Crop Insurance:

FCIC's Internal Controls on Safflower Coverage Must Be Improved

PEMD-91-27: Published: Jul 15, 1991. Publicly Released: Aug 5, 1991.

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GAO reviewed the Department of Agriculture's (USDA) response to allegations concerning the Federal Crop Insurance Corporation's (FCIC) management of California nonirrigated safflower crop insurance, focusing on internal control improvements FCIC could make in expanding coverage for existing crops or establishing new crop insurance programs.

GAO found that: (1) FCIC offered insurance in three California counties with a history of drought when it was unreasonable to expect the nonirrigated safflower crop to grow and allowed farmers to insure their crops more than once; (2) FCIC set the yield guarantee too high and the planting date too late in relation to normal precipitation in the area; and (3) the primary reasons for the incurred losses included weak internal controls for expansion of county programs and FCIC inability to establish an actuarially sound program due to political pressure to offer insurance immediately. In addition, GAO found that, to improve internal controls, the FCIC compliance division recommended that the acting FCIC manager: (1) develop a realistic crop development and expansion program with specific responsibilities, as well as reasonable implementation time periods; (2) develop specific guidelines for establishing rates and yields for expansion as well as for new crop programs; (3) establish crop insurance committees comprising company representatives, FCIC representatives, and local agricultural experts to meet and comment on program proposals prior to implementation; and (4) develop procedures for follow-up and review of new expanded programs, using the field underwriting offices to the maximum extent possible to ensure that programs are actuarially sound or to determine if such programs place FCIC at excessive risk. GAO also found out that, as of March 1991, FCIC had not implemented these recommendations.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: FCIC is currently developing a new crop program development handbook which specifies procedures, standards, and criteria for the research, development, and implementation of new crop insurance programs (to be completed August 1993). FCIC also plans to contract an actuarial consulting firm in 1993 to review methods for expanding programs to cover new crops or areas.

    Recommendation: The Administrator, FCIC, should promptly evaluate the FCIC compliance division's recommendations and fully implement those that are needed as well as any other internal controls necessary to ensure that new and revised county crop programs are implemented in an actuarially sound manner.

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

  2. Status: Closed - Implemented

    Comments: A five year timetable has been established for new crop programs. Requests for new program are evaluated against set criteria and then, if approved, scheduled for implementation.

    Recommendation: The Administrator, FCIC, should establish a specific implementation schedule.

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


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