Crop Insurance:

Actions Needed to Reduce Program's Vulnerability to Fraud, Waste, and Abuse

GAO-05-528: Published: Sep 30, 2005. Publicly Released: Oct 31, 2005.

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Federal crop insurance protects producers against losses from natural disasters. In 2004, the crop insurance program provided $47 billion in coverage, at a cost of $3.6 billion, including an estimated $160 million in losses from fraud and abuse. The U.S. Department of Agriculture's (USDA) Risk Management Agency (RMA) administers this program with private insurers. The Agricultural Risk Protection Act of 2000 (ARPA) provided new tools to monitor and control abuses, such as having USDA's Farm Service Agency (FSA) conduct field inspections. GAO assessed, among other things, the (1) effectiveness of USDA's processes to address program fraud and abuse and (2) extent to which the program's design makes it vulnerable to abuse.

While RMA employs a range of processes to help prevent and detect fraud, waste, and abuse and has reported more than $300 million in savings over the past 4 years in the crop insurance program, GAO found that RMA does not effectively use all the tools it has available. Inspections during the growing season are not being used to maximum effect. Between 2001 and 2004, FSA conducted only 64 percent of the inspections RMA had requested. Without inspections, producers may falsely claim crop losses. RMA's data analysis of the largest farming operations is incomplete. According to GAO's analysis, in 2003, about 21,000 of the largest farming operations in the program did not report individuals or entities with an ownership interest in these operations. As a result, USDA should be able to recover up to $74 million in claims payments. FSA did not give RMA access to the data needed to identify such individuals or entities. RMA is not effectively overseeing insurance companies' quality assurance programs. GAO's review of 120 cases showed that companies completed only 75 percent of the required reviews and those that were conducted were largely paper exercises. RMA has infrequently used its new sanction authority to address program abuses. RMA has not issued regulations to implement its new sanction authority under ARPA. RMA imposed only 114 sanctions from 2001 through 2004. Annually, RMA identifies about 3,000 questionable claims, not all of which are necessarily sanctionable. Eight recent crop insurance fraud cases, investigated by USDA's Office of Inspector General and resulting in criminal prosecutions between June 2003 and April 2005, reflect these issues. Totaling $3 million in insurance claims, these cases show how producers, sometimes in collusion with insurance agents and others, falsely claim prevented planting, weather damage, and low production. In some cases, producers hid or moved production from one field to another. Several of these cases also demonstrate the importance of having FSA and RMA work together to identify and share information on questionable farming practices/activities. RMA's regulations, as well as statutory requirements, create program design problems that hinder RMA officials' efforts to reduce program abuse. For example, RMA's regulations allow producers to insure fields individually rather than all fields combined. This option enables producers to "switch" reporting of yield among fields to either make false claims or build up a higher yield history on a field to increase its eligibility for higher insurance guarantees. High premium subsidies, established by statute, may also limit RMA's ability to control program abuse because the subsidies shield producers from the full effect of paying higher premiums associated with frequent or larger claims.

Status Legend:

More Info
  • Review Pending-GAO has not yet assessed implementation status.
  • Open-Actions to satisfy the intent of the recommendation have not been taken or are being planned, or actions that partially satisfy the intent of the recommendation have been taken.
  • Closed-implemented-Actions that satisfy the intent of the recommendation have been taken.
  • Closed-not implemented-While the intent of the recommendation has not been satisfied, time or circumstances have rendered the recommendation invalid.
    • Review Pending
    • Open
    • Closed - implemented
    • Closed - not implemented

    Matter for Congressional Consideration

    Matter: To better protect the crop insurance program from fraud, waste, and abuse, Congress may wish to consider allowing RMA to reduce premium subsidies--and hence raise the insurance premiums--for producers who consistently have claims that are irregular in comparison with other producers growing the same crop in the same location.

    Status: Closed - Not Implemented

    Comments: Although the President's budget in 2007 included a provision to reduce premium subsidies in the crop insurance program, Congress has taken no action on GAO's recommendation (Matter for Consideration).

    Recommendations for Executive Action

    Recommendation: To better ensure that field inspections are used to the maximum effect to address fraud, waste, and abuse in the federal crop insurance program, the Secretary of Agriculture should direct the Administrators of RMA and FSA to create an action plan to ensure that FSA field offices conduct all inspections called for under agency guidance.

