The U.S. Government Accountability Office has issued results of a report on fraud, waste and abuse of the crop insurance program titled “Crop Insurance: Actions Needed to Reduce Program's Vulnerability to Fraud, Waste, and Abuse."
The report says that, among other things, inspections done by the Risk Management Agency are not being used for maximum effect; analysis of the largest farming operations is incomplete; quality insurance programs are not being overseen; and RMA has not used its sanction authority to address program abuses to the full extent.
Among other steps, GAO recommends that payments be reduced to those who repeatedly file questionable claims, improve the effectiveness of in-season inspections, and strengthen oversight of insurers’ use of quality controls.
Here are some highlights from the GAO:
* What GAO Found: 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 in the past four 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 yields 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.
Here's what GAO Recommends: To reduce program fraud, Congress should consider reducing premium subsidies to producers who repeatedly file questionable claims. In addition, USDA should (1) improve the effectiveness of growing season inspections, (2) recover payments from operations that failed to disclose producers’ ownership interests, (3) strengthen oversight of insurers’ use of quality controls, and (4) issue regulations for its expanded sanction authority.
USDA officials agreed with most of GAO’s recommendations. However, they said the agency does not have the resources to conduct all growing season inspections.
To read the entire report, go to http://www.gao.gov/new.items/d05528.pdf
U.S. Government Accountability Office