Crop Insurance: Actions Needed to Reduce Program's Vulnerability to Fraud, Waste, and Abuse
GAO-05-528
Published: Sep 30, 2005. Publicly Released: Oct 31, 2005.
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Highlights
Federal crop insurance protects producers against losses from natural disasters. In 2004, the crop insurance program provided $47 billion in coverage, at a cost of $3.6 billion, including an estimated $160 million in losses from fraud and abuse. The U.S. Department of Agriculture's (USDA) Risk Management Agency (RMA) administers this program with private insurers. The Agricultural Risk Protection Act of 2000 (ARPA) provided new tools to monitor and control abuses, such as having USDA's Farm Service Agency (FSA) conduct field inspections. GAO assessed, among other things, the (1) effectiveness of USDA's processes to address program fraud and abuse and (2) extent to which the program's design makes it vulnerable to abuse.
Recommendations
Matter for Congressional Consideration
| Matter | Status | Comments |
|---|---|---|
| To better protect the crop insurance program from fraud, waste, and abuse, Congress may wish to consider allowing RMA to reduce premium subsidies--and hence raise the insurance premiums--for producers who consistently have claims that are irregular in comparison with other producers growing the same crop in the same location. | Although the President's budget in 2007 included a provision to reduce premium subsidies in the crop insurance program, Congress has taken no action on GAO's recommendation (Matter for Consideration). |
Recommendations for Executive Action
| Agency Affected | Recommendation | Status |
|---|---|---|
| Department of Agriculture | To better ensure that field inspections are used to the maximum effect to address fraud, waste, and abuse in the federal crop insurance program, the Secretary of Agriculture should direct the Administrators of RMA and FSA to create an action plan to ensure that FSA field offices conduct all inspections called for under agency guidance. |
Although USDA's Risk Management Agency agrees with GAO's recommendation, it's sister agency, Farm Service Agency (FSA), disagreed with the recommendation contending it does not have sufficient resources to complete all field inspections. In follow-up in 2009, FSA continues to hold this position.
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| Department of Agriculture | To better ensure that field inspections are used to the maximum effect to address fraud, waste, and abuse in the federal crop insurance program, the Secretary of Agriculture should direct the Administrators of RMA and FSA to create an action plan to ensure that RMA informs FSA field inspectors of the suspect claim patterns that they are to investigate. | Over the years, concerns have arisen that some farmers abuse the crop insurance program by allowing crops to fail through neglect or deliberate actions in order to collect crop insurance payments. GAO examined how effectively USDA implemented provisions of the Agricultural Risk Protection Act of 2000 designed to strengthen integrity in the federal crop insurance program. Under the act, USDA's Farm Service Agency (FSA) is to assist the Risk Management Agency (RMA) in monitoring the federal crop insurance program by conducting inspections of farmers who file suspicious loss claims. GAO found that these inspections often are ineffective for determining fraud and abuse because RMA provides...
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| Department of Agriculture | To better ensure that field inspections are used to the maximum effect to address fraud, waste, and abuse in the federal crop insurance program, the Secretary of Agriculture should direct the Administrators of RMA and FSA to create an action plan to ensure that FSA inspections are conducted in a timely manner, and inspection results are reported expeditiously to insurance companies. | Over the years, concerns have arisen that some farmers abuse the crop insurance program by allowing crops to fail through neglect or deliberate actions in order to collect crop insurance payments. GAO examined how effectively USDA implemented provisions of the Agricultural Risk Protection Act of 2000 designed to strengthen integrity in the federal crop insurance program. Under the act, USDA's Farm Service Agency (FSA) is to assist the Risk Management Agency (RMA) in monitoring the federal crop insurance program by conducting inspections of farmers who file suspicious loss claims. GAO found that RMA notifies FSA's inspectors of farmers with suspicious claims too late in the growing season...
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| Department of Agriculture | The Secretary of Agriculture should promulgate regulations to implement its expanded authority under ARPA to impose sanctions. |
In December 2008, USDA's Risk Management Agency (RMA) issued final regulations that allow it to impose penalties on individuals and companies that willingly and intentionally provide false or inaccurate information or fail to comply with other program requirements. These penalties include barring participation in the crop insurance program and other federal farm programs. In addition, RMA can now impose civil fines for each violation in an amount equal to the greater of $10,000 or the economic gain obtained as a result of the abuse.
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| Department of Agriculture | The Secretary of Agriculture should direct FSA to share producer-derived information with RMA for data mining to administer and enforce the requirements of the crop insurance program. | Over the years, concerns have arisen that some farmers abuse the crop insurance program by allowing crops to fail through neglect or deliberate actions in order to collect insurance. GAO examined how effectively USDA implemented provisions of the Agricultural Risk Protection Act of 2000 designed to strengthen integrity in the federal crop insurance program. Under the act, USDA's Risk Management Agency (RMA) is to use information technologies such as data mining to identify suspicious insurance claims patterns, and RMA and the Farm Service Agency (FSA) are to share all relevant information received by either agency from a farmer who obtains crop insurance. GAO found that RMA does not...
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| Department of Agriculture | The Secretary of Agriculture should direct RMA to determine if payments have been made to ineligible producers or to entities that failed to disclose ownership interests and, if so, to recover the appropriate amounts. |
USDA's Risk Management Agency has not taken action on this recommendation.
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| Department of Agriculture | The Secretary of Agriculture should direct RMA to strengthen its oversight of the insurance companies' implementation of the quality control review system. | The federal crop insurance program protects farmers against losses from natural disasters. The U.S. Department of Agriculture (USDA) administers the program through private insurance companies. In 2008, the crop insurance program provided about $90 billion in coverage, and paid $8.6 billion in claims, including an estimated $431 million in losses that were later determined to result from fraud and abuse. Over the years, concerns have arisen that some farmers abuse the crop insurance program by allowing crops to fail through neglect or deliberate actions in order to collect insurance and that some insurance companies have not exercised due diligence in investigating losses and paying...
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| Department of Agriculture | The Secretary of Agriculture should direct RMA to reduce the insurance guarantee or eliminate optional unit coverage for producers who consistently have claims that are irregular in comparison with other producers growing the same crop in the same location. |
USDA Risk Management Agency (RMA) believes GAO's recommendation represents a "disproportionate" response considering the small number of producers who file questionable claims.
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Agricultural policiesAgricultural programsDisaster recoveryDisaster relief aidFraudInsuranceInsurance claimsInsurance lossesInternal controlsInvestigations by federal agenciesMonitoringNatural disastersProgram abusesProgram evaluationQuestionable paymentsRisk managementCrop insurance