oversight

Federal Crop Insurance Corporation/Risk Management Agency's Financial Statements for Fiscal Years 2018 and 2017

Published by the Department of Agriculture, Office of Inspector General on 2018-11-14.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

        United States Department of Agriculture




  Federal Crop Insurance
  Corporation/Risk Management
  Agency's Financial Statements for
  Fiscal Years 2018 and 2017




Audit Report 05401-0010-11
                                                  OFFICE OF INSPECTOR GENERAL
November 2018
Federal Crop Insurance Corporation/Risk
Management Agency Financial Statements for
Fiscal Years 2018 and 2017
Audit Report 05401-0010-11
OIG audited FCIC/RMA’s financial statements for fiscal years 2018 and 2017.


OBJECTIVE                           WHAT OIG FOUND
Our objectives were to determine
whether (1) the financial           The Federal Crop Insurance Corporation/Risk
statements present information      Management Agency (FCIC/RMA) received an
fairly, in all material respects,
                                    unmodified opinion for the Office of Inspector General’s
and in accordance with generally
accepted accounting principles;
                                    (OIG) audit of FCIC/RMA’s financial statements. We
(2) internal control objectives     determined that the agency’s financial statements
over financial reporting were       presented fairly FCIC/RMA’s financial position as of
met; (3) FCIC/RMA complied          September 30, 2018 and 2017, in all material respects,
with applicable laws and            and were prepared in accordance with accounting
regulations; and (4) information    principles generally accepted in the United States of
was materially consistent with      America. This includes the agency’s net costs, changes in
other sources.                      net position, and statements of budgetary resources and
                                    related notes to the financial statements.

REVIEWED                            Our consideration of FCIC/RMA’s internal control over
We conducted our audits at          financial reporting identified two significant deficiencies,
RMA’s office in Kansas City,        one of which we considered to be a material weakness.
Missouri.                           Our consideration of compliance with laws and
                                    regulations noted no instances of noncompliance.


RECOMMENDS
We recommended that FCIC/
RMA develop change controls
over the program production
model used to calculate actuarial
projections to avoid inadvertent
modifications to the model.
                           United States Department of Agriculture
                                   Office of Inspector General
                                    Washington, D.C. 20250



DATE:          November 8, 2018

AUDIT
NUMBER:        05401-0010-11

TO:            Martin Barbre
               Administrator
               Risk Management Agency

ATTN:          Heather Manzano
               Deputy Administrator for Compliance
               Risk Management Agency

FROM:          Gil H. Harden
               Assistant Inspector General for Audit

SUBJECT:       Federal Crop Insurance Corporation/Risk Management Agency’s Financial
               Statements for Fiscal Years 2018 and 2017


This report presents the results of our audits of the Federal Crop Insurance Corporation/Risk
Management Agency’s (FCIC/RMA) financial statements for the fiscal years ending
September 30, 2018 and 2017. This report contains an unmodified opinion on the financial
statements, as well as the results of our assessments of FCIC/RMA’s internal control over
financial reporting and compliance with laws and regulations. Your response is included in its
entirety in Exhibit B.

In accordance with Departmental Regulation 1720-1, please furnish a reply within 60 days describing
the corrective actions taken or planned, and timeframes for implementing the recommendations for
which management decisions have not been reached. Please note that the regulation requires
management decision to be reached on all recommendations within 6 months from report issuance,
and final action to be taken within 1 year of each management decision to prevent being listed in the
Department’s annual Agency Financial Report. Please follow your internal agency procedures in
forwarding final action correspondence to the Office of the Chief Financial Officer.

