Financial Audit:

Federal Crop Insurance Corporation's Financial Statements for 1986 and 1985

AFMD-87-36: Published: Jun 12, 1987. Publicly Released: Jun 12, 1987.

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GAO examined the financial statements of the Federal Crop Insurance Corporation (FCIC) for the years ended September 30, 1986 and 1985.

GAO found that FCIC: (1) paid reinsurance claims of $436 million in 1986 and $474 million in 1985; (2) made potential overpayments of $8.1 million on 1986 reinsurance claims and $6.2 million on 1985 reinsurance claims because it failed to thoroughly review and verify claims submitted by producers to reinsured companies; (3) incurred losses of $221 million in 1986 and $222 million in 1985 from insuring agricultural crops; and (4) has not established premium rates that would adequately cover losses on insured crops, while enabling it to build a reasonable reserve against unforeseen losses. GAO also found that FCIC: (1) accumulated a deficit of $959 million and a negative capital position of $420 million by September 30, 1986; (2) received loans of $450 million from the Commodity Credit Corporation (CCC) in fiscal year (FY) 1986; (3) borrowed $113 million from the U.S. Treasury to pay producers' loans; (4) made no loan repayments; (5) has $375 million available from CCC for future use; and (6) may be unable to continue in existence without additional financial assistance from Congress. GAO concluded that the financial statements presented fairly the financial position of FCIC as of September 30, 1986 and 1985, and the results of its operations and the changes in its financial position for the years then ended, in conformity with generally accepted accounting principles applied on a consistent basis.

Recommendation for Executive Action

  1. Status: Closed - Implemented

    Comments: FCIC now obtains the date of loss from reinsured companies and reports losses on a FY basis.

    Recommendation: The Manager and Comptroller, FCIC, should obtain the date of loss from the reinsured companies and modify the accounting system to report losses on a FY basis.

    Agency Affected: Department of Agriculture: Federal Crop Insurance Corp.

 

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