Farm Payments:

Basic Changes Needed To Avoid Abuse of the $50,000 Payment Limit

RCED-87-176: Published: Jul 20, 1987. Publicly Released: Jul 20, 1987.

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GAO reviewed the: (1) Department of Agriculture's (USDA) administration of the $50,000 limit on direct agricultural support payments; and (2) impact on farm programs of individuals who reorganize their farming operations to qualify for additional payments.

GAO found that: (1) if the current trend in reorganizations continues through 1989, 31,300 additional persons could receive payments, which would increase total program costs by $2.3 billion; (2) USDA improperly approved 20 percent of the new recipients for program payments; (3) the USDA Inspector General's detailed review of 225 cases showed actual overpayments of $15.7 million from 1981 through 1986; (4) although USDA proposed changes that would eliminate most existing ways to avoid the payment limitation, the proposal did not include regulations and guidelines necessary to ensure proper implementation at the county office level; and (5) current Agricultural Stabilization and Conservation Service (ASCS) guidelines to county and state officials, training of those officials, and internal controls over their activities are not adequate.

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

    Matters for Congressional Consideration

    Matter: If Congress decides not to adopt the legislation proposed by USDA, Congress should, at a minimum, remove the existing legislative restriction that requires a corporation to be considered as a separate person for payment limitation purposes as long as no stockholder owns or controls more than 50 percent of its stock, and the same two or more stockholders do not own more than 50 percent of two or more corporations. If left in place, this restriction will allow producers to continue to reorganize under the corporate rules in a manner that avoids the limit, and will prevent ASCS from making changes necessary to reduce avoidance of the payment limit.

    Status: Closed - Not Implemented

    Comments: Legislation was enacted based on GAO work, which eliminates the need for further action on this recommendation.

    Matter: Congress should enact legislation to limit payments to legal entities and attribute their payments to the individual limits of the entities' owners. The USDA proposal includes legislation that would remove the existing legislative restrictions on how corporations are treated for payment limitation purposes, and authorize ASCS to determine the payment limit for a legal entity on the basis of the number of its members actively engaged in its farming operations.

    Status: Closed - Implemented

    Comments: A savings of $50 million in 1989 and $250 million in 1990 has been achieved as a result of this report. Annual savings of $250 million will accrue thereafter. An accomplishment report has been submitted.

    Recommendations for Executive Action

    Recommendation: The Secretary of Agriculture should also direct the Administrator, ASCS, to revise the ASCS management review system so that reviewing officials select the determinations to be reviewed, analyze these determinations to identify the emerging trends in errors and methods of reorganization, and disseminate information about needed changes identified by this analysis on a systematic and continuing basis. ASCS headquarters officials should be responsible for disseminating the results of these analyses to ensure uniformity and consistency.

    Agency Affected: Department of Agriculture

    Status: Closed - Implemented

    Comments: USDA has acted on this recommendation along the lines recommended by GAO.

    Recommendation: The Secretary of Agriculture should also direct the Administrator, ASCS, to improve ASCS guidance to state and county offices by describing: (1) how much equipment or land must change ownership to justify the approval of a new person for payment limitation purposes; (2) how to value contributions by members of a joint operation to determine if those contributions are commensurate with their share of the payments; and (3) the type of information and documentation needed to apply specific rules and verify that farm operations were carried out as planned.

    Agency Affected: Department of Agriculture

    Status: Closed - Implemented

    Comments: USDA has improved guidance in this area and has trained local state and county offices accordingly.

    Recommendation: If Congress does not adopt the USDA legislative proposal, ASCS should be required to: (1) implement changes included in the USDA proposal to make the payment limitation rules for minor children, custom farming, and substantive change more restrictive; and (2) change its rules to require that a person in a lease situation, other than a landowner, make a substantive contribution of owned land or equipment, and personal labor or active management, in addition to capital.

    Agency Affected: Department of Agriculture

    Status: Closed - Not Implemented

    Comments: Legislation was enacted based on GAO work, which eliminates the need for further action on this recommendation.

    Recommendation: The Secretary of Agriculture should direct the Administrator, ASCS, to make the following changes in the payment limitation provisions: (1) ensure that implementing regulations and guidance to its county offices specify the extent of contributions necessary to determine if a member of a legal entity is actively engaged in the entity's farming operation; (2) change its rules to limit payments through attribution to members of a legal entity who are not now persons for payment limitation purposes; and (3) change its rules to require that a person who leases land make a substantive contribution of owned land or equipment, and personal labor or active management, in addition to capital for the farming operation that includes leased land.

    Agency Affected: Department of Agriculture

    Status: Closed - Implemented

    Comments: USDA has made changes to payment provisions that effect this year. They substantially address the recommendations in the report.

    Recommendation: The Secretary of Agriculture should also direct the Administrator, ASCS, to establish a training program for ASCS state and county officials involved in person determinations that: (1) identifies who should be trained and how much training they should receive; (2) sets out an approach to making and reviewing person determinations; and (3) provides standardized training materials for use by state officials in training county officials.

    Agency Affected: Department of Agriculture

    Status: Closed - Implemented

    Comments: USDA has established and provided training programs to state and county officials responsible for administering the program.

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