Larger farming operations and  farming operations producing crops with high payment rates, such as rice  and cotton, may establish several related entities that are eligible to  receive payments. Under the 1987 Act  as amended, if the Secretary of Agriculture determines that any person has  adopted a “scheme or device” to evade, or that has the purpose of evading,  the act’s provisions—in other words, the payment limitations—then that  person is not eligible to receive farm program payments for the year the  scheme or device was adopted and the following crop year. According to  FSA’s regulations, this statutory provision includes (1) persons who adopt  or participate in adopting a scheme or device and (2) schemes or devices  that are designed to evade or have “the effect of evading” payment  limitation rules. It is not clear whether either the statutory provision or FSA’s regulations  require a demonstration of fraudulent intent in order to find that someone  has adopted a scheme or device. First, FSA does not review a valid sample of recipients to be reasonably  assured of compliance with the payment limitations. Second, field offices do not always conduct compliance reviews in a  timely manner. For  one-half of the case files we reviewed for 2001, field offices did not use all  available tools to determine whether persons are actively engaged in  farming. In conclusion, the Farm Program Payments Integrity Act of 1987, while  enacted to limit payments to individuals and entities actively engaged in  farming, allows farming operations to maximize the receipt of federal farm  payments as long as all recipients meet eligibility requirements. Without specifying measurable standards for what  constitutes a significant contribution of active personal management, FSA  allows individuals who may have had limited involvement in the farming  operation to qualify for payments. Moreover, FSA is not providing  adequate oversight of farm program payments under its current  regulations and policies. In our report to you, we made eight recommendations to the Secretary of  Agriculture for improving FSA’s oversight of compliance with the 1987  Act, including: developing measurable requirements defining a significant  contribution of active personal management; clarifying regulations and  guidance as to what constitutes a scheme or device; improving its  sampling method for selecting farming operations for review; and  developing controls to ensure all available tools are used to assess  compliance with the act. However, USDA stated that its current regulations are  sufficient for determining active engagement in farming and assessing  whether operations are schemes or devices to evade payment limitations.
Why GAO Did This Study

Farmers receive about $15 billion annually in federal payments to help produce major crops, such as 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." This testimony is based on GAO's report, Farm Program Payments: USDA Needs to Strengthen Regulations and Oversight to Better Ensure Recipients Do Not Circumvent Payment Limitations ( GAO-04-407 , April 30, 2004). Specifically, GAO (1) determined how well USDA's regulations limit payments and (2) assessed USDA's oversight of the 1987 Act.

What GAO Found

GAO's survey of USDA's field offices showed that for the compliance reviews the offices conducted, about 99 percent of payment recipients asserted they met eligibility requirements through active personal management. However, USDA's regulations to ensure recipients are actively engaged in farming do not provide 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. Moreover, 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 purpose 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 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 payment limitation requirements. 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.