We appreciate the courtesies and cooperation extended to us by members of your staff during our
audit fieldwork and subsequent discussions. This report contains publicly available information and
will be posted in its entirety to our website (http://www.usda.gov/oig) in the near future.
Table of Contents

Independent Auditor’s Report ..............................................................................1
        Report on the Financial Statements .............................................................1
        Opinion on the Financial Statements ...........................................................2
        Emphasis of Matter .......................................................................................2
        Other Matters.................................................................................................2
        Report on Internal Control Over Financial Reporting .............................3
Findings and Recommendation .............................................................................6
Section 1: Material Weakness in Internal Controls Over Estimating Losses
on Insurance Claims ...............................................................................................6
        Recommendation 1: .......................................................................................6
Section 2: Significant Deficiency in Internal Control Over Financial
Reporting .................................................................................................................7
Abbreviations ..........................................................................................................8
Exhibit A: Status of Prior Year’s Internal Control Weakness .........................9
Exhibit B: Agency’s Response ............................................................................10
Exhibit C: Financial Statements ........................................................................12
Independent Auditor’s Report
The Board of Directors, Federal Crop Insurance Corporation

The Department of Agriculture’s Office of Inspector General audited the financial statements of
the Federal Crop Insurance Corporation/Risk Management Agency (FCIC/RMA) for fiscal years
2018 and 2017. We also considered FCIC/RMA’s internal control over financial reporting and
tested FCIC/RMA’s compliance with certain provisions of applicable laws, regulations,
contracts, and grant agreements that could have a direct effect on the determination of material
financial statement amounts and disclosures on these financial statements.

Exhibit A of this report provides the status of the prior year's internal control weakness.
Exhibit B presents FCIC/RMA’s response in its entirety.

Report on the Financial Statements
We have audited the accompanying financial statements of FCIC/RMA, which comprise the
balance sheets as of September 30, 2018 and 2017, and the related statements of net cost and
changes in net position; and the combined statements of budgetary resources for the fiscal years
then ended and the related notes to the financial statements (hereinafter referred to as the
“financial statements”). The objective of our audits was to express an opinion on the fair
presentation of these financial statements.

Management’s Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial statements
in accordance with accounting principles generally accepted in the United States of America
(U.S.); and the design, implementation, and maintenance of internal control relevant to the
preparation and fair presentation of financial statements that are free from material misstatement,
whether due to fraud or error.
Auditor’s Responsibility

Our responsibility is to express an opinion on these financial statements based on our audits. We
conducted our audits in accordance with auditing standards generally accepted in the U.S.; the
standards applicable to financial audits contained in government auditing standards, issued by
the Comptroller General of the U.S.; and the Office of Management and Budget (OMB) Bulletin
19-01, Audit Requirements for Federal Financial Statements. Those standards and OMB
Bulletin 19-01 require that we plan and perform audits to obtain reasonable assurance about
whether the financial statements are free from material misstatement.




                                                               AUDIT REPORT 05401-0010-11          1
An audit involves performing procedures to obtain audit evidence about the amounts and
disclosures in the financial statements. The procedures selected depend on the auditor’s
judgment, including the assessment of the risks of material misstatement of the financial
statements, whether due to fraud or error. In making those risk assessments, the auditor
considers internal control relevant to the entity’s preparation and fair presentation of the financial
statements in order to design audit procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of the entity’s internal control.
Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness
of accounting policies used and the reasonableness of significant accounting estimates made by
management, as well as evaluating the overall presentation of the financial statements. Our
audits also included performing such other procedures as we considered necessary in the
circumstances.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a
basis for our audit opinion.

Opinion on the Financial Statements

In our opinion, the financial statements referred to above present fairly, in all material respects,
the financial position of FCIC/RMA, as of September 30, 2018 and 2017, and its net costs,
changes in net position, and budgetary resources for the years then ended, in accordance with
accounting principles generally accepted in the U.S.

Emphasis of Matter

FCIC/RMA’s ultimate losses on insurance claims are subject to uncertainty. As a result, losses
on insurance claims may differ significantly from the recorded estimate due to differences
between expected and actual yields, weather patterns, commodity prices, and economic
conditions. Note 7 to the financial statements, “Estimated Losses on Insurance Claims,”
provides specific details concerning this liability. Our opinion is not modified with respect to
this matter.

Other Matters

Required Supplementary Information

Accounting principles generally accepted in the U.S. issued by the Federal Accounting Standards
Advisory Board (FASAB) require that the required supplementary information (RSI)1 be
presented to supplement the financial statements. Although the RSI is not a part of the financial
statements, FASAB considers this information to be an essential part of financial reporting for
placing the financial statements in appropriate operational, economic, or historical context. We
have applied certain limited procedures to the RSI in accordance with auditing standards
generally accepted in the U.S., which consisted of inquiries of management about the methods of
preparing the RSI and comparing the information for consistency with management’s responses

1
 The RSI consists of the Management Discussion and Analysis, Required Supplementary Stewardship Information
and Risk Assumed informaton, which are included with the financial statements.


