observations 
regarding direct payments, and we noted that GAO and others have 
proposed options to reduce or eliminate direct payments.[Footnote 3] 

In April 2012, we identified certain principles as applicable to 
Congress's deliberations for the 2012 farm bill and significant to the 
integrity, effectiveness, and efficiency of farm bill programs, such 
as direct payments.[Footnote 4] Specifically, the principles we 
identified were (1) relevance of program purpose, (2) distinctiveness, 
(3) targeting benefits, (4) affordability, (5) effectiveness, and (6) 
oversight. See appendix II for the list of principles and associated 
key questions. 

We have further reported that strengthened oversight of direct 
payments and other farm program payments can save taxpayer dollars. 
For example, we reported in July 2007 that USDA made $1.1 billion in 
potentially improper farm program payments, including direct payments, 
to more than 170,000 deceased individuals.[Footnote 5] According to 
USDA officials, since 2007, they have begun taking additional steps to 
verify that payment recipients are alive, and if the payment is 
determined inappropriate, recover it. We also reported, in April 2004, 
that USDA was not effectively overseeing its farm program payments, 
including direct payments. In particular, we reported that FSA did not 
review a valid sample of producers' farm operating plans to ensure 
compliance with eligibility requirements and thus did not ensure that 
only eligible recipients received payments. Moreover, we found that 
FSA's reviews of these plans were often completed late.[Footnote 6] 
USDA has since implemented some management controls in response to our 
recommendations. 

Because the expected reauthorization of the farm bill this year 
provides an opportunity to reexamine direct payments, you asked us to 
review them. In this context, this report (1) provides information on 
the geographic distribution and ownership characteristics of payment 
recipients, the dollar amounts of direct payments made for farms with 
acreage that qualifies for such payments, and the amount and types of 
crops grown on such acreage from 2003 through 2011 and (2) examines 
whether direct payments are aligned with principles significant to 
integrity, effectiveness, and efficiency in farm bill programs. 

To conduct this work, we analyzed USDA data, interviewed agency 
officials, and reviewed and updated our past work. Specifically, to 
provide information about the ownership characteristics and geographic 
distribution of payment recipients and determine the dollar amount of 
direct payments made for farms with qualifying acreage, we obtained 
USDA data indicating the number, amount, and recipient for direct 
payments made from program years 2003 through 2011--that is, from the 
program's first full year of operation through the most recent year 
for which complete program data are available.[Footnote 7] We also 
obtained and analyzed data detailing the acreage of qualifying farms 
and the planting history for each farm for which direct payments were 
made and other records pertaining to the share of payments received by 
various individuals and entities. In particular, we obtained data from 
USDA's compliance share file that indicates how a producer--whether an 
individual or an entity--is involved and whether they own a particular 
farm field or area of land for which direct payments were made. 
Producers report they either (1) own and operate the farm ("owner-
operators"), (2) operate but do not own the farm ("tenants"), or (3) 
are an owner of the farm ("other owners"). To assess the reliability 
of USDA's data, we (1) performed electronic testing of required data 
elements, (2) reviewed existing information about the data and the 
system that produced them, and (3) interviewed agency officials 
knowledgeable about the data. We found these data to be sufficiently 
reliable for the purposes of this report.[Footnote 8] To examine 
whether direct payments are aligned with principles significant to 
integrity, effectiveness, and efficiency in farm bill programs, we 
reviewed our previous work in the area--in particular our March 2011 
report on overlap and duplication of federal programs, which discussed 
observations regarding direct payments.[Footnote 9] We also reviewed 
our April 2012 report, which reviewed our recent work on farm bill 
programs and identified the principles and associated key 
questions.[Footnote 10] These principles may not represent all 
potential principles that could be considered. We collected additional 
data where possible to determine how circumstances regarding direct 
payments may have changed more recently and evaluated direct payments 
according to the principles identified in our earlier work. We spoke 
with officials in FSA headquarters, state, and county offices who are 
responsible for ensuring that direct payment recipients meet 
requirements for such payments. We also visited five selected FSA 
county offices located in Arizona and Louisiana. We selected these 
county offices because FSA data showed a relatively high number of end-
of-year reviews of farming operations in these counties. In addition, 
some of these counties had experienced high levels of residential 
growth in recent years. During our visits, we reviewed case files, 
including those of farming operations that had undergone or were 
undergoing end-of-year reviews, and observed some of these farms. 
Appendix I describes our objectives, scope, and methodology in more 
detail. 

We conducted this performance audit from August 2011 to June 2012 in 
accordance with generally accepted government auditing standards. 
Those standards require that we plan and perform the audit to obtain 
sufficient, appropriate evidence to provide a reasonable basis for our 
findings and conclusions based on our audit objectives. We believe 
that the evidence obtained provides a reasonable basis for our 
findings and conclusions based on our audit objectives. 

Background: 

Federal law mandates support for farmers through various programs, 
including direct payments. USDA, through its Commodity Credit 
Corporation (CCC),[Footnote 11] calculates direct payments using a 
formula that factors in "base acres," a measure of a farm's crop 
production history based on the number of acres planted on the farm 
during certain past years. The term base acres refers to a farm's 
average planted acreage of specific crops during those years; the term 
does not refer to specific physical acres on that farm. The direct 
payment formula uses a fixed percentage of the average number of acres 
planted on the farm from 1998 through 2001 and multiplies that number 
by the farm's historical crop yield and a statutorily fixed payment 
rate.[Footnote 12] The percentage and payment rates for each crop are 
specified in legislation, commonly referred to as farm bills, passed 
by Congress roughly every 5 years. For 2009 through 2011, this 
percentage was set at 83 percent; for 2012, it was set at 85 percent. 
Figure 1 illustrates the process for calculating a producer's direct 
payment. 

Figure 1: How Direct Payments Are Calculated: 

[Refer to PDF for image: illustration] 

Basis for direct payment calculations: 

Formula: 
Payment amount equals: 
# of base acres for the crop; 
times: 
Historical yield per acre for the designated crop; 
times: 
Payment rate for the designated crop and year; 
times: 
Fixed percentage. 

Definition or source: 
What producer receives (up to $40,000); Based on historical production; 
times: 
Farm bill and administrative rules; 
times: 
Farm bill; 
times: 
Farm bill. 

Hypothetical examples: 

Producer A receives $29,920; 
equals: 
Has 2,000 base acres of soybeans; 
times: 
40 bushels per acre; 
times: 
$0.44 per bushel; 
times: 
85%. 

Producer B receives $39,270; 
equals: 
Has 1,500 base acres of corn; 
times: 
110 bushels per acre; 
times: 
$0.28 per bushel; 
times: 
85%. 

Source: GAO.       

[End of figure] 

Through this system, a producer's direct payments are based on the 
historical production of a particular crop. Moreover, producers have 
almost complete flexibility in deciding which crops to plant, and they 
receive payments as long as they meet eligibility criteria, even if 
they decide to plant different crops or not plant crops at all. In 
years in which they do not plant, however, the farm bill requires that 
the relevant land be maintained in accordance with sound agricultural 
practices. For example, producers must take steps to minimize the 
growth of weeds on the land. Producers also are required to report 
planting information each year on forms called acreage reports. 
[Footnote 13] The United States has classified direct payments as 
meeting World Trade Organization rules for nontrade distorting 
payments; direct payments are not tied to specific production or 
prices, and they are generally deemed not to distort international 
agricultural markets. 

After learning of instances where farm payments were made to 
individuals not involved in farming, Congress enacted the Agricultural 
Reconciliation Act of 1987, commonly referred to as the Farm Program 
Payments Integrity Act. The act, among other measures, sets 
eligibility criteria to ensure that only individuals and entities 
"actively engaged in farming" receive certain farm program payments. 
[Footnote 14] Specifically, according to the 2008 Farm Bill, direct 
payments, Average Crop Revenue Election (ACRE), and counter-cyclical 
payment recipients are required to be actively engaged in farming. 
[Footnote 15] FSA is responsible for ensuring that direct payment 
recipients meet program eligibility criteria. FSA carries out this 
responsibility through its headquarters office, 50 state offices, and 
approximately 2,200 county offices. Producers file with their local 
FSA county office a farm operating plan in which they document the 
number of recipients qualifying for payments, the name of each payment 
recipient, and each recipient's role in the farming operation and 
share of profits and losses. Producers must update this plan when a 
change in their operation occurs, such as a change in the farm's 
ownership. 

FSA reviews these plans to determine, among other things, the number 
of recipients who qualify for payments and whether they are actively 
engaged in farming. To be considered actively engaged in farming, an 
individual recipient must make significant contributions to the 
farming operation in two areas: (1) capital, land, or equipment and 
(2) personal labor or active personal management. An entity, such as a 
corporation, limited partnership, or trust is generally considered 
actively engaged in farming if the entity separately makes a 
significant contribution of capital, land, or equipment, and its 
members collectively make a significant contribution of personal labor 
or active personal management to a farming operation. In 2010, FSA 
issued a rule stating that members of a legal entity are excepted from 
the requirement to make contributions of active personal labor or 
active person management if (1) at least 50 percent of the interest is 
held by members that are providing active personal labor or active 
personal management and (2) total payments, including direct payments, 
counter-cyclical payments, and ACRE payments are less than or equal to 
one "payment limitation"--a statutorily set limit on the value of the 
payment made to the producer(s). FSA's regulations define active 
personal management to include such tasks as arranging financing for 
the operation, supervising the planting and harvesting of crops, and 
marketing crops. For both individuals and entities, their 
contributions to the farming operation must also be commensurate with 
their share of the farming operation's profits or losses. 

To help oversee direct payments, FSA monitors farm operations' land 
usage through producers' acreage reports, and at the end of the year 
it conducts a detailed review of a sample of farm operating plans. 
Specifically, FSA field offices compare selected plans against 
supporting documentation to help monitor whether farming operations 
were conducted in accordance with their plans. These end-of-year 
reviews include an assessment of whether payment recipients met 
program requirements. FSA selects its sample of farming operations for 
these reviews on the basis of, among other criteria, the restructuring 
or formation of a farming operation in the past year and the number of 
farming operations in which an individual or legal entity is involved. 
According to FSA officials, the selection process emphasizes farm 
operations involving six or more producers. 

Varied Producers, Who Are Geographically Concentrated, Received More 
Than $46 Billion in Direct Payments from 2003 through 2011: 

From 2003 through 2011, USDA made more than $46 billion in direct 
payments, which was concentrated among certain counties, among 
recipients located within 100 miles of farms qualifying for payments, 
and among certain types of producers. We also found that producers of 
different qualifying crops planted varying percentages of their base 
acres in those crops. Cumulatively, almost one-fourth of the total 
value of direct payments made during this period went to producers who 
did not, in a given year, grow any of the crop associated with their 
base acres--as they are allowed to do. 

Payments Were Concentrated among Certain Counties, Recipients Located 
within 100 Miles of the Farm, and Certain Types of Producers: 

According to our analysis of USDA data, more than $46 billion in 
direct payments were made from 2003 through 2011,[Footnote 16] with 
counties in the Midwest and Mississippi River Basin accounting for a 
large share of the value of payments made and smaller amounts 
distributed among other counties throughout the United States. In 
addition, our analysis showed that total payments varied widely by 
county: in 2011, about 9 percent of counties received less than 
$250,000 in payments countywide, and about 8 percent of counties 
received at least $5 million countywide. Figure 2 shows the 
distribution of direct payments in 2011, the most recent year for 
which data are available. 

Figure 2: Direct Payments by County, 2011: 

[Refer to PDF for image: illustrated U.S. map] 

Map depicts range of total payments made to recipients in the county; 
number of U.S. counties in that range; percentage of U.S. counties in 
that range, in the following categories: 

$0 to $249,999: (278) 9%; 
$250,000 to $749,999: (1101) 35%; 
$750,000 to $1,499,999: (422) 13%; 
1 $1,500,000 to $2,999,999: (757) 24%; 
$3,000,000 to $4,999,999: (343) 11%; 
$5,000,000 or more: (241) 8%. 

Source: GAO analysis of USDA data. 

Note: Data for Alaska and Hawaii indicate that all of the counties in 
these states fall in the lowest range. Therefore, we excluded these 
states from the map. However, the 278 counties listed for this dollar 
range include those in Alaska and Hawaii. 

[End of figure] 

With regard to the geographic distribution of payment recipients, 
according to our analysis of USDA data, from 2008 through 2011, 
[Footnote 17] about 97 percent of the value of payments, or about 
$18.8 billion, went to recipients located within 100 miles of the farm 
on which their direct payments were based. In addition, for that 
period, about 1.4 percent of the value, or about $269 million, went to 
recipients located 300 miles or more from the farm. Furthermore, our 
analysis shows that cumulatively from 2008 through 2011, 0.56 percent 
of direct payments, or $109 million, was made to recipients located 
800 or more miles from the farm. For the complete results of our 
analysis on ownership characteristics of land for which direct 
payments were made, see appendix III. 

With regard to the ownership characteristics of farms, direct payments 
may be made to producers with varying degrees of involvement in the 
farming operation, including individuals or entities that either (1) 
own and operate the farm (owner-operators), (2) operate but do not own 
the farm (tenants), or (3) are an owner of the farm (other owners). 
[Footnote 18] According to our analysis of USDA data from 2003 through 
2011, 86 to 88 percent of acreage for direct-payment eligible crops 
was operated by producers who were listed as owner-operators or 
tenants, while 12 to 14 percent of acreage was operated by producers 
who were listed as other owners--but not necessarily operators. In 
addition, we found that from 2003 through 2011, the share of acreage 
operated by owner-operators decreased and the share operated by 
tenants increased, while the share operated by other owners was 
relatively consistent. Specifically, from 2003 to 2011, the percentage 
of acreage, including acreage qualifying for direct payments, which 
was operated by owner-operators decreased from 77 million acres in 
2003 (30 percent of all eligible acreage) to 67 million acres (26 
percent) in 2011. Acreage operated by tenants increased from 145 
million acres in 2003 (56 percent of eligible acreage) to 159 million 
acres (62 percent) in 2011. Meanwhile, the acreage operated by other 
owners decreased slightly, from 35 million acres in 2003 (14 percent 
of eligible acreage) to 30 million acres (12 percent) in 2011. 

