Crop Insurance:

FCIC Should Strengthen Actual Production History Program Controls

RCED-89-19: Published: Dec 15, 1988. Publicly Released: Dec 21, 1988.

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Pursuant to a congressional request, GAO reviewed the Federal Crop Insurance Corporation's (FCIC) implementation of its Actual Production History (APH) Program, focusing on whether FCIC had adequate controls to ensure the accuracy of farmers' production guarantees.

GAO found that FCIC: (1) found in a 1987 review of companies that 37 percent of policies had inaccurate production guarantees, primarily due to overstated or understated production histories; (2) clarified its guidance to insurance companies for implementing the APH program, but did not change its policies or require farmers to provide actual production records during policy writing; (3) primarily relied on insurance companies to verify farmers' certifications of production history; (4) required insurance companies to sample policies and determine production guarantee accuracy, but did not require the companies to report the results of those checks; (5) required verification of guarantee accuracy only if the guarantee appeared to be unreasonable, and lacked criteria for establishing guarantee reasonableness; and (6) lacked guidance for interpreting the significance of the results of sample checks or for taking action if the samples revealed frequent or widespread problems.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: In February 1989, FCIC issued instructions to reinsured companies to implement this recommendation.

    Recommendation: The Secretary of Agriculture should require the Manager, FCIC, to require reinsured companies to report to FCIC the results of APH guarantee reviews that are conducted in connection with the current sampling requirements. This should include reporting the type and frequency of errors found during the reviews.

    Agency Affected: Department of Agriculture

  2. Status: Closed - Not Implemented

    Comments: FCIC issued revised guidance in May 1992 which included guidelines for private companies' responsibilities in setting and reviewing APH guarantees. New guidance specifies private company responsibilities and includes instructions for analyzing APH guarantees and taking appropriate corrective action when necessary, but does not significantly change sampling procedures.

    Recommendation: The Secretary of Agriculture should require the Manager, FCIC, to establish criteria for interpreting the significance of the frequency of errors found during the required sampling of APH guarantees and for deciding the actions that should be taken if tolerances for acceptable levels of errors are exceeded.

    Agency Affected: Department of Agriculture

  3. Status: Closed - Not Implemented

    Comments: The Department of Agriculture believes that implementation of the recommendation would be too labor-intensive.

    Recommendation: The Secretary of Agriculture should require the Manager, FCIC, to require that all APH guarantees be verified at the time of loss. Verifications should include reviewing the supporting documentation for certified production data as well as for the calculation of the guarantee.

    Agency Affected: Department of Agriculture

  4. Status: Closed - Not Implemented

    Comments: FCIC issued revised guidance in May 1992 which included guidelines for private companies' responsibilities in setting and reviewing APH guarantees. New guidance specifies private company responsibilities and includes instructions for analyzing APH guarantees and taking appropriate corrective action when necessary, but does not significantly change sampling procedures.

    Recommendation: The Secretary of Agriculture should require the Manager, FCIC, to monitor the frequency of certification-related errors and reduce reliance on the certification process if such errors do not decrease. The latter could be achieved by significantly tightening the current sampling procedures. For example, rather than sampling all production guarantees that are twice the local average, as is currently the procedure, FCIC could review all guarantees that are some determined percentage less than twice the local average. Additionally, FCIC could add sampling criteria that would require review of all guarantees that could result in potential losses above an established monetary amount. Such criteria would help ensure that production guarantees for potentially large insurance claims are supported. A final alternative might be to completely eliminate the certification feature of the APH program and require all farmers to provide production data at the time a policy is written.

    Agency Affected: Department of Agriculture

 

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