2     AUDIT REPORT 05401-0010-11
to our inquiries, the financial statements, and other knowledge we obtained during our audits of
the financial statements. We do not express an opinion or provide any assurance on the
information because the limited procedures do not provide us with sufficient evidence to express
an opinion or provide any assurance.

Other Information

Our audits were conducted for the purpose of forming an opinion on the basic financial
statements as a whole. The “Other Information” section is presented for the purpose of
additional analysis, and is not a required part of the basic financial statements or the required
supplementary information. This information has not been subjected to the auditing procedures
applied in the audits of the financial statements and, accordingly, we express no opinion and
provide no assurance on it.


Other Reporting Required by Government Auditing Standards

Report on Internal Control Over Financial Reporting

In planning and performing our audits of the financial statements, we considered FCIC/RMA’s
internal control over financial reporting (internal control) to determine the audit procedures that
are appropriate in the circumstances for the purpose of expressing our opinion on the financial
statements, but not for the purpose of expressing an opinion on the effectiveness of FCIC/RMA’s
internal control. Accordingly, we do not express an opinion on the effectiveness of
FCIC/RMA’s internal control. We did not test all internal controls relevant to operating
objectives as broadly defined by the Federal Managers’ Financial Integrity Act of 1982
(FMFIA).

Our consideration of internal control was for the limited purpose described in the preceding
paragraph and was not designed to identify all deficiencies in internal control over financial
reporting that might be significant deficiencies or material weaknesses, and, therefore, material
weaknesses or significant deficiencies may exist that were not identified.

A deficiency in internal control exists when the design or operation of a control does not allow
management or employees, in the normal course of performing their assigned functions, to
prevent, or detect and correct, misstatements on a timely basis. A material weakness is a
deficiency or a combination of deficiencies, in internal control, such that there is a reasonable
possibility that a material misstatement of FCIC/RMA’s financial statements will not be
prevented, or detected and corrected on a timely basis.

A significant deficiency is a deficiency, or combination of deficiencies, in internal control that is
less severe than a material weakness, yet important enough to merit attention by those charged
with governance.

OMB Bulletin 19-01 requires us to describe significant deficiencies and material weaknesses
identified during our audits, and in the event that no material weaknesses were identified, to so



                                                                AUDIT REPORT 05401-0010-11          3
report. In our fiscal year 2018 audit, we noted certain matters involving internal control that we
consider to be significant deficiencies. Specifically, we identified weaknesses in FCIC/RMA’s:

    ·    controls over estimating losses on insurance claims, and

    ·    information technology general controls.

We determined the first deficiency is also a material weakness. These deficiencies are discussed
in this report in the “Findings and Recommendations,” Sections 1 and 2.

Report on Compliance with Laws, Regulations, Contracts, and Grant Agreements

As part of obtaining reasonable assurance about whether FCIC/RMA’s financial statements are
free of material misstatement, we performed tests of its compliance with certain provisions of
laws, regulations, contracts, grant agreements, and Governmentwide policy requirements,
noncompliance with which could have a direct effect on the determination of material financial
statement amounts and disclosure in the financial statements. However, providing an opinion on
compliance with those provisions was not an objective of our audit and, accordingly, we do not
express such an opinion.

We also performed tests of FCIC/RMA’s compliance with certain provisions referred to in
Section 803(a) of the Federal Financial Management Improvement Act of 1996 (FFMIA).
Providing an opinion on compliance with FFMIA was not an objective of our engagement, and
accordingly, we do not express such an opinion. The results of our tests of FFMIA disclosed no
instances in which FCIC/RMA’s financial management systems did not substantially comply
with FFMIA.