In addition, our analysis identified variation in the ownership 
characteristics of farms receiving direct payments, depending on crops 
grown. For example, owner-operators operated 12 percent of acreage, 
including base acreage, for cotton in 2011 and 44 percent of acreage 
for oats that year. Also in 2011, tenants operated 78 percent of the 
acreage for rice and 58 percent of wheat acreage. Other owners 
operated 5 percent of the acreage for oats, and 10 percent of corn 
acreage that year. For crop-specific analyses for corn, cotton, rice, 
soybeans, and wheat, see appendix III. 

Producers Planted Varying Percentages of Base Acres: 

Since direct payments allow producers almost complete flexibility in 
which crops to plant, we analyzed USDA data to determine the type and 
quantity of crops that producers who received direct payments chose to 
grow. According to our analysis, from 2003 through 2011, producers 
planted from 2 to 126 percent of their base acres with the crop 
associated with their base acres. For example, over the period, 
producers with cotton base acres planted 59 percent of their base 
acres with cotton, whereas producers with soybean base acres planted 
soybeans on all of their base acres for soybeans, as well as on 
additional acres on their farms; in other words, they planted an area 
equivalent to 126 percent of their base acres with soybeans.[Footnote 
19] Specifically, our analysis showed that from 2003 through 2011, 
producers with cotton base acres cumulatively planted 100 million 
acres of their 169 million base acres with cotton, whereas producers 
with soybean base acres cumulatively planted 593 million acres, 
including 472 million base acres, with soybeans.[Footnote 20] For the 
complete results of our analysis of the type and quantity of crops 
that producers who received direct payments chose to grow, averaged 
for years 2003 through 2011, of all crops and by crop type, see 
appendix IV. 

More Than $10 Billion in Payments Was Made for Base Acres That Did Not 
Grow the Base Acre Crop in a Given Year: 

In addition, we analyzed USDA data to determine the extent to which 
producers did not grow any of the crop for which their base acres were 
allocated--something they are allowed to do. Cumulatively, USDA paid 
$10.6 billion--almost one-fourth of total direct payments from 2003 
through 2011--to producers who did not, in a given year, plant any of 
the crop for which they had base acres. Specifically, during this 
period, producers cumulatively did not plant more than 633 million 
acres with the crops associated with their base acres in a given year. 
This amounted to an average of 70 million acres each year, or 26 
percent of the 268 million base acres on average that are annually 
eligible for direct payments. For the complete results of our analysis 
on the extent to which producers did not grow any of a crop for which 
they had base acreage in a given year, by crop, see appendix V. 

About 2,300 Farms for Which Direct Payments Were Made Did Not Plant 
Any Crop of Any Type Each Year From 2007 through 2011: 

Also according to our analysis of USDA data, about 2,300 farms, or 
about 0.15 percent of the 1.6 million farms receiving direct payments 
in 2011, reported all their land as "fallow," that is, producers did 
not plant any crops of any type on this land, for each year of the 
last 5 years (i.e., 2007 through 2011), as allowed under the farm 
bill. These producers received a total of about $2.9 million in direct 
payments in 2011. Our analysis of USDA data showed that these 
approximately 2,300 farms, comprising in total about 132,000 acres, 
were distributed among 402 counties in 40 states. In addition, 
according to our analysis, one county in Louisiana had the most farms 
(190) with all their acreage reported fallow from 2007 through 2011; 
producers on these farms received a total of about $203,000 in direct 
payments in 2011 for this land. For the results of our analysis, by 
state, of the number of fallow farms from 2007 through 2011 and the 
value of direct payments made for such farms in each state, see 
appendix VI. Figure 3 shows the geographic distribution of the farms 
that our analysis indicated had all their acreage as fallow each year 
from 2007 through 2011. 

Figure 3: Distribution of "Fallow" Farms--Those That Did Not Grow Any 
Crop of Any Type--Each Year from 2007 through 2011 for Which Direct 
Payments Were Made: 

[Refer to PDF for image: illustrated U.S. map] 

one dot represents one farm that was fallow from 2007 through 2011. 

Source: GAO analysis of USDA data. 

Notes: Data for Alaska and Hawaii indicate that none of the counties 
in these states had producers who received direct payments and 
reported all their acreage as fallow; we therefore excluded these 
states from the map. 

[End of figure] 

In addition, according to our analysis of USDA data, 622 farms 
reported all of their farm's acreage as fallow for each of the 
previous 10 years, from 2002 through 2011. Those farms were 
distributed among 178 counties in 28 states. 

Direct Payments Do Not Align with Certain Principles: 

Direct payments generally do not align with the principles significant 
to integrity, effectiveness, and efficiency in farm bill programs, 
identified in our April 2012 report, which could be used to guide 
implementation of the 2012 Farm Bill.[Footnote 21] These payments 
align with the principle of being "distinctive," in that they do not 
overlap or duplicate other farm programs. However, they do not align 
with the five other principles. Specifically, (1) direct payments may 
no longer be relevant, (2) they do not appropriately target benefits, 
(3) they may no longer be affordable, (4) they may have unintended 
consequences, and (5) oversight of direct payments is weak. 

Direct Payments May No Longer Be Relevant: 

Direct payments were expected to be transitional when first authorized 
and may no longer be relevant. According to the conference report 
accompanying the 1996 Farm Bill,[Footnote 22] production flexibility 
contract payments--the precursors to direct payments, which were 
similar in design--were established to help farmers make a transition 
to basing their planting decisions on market signals rather than on 
government programs. Accordingly, production flexibility contract 
payments were scheduled to decrease over time and expire in 2002. 
Subsequent farm bills, however, including those passed in 2002 and 
2008, have continued these payments as "direct payments." In a press 
statement released in February 2012, the Chairwoman of the U.S. Senate 
Committee on Agriculture, Nutrition and Forestry, referred to direct 
payments as "an indefensible program of the past." In April 2012, this 
committee's website posted draft legislation on the reauthorization of 
agricultural programs through 2017 that proposed eliminating direct 
payments. 

In addition, direct payments may no longer be needed to comply with 
certain aspects of international trade agreements. Proponents of 
direct payments say that such payments help the United States meet 
certain commitments under international trade agreements, which set 
ceilings on government payments classified as trade distorting. Unlike 
other farm program payments, direct payments do not depend on current 
market prices or production, so the World Trade Organization generally 
considers them to be nontrade-distorting, and the United States does 
not count them against these payment ceilings. In recent years of high 
crop prices, the United States has not been in danger of meeting or 
exceeding its limits for trade-distorting payments. For example, in 
2009--the most recent year for which the United States notified the 
World Trade Organization of its use of subsidies--the United States 
used about $4.3 billion of its $19.1 billion authorized allocation of 
trade-distorting subsidies. 

Direct Payments Do Not Appropriately Target Benefits: 

Direct payments do not appropriately target benefits (i.e., distribute 
benefits consistently with contemporary assessments of need) in three 
key ways. First, farmers receive direct payments even in years of 
record farm income. Production flexibility contract payments, the 
precursors to direct payments, were established after a period in the 
early 1990s of relatively low farm income. In August 2011, however, 
USDA reported that all three measures of farm-sector earnings--net 
farm income, net cash income, and the value of the farm sector's 
production of goods and services from farming versus its outlays to 
nonfarm sectors (i.e., "net value added") were forecast to rise more 
than 20 percent in 2011 over recent historical highs or near-highs. 
Second, according to USDA, the average income for farm households is 
higher than that of the average for U.S. households. For example, in 
2010, average farm household income was 25 percent higher than that of 
the average U.S. household. Moreover, in 2008, we reported that 
individuals who receive farm program payments, including direct 
payments, were more than twice as likely as other tax filers to have 
higher incomes.[Footnote 23] Third, direct payments are concentrated 
among the largest recipients--based on farm size and income--because 
the payments are tied to land and paid on a per-acre basis. According 
to our review of FSA direct payment data, in 2011, the top 10 percent 
of payment recipients received 51 percent of direct payments, and the 
top 25 percent of payment recipients received 73 percent of direct 
payments. In addition, according to USDA, larger farms, including 
those receiving direct payments, have higher operating profit margins. 
Specifically, in 2010, farms with $1 million or more in sales had a 24 
percent operating profit margin, on average, whereas farms of any size 
had an 8.8 percent operating profit margin, on average. 

Furthermore, according to USDA data, larger farms, including those 
receiving larger direct payments, are generally financially better 
able to cover their debt than smaller-sized farms. For example, 
according to USDA's Agricultural Resource Management Survey data for 
2010, farms with sales of $1 million dollars or more were more highly 
leveraged (i.e., they had higher debt-to-asset ratios), but they had 
higher debt-coverage ratios (i.e., they had more financial capacity to 
cover interest and principal payments on debt) than "all farms" or 
farms in smaller economic size classes. Yet, as discussed, it is these 
larger farms that are receiving the preponderance of direct payments. 

Direct Payments May No Longer Be Affordable: 

When direct payments were first authorized in 2002, the nation's 
annual deficit equaled 1.5 percent of gross domestic product (GDP), 
and debt was 59 percent of GDP, according to the Office of Management 
and Budget. In 2011, the deficit was projected to be 10.9 percent, and 
debt was projected to be 103 percent of GDP, respectively. In July 
2003, we testified before the House Committee on Ways and Means about 
the need to improve the economy, efficiency, and effectiveness of 
government programs, policies, and activities and to undertake a 
fundamental reassessment of what government does and how it does it. 
[Footnote 24] We stated that this undertaking would require looking at 
current federal programs in terms of their goals and results and 
determining whether (1) other approaches might succeed in achieving 
the goal, (2) taxpayers are getting a good "return on investment" from 
the program, and (3) the program's priority is higher or lower today 
given the nation's evolving challenges and fiscal constraints. In 
light of the nation's difficult fiscal situation and pressure to 
reduce government spending, the President's fiscal year 2013 budget 
proposes eliminating direct payments. In addition, USDA's Acting 
Undersecretary for Farm and Foreign Agricultural Services testified 
before the Senate Committee on Agriculture, Nutrition, and Forestry in 
March 2012 that eliminating direct payments could save $31.1 billion, 
over 10 years, while maintaining other farm programs that target 
assistance when and where it is most needed. In addition, in April 
2012, the Congressional Budget Office estimated that repealing direct 
payments would save about $24.8 billion from fiscal year 2014 through 
fiscal year 2018. 

Direct Payments May Have Unintended Consequences: 

Studies by USDA have found that direct payments result in higher 
prices to buy or rent land because in some cases the payments go 
directly to landowners--raising land values--and in other cases the 
payments go to tenants, prompting landlords to increase cash rental 
rates. For example, in June 2009, USDA's Economic Research Service 
reported that the primary economic effects of direct payments are 
increases in producers' incomes and land values.[Footnote 25] In this 
way, direct payments may compound challenges for beginning farmers. We 
reported in September 2007 that beginning farmers face multiple 
challenges, including a need for funds to purchase farmland.[Footnote 
26] In this regard, an increase in the price of land as a result of 
direct payments--or other farm program subsidies--may potentially 
raise the amount of debt beginning farmers need to incur to buy their 
own farm or additional farmland. 

During the course of our work, we identified cases where direct 
payments support recipients who FSA officials said own farmland that 
would not be economically viable in the absence of these payments. For 
example, in 1 county, 190 farms were fallow--they did not grow any 
crop of any type--for 5 consecutive years, and producers claimed 
payments for these farms. According to FSA county officials, these 
recipients are unable to profitably farm their land or lease it to 
other producers because the land is of poor quality and lacks access 
to irrigation. Another FSA county official from another state said 
that the producers associated with the 32 farms in that county that 
were fallow for 5 consecutive years were generally unable to obtain 
financing for their farming operations and could not profitably farm 
their land. Nevertheless, these landowners remain eligible for direct 
payments under a provision of the 2008 Farm Bill known as the 
"landowner exemption."[Footnote 27] Under this exemption, landowners 
can remain eligible for direct payments as long as the landowners' 
interest in their acreage depends directly on the output of that 
acreage. In practice, therefore, landowners can remain eligible if 
they (1) operate the land themselves, (2) lease the land for a rent 
that depends on the production of a crop, or (3) do not lease or 
operate the land and therefore receive no production-related revenue 
from it. In practice, however, it appears the landowner exemption 
allows landowners to receive payments for land that is no longer 
economically viable for farming. Direct payments may have less 
potential than other farm programs to distort prices and production, 
but economic distortions can nonetheless result from these payments. 
Furthermore, a trade-off exists between being less market distorting--
as direct payments are considered to be--and targeting benefits to 
adjust to need. 

Oversight of Direct Payments Is Weak: 

During the course of our work, we identified several concerns with 
regard to FSA's oversight of direct payments: FSA has not developed a 
systematic process to report on acreage that may no longer be usable 
for agriculture and therefore ineligible for direct payments; FSA 
conducts relatively few end-of-year reviews and generally does not 
complete these reviews within expected time frames; and FSA has not 
kept data on enforcement. 