    Agency Affected: Department of Agriculture

    Status: Closed - Not Implemented

    Comments: Although USDA's Risk Management Agency agrees with GAO's recommendation, it's sister agency, Farm Service Agency (FSA), disagreed with the recommendation contending it does not have sufficient resources to complete all field inspections. In follow-up in 2009, FSA continues to hold this position.

    Recommendation: To better ensure that field inspections are used to the maximum effect to address fraud, waste, and abuse in the federal crop insurance program, the Secretary of Agriculture should direct the Administrators of RMA and FSA to create an action plan to ensure that RMA informs FSA field inspectors of the suspect claim patterns that they are to investigate.

    Agency Affected: Department of Agriculture

    Status: Closed - Implemented

    Comments: Over the years, concerns have arisen that some farmers abuse the crop insurance program by allowing crops to fail through neglect or deliberate actions in order to collect crop insurance payments. GAO examined how effectively USDA implemented provisions of the Agricultural Risk Protection Act of 2000 designed to strengthen integrity in the federal crop insurance program. Under the act, USDA's Farm Service Agency (FSA) is to assist the Risk Management Agency (RMA) in monitoring the federal crop insurance program by conducting inspections of farmers who file suspicious loss claims. GAO found that these inspections often are ineffective for determining fraud and abuse because RMA provides little information to FSA on details of the claim. GAO therefore recommended that RMA inform FSA's field inspectors on specifics of claims that they are to investigate, including the type of suspected fraudulent behavior. RMA concurred with this recommendation and in 2006 took actions to implement it. Specifically, RMA now provides detailed information to FSA's inspectors on the nature of each suspicious claim.

    Recommendation: To better ensure that field inspections are used to the maximum effect to address fraud, waste, and abuse in the federal crop insurance program, the Secretary of Agriculture should direct the Administrators of RMA and FSA to create an action plan to ensure that FSA inspections are conducted in a timely manner, and inspection results are reported expeditiously to insurance companies.

    Agency Affected: Department of Agriculture

    Status: Closed - Implemented

    Comments: Over the years, concerns have arisen that some farmers abuse the crop insurance program by allowing crops to fail through neglect or deliberate actions in order to collect crop insurance payments. GAO examined how effectively USDA implemented provisions of the Agricultural Risk Protection Act of 2000 designed to strengthen integrity in the federal crop insurance program. Under the act, USDA's Farm Service Agency (FSA) is to assist the Risk Management Agency (RMA) in monitoring the federal crop insurance program by conducting inspections of farmers who file suspicious loss claims. GAO found that RMA notifies FSA's inspectors of farmers with suspicious claims too late in the growing season to be able to detect abuse, and RMA does not provide insurance companies who administer the program the results of FSA's inspections until it is too late in the season to determine a claim's validity. GAO therefore recommended that inspections be conducted in a timelier manner and that inspection results be reported expeditiously to the companies providing the insurance coverage and responsible for denying payment on the claim. RMA concurred with this recommendation and in 2006 took actions to implement it. Specifically, RMA now notifies FSA in September of farmers who plant crops in the fall and in April of farmers who plant crops in the spring. As a result, FSA now conducts inspections early in the growing season. In conducting timelier inspections, RMA also expects it to improve the efficiency of delivering inspection reports to the insurance companies.

    Recommendation: The Secretary of Agriculture should promulgate regulations to implement its expanded authority under ARPA to impose sanctions.

    Agency Affected: Department of Agriculture

    Status: Closed - Implemented

    Comments: In December 2008, USDA's Risk Management Agency (RMA) issued final regulations that allow it to impose penalties on individuals and companies that willingly and intentionally provide false or inaccurate information or fail to comply with other program requirements. These penalties include barring participation in the crop insurance program and other federal farm programs. In addition, RMA can now impose civil fines for each violation in an amount equal to the greater of $10,000 or the economic gain obtained as a result of the abuse.

    Recommendation: The Secretary of Agriculture should direct FSA to share producer-derived information with RMA for data mining to administer and enforce the requirements of the crop insurance program.

