Crop Insurance: Actions Needed to Reduce Program's Vulnerability to Fraud, Waste, 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 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 little information to FSA on details of the claim. GAO therefore recommended that RMA inform FSA's field inspectors on specifics of claims that they are to investigate, including the type of suspected fraudulent behavior. RMA concurred with this recommendation and in 2006 took actions to implement it. Specifically, RMA now provides detailed information to FSA's inspectors on the nature of each suspicious claim.

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 to be able to detect abuse, and RMA does not provide insurance companies who administer the program the results of FSA's inspections until it is too late in the season to determine a claim's validity. GAO therefore recommended that inspections be conducted in a timelier manner and that inspection results be reported expeditiously to the companies providing the insurance coverage and responsible for denying payment on the claim. RMA concurred with this recommendation and in 2006 took actions to implement it. Specifically, RMA now notifies FSA in September of farmers who plant crops in the fall and in April of farmers who plant crops in the spring. As a result, FSA now conducts inspections early in the growing season. In conducting timelier inspections, RMA also expects it to improve the efficiency of delivering inspection reports to the insurance companies.

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.

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 perform data mining on many large farming operations because it has not been given access to the FSA data file identifying a farmer's ownership interest in other farming entities. Farmers who have an ownership interest in more than one farming operation and fail to disclose this information to RMA may be able to move production from one operation to another to file unwarranted claims. GAO obtained and analyzed RMA's and FSA's data files and found that approximately 21,000 farming operations in each 2003 and 2004 failed to disclose the ownership interest of one or more farmers representing up to $144 million in recoverable claims payments. GAO therefore recommended that FSA share farmer-derived information with RMA for data mining to detect and prevent fraud and abuse in the crop insurance program. FSA concurred with this recommendation and in 2006 took actions to implement it. Specifically, FSA now provides RMA access to its "permitted entity" database that identifies a farmer's ownership interest in all farming operations and RMA is using this information to conduct data mining on these operations.

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 claims. In 2005 and 2006, we reported and testified that USDA is not effectively overseeing insurance companies' quality assurance processes to prevent potential abuse in the crop insurance program. Eighty of 120 insurance claim files we analyzed should have received a quality assurance review because, for example, the farmer claimed more than $100,000 in crop losses. However, we found the insurance companies conducted reviews on only 59 of these claims. Furthermore, the reviews were largely paper exercises, such as computational verifications, rather than a comprehensive claim analysis that included an inspection of the farmer's fields. USDA did not ensure that companies conducted all reviews called for under its guidance to the companies and it did not examine the quality of the companies' reviews. We therefore recommended that the Secretary of Agriculture strengthen the agency's oversight of the insurance companies' implementation of the quality control review system. In commenting on a draft of our report in 2005, USDA officials acknowledged that the agency needs to strengthen its oversight of the companies' quality assurance reviews to improve compliance in the program to reduce potential for fraud and abuse. In 2009, USDA implemented this recommendation by requiring that insurance companies report to USDA the results of the companies' quality assurance reviews and by conducting on-going testing of companies' quality control systems. These actions are expected to strengthen integrity over crop insurance payments to farmers.