FSA Has Not Systematically Reported or Corroborated Acreage No Longer 
Usable for Agriculture: 

FSA has not systematically reported or corroborated the extent to 
which land may no longer be eligible for direct payments because it 
has been converted to nonfarm uses. The 2008 Farm Bill instructed the 
Secretary of Agriculture to establish procedures to identify such land 
and each year, to "ensure, to the maximum extent practicable, that 
payments are received only by producers," submit to Congress a report 
describing the results of USDA's actions to identify and reduce base 
acres for land that has been subdivided and developed for nonfarm use. 
The 2008 Farm Bill uses base acres to determine direct payments, 
Average Crop Revenue Election (ACRE) payments, and counter-cyclical 
payments. FSA issued its first report in response to this mandate in 
September 2011, covering 2009 and 2010.[Footnote 28] According to this 
report, about 190,000 acres--about 129,000 in 2009 and 61,000 in 2010--
were converted to nonfarm use during this period. However, the report 
noted that these estimates were likely low, stating that USDA's 
periodic Natural Resources Inventory estimated that an average of 
440,000 cropland acres were converted to nonfarm uses annually from 
1982 through 2007.[Footnote 29] 

FSA's report had several methodological limitations that we 
identified. For example, FSA relied exclusively on surveying the 50 
FSA state offices for information on such conversions. It did not use 
or corroborate the state offices' results with other possible sources 
of information, including geospatial information on land use gathered 
by USDA's National Agriculture Imagery Program, which provides 
geospatial imagery data to support FSA compliance activities. FSA also 
did not provide its state offices with guidance for collecting 
information on such conversions. As a result, these offices, and their 
associated county offices, used a variety of methods to collect this 
information. For example, FSA officials in one county office said they 
identified base acreage reductions by consulting records of County 
Committee meetings.[Footnote 30] In another case, FSA county office 
officials said they used Base Acreage Yield Adjustment reports to 
identify base acreage that was already permanently reduced, and Out of 
Balance Tracts reports to identify other base acreage that may signal 
the need for a base acreage reduction.[Footnote 31] As a result of 
these varying methods and consequently unsystematic process, FSA may 
have underrepresented the extent to which land may no longer be 
eligible for direct payments because it has been converted to nonfarm 
uses in its required report to Congress. 

FSA headquarters officials said that, because in the past they were 
not required to report land converted from agriculture to residential 
or other nonfarm use, they had not systematically tried to track such 
land. They also stated that because producers, including direct 
payment recipients, are required to report planting information each 
year and certify the accuracy of this information, FSA has been able 
to identify land subject to base acre reductions manually through such 
reports.[Footnote 32] These officials stated that FSA relied on such 
manual records to report on land that was converted to nonfarm uses in 
its September 2011 mandated report, and it has begun compiling data 
for the next report, covering 2011, using the same methodology. 
However, these officials noted that in October 2011 FSA updated its 
data collection systems to compile the mandated report covering 2012 
base acre reductions through a computerized tracking system. This 
system includes a reporting code to identify whether the base acre 
reduction was made because land was converted to nonfarm uses, 
including residential or commercial uses. 

All of the FSA county officials we spoke with said that geospatial 
imagery was very helpful in identifying land that may no longer be 
usable for agriculture, and some noted this was particularly so as 
budget constraints have precluded more frequent on-site farm 
inspections. For example, some of these officials spoke of instances 
where they knew from geospatial imagery that land had been converted 
from agricultural use, and the producer had not informed FSA. 
Nevertheless, officials said, the National Agriculture Imagery Program 
did not provide such imagery regularly and they received updated 
imagery only every few years, limiting their ability to identify land 
that may no longer be usable for agriculture--and therefore ineligible 
for direct payments. An imagery program official stated that the 
program had received inconsistent funding since its establishment in 
2002. As a result, this official said, in 2008 the office began 
collecting imagery data in 3-year cycles rather than annually, as 
would meet program needs. The official stated that three USDA agencies 
and the Department of the Interior are funding the approximately $40-
million-per-year effort. The official added that the imagery program's 
own requirements and FSA's needs continue to call for collecting and 
reporting data annually, but funding constraints preclude the program 
from doing so. 

FSA's End-of-Year Reviews Have Key Weaknesses: 

FSA's detailed end-of-year reviews, in which FSA officials assess 
whether direct payment recipients met program requirements, such as 
being actively engaged in farming, have key weaknesses. Specifically, 
FSA conducts relatively few end-of-year reviews, and generally does 
not complete these reviews within expected time frames. 

FSA guidance states that the purpose of end-of-year reviews is to 
maintain the integrity of payment limitation and payment eligibility 
provisions by verifying that farming operations were carried out as 
producers reported on their farm operating plans. One such provision 
for direct payments is that all payment recipients be actively engaged 
in farming, which, according to the 2008 Farm Bill, generally includes 
making a "significant contribution" that is at risk and commensurate 
with the recipient's share of profits and losses from the farming 
operation. Recipients of payments under ACRE and counter-cyclical 
payment programs also are required to be "actively engaged" in 
farming. According to FSA officials, to verify the extent to which 
producers' contributions meet these, as well as other, eligibility 
requirements, FSA selects a judgmental sample of farming operations 
for review on the basis of, among other criteria, (1) whether the 
operation has undergone an organizational change in the past year by, 
for example, adding another entity or partner to the operation and (2) 
whether the operation receives payments above a certain threshold. FSA 
officials said that their selection process for end-of-year reviews is 
designed to direct limited resources toward categories of recipients 
among whom officials most expect to find wrongdoing such as fraud or 
other deliberate misrepresentation of a farming operation.[Footnote 
33] These officials explained that the recipient categories emphasized 
for review include joint operations, particularly those comprising 
three or more entities, because such operations offer more potential 
and incentive for partners to exaggerate their contributions. 

Producers in farming operations selected for end-of-year review must 
provide documentation to verify that the information they report on 
their farm operating plan, including their contributions of land, 
capital, equipment, labor, and management, is accurate. By reviewing 
such documentation, FSA officials can determine whether the 
contributions, in terms of risk and share of profits and losses, made 
by each participant in a farming operation match the contributions 
reported for that participant on the farm operating plan. FSA 
officials said that end-of-year reviews are a key means of identifying 
potentially improper payments. In addition, some FSA county officials 
said end-of-year reviews were useful in identifying irregularities and 
fraud and cited cases in their experience where producers returned 
direct payments determined to have been erroneously disbursed. 
Nonetheless, we identified two key weaknesses in FSA's end-of-year 
review process. 

First, FSA selects relatively few cases for annual end-of-year review. 
Our analysis of FSA data showed that in 2008 and 2009, FSA selected 
for review 0.04 percent of farming operations receiving direct 
payments. By comparison, for fiscal year 2010, the Internal Revenue 
Service selected at least 0.7 percent of taxpayers, from every income 
level--an average of 1.1 percent of all taxpayers--for examination. 
According to FSA headquarters officials, they would like to select 
additional cases for review, but the selection rate is relatively 
small because the reviews are resource intensive.[Footnote 34] 
Increasing budget constraints and USDA's announced plans to close some 
of FSA's 2,200 county offices and reduce field staffing may further 
limit the number of cases for review the agency can select in the 
future. These officials said that, because of resource constraints, 
they select the sample according to categories of recipients where 
they most expect to find wrongdoing, and waive categories of 
recipients, such as landowners and spouses among whom they least 
expect to find misrepresentation. However, we found that when FSA 
waives reviews for some of the cases selected, the agency does not 
replace them with reviews of other cases, as we recommended in April 
2004.[Footnote 35] At the time, we reported that FSA was not reviewing 
a valid sample of farm operating plans to reasonably assess the 
overall level of compliance because its selection methodology did not 
replace waived cases, resulting in a smaller sample size that might 
have affected the validity of the sample results.[Footnote 36] In 
response to our recommendation, FSA reduced the number of compliance 
reviews it waived each year but did not act to replace reviews that 
were waived with new cases. FSA continues to select a small sample of 
cases for review: in 2008 and 2009, respectively, 23 and 154, or just 
under 6 and 13 percent, of selected cases were waived, further 
decreasing the number of farming operations reviewed. 

Second, FSA often completes end-of-year reviews late with respect to 
its own expected time frames. According to an FSA official in charge 
of selecting cases and monitoring the end-of-year review process, FSA 
headquarters generally selects cases for review within the first 6 
months of the following year and generally expects county office staff 
to perform their assigned reviews within a year of receiving the cases 
selected.[Footnote 37] As of September 2011, however, 271 of 380 
pending reviews for 2008 (71 percent) were more than 6 months past the 
expected 18-month completion time frame, which includes the selection, 
assignment, and conducting of these reviews. In May 2012, FSA reported 
that as of February 2012, nearly 24 percent of pending reviews for 
2008 were still incomplete. Table 1 summarizes the status of end-of-
year reviews for 2008 and 2009, as of September 2011 and February 
2012.[Footnote 38] 

Table 1: Status of FSA's End-of-Year Reviews for 2008 and 2009, as of 
September 2011: 

Farming operations for which direct payments were made; 
2008: 1,815,520; 
2009: 1,654,200; 
Total: 3,469,720. 

Farming operations selected for review; 
2008: 403; 
2009: 1,208; 
Total: 1,434. 

Farming operations selected for review and waived; 
2008: 23; 
2009: 154; 
Total: 177. 

Reviews of farming operations completed; 
2008: 109; 
2009: 212; 
Total: 321. 

Percentage of farming operations receiving payments, selected for 
review; 
2008: 0.02%; 
2009: 0.06%; 
Total: 0.04%. 

Percentage of reviews completed as of September 2011; 
2008: 28.7%; 
2009: 20.1%; 
Total: 22.4%. 

Percentage of reviews completed as of February 2012; 
2008: 76.6%; 
2009: 55.0%; 
Total: 60.7%. 

Source: GAO analysis of USDA data. 

[End of table] 

In addition, in February 2012 FSA reported that county offices in 
three states--California, Louisiana, and Mississippi--had not 
completed some of their 2006 or 2007 end-of-year reviews.[Footnote 39] 
FSA officials said they do not regularly collect data on the number of 
end-of-year reviews completed and pending. FSA officials also said 
that taking corrective action against payment recipients becomes more 
difficult as reviews are delayed. For example, with the passage of 
time, it is more difficult for FSA to collect evidence of potential 
misrepresentation or fraud, as well as for producers to provide the 
requested documentation. Furthermore, according to FSA officials, 
completed end-of-year reviews are needed for USDA's Office of 
Inspector General (OIG) to investigate cases of potential fraud or 
other illegal activity. 

Federal internal control standards call for agencies to obtain, 
maintain, and use relevant, reliable, and timely information for 
program oversight and decision making, as well as for measuring 
progress toward meeting agency performance goals.[Footnote 40] In 
addition, the Office of Management and Budget directs agency managers 
to take timely and effective action to correct internal control 
deficiencies.[Footnote 41] Furthermore, FSA's handbook on determining 
eligibility for farm program payments states that "detecting schemes, 
fraudulent representations, and other equally serious actions of 
persons and legal entities to circumvent payment eligibility and 
payment limitation provisions is essential for producer 
compliance."[Footnote 42] The issues we identified in FSA's end-of-
year compliance review process leave the agency with a less effective 
management oversight tool. For example, in light of these problems, 
FSA is less able to identify potential fraud, waste, and abuse; avert 
potentially improper payments; and enforce farm bill provisions and 
related implementing regulations. 

USDA Has Not Kept Data on Enforcement: 

USDA does not have data to demonstrate that it is using available 
enforcement mechanisms against payment recipients found to have 
misrepresented their farming operation so as to increase their direct 
payments improperly, and the agency generally has not centrally 
tracked data on such cases of misrepresentation. Specifically, when 
asked, FSA officials were unable to provide the number of direct 
payment cases FSA has referred to OIG for further investigation and 
potential prosecution by U.S. Attorneys' Offices, but according to FSA 
officials, the number of such cases has been small. For example, 
regarding potential fraud, FSA officials cited only one case that was 
currently under active litigation. FSA state offices are required to 
report any known or suspected violations of criminal statutes to OIG 
for investigation, but according to OIG officials, their investigators 
will pursue cases of potential fraud only if they anticipate a "good 
outcome," that is, a successful prosecution.[Footnote 43] The 
potential amount of funds to be recovered is another consideration. 
According to FSA officials, the number of cases accepted for 
investigation varies by region. For example, according to these 
officials, in regions with significant drug crime, such as southern 
Texas, U.S. Attorneys give priority to drug cases and accept virtually 
no farm program cases. This situation notwithstanding, OIG and FSA 
officials said that FSA offices in Texas refer very few compliance and 
payment limitation cases to OIG. According to OIG officials, depending 
on the circumstances, FSA may be able to take administrative action 
against a producer in an attempt to recover inappropriately disbursed 
funds even if the producer is not prosecuted by state or federal 
authorities for violations of law, by following its own procedures or 
consulting with the Office of General Counsel. However, both OIG and 
FSA officials said that, in cases of alleged fraud, the payment 
recipient may not be subject to additional enforcement mechanisms 
unless prosecuted and convicted. FSA regulations provide that any 
producer found to have committed fraud may be debarred from receiving 
further payments for up to 5 years.[Footnote 44] These regulations 
also provide that any producer found to have engaged in 
misrepresentation may be debarred from receiving further payments for 
up to 2 years. However, if FSA does not maintain comprehensive data on 
payment recipients that may have misrepresented their farming 
operation, including by name of producers, it is unclear how it can 
consistently pursue and recover improper payments. 

FSA headquarters officials stated that most payment recipients are 
honest and comply with direct payment eligibility requirements, and 
that the level of enforcement is appropriate. However, the officials 
could not provide data on compliance. Some FSA county officials 
expressed concerns about discouraging producers from farming, should 
the producer be debarred from receiving further payments. They also 
said that they can and do recover improper payments from producers 
without pursuing potential prosecution. However, FSA's reluctance to 
pursue these cases and enforcement mechanisms could encourage some 
producers to engage in and profit from submitting false information 
with little fear of being caught or punished. 

Moreover, FSA officials acknowledged that the agency lacks 
comprehensive data on its enforcement actions. Specifically, FSA 
officials said that the agency does not keep a centralized, national 
database or list of direct payment recipients found to be at fault for 
misrepresentation, including recipients convicted of fraud, debarred 
from future payments, referred to OIG for investigation, or found by 
county or state FSA offices to have received improper payments by 
misrepresenting their farming operation--including in cases in which 
these payments were later recouped. FSA does, however, maintain data 
at the national level on payments it reduced because it determined a 
certain producer was ineligible before making the payment. According 
to these data, in 2011 FSA reduced payments to certain direct payment 
recipients by almost $20 million for not being actively engaged in 
farming; by more than $89 million for exceeding payment limitations; 
by over $37 million for exceeding income limitations; and by $3,393 
for fraud. Table 2 summarizes the amount of these reduced payments for 
2010 and 2011. 

