However, we found that RMA is not effectively using all of the tools  it has available and that producers and others can continue to take  advantage of the program. RMA’s Analysis to Detect Potential Program Fraud and Abuse for Many Large Farming Operations Is Incomplete

RMA’s data mining excludes many large farming operations because  producers fail to report other individuals’ and entities’ interests in these  operations. As a result, RMA should be able to recover up to $70  million in claims payments. First, in terms of RMA’s regulations,  producers can insure their fields individually instead of insuring all fields  combined, which makes it easier for them to switch production among  fields, either to make false insurance claims or to build up a higher yield  history on a particular field in order to increase its eligibility for higher  future insurance guarantees. Annually, RMA pays about  $300 million in claims for prevented planting. Recently Prosecuted Crop Insurance Fraud Cases Highlight Program Vulnerabilities

Eight recent crop insurance fraud cases that were investigated by USDA’s  OIG and resulted in criminal prosecution between June 2003 and April 2005  reflect some of the issues we identified. The cases show how producers,  sometimes in collusion with others, falsely report planting, claims of  damage and production to try to circumvent RMA’s procedures. In some  cases, producers hid production or switched it from one field to another. Several of these cases also demonstrate the importance of having FSA and  RMA work together to identify and share information on questionable  farming practices/activities. In addition, insurance companies’ quality control  reviews of claims are weak because RMA does not effectively oversee the  companies’ quality assurance efforts leaving the crop insurance program  susceptible to fraud and abuse. The program’s high premium subsidies, specified in the  Federal Crop Insurance Act, as amended by ARPA, may also limit RMA’s  ability to control program abuse because the subsidies shield producers  from the full effect of paying higher premiums associated with frequent or  larger claims. We further recommend that the Secretary of Agriculture  promulgate regulations to implement its expanded authority under  ARPA to impose sanctions;   direct FSA to share producer-derived information with RMA for data  mining to administer and enforce the requirements of the crop  insurance program;   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;   direct RMA to strengthen its oversight of the insurance companies’  implementation of the quality control review system; and  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. We continue to believe RMA  has not fully exercised its new authority. Specifically, we agreed to  (1) assess the effectiveness of USDA’s procedures and processes to prevent  and detect fraud, waste, and abuse in selling and servicing crop insurance  policies; (2) determine the extent to which program design issues may  make the program more vulnerable to fraud, waste, and abuse; and (3)  determine the effectiveness of USDA’s procedures to assure program  integrity in developing new crop insurance products. U.S. Government Accountability Office  Washington, D.C.
Agriculture Risk Protection Act (ARPA). -3-  4. Based on results from data mining, OIG, and USDA’s Farm Service Agency  (FSA) and Risk Management Agency (RMA) conducted field inspections on  a producer in Tennessee. While not all of these policy irregularities are necessarily  sanctionable, the 3,000 questionable claims provide a general reference  in comparison with the 114 sanctions RMA imposed from 2001 through  2004. However, as we  report, FSA conducted only 64 percent of the monitoring inspections  RMA requested between 2001 and 2004, and FSA offices in nine states  did not conduct any of the inspections RMA requested in one or more  of these years. 6.
Why GAO Did This Study

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.

What GAO Found

While RMA employs a range of processes to help prevent and detect fraud, waste, and abuse and has reported more than $300 million in savings over the past 4 years in the crop insurance program, GAO found that RMA does not effectively use all the tools it has available. Inspections during the growing season are not being used to maximum effect. Between 2001 and 2004, FSA conducted only 64 percent of the inspections RMA had requested. Without inspections, producers may falsely claim crop losses. RMA's data analysis of the largest farming operations is incomplete. According to GAO's analysis, in 2003, about 21,000 of the largest farming operations in the program did not report individuals or entities with an ownership interest in these operations. As a result, USDA should be able to recover up to $74 million in claims payments. FSA did not give RMA access to the data needed to identify such individuals or entities. RMA is not effectively overseeing insurance companies' quality assurance programs. GAO's review of 120 cases showed that companies completed only 75 percent of the required reviews and those that were conducted were largely paper exercises. RMA has infrequently used its new sanction authority to address program abuses. RMA has not issued regulations to implement its new sanction authority under ARPA. RMA imposed only 114 sanctions from 2001 through 2004. Annually, RMA identifies about 3,000 questionable claims, not all of which are necessarily sanctionable. Eight recent crop insurance fraud cases, investigated by USDA's Office of Inspector General and resulting in criminal prosecutions between June 2003 and April 2005, reflect these issues. Totaling $3 million in insurance claims, these cases show how producers, sometimes in collusion with insurance agents and others, falsely claim prevented planting, weather damage, and low production. In some cases, producers hid or moved production from one field to another. Several of these cases also demonstrate the importance of having FSA and RMA work together to identify and share information on questionable farming practices/activities. RMA's regulations, as well as statutory requirements, create program design problems that hinder RMA officials' efforts to reduce program abuse. For example, RMA's regulations allow producers to insure fields individually rather than all fields combined. This option enables producers to "switch" reporting of yield among fields to either make false claims or build up a higher yield history on a field to increase its eligibility for higher insurance guarantees. High premium subsidies, established by statute, may also limit RMA's ability to control program abuse because the subsidies shield producers from the full effect of paying higher premiums associated with frequent or larger claims.