Management’s Responsibility for Internal Control and Compliance

FCIC/RMA’s management is responsible for (1) evaluating the effectiveness of internal control
over financial reporting based on criteria established under FMFIA, (2) providing a statement of
assurance on the overall effectiveness of internal control over financial reporting, (3) ensuring
FCIC/RMA’s financial management systems are in substantial compliance with FFMIA
requirements, and (4) ensuring compliance with other applicable laws, regulations, contracts, and
grant agreements.

Auditor’s Responsibilities

We are responsible for (1) obtaining a sufficient understanding of internal control over financial
reporting and compliance to plan the audit, (2) testing whether FCIC/RMA’s financial
management systems substantially comply with FFMIA requirements referred to above, and
(3) testing compliance with certain provisions of laws, regulations, contracts, and grant
agreements that have a direct effect on the determination of material amounts and disclosure in
the financial statements.

We did not evaluate all internal controls relevant to operating objectives as broadly established
by FMFIA, such as those controls relevant to preparing statistical reports and ensuring efficient

4       AUDIT REPORT 05401-0010-11
operations. We limited our internal control testing to controls over financial reporting and
compliance. Because of inherent limitations, internal control over financial reporting may not
prevent, or detect and correct, misstatements due to fraud or error.

We did not test compliance with all laws, regulations, contracts, and grant agreements applicable
to FCIC/RMA. We limited our tests of compliance to certain provisions of laws, regulations,
contracts, and grant agreements that have a direct effect on the determination of material
amounts and disclosure in the financial statements that we deemed applicable to FCIC/RMA’s
financial statements for the fiscal year ended September 30, 2018. We caution that
noncompliance may occur and not be detected by these tests.

Management’s Response

Management’s response to the report is presented in Exhibit B. We did not audit FCIC/RMA’s
response and, accordingly, we express no opinion on it.

Status of Prior Year’s Internal Control Weakness

We reviewed the status of FCIC/RMA’s corrective actions with respect to the prior year’s
Independent Auditor’s Report, dated November 8, 2017. The status is presented in Exhibit A.

Purpose of the Report on Internal Control Over Financial Reporting and the Report on
Compliance with Laws, Regulations, Contracts, and Grant Agreements

The purpose of the “Report on Internal Control Over Financial Reporting” and the “Report on
Compliance with Laws, Regulations, Contracts, and Grant Agreements” sections of this report is
solely to describe the scope of our testing of internal control and compliance and the results of
that testing, and not to provide an opinion on the effectiveness of FCIC/RMA’s internal control
or on compliance. These reports are an integral part of an audit performed in accordance with
government auditing standards in considering FCIC/RMA’s internal control and compliance.
Accordingly, these reports are not suitable for any other purpose.



Gil H. Harden
Assistant Inspector General for Audit
Washington, D.C.
November 7, 2018




                                                             AUDIT REPORT 05401-0010-11          5
Findings and Recommendation

Section 1: Material Weakness in Internal Controls Over Estimating
Losses on Insurance Claims
Finding 1: Improvements are Needed in the Review of the Estimated Loss Calculations

Although management conducted detailed reviews of the projected loss calculations for
estimating losses on insurance claims, change controls over the program used to calculate the
actuarial projection were not effective in preventing changes to the production model. We
identified an error in the program code whereby additional lines of code were inadvertently left
in the program after performing sensitivity tests and used to initially calculate the 2018 estimated
losses on insurance claims. As a result, FCIC/RMA’s financial statements were materially
misstated as reflected below.

    ·    Indemnities Expense and Liability for Estimated Losses on Insurance Claims were
         understated by $475 million.
    ·    Net Gain on Business Ceded from Approved Insurance Providers (Contra Revenue) and
         Liability for Underwriting Gain was overstated by $150 million.
    ·    As a result, Total Liabilities and Net Cost of Operations were understated by $325
         million.
The majority of FCIC/RMA’s liabilities is comprised of Estimated Losses on Insurance Claims.
Estimated Losses are calculated based on Statement of Federal Financial Accounting Standards
No. 5, Accounting for Liabilities of the Federal Government.2 There are a variety of risk factors
that expose FCIC/RMA’s liability estimates to uncertainty. Therefore, an actuarial projection of
total indemnities is made at the end of each fiscal year based on current conditions.