Table 2: Amounts by Which FSA Reduced Direct Payments for Selected 
Reasons in 2010 and 2011: 

Reason for reduction: Producer not actively engaged in farming; 
2010: $23.5 million; 
2011: $19.9 million. 

Reason for reduction: Producer's payment would exceed payment 
limitations; 
2010: $80.8 million; 
2011: $89.2 million. 

Reason for reduction: Producer's income exceed income limitations; 
2010: $30.95 million; 
2011: $37.39 million. 

Reason for reduction: Fraud; 
2010: $0.05 million; 
2011: $0.0 million[A]. 

Reason for reduction: Total for these reasons; 
2010: $135.3 million; 
2011: $146.5 million. 

Source: GAO analysis of USDA data. 

Note: These numbers include direct payments and counter-cyclical 
payments; as a point of reference, counter-cyclical payments averaged 
$1.45 billion annually from 2006 through 2010. 

[A] In 2011, FSA reported reducing payments by $3,393 because of fraud. 

[End of table] 

Under the Improper Payments Information Act of 2002, as amended, 
federal agencies are required to estimate the level of improper 
payments in their programs.[Footnote 45] In November 2011 USDA 
reported that its error rate for making direct and counter-cyclical 
payments was 0.05 percent, which was below its 2010 error rate of 0.96 
percent and below its target of 0.40 percent.[Footnote 46] However, 
because USDA does not keep comprehensive data on its enforcement 
actions or the amount of money it recovers after improper 
disbursements are made, the level of improper payments reported by FSA 
for the direct payments program may be understated. 

Conclusions: 

Direct payments allow producers flexibility in the type and amount of 
crops to plant by making payments based on historical production 
trends, rather than current production. However, the fiscal health of 
our nation, recent and expected high national budget deficits, and 
pressures to reduce federal spending mean that every federal dollar 
should be scrutinized to ensure it is spent efficiently and for the 
most worthwhile purposes. Maintaining a safety net for farmers is 
worthwhile, but during times of record-high crop prices and farm 
incomes, providing payments that do not align with principles 
significant to integrity, effectiveness, and efficiency in farm bill 
programs raises questions about the continued need for direct 
payments. In a March 2011 report, we and others proposed options to 
reduce or eliminate direct payments. 

FSA monitors land usage and conducts a detailed review of a sample of 
farm operating plans at the end of the year to help oversee direct 
payments and other farm programs, including ACRE and counter-cyclical 
payments, which require payment recipients to be actively engaged in 
farming. There have been proposals to eliminate direct payments, but 
as long as they remain in effect, it is worth noting several 
weaknesses concerning FSA's oversight of these programs that our work 
identified. First, because FSA does not have a systematic process to 
identify land that may no longer be usable for agriculture and 
therefore eligible for direct payments--or ACRE or counter-cyclical 
payments--FSA's reports to Congress may underreport the extent to 
which land may no longer be eligible for these payments. Second, 
because FSA does not regularly update the geospatial imagery FSA 
county offices use to corroborate that direct payments are made only 
for lands usable for agriculture, FSA could potentially be making 
payments to individuals and entities that should not be receiving 
them. Third, because FSA's process for selecting and performing end-of-
year reviews has key weaknesses, FSA is less able to identify 
potential fraud, waste, and abuse; avert potentially improper 
payments; and enforce farm bill provisions and related implementing 
regulations. We acknowledge the budget constraints that, according to 
FSA officials, make the case for a judgmental sample and limit the 
number of end-of-year reviews FSA conducts. However, similarly to what 
we reported in April 2004--that FSA was not reviewing a valid sample 
of farm operating plans to reasonably assess the overall level of 
compliance--FSA continues to select a small sample of cases to review 
and does not complete reviews in a timely manner, exposing the agency 
and taxpayers to potential waste, fraud, and abuse of taxpayer dollars. 

While FSA officials state that most producers are honest and comply 
with eligibility requirements, it is in the interest of all producers, 
as well as taxpayers, to maintain the integrity of direct payments and 
other farm program payments. FSA regulations provide enforcement 
mechanisms for producers found to have engaged in misrepresentation or 
to have committed fraud, but FSA does not maintain comprehensive data 
on payment recipients that have misrepresented their farming 
operation, including data by producer name. As a result, it is unclear 
how consistently FSA has pursued and recovered improper payments. In 
sum, as a result of FSA's decision to not pursue a more comprehensive 
oversight process--including maintaining comprehensive data on 
misrepresentation and tracking the referral of cases for enforcement--
the number and value of improper payments and program fraud may be 
underrepresented. 

Matter for Congressional Consideration: 

In light of the need to identify potential savings in the federal 
budget and questions about the continued need for direct payments, 
Congress should consider eliminating or reducing these payments. 

Recommendations for Executive Action: 

To help ensure that direct payments, while they remain in effect, and 
other farm programs, including ACRE and counter-cyclical payments, are 
made in a manner consistent with farm bill provisions and related 
implementing regulations, and to minimize the potential for improper 
payments, we recommend that the Secretary of Agriculture direct the 
Administrator of the Farm Service Agency to take the following four 
actions: 

* Develop and implement a systematic process to report on land that 
may no longer be usable for agriculture, as required for annual 
reporting to Congress. 

* Ensure the more timely and consistent regular collection and 
distribution of geospatial imagery needed to corroborate that payments 
are only made for lands usable for agriculture. 

* Consider options within given budget constraints to improve FSA's 
end-of-year reviews by selecting a larger sample of cases to review 
and ensuring that these reviews are completed in a timely manner. 

* Maintain comprehensive data on misrepresentation and enforcement 
actions taken nationwide, as needed for management oversight and 
reporting purposes. 

Agency Comments and Our Evaluation: 

We provided a draft of this report to USDA for review and comment. In 
written comments, which are reproduced in appendix VII, USDA generally 
agreed with two of our recommendations and disagreed with two others. 
USDA also noted our Matter for Congressional Consideration to 
eliminate or reduce direct payments, stating that the President's 
financial year 2013 budget recommended eliminating direct payments 
while maintaining a strong safety net for farmers. 

Regarding our first recommendation that USDA develop and implement a 
systematic process to report on land that may no longer be usable for 
agriculture, as required for annual reporting to Congress, USDA 
disagreed, stating that it considers its current process to be 
adequate. Among other points, USDA noted that it already selects a 
statistical sample of producers for spot checking to determine that 
all land reported as cropland remained in cropland status for the year 
the spot check was conducted. Nevertheless, as discussed in this 
report, only about 2,000 producers and potentially 0.13 percent of the 
approximately 1.6 million producers receiving direct payments could be 
selected for annual spot checks. Further, in a September 2011 report 
in response to a congressional mandate USDA stated that its estimates 
of base acres converted to nonfarm uses in 2009 and 2010 were likely 
understated. We also note, as discussed in the report, that USDA's 
current procedures to collect these data are subject to methodological 
limitations and inconsistencies in how its field offices collect these 
data. For example, USDA relied exclusively on surveying the 50 FSA 
state offices for information on such conversions, and did not use or 
corroborate the state offices' results with other possible sources of 
information, such as geospatial imagery. USDA also did not provide its 
state offices with guidance for collecting information on such 
conversions. As a result, these offices, and their associated county 
offices, used a variety of methods to collect this information. Given 
this very small sample and the department's likely underestimation of 
the extent of conversions to nonfarm uses, we maintain that 
development of an improved process is needed for identifying land that 
may no longer be usable for agriculture. For added clarity, we revised 
the report to make clear that USDA uses a statistical sample and that 
its field offices may spot-check other producers if there are 
concerns. In addition, USDA noted that the 2008 Farm Bill, among other 
sources requires producers to file acreage reports on all cropland on 
the farm. In response to USDA's comment, we added clarifying language 
to the report to identify the sources that USDA cites as requiring 
such reporting. 

Regarding the second recommendation that USDA ensure the more timely 
and consistent collection and distribution of geospatial imagery 
needed to corroborate that payments are only made for lands usable for 
agriculture, USDA stated that it agrees that geospatial imagery is a 
useful tool to identify land use changes. It also said, however, that 
its ability to update this imagery more frequently would require 
increased funding from Congress. As discussed in the report, USDA 
already leverages resources from other agencies, such as the 
Department of the Interior, to help cover the costs of collecting this 
imagery. Further opportunities may exist to do so. In addition, USDA 
could consider options to reallocate more funding to geospatial 
imagery within its existing budget resources. 

Regarding the third recommendation that USDA consider options within 
given budget constraints to improve FSA's end-of-year reviews by 
selecting a larger sample of cases to review and ensuring that these 
reviews are completed in a timely manner, USDA disagreed. USDA stated 
that it concurs that timely, high-quality end-of-year reviews are 
important; however, it also stated that its current practices already 
meet this standard. According to USDA, in the early 1990's its Office 
of Inspector General determined that a judgmental sample completed in 
USDA headquarters was the most consistent and beneficial in terms of 
detecting problematic issues and potential compliance problems. In 
addition, USDA said that, in consideration of efficiency, FSA has made 
a targeted selection and devoted its limited resources to identifying 
farming operations considered most likely to have potential payment 
eligibility and payment limitation compliance issues. However, as 
discussed in our report, USDA selects very few cases for end-of-year 
reviews. For example, in 2008 and 2009, only 0.04 percent of 
operations receiving direct payments were selected. In addition, as 
noted in the report, these reviews were often not done in a timely 
fashion as measured by USDA's own time frames. For example, as of 
September 2011, 271, or 71 percent, of 380 pending reviews for 2008 
were more than 6 months past USDA's expected completion date. Given 
this very small sample and the lack of timeliness associated with many 
of these reviews, we continue to believe that USDA should consider 
options to increase the number and improve the timeliness of these 
reviews. To eliminate potential confusion about FSA's use of a 
judgmental sample, we revised our third recommendation by removing the 
words "the quantity and quality" from an earlier draft to clarify our 
emphasis on improving the scope and timeliness of these reviews. 

Regarding the fourth recommendation that USDA maintain comprehensive 
data on misrepresentation and enforcement actions taken nationwide as 
needed for management oversight and reporting purposes, USDA agreed 
and stated there is value in maintaining data on misrepresentation and 
enforcement actions. It stated that the development of such a 
capability has been planned for a number of years but that other 
projects, such as the implementation of the 2008 Farm Bill and the 
development and implementation of a robust process for verifying 
producer compliance with adjusted gross income limits have taken 
precedence. We understand that USDA has many competing priorities, but 
its decision to not pursue a more comprehensive oversight process--
including maintaining comprehensive data on misrepresentation and 
tracking the referral of cases for enforcement--means the number and 
value of improper payments and program fraud may be underrepresented. 

We are sending copies of this report to the Secretary of Agriculture, 
appropriate congressional committees, and other interested parties. 
The report also is available at no charge on the GAO website at 
[hyperlink, http://www.gao.gov]. 

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

Signed by: 

Lisa Shames: 
Director: 
Natural Resources and Environment: 

List of Requesters: 

The Honorable Henry A. Waxman:
Ranking Member:
Committee on Energy and Commerce:
United States House of Representatives: 

The Honorable Darrell E. Issa:
Chairman:
The Honorable Elijah Cummings:
Ranking Member:
Committee on Oversight and Government Reform:
United States House of Representatives: 

The Honorable Jim Cooper:
Ranking Member:
Subcommittee on Oversight and Investigations:
Committee on Armed Services:
House of Representatives: 

The Honorable Earl Blumenauer:
House of Representatives: 

The Honorable Ron Kind:
House of Representatives: 

The Honorable Jeff Flake:
House of Representatives: 

[End of section] 

Appendix I: Objectives, Scope, and Methodology: 

The objectives of our review were to: (1) provide information 
regarding the geographic distribution and ownership characteristics of 
payment recipients, as well as the dollar amount of direct payments 
made for land with qualifying acreage and amount and types of crops 
grown on qualifying acreage from 2003 through 2011 and (2) examine 
whether direct payments are aligned with principles significant to 
integrity, effectiveness, and efficiency in farm bill programs. 

To conduct this work, we analyzed U.S. Department of Agriculture 
(USDA) data, interviewed agency officials, reviewed applicable laws, 
regulations, and guidance, and reviewed and updated past GAO work. 
Specifically, to provide information about the geographic distribution 
and ownership characteristics of payment recipients and to determine 
the dollar amount of direct payments made for land with qualifying 
acreage, we obtained disaggregated data from USDA's Farm Service 
Agency (FSA) indicating the number, amount, and payee for direct 
payments made from program years 2003 through 2011--that is, from the 
program's first full year of operation through the most recent year 
for which complete program data are available.[Footnote 47] In 
particular, we reviewed the Food, Conservation, and Energy Act of 2008 
(2008 Farm Bill) to determine which crops are eligible for direct 
payments and determined that we would include barley, canola, corn, 
cotton (upland), crambe, flax, mustard, oats, peanuts, rapeseed, rice, 
safflower, sesame, sorghum, soybeans, sunflower, and wheat in our 
analysis. Further, we reviewed and evaluated USDA documents for 
collecting data from direct payment recipients regarding land usage, 
in particular the Farm Operating Plan for Payment Eligibility Review 
for individuals and entities, to identify appropriate data elements 
for use in our analyses. In particular, we obtained data from USDA's 
compliance share file that indicates how producers--whether 
individuals or entities--are involved and whether they own a 
particular farm field or area of land for which direct payments were 
made. Producers report they either (1) own and operate the farm 
("owner-operators"), (2) operate but do not own the farm ("tenants"), 
or (3) are an owner of the farm ("other owners"). We also obtained 
disaggregated USDA data indicating the number of base acres and 
planting history for each farm for which direct payments were made. 
When analyzing direct payments spending, we assigned a payment 
according to its program year; that is, the year in which the payment 
was associated with since it is possible for payments to be made after 
the end of the program year for which they are made. 

