GAO Report Criticizes Crop Insurance System

Congress should consider reducing premium subsidies to producers who repeatedly file questionable claims. Compiled by staff

Published on: Nov 1, 2005

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. A new Government Accountability Office report, Crop Insurance: Actions Needed to Reduce Program's Vulnerability to Fraud, Waste, and Abuse, says to reduce crop insurance fraud, Congress should consider reducing premium subsidies to producers who repeatedly file questionable claims.

The USDA's Risk Management Agency administers this program with private insurers. The Agricultural Risk Protection Act of 2000 provided new tools to monitor and control abuses, such as having USDA's Farm Service Agency conduct field inspections. The report recommends USDA improving the effectiveness of growing season inspections. USDA responded that it does not have all of the resources needed to conduct the large number of growing season inspections.

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. Specifically:

• Inspections during the growing season are not being used to maximum effect. Between 2001 and 2004, FSA conducted only 64% 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% 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.

GAO also suggests that USDA should recover payments from operations that failed to disclose producers' ownership interests, strengthen oversight of insurers' use of quality controls, and issue regulations for its expanded sanction authority.