    Agency Affected: Department of Agriculture

    Status: Closed - Implemented

    Comments: Over the years, concerns have arisen that some farmers abuse the crop insurance program by allowing crops to fail through neglect or deliberate actions in order to collect insurance. GAO examined how effectively USDA implemented provisions of the Agricultural Risk Protection Act of 2000 designed to strengthen integrity in the federal crop insurance program. Under the act, USDA's Risk Management Agency (RMA) is to use information technologies such as data mining to identify suspicious insurance claims patterns, and RMA and the Farm Service Agency (FSA) are to share all relevant information received by either agency from a farmer who obtains crop insurance. GAO found that RMA does not perform data mining on many large farming operations because it has not been given access to the FSA data file identifying a farmer's ownership interest in other farming entities. Farmers who have an ownership interest in more than one farming operation and fail to disclose this information to RMA may be able to move production from one operation to another to file unwarranted claims. GAO obtained and analyzed RMA's and FSA's data files and found that approximately 21,000 farming operations in each 2003 and 2004 failed to disclose the ownership interest of one or more farmers representing up to $144 million in recoverable claims payments. GAO therefore recommended that FSA share farmer-derived information with RMA for data mining to detect and prevent fraud and abuse in the crop insurance program. FSA concurred with this recommendation and in 2006 took actions to implement it. Specifically, FSA now provides RMA access to its "permitted entity" database that identifies a farmer's ownership interest in all farming operations and RMA is using this information to conduct data mining on these operations.

    Recommendation: The Secretary of Agriculture should direct RMA to determine if payments have been made to ineligible producers or to entities that failed to disclose ownership interests and, if so, to recover the appropriate amounts.

    Agency Affected: Department of Agriculture

    Status: Closed - Not Implemented

    Comments: USDA's Risk Management Agency has not taken action on this recommendation.

    Recommendation: The Secretary of Agriculture should direct RMA to strengthen its oversight of the insurance companies' implementation of the quality control review system.

    Agency Affected: Department of Agriculture

    Status: Closed - Implemented

    Comments: The federal crop insurance program protects farmers against losses from natural disasters. The U.S. Department of Agriculture (USDA) administers the program through private insurance companies. In 2008, the crop insurance program provided about $90 billion in coverage, and paid $8.6 billion in claims, including an estimated $431 million in losses that were later determined to result from fraud and abuse. Over the years, concerns have arisen that some farmers abuse the crop insurance program by allowing crops to fail through neglect or deliberate actions in order to collect insurance and that some insurance companies have not exercised due diligence in investigating losses and paying claims. In 2005 and 2006, we reported and testified that USDA is not effectively overseeing insurance companies' quality assurance processes to prevent potential abuse in the crop insurance program. Eighty of 120 insurance claim files we analyzed should have received a quality assurance review because, for example, the farmer claimed more than $100,000 in crop losses. However, we found the insurance companies conducted reviews on only 59 of these claims. Furthermore, the reviews were largely paper exercises, such as computational verifications, rather than a comprehensive claim analysis that included an inspection of the farmer's fields. USDA did not ensure that companies conducted all reviews called for under its guidance to the companies and it did not examine the quality of the companies' reviews. We therefore recommended that the Secretary of Agriculture strengthen the agency's oversight of the insurance companies' implementation of the quality control review system. In commenting on a draft of our report in 2005, USDA officials acknowledged that the agency needs to strengthen its oversight of the companies' quality assurance reviews to improve compliance in the program to reduce potential for fraud and abuse. In 2009, USDA implemented this recommendation by requiring that insurance companies report to USDA the results of the companies' quality assurance reviews and by conducting on-going testing of companies' quality control systems. These actions are expected to strengthen integrity over crop insurance payments to farmers.

    Recommendation: The Secretary of Agriculture should direct RMA to reduce the insurance guarantee or eliminate optional unit coverage for producers who consistently have claims that are irregular in comparison with other producers growing the same crop in the same location.

    Agency Affected: Department of Agriculture

    Status: Closed - Not Implemented

    Comments: USDA Risk Management Agency (RMA) believes GAO's recommendation represents a "disproportionate" response considering the small number of producers who file questionable claims.

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