USDA does not collect the zip codes of farms with which direct payment 
are associated. We therefore obtained data for the centroid point--the 
geometric center--of the county in which the farm resides and 
calculated the distance from it to the centroid point of the payment 
recipient's zip code. In addition, USDA provided reliable address 
files for payees from 2008 through 2011. USDA data do not 
differentiate between the program's base acres and a farm's other 
acres, and producers report one aggregated number of acres for each 
crop planted. To determine the relative percentage of base acres 
planted with the base acre crops, we compared the acreage of a farm 
planted in a particular crop with its base acres of that crop. Because 
a producer may plant 100 percent of the farm's base acres in any crop, 
plus a portion of additional acres on the farm that exceeds the base 
acre amount, more than 100 percent of base acres may be planted in a 
certain crop. We assessed the reliability of USDA'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 this report. We used geographic information system ("GIS") software 
to map selected results of our quantitative analyses. We also 
interviewed FSA officials regarding the results of our data analysis; 
these officials indicated that they generally found these results to 
be credible. 

To examine whether direct payments are aligned with principles 
significant to integrity, effectiveness, and efficiency in farm bill 
programs, we reviewed our past work, particularly more recent work 
that identifies relevant principles to consider for farm bill 
reauthorization. These principles are relevance, distinctiveness, 
targeting, affordability, effectiveness, and oversight.[Footnote 48] 
The resulting principles and associated key questions may not 
represent all potential principles that could be considered. We 
collected additional data where possible to determine how 
circumstances regarding direct payments may have changed more recently 
and evaluated direct payments according to the principles identified 
for in our earlier work. We also reviewed our March 2011 report, which 
discussed observations regarding direct payments.[Footnote 49] In 
applying the identified principles to direct payments, we considered 
information on the program's original purpose; its potential, if any, 
to duplicate payments under other programs; who benefits from the 
program; the nation's deficit and debt challenges; the program's 
potential, if any, to have unintended consequences; and program 
oversight measures taken by FSA. However, based on our past work, we 
believe these principles to be significant to integrity, 
effectiveness, and efficiency in farm bill programs since 2003, when 
much of the 2002 Farm Bill was implemented. Further, USDA's Office of 
Inspector General shares this point of view and issued a companion 
report to our report using the same principles and based on its own 
past work for this time frame.[Footnote 50] 

Regarding oversight, we interviewed FSA and Office of Inspector 
General officials and reviewed documentation FSA provided, including 
information related to investigations of potential fraud related to 
direct payments. We also visited several FSA county offices in each of 
two states--Arizona and Louisiana--to discuss oversight issues, review 
farm operating plan files, and observe the use of cropland in these 
counties associated with direct payments.[Footnote 51] In addition, we 
interviewed officials by phone in FSA county offices in two other 
states--California and Mississippi--to discuss oversight issues. 
[Footnote 52] In general, we judgmentally selected these offices 
because (1) the office has a relatively large number of end-of-year 
compliance reviews,[Footnote 53] (2) the county has a relatively large 
number of farms with cropland associated with direct payments that has 
not been planted with crops in recent years, and/or (3) the county is 
experiencing rapid urban development. The information gathered at 
these locations cannot be generalized to the experience of all FSA 
county offices. 

We conducted this performance audit from August 2011 to June 2012 in 
accordance with generally accepted government auditing standards. 
Those standards require that we plan and perform the audit to obtain 
sufficient, appropriate evidence to provide a reasonable basis for our 
findings and conclusions based on our audit objectives. We believe 
that the evidence obtained provides a reasonable basis for our 
findings and conclusions based on our audit objectives. 

[End of section] 

Appendix II: Principles Significant to the Integrity, Effectiveness, 
and Efficiency of Farm Bill Programs: 

In April 2012 we identified certain principles as applicable to 
Congress's deliberations for the 2012 Farm Bill and significant to the 
integrity, effectiveness, and efficiency in farm bill programs, such 
as direct payments.[Footnote 54] Specifically, we identified these 
principles to be relevance, distinctiveness, targeting, affordability, 
effectiveness, and oversight. Key questions associated with these 
principles are shown below. Our list of principles may not represent 
all potential principles that could be considered. 

1. Relevance: Does the program concern an issue of national interest? 
Is the program consistent with current statutes and international 
agreements? Have the domestic and international food and agriculture 
sectors changed significantly, or are they expected to change, in ways 
that affect the program's purpose? 

2. Distinctiveness: Is the program unique and free from overlap or 
duplication with other programs? Is it well coordinated with similar 
programs? 

3. Targeting: Is the program's distribution of benefits consistent 
with contemporary assessments of need? 

4. Affordability: Is the program affordable, given the nation's severe 
budgetary constraints? Is it using the most efficient, cost-effective 
approaches? 

5. Effectiveness: Are program goals clear, with a direct connection to 
policies, resource allocations, and actions? Does the program 
demonstrate measurable progress toward its goals? Is it generally free 
of unintended consequences, including ecological, social or economic 
effects? Does the program allow for adjustments to changes in markets? 

6. Oversight: Does the program have mechanisms, such as internal 
controls, to monitor compliance and help minimize fraud, waste, and 
abuse in areas where these are most likely to occur? 

[End of section] 

Appendix III: Ownership Characteristics of Land for Which Direct 
Payments Were Made: 

Data from USDA's compliance share file indicate how producers--whether 
individuals or entities--are involved and whether they own a 
particular farm field or area of land for which direct payments were 
made. Producers report they either (1) own and operate the farm 
("owner-operator"), (2) operate but do not own the farm ("tenants"), 
or (3) are an owner of the farm ("other owners"). Our analysis of USDA 
data found that ownership characteristics of land for which direct 
payments were made have changed from 2003 through 2011, as shown in 
table 3. 

Table 3: Changes in Ownership of Land for Which Direct Payments Were 
Made, All Covered Crops: 

Year: 2003; 
Millions of acres, owner-operators: 76.76; 
Millions of acres, tenants: 144.65; 
Millions of acres, other owners: 35.16; 
Percentage, owner-operators: 29.92%; 
Percentage, tenants: 56.38%; 
Percentage, other owners: 13.70%. 

Year: 2004; 
Millions of acres, owner-operators: 73.87; 
Millions of acres, tenants: 146.83; 
Millions of acres, other owners: 33.46; 
Percentage, owner-operators: 29.07%; 
Percentage, tenants: 57.77%; 
Percentage, other owners: 13.16%. 

Year: 2005; 
Millions of acres, owner-operators: 66.65; 
Millions of acres, tenants: 150.85; 
Millions of acres, other owners: 32.41; 
Percentage, owner-operators: 26.67%; 
Percentage, tenants: 60.36%; 
Percentage, other owners: 12.97%. 

Year: 2006; 
Millions of acres, owner-operators: 57.85; 
Millions of acres, tenants: 154.53; 
Millions of acres, other owners: 30.64; 
Percentage, owner-operators: 23.81%; 
Percentage, tenants: 63.59%; 
Percentage, other owners: 12.61%. 

Year: 2007; 
Millions of acres, owner-operators: 58.82; 
Millions of acres, tenants: 157.30; 
Millions of acres, other owners: 30.76; 
Percentage, owner-operators: 23.82%; 
Percentage, tenants: 63.72%; 
Percentage, other owners: 12.46%. 

Year: 2008; 
Millions of acres, owner-operators: 60.64; 
Millions of acres, tenants: 161.74; 
Millions of acres, other owners: 31.02; 
Percentage, owner-operators: 23.93%; 
Percentage, tenants: 63.83%; 
Percentage, other owners: 12.24%. 

Year: 2009; 
Millions of acres, owner-operators: 59.51; 
Millions of acres, tenants: 160.70; 
Millions of acres, other owners: 30.09; 
Percentage, owner-operators: 23.78%; 
Percentage, tenants: 64.20%; 
Percentage, other owners: 12.02%. 

Year: 2010; 
Millions of acres, owner-operators: 66.39; 
Millions of acres, tenants: 153.48; 
Millions of acres, other owners: 29.32; 
Percentage, owner-operators: 26.64%; 
Percentage, tenants: 61.59%; 
Percentage, other owners: 11.77%. 

Year: 2011; 
Millions of acres, owner-operators: 67.03; 
Millions of acres, tenants: 158.73; 
Millions of acres, other owners: 29.67; 
Percentage, owner-operators: 26.24%; 
Percentage, tenants: 62.14%; 
Percentage, other owners: 11.62%. 

Source: GAO analysis of USDA data. 

Note: Numbers may not total 100 percent because of rounding. 

[End of table] 

Moreover, we found that the ownership characteristics regarding the 
operation of land for which direct payments were made varied according 
to which crops were grown. Table 4 shows these variations by crop, for 
all covered crops, corn, cotton, oats, rice, soybeans, and wheat in 
2011. 

Table 4: Ownership Characteristics, All Covered Crops, Corn, Cotton, 
Oats, Rice, Soybeans, and Wheat, 2011: 

Crop type: All covered crops; 
Millions of acres, owner-operators: 67.03; 
Millions of acres, tenants: 158.73; 
Millions of acres, other owners: 29.67; 
Percentage, owner-operators: 26.24%; 
Percentage, tenants: 62.14%; 
Percentage, other owners: 11.62%. 

Crop type: Corn; 
Millions of acres, owner-operators: 25.48; 
Millions of acres, tenants: 56.79; 
Millions of acres, other owners: 9.64; 
Percentage, owner-operators: 27.73%; 
Percentage, tenants: 61.79%; 
Percentage, other owners: 10.49%. 

Crop type: Cotton (upland); 
Millions of acres, owner-operators: 1.74; 
Millions of acres, tenants: 10.82; 
Millions of acres, other owners: 1.87; 
Percentage, owner-operators: 12.05%; 
Percentage, tenants: 74.97%; 
Percentage, other owners: 12.98%. 

Crop type: Oats; 
Millions of acres, owner-operators: 0.76; 
Millions of acres, tenants: 0.87; 
Millions of acres, other owners: 0.09; 
Percentage, owner-operators: 44.06%; 
Percentage, tenants: 50.70%; 
Percentage, other owners: 5.24%. 

Crop type: Rice; 
Millions of acres, owner-operators: 0.28; 
Millions of acres, tenants: 2.31; 
Millions of acres, other owners: 0.36; 
Percentage, owner-operators: 9.54%; 
Percentage, tenants: 78.19%; 
Percentage, other owners: 12.27%. 

Crop type: Soybeans; 
Millions of acres, owner-operators: 19.65; 
Millions of acres, tenants: 47.29; 
Millions of acres, other owners: 8.31; 
Percentage, owner-operators: 26.11%; 
Percentage, tenants: 62.84%; 
Percentage, other owners: 11.04%. 

Crop type: Wheat; 
Millions of acres, owner-operators: 15.97; 
Millions of acres, tenants: 32.47; 
Millions of acres, other owners: 7.79; 
Percentage, owner-operators: 28.39%; 
Percentage, tenants: 57.75%; 
Percentage, other owners: 13.86%. 

Source: GAO analysis of USDA data. 

Note: Percentages may not total to 100 because of rounding. 

[End of table] 

[End of section] 

Appendix IV: Analysis of Direct Payment Crops Grown Compared with Base 
Acreage Allocations: 

Our analysis of USDA data found variation in the extent to which 
producers grew the crop associated with their base acres. Table 5 
depicts the results for each crop eligible for direct payments, as 
well as the totals for all eligible crops, from 2003 through 2011. 

Table 5: Planted Acres of Base Acre Crop as a Percentage of Base 
Acres, from 2003 through 2011: 

Crop name: Barley; 
Millions of actual planted acres of base acre crop: 27.61; 
Millions of base acres: 79.39; 
Planting as percentage of base acres: 34.78%. 

Crop name: Canola; 
Millions of actual planted acres of base acre crop: 6.57; 
Millions of base acres: 6.46; 
Planting as percentage of base acres: 101.65%. 

Crop name: Corn; 
Millions of actual planted acres of base acre crop: 692.38; 
Millions of base acres: 791.14; 
Planting as percentage of base acres: 87.52%. 

Crop name: Cotton (upland); 
Millions of actual planted acres of base acre crop: 100.42; 
Millions of base acres: 169.00; 
Planting as percentage of base acres: 59.42%. 

Crop name: Crambe; 
Millions of actual planted acres of base acre crop: 0.00; 
Millions of base acres: 0.17; 
Planting as percentage of base acres: 2.43%. 

Crop name: Flax; 
Millions of actual planted acres of base acre crop: 1.57; 
Millions of base acres: 1.65; 
Planting as percentage of base acres: 95.49%. 

Crop name: Mustard; 
Millions of actual planted acres of base acre crop: 0.10; 
Millions of base acres: 0.27; 
Planting as percentage of base acres: 35.13%. 

Crop name: Oats; 
Millions of actual planted acres of base acre crop: 15.74; 
Millions of base acres: 29.19; 
Planting as percentage of base acres: 53.91%. 

Crop name: Peanuts; 
Millions of actual planted acres of base acre crop: 6.89; 
Millions of base acres: 13.67; 
Planting as percentage of base acres: 50.38%. 

Crop name: Rapeseed; 
Millions of actual planted acres of base acre crop: 0.00; 
Millions of base acres: 0.02; 
Planting as percentage of base acres: 17.44%. 

Crop name: Rice; 
Millions of actual planted acres of base acre crop: 26.18; 
Millions of base acres: 40.67; 
Planting as percentage of base acres: 64.38%. 

Crop name: Safflower; 
Millions of actual planted acres of base acre crop: 0.61; 
Millions of base acres: 0.95; 
Planting as percentage of base acres: 63.73%. 

Crop name: Sesame; 
Millions of actual planted acres of base acre crop: 0.01; 
Millions of base acres: 0.01; 
Planting as percentage of base acres: 60.69%. 

Crop name: Sorghum; 
Millions of actual planted acres of base acre crop: 45.95; 
Millions of base acres: 108.63; 
Planting as percentage of base acres: 42.30%. 

Crop name: Soybeans; 
Millions of actual planted acres of base acre crop: 592.76; 
Millions of base acres: 472.19; 
Planting as percentage of base acres: 125.53%. 

Crop name: Sunflower; 
Millions of actual planted acres of base acre crop: 10.70; 
Millions of base acres: 16.49; 
Planting as percentage of base acres: 64.87%. 

