Farm Program Payments:
USDA Needs to Strengthen Regulations and Oversight to Better Ensure Recipients Do Not Circumvent Payment Limitations
GAO-04-407: Published: Apr 30, 2004. Publicly Released: Jun 16, 2004.
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Farmers receive about $15 billion annually in federal farm program payments to help produce major commodities, including corn, cotton, rice, and wheat. The Farm Program Payments Integrity Act of 1987 (1987 Act) limits payments to individuals and entities--such as corporations and partnerships-- that are "actively engaged in farming." GAO (1) determined how well USDA's regulations limit payments, (2) assessed USDA's oversight of the act, and (3) summarized the distribution of farm payments by type of entity.
USDA's regulations to ensure recipients are actively engaged in farming do not specify a measurable standard for what constitutes a significant contribution of active personal management. By not specifying such a measurable standard, USDA allows individuals who may have limited involvement with the farming operation to qualify for payments. According to GAO's survey of USDA's compliance reviews, about 99 percent of payment recipients asserted they met eligibility requirements through active personal management. USDA's regulations lack clarity as to whether certain transactions and farming operation structures that GAO found could be considered schemes or devices to evade, or that have the effect of evading, payment limitations. Under the 1987 Act, if a person has adopted such a scheme or device, then that person is not eligible to receive payments for the year in which the scheme or device was adopted or the following year. Because it is not clear whether fraudulent intent must be shown in order to find that a person has adopted a scheme or device, USDA may be reluctant to pursue the question of whether certain farming operations, such as the ones GAO found, are schemes or devices. According to GAO's survey and review of case files, USDA is not effectively overseeing farm program payments. That is, USDA does not review a valid sample of farm operation plans to determine compliance and thus does not ensure that only eligible recipients receive payments, and compliance reviews are often completed late. As a result, USDA may be missing opportunities to recoup ineligible payments. For about one-half of the farming operations GAO reviewed for 2001, field offices did not use available tools to determine whether persons were actively engaged in farming. Of the $17 billion in payments USDA distributed to recipients in 2001, $5.9 billion went to about 140,000 entities. According to GAO's analysis of USDA's data, corporations and general partnerships represented 39 and 26 percent of these entities, respectively. General partnerships received 45 percent of the payments to entities, or $2.7 billion; these entities receive more payments if they have more partners.
Recommendations for Executive Action
Status: Closed - Implemented
Comments: USDA is currently developing a database that will provide agency managers with analytical capabilities to summarize compliance review results and identify problem areas. USDA expects the new system to be functional in October 2008
Recommendation: To better ensure that recipients of farm program payments do not circumvent payment limitations, the Secretary of Agriculture should direct the Administrator of the Farm Service Agency to establish and maintain a consistent methodology for collecting, analyzing, and summarizing data to identify patterns and trends in compliance over time and across states.
Agency Affected: Department of Agriculture
Status: Closed - Implemented
Comments: At the time of our report, USDA field inspectors conducted few interviews of farm payment recipients as part of USDA's end-of-year reviews. Instead, inspectors relied on their "personal knowledge" of recipients. In 2005, USDA issued a notice to its field inspectors indicating our findings and conclusions and emphasized that "personal knowledge" is not appropriate documentation for an end-of-year compliance review procedures.
Recommendation: To better ensure that recipients of farm program payments do not circumvent payment limitations, the Secretary of Agriculture should direct the Administrator of the Farm Service Agency to develop management controls to ensure that FSA field staff make use of all available tools to assess payment recipients' compliance with the act.
Agency Affected: Department of Agriculture
Status: Closed - Implemented
Comments: At the time of our report, USDA used a manual process to track the status of completion of compliance reviews. In 2006, USDA implemented a web-based system to track and oversee the completion of reviews and to generate status reports whenever requested by USDA management.
Recommendation: To better ensure that recipients of farm program payments do not circumvent payment limitations, the Secretary of Agriculture should direct the Administrator of the Farm Service Agency to ensure that FSA field offices conduct compliance reviews in a timely manner.
Agency Affected: Department of Agriculture
Status: Closed - Implemented
Comments: USDA assessed its sampling methodology for selecting farming operations for compliance with payment limitation and eligibily rules. Based on this assessment, USDA made changes that improve the methodology by reducing the number of compliance reviews waived each year.
Recommendation: To better ensure that recipients of farm program payments do not circumvent payment limitations, the Secretary of Agriculture should direct the Administrator of the Farm Service Agency to improve the sampling methodology for selecting farming operations for review in order to have greater assurance that only eligible recipients receive payments.
Agency Affected: Department of Agriculture
Status: Closed - Implemented
Comments: USDA reviewed its procedures on scheme or device and provided clarifying and additional guidance to its field inspectors.
Recommendation: To better ensure that recipients of farm program payments do not circumvent payment limitations, the Secretary of Agriculture should direct the Administrator of the Farm Service Agency to issue more detailed guidance on the kinds of arrangements that may constitute a scheme or device under its regulations.
Agency Affected: Department of Agriculture
Status: Closed - Not Implemented
Comments: USDA did not implement this recommendation, stating that its current regulations are sufficiently clear.
Recommendation: To better ensure that recipients of farm program payments do not circumvent payment limitations, the Secretary of Agriculture should direct the Administrator of the Farm Service Agency to revise its regulations to clarify whether schemes and devices require fraudulent intent and seek congressional authority if necessary.
Agency Affected: Department of Agriculture
Status: Closed - Not Implemented
Comments: USDA is currently drafting regulations for implementation of the payment eligibility and limitation provisions of the 2008 Farm Bill, and it is considering various approaches as to how to better define active personal management. USDA expects to publish an interim rule in the fall.
Recommendation: To better ensure that recipients of farm program payments do not circumvent payment limitations, the Secretary of Agriculture should direct the Administrator of the Farm Service Agency to develop and enforce measurable requirements defining a significant contribution of active personal management.
Agency Affected: Department of Agriculture
Status: Closed - Implemented
Comments: USDA conducted training sessions for it field inspectors in October 2004 and January 2007, and has scheduled another session for September 15, 2008. The discussion of financial and legal aspects of compliance reviews was part of the training.
Recommendation: To better ensure that recipients of farm program payments do not circumvent payment limitations, the Secretary of Agriculture should direct the Administrator of the Farm Service Agency to provide training that emphasizes the financial and legal aspects of compliance reviews.
Agency Affected: Department of Agriculture
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