After the error was brought to management’s attention, FCIC/RMA officials promptly reviewed
the projected loss calculation code, made corrections, and adjusted the financial statements
accordingly.

Recommendation 1:
We recommend that management develop change controls over the program production model
used to calculate actuarial projections to avoid inadvertent modifications to the model.




2
 Statement of Federal Financial Accounting Standards No. 5, Accounting for Liabilities of the Federal Government,
dated September 1995.

6       AUDIT REPORT 05401-0010-11
Section 2: Significant Deficiency in Internal Control Over Financial
Reporting
Finding 2: Improvements are Needed in RMA’s General Information Technology Controls

Last year our report3 identified deficiencies in RMA’s information technology general controls.
In fiscal year 2018, RMA made continuous efforts to improve its disaster recovery program;
however, our review disclosed that additional improvements in RMA’s contingency planning
and security management are still needed.

RMA’s contingency planning for disaster recovery did not meet the National Institute of
Standards & Technology (NIST)4 and Departmental requirements.5 Specifically,
    ·   RMA has no failover system or alternate processing facility for backup and recovery of
        its systems,
    ·   the alternate storage site is not separate from the primary storage site, leaving it
        susceptible to the same threats,
    ·   RMA has not established alternate telecommunications services, and
    ·   at the time of our review RMA had not tested its contingency plan for fiscal year 2018.

Information systems are vital elements in most mission/business processes. Because information
system resources are essential to an organization’s success, it is critical that services provided by
these systems operate effectively without excessive interruption. Without a failover system or
alternate processing facility, RMA reduces its ability to perform mission critical functions.
Additionally, without organized defined testing of contingency plans performed each year RMA
is unable to determine the effectiveness of the plan and the organizational readiness to execute
the plan.

In fiscal year 2017 we recommended that RMA establish an effective disaster recovery program,
failover system, and alternate processing facility, and perform annual testing of its contingency
plan. According to RMA, it established a disaster recovery environment in July 2018 and
completed environment and failover testing for its mission essential functions in September
2018. Additionally, RMA scheduled the completion of its data center relocation for the
beginning of fiscal year 2019. Due to RMA’s continuing progress to improve its disaster
recovery program, we are not making any further recommendations.




3
  Audit Report 05401-0009-11, Federal Crop Insurance Corporation/Risk Management Agency’s Financial
Statements for Fiscal Years 2017 and 2016, issued November 2017.
4
  NIST Special Publication 800-53 Revision 4, Security and Privacy Controls for Federal Information Systems and
Organizations, states an organization must establish an alternate processing site. It further requires contingency
plans to be tested to determine effectiveness.
5
  The Department’s Contingency Plan Exercise Handbook, requires that an annual exercise be conducted to examine
processes and procedures associated with the implementation of the plan.

                                                                        AUDIT REPORT 05401-0010-11              7
Abbreviations
FASAB ........................ Federal Accounting Standards Advisory Board
FCIC/RMA ................. Federal Crop Insurance Corporation/Risk Management Agency
FFMIA ........................ Federal Financial Management Improvement Act of 1996
FMFIA ........................ Federal Managers’ Financial Integrity Act of 1982
NIST ............................ National Institute of Standards and Technology
OIG ............................. Office of Inspector General
OMB ........................... Office of Management and Budget
RSI .............................. Required Supplementary Information
U.S. ............................. United States of America




8    AUDIT REPORT 05401-0010-11
Exhibit A: Status of Prior Year’s Internal Control Weakness

Report 05401-0009-11, Federal Crop Insurance Corporation/Risk Management Agency’s
Financial Statements for Fiscal Years 2017 and 2016, dated November 2017.

Reported Significant Deficiency

Improvements are needed in RMA’s information technology general controls

Status

Recommendations 1 and 2 remain open. Recommendations 3 and 4 have been closed.

OIG Results

OIG continued to find similar deficiencies related to RMA’s disaster recovery program and has
issued a repeat Finding 2 with no recommendations.