Crop name: Wheat; 
Millions of actual planted acres of base acre crop: 488.14; 
Millions of base acres: 685.18; 
Planting as percentage of base acres: 71.24%. 

Crop name: [Empty]; 
Millions of actual planted acres of base acre crop: Total: 2,015.63; 
Millions of base acres: Total: 2,415.08; 
Planting as percentage of base acres: Average: 83.46%. 

Source: GAO analysis of USDA data. 

Notes: (1) The millions of actual planted acres of base crop was more 
specifically 0.0042 million acres for crambe and 0.0058 for sesame; 
the planting as percentage of base acres was more specifically 2.4282 
for crambe and 60.6945 for sesame. (2) Numbers may not add to totals 
because of rounding. 

[End of table] 

[End of section] 

Appendix V: Analysis of Extent to Which Producers Did Not Grow Any of 
the Crop Associated with Their Base Acres in a Given Year: 

Our analysis of USDA data found that some producers chose to not grow 
any of the crop associated with their base acres in a given year--as 
they are allowed to do. Table 6 depicts our results of this analysis, 
by crop, and the corresponding value of direct payments made for each 
crop. 

Table 6: Cumulative Value of Direct Payments Made for Which the Crop 
Associated with the Base Acres Was Not Grown in a Given Year from 2003 
through 2011: 

Crop name: Barley; 
Millions of base acres for which no base acre crop was planted in a 
given year (cumulative): 54.07; 
Millions of base acres (cumulative): 79.39; 
Percentage of base acres not planted with any of the base acreage crop 
in a given year: 68.11%; 
Millions paid for base acres not planted with any base acre crop 
(cumulative): $457.13. 

Crop name: Canola; 
Millions of base acres for which no base acre crop was planted in a 
given year (cumulative): 3.75; 
Millions of base acres (cumulative): 6.46; 
Percentage of base acres not planted with any of the base acreage crop 
in a given year: 58.02%; 
Millions paid for base acres not planted with any base acre crop 
(cumulative): $23.82. 

Crop name: Corn; 
Millions of base acres for which no base acre crop was planted in a 
given year (cumulative): 138.91; 
Millions of base acres (cumulative): 791.14; 
Percentage of base acres not planted with any of the base acreage crop 
in a given year: 17.56%; 
Millions paid for base acres not planted with any base acre crop 
(cumulative): $2,659.77. 

Crop name: Cotton (upland); 
Millions of base acres for which no base acre crop was planted in a 
given year (cumulative): 62.06; 
Millions of base acres (cumulative): 169.00; 
Percentage of base acres not planted with any of the base acreage crop 
in a given year: 36.72%; 
Millions paid for base acres not planted with any base acre crop 
(cumulative): $1,907.38. 

Crop name: Crambe; 
Millions of base acres for which no base acre crop was planted in a 
given year (cumulative): 0.17; 
Millions of base acres (cumulative): 0.17; 
Percentage of base acres not planted with any of the base acreage crop 
in a given year: 98.88%; 
Millions paid for base acres not planted with any base acre crop 
(cumulative): $1.22. 

Crop name: Flax; 
Millions of base acres for which no base acre crop was planted in a 
given year (cumulative): 1.16; 
Millions of base acres (cumulative): 1.65; 
Percentage of base acres not planted with any of the base acreage crop 
in a given year: 70.20%; 
Millions paid for base acres not planted with any base acre crop 
(cumulative): $4.99. 

Crop name: Mustard; 
Millions of base acres for which no base acre crop was planted in a 
given year (cumulative): 0.24; 
Millions of base acres (cumulative): 0.27; 
Percentage of base acres not planted with any of the base acreage crop 
in a given year: 88.05%; 
Millions paid for base acres not planted with any base acre crop 
(cumulative): $0.91. 

Crop name: Oats; 
Millions of base acres for which no base acre crop was planted in a 
given year (cumulative): 20.02; 
Millions of base acres (cumulative): 29.19; 
Percentage of base acres not planted with any of the base acreage crop 
in a given year: 68.57%; 
Millions paid for base acres not planted with any base acre crop 
(cumulative): $17.24. 

Crop name: Peanuts; 
Millions of base acres for which no base acre crop was planted in a 
given year (cumulative): 6.58; 
Millions of base acres (cumulative): 13.67; 
Percentage of base acres not planted with any of the base acreage crop 
in a given year: 48.13%; 
Millions paid for base acres not planted with any base acre crop 
(cumulative): $272.35. 

Crop name: Rapeseed; 
Millions of base acres for which no base acre crop was planted in a 
given year (cumulative): 0.01; 
Millions of base acres (cumulative): 0.02; 
Percentage of base acres not planted with any of the base acreage crop 
in a given year: 89.67%; 
Millions paid for base acres not planted with any base acre crop 
(cumulative): $0.09. 

Crop name: Rice; 
Millions of base acres for which no base acre crop was planted in a 
given year (cumulative): 10.64; 
Millions of base acres (cumulative): 40.67; 
Percentage of base acres not planted with any of the base acreage crop 
in a given year: 26.17%; 
Millions paid for base acres not planted with any base acre crop 
(cumulative): $885.49. 

Crop name: Safflower; 
Millions of base acres for which no base acre crop was planted in a 
given year (cumulative): 0.68; 
Millions of base acres (cumulative): 0.95; 
Percentage of base acres not planted with any of the base acreage crop 
in a given year: 71.67%; 
Millions paid for base acres not planted with any base acre crop 
(cumulative): $2.98. 

Crop name: Sesame; 
Millions of base acres for which no base acre crop was planted in a 
given year (cumulative): 0.01; 
Millions of base acres (cumulative): 0.01; 
Percentage of base acres not planted with any of the base acreage crop 
in a given year: 77.69%; 
Millions paid for base acres not planted with any base acre crop 
(cumulative): $0.01. 

Crop name: Sorghum; 
Millions of base acres for which no base acre crop was planted in a 
given year (cumulative): 70.04; 
Millions of base acres (cumulative): 108.63; 
Percentage of base acres not planted with any of the base acreage crop 
in a given year: 64.47%; 
Millions paid for base acres not planted with any base acre crop 
(cumulative): $1,098.26. 

Crop name: Soybeans; 
Millions of base acres for which no base acre crop was planted in a 
given year (cumulative): 73.71; 
Millions of base acres (cumulative): 472.19; 
Percentage of base acres not planted with any of the base acreage crop 
in a given year: 15.61%; 
Millions paid for base acres not planted with any base acre crop 
(cumulative): $732.21. 

Crop name: Sunflower; 
Millions of base acres for which no base acre crop was planted in a 
given year (cumulative): 10.97; 
Millions of base acres (cumulative): 16.49; 
Percentage of base acres not planted with any of the base acreage crop 
in a given year: 66.50%; 
Millions paid for base acres not planted with any base acre crop 
(cumulative): $73.37. 

Crop name: Wheat; 
Millions of base acres for which no base acre crop was planted in a 
given year (cumulative): 180.11; 
Millions of base acres (cumulative): 685.18; 
Percentage of base acres not planted with any of the base acreage crop 
in a given year: 26.29%; 
Millions paid for base acres not planted with any base acre crop 
(cumulative): $2,507.65. 

Total: 
Millions of base acres for which no base acre crop was planted in a 
given year (cumulative): Total: 633.11; 
Millions of base acres (cumulative): Total: 2,415.08; 
Percentage of base acres not planted with any of the base acreage crop 
in a given year: Average: 26.22%; 
Millions paid for base acres not planted with any base acre crop 
(cumulative): Total: $10,644.88. 

Source: GAO analysis of USDA data. 

Notes: (1) The producer could have planted another crop, as they are 
allowed to do. (2) The millions of acres for which no base acre crop 
was planted in a given year (cumulative) was more precisely 0.169 for 
crambe and 0.007 for sesame; the millions of base acres (cumulative) 
for the period was more precisely 0.171 for crambe and 0.009 for 
sesame. (3) The dollar totals represent the amount paid for producers 
of a particular crop who did not plant any of the base acre crop in a 
given year, cumulative from 2003 through 2011. (4) Numbers may not add 
to the totals because of rounding. 

[End of table] 

[End of section] 

Appendix VI: Analysis, by State, of the Number of Farms Fallow from 
2007 through 2011 and the Value of Direct Payments Made to Producers 
for These Farms in 2011: 

According to our analysis of USDA data, 2,327 farms, or about 0.15 
percent of the 1.6 million farms receiving direct payments in 2011, 
reported all their land as "fallow" from 2007 through 2011. That is, 
producers did not plant any crops of any type on this land in any year 
during this 5-year period, as they are allowed to do in accordance 
with planting flexibility rules. Table 7 presents the results of our 
analysis, by state, of the number of such fallow farms in each state, 
including the direct payments received by producers on these farms in 
2011. 

Table 7: Number of Farms Where Producers Planted No Crop of Any Type 
from 2007 through 2011 and Value of Direct Payments Received by These 
Producers in 2011, by State: 

State: Alabama; 
Number of farms that reported all their land fallow from 2007 through 
2011: 82; 
Direct payments made in 2011 for such fallow farms: $44,105. 

State: Alaska; 
Number of farms that reported all their land fallow from 2007 through 
2011: 0; 
Direct payments made in 2011 for such fallow farms: $0. 

State: Arizona; 
Number of farms that reported all their land fallow from 2007 through 
2011: 85; 
Direct payments made in 2011 for such fallow farms: $750,531. 

State: Arkansas; 
Number of farms that reported all their land fallow from 2007 through 
2011: 124; 
Direct payments made in 2011 for such fallow farms: $135,216. 

State: California; 
Number of farms that reported all their land fallow from 2007 through 
2011: 85; 
Direct payments made in 2011 for such fallow farms (dollars): 307,182. 

State: Colorado; 
Number of farms that reported all their land fallow from 2007 through 
2011: 14; 
Direct payments made in 2011 for such fallow farms: $11,216. 

State: Connecticut; 
Number of farms that reported all their land fallow from 2007 through 
2011: 1; 
Direct payments made in 2011 for such fallow farms: $280. 

State: Delaware; 
Number of farms that reported all their land fallow from 2007 through 
2011: 0; 
Direct payments made in 2011 for such fallow farms: $0. 

State: Florida; 
Number of farms that reported all their land fallow from 2007 through 
2011: 60; 
Direct payments made in 2011 for such fallow farms: $25,716. 

State: Georgia; 
Number of farms that reported all their land fallow from 2007 through 
2011: 551; 
Direct payments made in 2011 for such fallow farms: $307,388. 

State: Hawaii; 
Number of farms that reported all their land fallow from 2007 through 
2011: 0; 
Direct payments made in 2011 for such fallow farms: $0. 

State: Idaho; 
Number of farms that reported all their land fallow from 2007 through 
2011: 20; 
Direct payments made in 2011 for such fallow farms: $17,726. 

State: Illinois; 
Number of farms that reported all their land fallow from 2007 through 
2011: 6; 
Direct payments made in 2011 for such fallow farms: $1,675. 

State: Indiana; 
Number of farms that reported all their land fallow from 2007 through 
2011: 13; 
Direct payments made in 2011 for such fallow farms: $3,668. 

State: Iowa; 
Number of farms that reported all their land fallow from 2007 through 
2011: 0; 
Direct payments made in 2011 for such fallow farms: $0. 

State: Kansas; 
Number of farms that reported all their land fallow from 2007 through 
2011: 8; 
Direct payments made in 2011 for such fallow farms: $4,957. 

State: Kentucky; 
Number of farms that reported all their land fallow from 2007 through 
2011: 1; 
Direct payments made in 2011 for such fallow farms: $144. 

State: Louisiana; 
Number of farms that reported all their land fallow from 2007 through 
2011: 322; 
Direct payments made in 2011 for such fallow farms: $346,514. 

State: Maine; 
Number of farms that reported all their land fallow from 2007 through 
2011: 0; 
Direct payments made in 2011 for such fallow farms: $0. 

State: Maryland; 
Number of farms that reported all their land fallow from 2007 through 
2011: 4; 
Direct payments made in 2011 for such fallow farms: $832. 

State: Massachusetts; 
Number of farms that reported all their land fallow from 2007 through 
2011: 0; 
Direct payments made in 2011 for such fallow farms: $0. 

State: Michigan; 
Number of farms that reported all their land fallow from 2007 through 
2011: 27; 
Direct payments made in 2011 for such fallow farms: $7,544. 

State: Minnesota; 
Number of farms that reported all their land fallow from 2007 through 
2011: 3; 
Direct payments made in 2011 for such fallow farms: $1,141. 

State: Mississippi; 
Number of farms that reported all their land fallow from 2007 through 
2011: 83; 
Direct payments made in 2011 for such fallow farms: $41,735. 

State: Missouri; 
Number of farms that reported all their land fallow from 2007 through 
2011: 7; 
Direct payments made in 2011 for such fallow farms: $2,758. 

State: Montana; 
Number of farms that reported all their land fallow from 2007 through 
2011: 1; 
Direct payments made in 2011 for such fallow farms: $1,693. 

State: Nebraska; 
Number of farms that reported all their land fallow from 2007 through 
2011: 4; 
Direct payments made in 2011 for such fallow farms: $2,441. 

State: Nevada; 
Number of farms that reported all their land fallow from 2007 through 
2011: 0; 
Direct payments made in 2011 for such fallow farms: $0. 

State: New Hampshire; 
Number of farms that reported all their land fallow from 2007 through 
2011: 0; 
Direct payments made in 2011 for such fallow farms: $0. 

State: New Jersey; 
Number of farms that reported all their land fallow from 2007 through 
2011: 3; 
Direct payments made in 2011 for such fallow farms: $1,007. 

State: New Mexico; 
Number of farms that reported all their land fallow from 2007 through 
2011: 68; 
Direct payments made in 2011 for such fallow farms: $204,381. 

State: New York; 
Number of farms that reported all their land fallow from 2007 through 
2011: 18; 
Direct payments made in 2011 for such fallow farms: $6,198. 

State: North Carolina; 
Number of farms that reported all their land fallow from 2007 through 
2011: 169; 
Direct payments made in 2011 for such fallow farms: $34,389. 

State: North Dakota; 
Number of farms that reported all their land fallow from 2007 through 
2011: 8; 
Direct payments made in 2011 for such fallow farms: $3,052. 

State: Ohio; 
Number of farms that reported all their land fallow from 2007 through 
2011: 32; 
Direct payments made in 2011 for such fallow farms: $11,840. 

State: Oklahoma; 
Number of farms that reported all their land fallow from 2007 through 
2011: 22; 
Direct payments made in 2011 for such fallow farms: $12,909. 

State: Oregon; 
Number of farms that reported all their land fallow from 2007 through 
2011: 3; 
Direct payments made in 2011 for such fallow farms: $984. 

State: Pennsylvania; 
Number of farms that reported all their land fallow from 2007 through 
2011: 5; 
Direct payments made in 2011 for such fallow farms: $2,004. 

State: Rhode Island; 
Number of farms that reported all their land fallow from 2007 through 
2011: 0; 
Direct payments made in 2011 for such fallow farms: $0. 

State: South Carolina; 
Number of farms that reported all their land fallow from 2007 through 
2011: 283; 
Direct payments made in 2011 for such fallow farms: $103,858. 

State: South Dakota; 
Number of farms that reported all their land fallow from 2007 through 
2011: 1; 
Direct payments made in 2011 for such fallow farms: $1,413. 

State: Tennessee; 
Number of farms that reported all their land fallow from 2007 through 
2011: 28; 
Direct payments made in 2011 for such fallow farms: $6,382. 

State: Texas; 
Number of farms that reported all their land fallow from 2007 through 
2011: 134; 
Direct payments made in 2011 for such fallow farms: $449,438. 

State: Utah; 
Number of farms that reported all their land fallow from 2007 through 
2011: 3; 
Direct payments made in 2011 for such fallow farms: $3,569. 

State: Vermont; 
Number of farms that reported all their land fallow from 2007 through 
2011: 1; 
Direct payments made in 2011 for such fallow farms: $334. 

State: Virginia; 
Number of farms that reported all their land fallow from 2007 through 
2011: 25; 
Direct payments made in 2011 for such fallow farms: $2,902. 

State: Washington; 
Number of farms that reported all their land fallow from 2007 through 
2011: 11; 
Direct payments made in 2011 for such fallow farms: $11,103. 

State: West Virginia; 
Number of farms that reported all their land fallow from 2007 through 
2011: 0; 
Direct payments made in 2011 for such fallow farms: $0. 

State: Wisconsin; 
Number of farms that reported all their land fallow from 2007 through 
2011: 11; 
Direct payments made in 2011 for such fallow farms: $6,242. 

State: Wyoming; 
Number of farms that reported all their land fallow from 2007 through 
2011: 1; 
Direct payments made in 2011 for such fallow farms: $261. 

State: Total; 
Number of farms that reported all their land fallow from 2007 through 
2011: 2,327; 
Direct payments made in 2011 for such fallow farms: $2,876,728. 

Source: GAO analysis of USDA data. 

Note: We are reporting payments made in the most recent year for which 
data are available, 2011, to producers of farms that we identified as 
being fallow for 5 consecutive years, from 2007 through 2011. 

[End of table] 

[End of section] 

Appendix VII: Comments from the U.S. Department of Agriculture: 

USDA: 
United States Department of Agriculture: 
Farm and Foreign Agricultural Services: 
Farm Service Agency: 
1400 Independence Ave., SW: 
Stop 0501: 
Washington DC, 20250-0541: 

June 22, 2012: 

To: Lisa Shames, Director: 
Food Safety and Agriculture Issues: 
Government Accountability Office: 

From: [Signed by] Bruce Nelson: 
Administrator: 

Subject: Government Accountability' Office (GAO) Draft Report Entitled, 
"Farm Programs: Direct Payments Should be Reconsidered", GAO-12-640. 
 
The U.S. Department of Agriculture (USDA) has reviewed the GAO report 
on Direct  Payments and provides the response below. 

USDA has noted GAO's recommendation to Congress to consider 
terminating or reducing direct payments. The President's Financial 
Year 2013 budget recommended eliminating the direct payment program 
while maintaining a strong safety net for farmers. 

In response to GAO's recommendation that USDA implement a process to 
"report on land that may no longer be usable for agriculture," USDA 
considers that its current processes are adequate. USDA has a system 
in place to verify that all land with base acres and receiving a 
direct payment is used for agricultural purposes. 

Section 1106(c)(l) of the Food, Conservation, and Energy Act of 2008, 
the Farm Service Agency (FSA) Handbook 1-DCP, and the CCC-509 Appendix 
(direct payment contract appendix) all require the reporting of all 
cropland on the farm. When the producers on a farm file an acreage 
report (FSA-578) on all cropland on the farm, that producer becomes 
subject to a spot check, according to FSA Handbook 2-CP. 

FSA selects a statistical sample of producers for spot checking to 
determine that all land reported as cropland on the farm remained in 
cropland status for the year the spot check was conducted. If a 
producer is selected for spot check, the accuracy of the producer's 
acreage report is determined. Only the producers identified on the 
national producer selection list are required to be spot checked. 
However, State and County FSA Offices may elect to spot check any 
producer if there is reason to question the producer's compliance with 
any program provision. 

FSA agrees with GAO that geospatial imagery is a useful tool to 
identity land use changes. GAO's recommendation to update geospatial 
imagery more frequently would require increased funding from Congress. 

USDA concurs with GAO that timely. high quality end-of-year reviews to 
determine if recipients met program requirements are important. 
However, USDA contends that its current practices already meet this 
standard. It would not be feasible for an end-of-year review to be 
completed before the issuance of final direct payments for the year 
subject of the review. Final direct payments are issued October 1. or 
soon thereafter, of the calendar year in which the crop of the covered 
commodity is harvested. In many locations, the farming operation has 
not completed crop harvest and many other operations for the year. The 
end-of-year review is predicated on what occurred during the year in 
the farming operation as compared to the representations made at the 
time that payment eligibility and payment limitation determinations 
were made. Information concerning how the crops were marketed, bow 
expenses were paid, and how profits or losses were divided simply 
cannot be provided until 'the dust has settled' for that particular 
year. 

Different approaches have been utilized over the years in the 
methodology for sample selection. At the recommendation of the Office 
of Inspector General (0I0) in the early 1990's, a judgmental selection 
completed in headquarters was determined as the most consistent and 
beneficial in terms of detecting problematic issues and potential 
compliance problems. FSA has always represented the sample as 
judgmental, not statistical or otherwise. As mentioned. 010 believed 
in the early 1990's that FSA was devoting too much time and resources 
in the review of fanning operations that, in all likelihood, were not 
in a position to be potential payment eligibility or limitation 
problems. Thus, in consideration of efficiency, FSA has made a 
targeted selection and devoted its limited resources to identifying 
farming operations considered most likely to have potential payment 
eligibility and payment limitation compliance issues. 

When the National Compliance Review process was being developed, the 
inclusion of end-of-year reviews in that process was considered. 
However, it was ultimately concluded that the nature of end-of-year 
reviews warranted continuation of selections made through the existing 
judgmental selection process. 

USDA agrees that there is value in maintaining data on 
misrepresentation and enforcement actions taken. The development of 
such a capability has been planned for a number of years. However, 
other projects such as implementation of the 2008 Farm Rill and the 
development and implementation of a robust process for verifying 
producer compliance with Adjusted Gross income limits have taken 
precedence over the development of new informational tools and 
reporting enhancements. 

[End of table] 

[End of section] 

Appendix VIII: GAO Contact and Staff Acknowledgments: 

GAO Contact: 

Lisa Shames, (202) 512-3841 or shamesl@gao.gov: 

Staff Acknowledgments: 

In addition to the individual named above, James R. Jones, Jr. 
(Assistant Director); Alisa Beyninson; Ellen W. Chu; Michael Kendix; 
and Michelle Munn made key contributions to this report. Important 
contributions were also made by Benjamin Bolitzer, Kevin Bray, Tom 
Cook, Melinda Cordero, Greg Dybalski, Barbara El Osta, Rebecca Makar, 
John Mingus, Susan Offutt, Anne Rhodes-Kline, Ardith A. Spence, Kiki 
Theodoropoulous, and Michelle K. Treistman. 

[End of section] 

Related GAO Products: 

Farm Bill: Issues to Consider for Its Reauthorization, [hyperlink, 
http://www.gao.gov/products/GAO-12-338SP]. April 24, 2012. 

Crop Insurance: Savings Would Result from Program Changes and Greater 
Use of Data Mining, [hyperlink, 
http://www.gao.gov/products/GAO-12-256]. Washington, D.C.: March 13, 
2012. 

Follow-up on 2011 Report: Status of Actions Taken to Reduce 
Duplication, Overlap, and Fragmentation, Save Tax Dollars, and Enhance 
Revenue, [hyperlink, http://www.gao.gov/products/GAO-12-453SP]. 
Washington, D.C.: February 28, 2012. 

Opportunities to Reduce Potential Duplication in Government Programs, 
Save Tax Dollars, and Enhance Revenue [hyperlink, 
http://www.gao.gov/products/GAO-11-318SP]. Washington, D.C.: March 1, 
2011. 

2012 Annual Report: Opportunities to Reduce Duplication, Overlap and 
Fragmentation, Achieve Savings, and Enhance Revenue, [hyperlink, 
http://www.gao.gov/products/GAO-12-342SP]. Washington, D.C.: February 
28, 2012. 

USDA Crop Disaster Programs: Lessons Learned Can Improve 
Implementation of New Crop Assistance Program, [hyperlink, 
http://www.gao.gov/products/GAO-10-548]. Washington, D.C.: June 4, 
2010. 

Crop Insurance: Opportunities Exist to Reduce the Costs of 
Administering the Program, [hyperlink, 
http://www.gao.gov/products/GAO-09-445]. Washington, D.C.: April 29, 
2009. 

Federal Farm Programs: USDA Needs to Strengthen Controls to Prevent 
Payments to Individuals Who Exceed Income Eligibility Limits, 
[hyperlink, http://www.gao.gov/products/GAO-09-67]. Washington, D.C.: 
October 24, 2008. 

Agricultural Conservation: Farm Program Payments Are an Important 
Factor in Landowners' Decisions to Convert Grassland to Cropland. 
[hyperlink, http://www.gao.gov/products/GAO-07-1054]. Washington, 
D.C.: September 18, 2007. 

Beginning Farmers: Additional Steps Needed to Demonstrate the 
Effectiveness of USDA Assistance, [hyperlink, 
http://www.gao.gov/products/GAO-07-1130]. Washington, D.C.: September 
10, 2007. 

USDA Needs to Strengthen Management Controls to Prevent Improper 
Payments to Estates and Deceased Individuals. [hyperlink, 
http://www.gao.gov/products/GAO-07-1137T]. Washington, D.C.: July 24, 
2007. 

Federal Farm Programs: USDA Needs to Strengthen Controls to Prevent 
Improper Payments to Estates and Deceased Individuals, [hyperlink, 
http://www.gao.gov/products/GAO-07-818]. Washington, D.C.: July 9, 
2007. 

Crop Insurance: Continuing Efforts Are Needed to Improve Program 
Integrity and Ensure Program Costs Are Reasonable, [hyperlink, 
http://www.gao.gov/products/GAO-07-944T]. Washington, D.C.: June 7, 
2007. 

Crop Insurance: Continuing Efforts Are Needed to Improve Program 
Integrity and Ensure Program Costs Are Reasonable, [hyperlink, 
http://www.gao.gov/products/GAO-07-819T]. Washington, D.C.: May 3, 
2007. 

Crop Insurance: More Needs to Be Done to Reduce Program's 
Vulnerability to Fraud, Waste, and Abuse, [hyperlink, 
http://www.gao.gov/products/GAO-06-878T]. Washington, D.C.: June 15, 
2006. 

Crop Insurance: Actions Needed to Reduce Program's Vulnerability to 
Fraud, Waste, and Abuse, [hyperlink, 
http://www.gao.gov/products/GAO-05-528]. Washington, D.C.: September 
30, 2005. 

Farm Program Payments: USDA Should Correct Weaknesses in Regulations 
and Oversight to Better Ensure Recipients Do Not Circumvent Payment 
Limitations, [hyperlink, http://www.gao.gov/products/GAO-04-861T]. 
Washington, D.C.: June 16, 2004. 

Crop Insurance: USDA Needs to Improve Oversight of Insurance Companies 
and Develop a Policy to Address Any Future Insolvencies,. [hyperlink, 
http://www.gao.gov/products/GAO-04-517]. Washington, D.C.: June 1, 
2004. 

Farm Program Payments: USDA Needs to Strengthen Regulations and 
Oversight to Better Ensure Recipients Do Not Circumvent Payment 
Limitations, [hyperlink, http://www.gao.gov/products/GAO-04-407]. 
Washington, D.C.: April 30, 2004. 

Federal Budget: Opportunities for Oversight and Improved Use of 
Taxpayer Funds, [hyperlink, http://www.gao.gov/products/GAO-03-1030T]. 
Washington, D.C.: July 17, 2003. 

[End of section] 

Footnotes: 

[1] Under the 2008 Farm Bill, a person or entity whose 3-year average 
farm income exceeds $750,000 and/or 3-year average non-farm income 
exceeds $500,000 is ineligible for direct payments. 

[2] Office of Management and Budget, Fiscal Year 2013 Budget: Cutting 
Waste, Reducing the Deficit, and Asking All To Pay Their Fair Share 
(Washington, D.C.: Feb. 13, 2012). 

[3] GAO, Opportunities to Reduce Potential Duplication in Government 
Programs, Save Tax Dollars, and Enhance Revenue, [hyperlink, 
http://www.gao.gov/products/GAO-11-318SP] (Washington, D.C.: Mar. 1, 
2011). In February 2012, we reported that no legislative action was 
taken on this recommendation. See GAO, Follow-up on 2011 Report: 
Status of Actions Taken to Reduce Duplication, Overlap, and 
Fragmentation, Save Tax Dollars, and Enhance Revenue, [hyperlink, 
http://www.gao.gov/products/GAO-12-453SP] (Washington, D.C., Feb. 28, 
2012). See also GAO, 2012 Annual Report: Opportunities to Reduce 
Duplication, Overlap and Fragmentation, Achieve Savings, and Enhance 
Revenue, [hyperlink, http://www.gao.gov/products/GAO-12-342SP] 
(Washington, D.C.: Feb. 28, 2012). Others who proposed such options 
included the National Commission on Fiscal Responsibility and Reform, 
the Debt Reduction Taskforce, the Administration, Members of Congress, 
and some farming groups. 

[4] GAO, Farm Bill: Issues to Consider for Reauthorization, 
[hyperlink, http://www.gao.gov/products/GAO-12-338SP] (Washington, 
D.C.: Apr. 24, 2012). USDA's Office of Inspector General issued a 
companion report using these principles. See U.S. Department of 
Agriculture, Office of Inspector General, Farm Bill: Issues to 
Consider for Reauthorization, 50099-0001-10 (Washington D.C.: April 
2012). 

[5] GAO, Federal Farm Programs: USDA Needs to Strengthen Controls to 
Prevent Improper Payments to Estates and Deceased Individuals, 
[hyperlink, http://www.gao.gov/products/GAO-07-818] (Washington, D.C.: 
July 9, 2007). 

[6] GAO, Farm Program Payments: USDA Needs to Strengthen Regulations 
and Oversight to Better Ensure Recipients Do Not Circumvent Payment 
Limitations, [hyperlink, http://www.gao.gov/products/GAO-04-407] 
(Washington, D.C.: Apr. 30, 2004). 

[7] A program year is the year for which the program runs and benefits 
may be received. For direct payments, the program year corresponds 
with the federal fiscal year. 

[8] However, for years before 2008, USDA was unable to provide 
reliable address files for recipients, which we needed to determine 
the geographic distribution of direct payments. Therefore, we were 
unable to analyze the geographic distribution of direct payments 
before 2008. 

[9] [hyperlink, http://www.gao.gov/products/GAO-11-318SP]. 

[10] [hyperlink, http://www.gao.gov/products/GAO-12-338SP]. 

[11] The CCC is a federally owned and operated corporation within USDA 
created to stabilize and support agricultural prices and farm income 
by making loans and payments to producers, purchasing commodities, and 
engaging in various other operations. The CCC handles all money 
transactions for agricultural price and income support and related 
programs. FSA distributes direct payments for the CCC. 

[12] In 2002, producers were given the option of updating their base 
acre allocations based on the farm's production from 1998 through 
2001. Producers who opted not to update at that time maintained base 
acre allocations based on the farm's production from earlier years. 

[13] Such reporting is outlined in FSA guidance and program documents 
and required by the 2008 farm bill. See FSA, Direct and Counter-
Cyclical Payment Handbook,1-DCP (Washington, D.C.: Aug. 14, 2008), and 
FSA, Direct and Counter-Cyclical Payment and Average Revenue Crop 
Election Contract, CCC-509 (Washington, D.C. Apr. 16, 2009). In 
addition, the acreage report that FSA uses to collect such production 
information is more specifically known as FSA's Form-578 "Report of 
Acreage." 

[14] We previously reported on USDA's enforcement of "actively 
engaged" provisions. See [hyperlink, 
http://www.gao.gov/products/GAO-04-407]. 

[15] ACRE is a revenue-support program, under which payments are made 
based on a producer's production of certain crops and a crop price 
index. Counter-cyclical payments are price supports paid when the 
actual price of covered crops falls below a legislatively determined 
target price. 

[16] We included all the direct payment crops in our analysis: barley, 
canola, corn, cotton (upland), crambe, flax, mustard, oats, peanuts, 
rapeseed, rice, safflower, sesame, sorghum, soybeans, sunflower, and 
wheat. 

[17] USDA was unable to provide reliable address files for recipients 
for years before 2008. We obtained available data for the centroid 
point--the geometric center--of the county in which the farm resides 
and calculated the distance from it to the centroid point of the 
payment recipient's zip code. 

[18] Producers report how they are involved in and whether they own a 
particular farm field or area of land in what is known as the 
compliance share file. FSA officials noted that producers may operate 
on more than one farm, in different capacities. 

[19] USDA data do not differentiate between the program's qualifying 
acreage, or "base acres," and a farm's other acreage, and producers 
report one aggregated number of acres for each crop planted. In 
addition, the term base acres refers to a farm's average planted 
acreage of specific crops during certain past years; the term does not 
refer to specific physical acres on that farm. To determine the 
relative percentage of base acres planted in the base acre crop, we 
compared the acres of a farm planted in a particular crop with its 
base acres of that crop. Because a producer may plant 100 percent of 
the farm's base acres in any crop, plus additional acres on the farm 
in excess of the base acre amount, more than 100 percent of base acres 
may be planted with a certain crop. 

[20] According to FSA officials, variation in planting decisions is to 
be expected for a number of reasons. For example, the practice of crop 
rotation between corn and soybeans is common. In addition, these 
officials said that producers in recent years are planting more corn 
and soybeans compared with wheat, whereas wheat was a relatively 
dominant crop when base acres were first established. In addition, 
according to FSA officials, the variation in planting may be 
attributable to other factors, such as the relative prices of various 
crops and local soil conditions. 

[21] [hyperlink, http://www.gao.gov/products/GAO-12-338SP]. 

[22] Federal Agricultural Improvement and Reform Act of 1996, Pub. L. 
No. 104-127, 110 Stat. 888. 

[23] GAO, Federal Farm Programs: USDA Needs to Strengthen Controls to 
Prevent Payments to Individuals Who Exceed Income Eligibility Limits, 
[hyperlink, http://www.gao.gov/products/GAO-09-67] (Washington, D.C.: 
Oct. 24, 2008). We defined "higher incomes" in this report as adjusted 
gross incomes of $500,000 or more per year. 

[24] GAO, Federal Budget: Opportunities for Oversight and Improved Use 
of Taxpayer Funds, [hyperlink, 
http://www.gao.gov/products/GAO-03-1030T] (Washington, D.C.: July 17, 
2003). 

[25] USDA Economic Research Service, Farm and Commodity Policy: 
Program Provisions: Direct Payments (Washington, D.C.: June 15, 2009). 

[26] GAO, Beginning Farmers: Additional Steps Needed to Demonstrate 
the Effectiveness of USDA Assistance, [hyperlink, 
http://www.gao.gov/products/GAO-07-1130] (Washington, D.C.: Sept. 18, 
2007). 

[27] Under the "landowner exemption," landowners are not required to 
contribute both (1) capital, equipment, or land and (2) personal labor 
or active personal management, as are other producers. However, 
landowners must make contributions that are at risk, and commensurate 
with their share of profits or losses in the farming operation. 

[28] Farm Service Agency, A Report to Congress on Base Acre Reduction 
When Base Acres Are Converted to a Non-Agricultural Use (Washington, 
D.C.: September 2011). 

[29] The National Resources Inventory is a statistical survey of land 
use and natural resource conditions and trends on nonfederal lands in 
the United States conducted by USDA's Natural Resource Conservation 
Service. Conversion rates of land from agricultural to nonfarm or 
commercial use may vary according to prevailing economic conditions. 
Specifically, when the profitability of land in agricultural use is 
high relative to other potential uses, conversion rates from 
agricultural to nonfarm or commercial use would likely be low. If, 
however, business conditions improve and demand for residential 
housing increases, then conversion rates could increase. 

[30] FSA County Committees consist of farmers and ranchers elected by 
other producers to help deliver FSA programs in their local farming 
communities. 

[31] FSA officials can query a database to identify a farm's acreage 
and base acreage and compare it with reports on yield for that farm. 
In some cases, Out of Balance Tracts reports may indicate that base 
acreage is greater than the yield, in which case the FSA official can 
determine whether further information is needed to confirm that the 
farm's reported base acreage is accurate. 

[32] In addition, as part of FSA's National Compliance Program, USDA's 
National Agricultural Statistics Service selects a statistical sample 
of 2,000 producers each year--including some of the approximately 1.6 
million producers who receive direct payments--and FSA staff perform 
spot checks to verify that reported planting information is accurate. 
We note that based on this information, approximately 0.13 percent of 
producers receiving direct payments could potentially be selected to 
have their reported planting information verified each year through 
this process. FSA state and county offices may elect to spot check any 
producer if there is reason to question the producer's compliance with 
any program provision. 

[33] Misrepresentation could include exaggerating the number of 
participants in a farming operation, or the stake of any participant 
in the operation, to increase the amount of the payment received. 
Fraud may be falsifying documentation to circumvent provisions 
defining payment eligibility and payment limitations. According to FSA 
officials, the distinction between fraud and other misrepresentation 
is one of degree, where fraud is more serious. 

[34] FSA guidance allows state and county FSA officials to add cases 
for end-of-year reviews; however, FSA officials did not provide data 
regarding how often this has occurred in recent years. 

[35] [hyperlink, http://www.gao.gov/products/GAO-04-407]. 

[36] For example, for 2001, FSA developed a judgmental sample of 1,573 
farm operating plans from the 247,831 entities (0.6 percent) that 
received federal farm payments. The sample selection included 966 
farming operations that were waived for various reasons, leaving 523 
farming operations to be reviewed (0.2 percent). See [hyperlink, 
http://www.gao.gov/products/GAO-04-407]. 

[37] This schedule is informal and may vary. FSA's handbook on 
producer compliance states that FSA state directors will determine the 
official completion dates for end-of-year reviews but does not specify 
or suggest a particular time frame. In addition, FSA headquarters may 
not meet its target date of selecting end-of-year reviews within 6 
months of the new calendar year. For example, FSA headquarters did not 
send 2010 cases selected for end-of-year reviews to states until 
December 2011, more than 5 months after the expected selection date 
according to nominal FSA time frames. 

[38] The most recent years for which complete data were available were 
2008 and 2009; FSA first provided these data as of September 2011, 
and, in May 2012, provided updated data as of February 2012. We are 
reporting the data as of September 2011 in addition to the most recent 
data to more fully illustrate the status of these reviews at a date 3 
months past the expected time frame for completion. FSA provided data 
indicating that in 2006 and 2007, an average of 0.04 percent of cases 
were selected for review. FSA did not provide the number of cases 
waived or completion time frames for those years. 

[39] In May 2012, FSA provided updated information, reporting that 
California had completed its 2006 and all but two of its 2007 end-of-
year reviews; Louisiana had completed all but one of its 2006 and all 
of its 2007 end-of-year reviews; and Mississippi had completed all its 
2006 and all but two of its 2007end-of-year reviews. FSA officials 
said the five pending reviews for these states were due to pending 
appeal at the state or county level. FSA did not provide updated data 
regarding completion of 2008 or 2009 end-of-year reviews. 

[40] GAO, Standards for Internal Control in the Federal Government, 
[hyperlink, http://www.gao.gov/products/GAO/AIMD-00-21.3.1] 
(Washington, D.C.: November 1999). 

[41] Office of Management and Budget, Management's Responsibility for 
Internal Control, OMB Circular No. A-123 (Washington, D.C.: Dec. 21, 
2004). 

[42] Farm Service Agency, Payment Eligibility, Payment Limitation, and 
Average Adjusted Gross Income, 4-PL, Amendment 10, Sec. 4 Para. 42. 

[43] For example, in a September 2005 report, we found that few 
suspicious crop insurance claims payments resulted in a conviction for 
fraud. We reported that, while the number of USDA OIG referrals to the 
Department of Justice on suspicious claims payments had increased, the 
Department of Justice declined more cases than it had accepted since 
2000. According to Department of Justice officials, the factors 
considered when accepting a case include sufficiency of the evidence, 
complexity of the case, whether the fraudulent activity is part of a 
pattern or scheme, and workload and resources that would be needed to 
investigate and prosecute the case. With regard to crop insurance, 
these officials told us that fraud cases are highly complex and 
involve a significant number of documents that must be reviewed and 
presented in court and that the dollar value of such cases frequently 
is not as large as in other cases, such as drug trafficking or some 
white-collar crime. See GAO, Crop Insurance: Actions Needed to Reduce 
Program's Vulnerability to Fraud, Waste, and Abuse, [hyperlink, 
http://www.gao.gov/products/GAO-05-528] (Washington, D.C.: Sept. 30, 
2005). 

[44] See 7 C.F.R. 1400.5. 

[45] Pub. L. No. 107-300, 116 Stat. 2350 (2002), as amended by Pub. L. 
No. 111-204, 124 Stat. 2224 (2010). 

[46] USDA, 2011 Performance and Accountability Report (Washington, 
D.C.: Nov. 15, 2011). 

[47] A program year is the year for which the program runs and 
benefits may be received. For direct payments, the program year 
corresponds with the federal fiscal year. 

[48] [hyperlink, http://www.gao.gov/products/GAO-12-338SP]. 

[49] [hyperlink, http://www.gao.gov/products/GAO-11-318SP]. 

[50] USDA Office of Inspector General, Farm Bill: Principles to Help 
Guide Its Design and Implementation, IG-50099-001-10 (Washington, 
D.C.: Apr. 20, 2012). 

[51] In Arizona, we visited FSA county offices in Maricopa, Pima, and 
Pinal counties. In Louisiana, we visited FSA county offices in 
Madison, Morehouse, and Richland parishes. 

[52] In California, we spoke by phone with FSA county office officials 
in Colusa and Fresno counties. In Mississippi, we spoke by phone with 
FSA county office officials in Bolivar and Coahoma counties. 

[53] To ensure compliance with payment limitation and eligibility 
provisions (as provided in statute and regulation), FSA conducts end-
of-year compliance reviews of some farming operations each year to 
determine that they were carried out as represented in their farm 
operating plans. This includes an assessment of whether individuals 
associated with a farming operation meet criteria for being actively 
engaged in farming. 

[54] [hyperlink, http://www.gao.gov/products/GAO-12-338SP]. 

[End of section] 

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