                                                            AUDIT REPORT 05401-0010-11          9
Exhibit B: Agency’s Response




               FCIC/RMA’S
        RESPONSE TO AUDIT REPORT




10   AUDIT REPORT 05401-0010-11
AUDIT REPORT 05401-0010-11   11
Exhibit C: Financial Statements




        Federal Crop Insurance Corporation/Risk
                 Management Agency’s

                FISCAL YEARS 2018 and 2017
                 FINANCIAL STATEMENTS

                  PREPARED BY FCIC/RMA




12   AUDIT REPORT 05401-0010-11
FEDERAL CROP INSURANCE CORPORATION/RISK MANAGEMENT AGENCY’S
     FINANCIAL STATEMENTS FOR FISCAL YEARS 2018 AND 2017




FEDERAL CROP INSURANCE CORPORATION/
      RISK MANAGEMENT AGENCY
        FINANCIAL STATEMENTS
     FISCAL YEARS 2018 AND 2017
          Management’s Discussion and Analysis
        FEDERAL CROP INSURANCE CORPORATION/RISK MANAGEMENT AGENCY’S
             FINANCIAL STATEMENTS FOR FISCAL YEARS 2018 AND 2017
Message from Martin Barbre, Administrator, Risk Management Agency

 Mission of The Risk Management Agency
 Serving America’s agricultural producers through effective, market-based
 risk management tools and solutions to strengthen the economic stability
 of agricultural producers and rural communities.


On behalf of the Risk Management Agency (RMA), it is my pleasure to present
this comprehensive financial report detailing the exceptional work of the agency
and its employees for the past two years. The above-stated mission of the
agency is further enhanced by the following strategic goals:

        Increasing the availability and effectiveness of Federal crop insurance as a risk management tool
         while enhancing and protecting the soundness of the program;
        Ensuring a fair and effective risk management product delivery system;
        Providing education and outreach to stakeholders to ensure knowledge of and access to risk
         management tools and products;
        Safeguarding the integrity of the Federal crop insurance program; and
        Creating an RMA for the 21st century that is high performing, efficient, and adaptable.

RMA worked to reduce regulatory burdens on Approved Insurance Providers, insurance agents,
producers, and the United States Department of Agriculture by implementing changes to the Highly
Erodible Land and Wetlands Conservation certification process. RMA also provided additional risk
management options to allow producers to select different unit structures by practice for either irrigated
or non-irrigated practices, which helps producers tailor crop insurance to help meet their specific needs.
RMA continued to focus efforts to raise awareness of the Whole-Farm Revenue Protection insurance
program, which is available in every county in the United States and expanded options for nursery
growers as well. RMA worked with Approved Insurance Providers, agents, and stakeholder groups to
respond to multiple disasters throughout the past two years.

In fiscal year 2017, RMA partnerships reached 113,948 producers and helped over 36,000 participants
decide on risk management and crop insurance education topics such as Crop Insurance 101, Whole-
Farm Revenue Protection, Pasture Rangeland and Forage and Livestock products, recordkeeping,
irrigation/limited irrigation practices, and drought. In addition, RMA entered into 76 cooperative
agreements for nearly $10 million to provide nationwide risk management and crop insurance education
to producers. For fiscal year 2018, RMA announced the availability of $8.89M to continue the
development of training and educational tools to help farmers and ranchers to effectively manage long-
term risks and challenges.

RMA is required to identify, measure, prevent and report improper payments per the Improper Payments
Elimination and Recovery Improvement Act (IPERIA). In fiscal year 2017, RMA significantly reduced its
improper payment rate to 1.96%. In fiscal year 2018, the improper payment rate was reduced even
further to 1.81%. The actual rates are less than both the fiscal year 2018 target of 1.95% and the fiscal
year 2017 target of 2.01%.

The Federal Crop Insurance Corporation’s (FCIC) financial statements report the financial positions for
both 2018 and 2017 fiscal years, net costs of operation, changes in net position, and status of budgetary
resources. Financial management performance measures also accompany the financial results. These
performance measures include the annual results and the strategic targets.

Thank you for your interest in RMA and FCIC. I commend the employees of the Risk Management
Agency for their outstanding work and am proud to share this information with our stakeholders.


                                                                                                             i
       FEDERAL CROP INSURANCE CORPORATION/RISK MANAGEMENT AGENCY’S
            FINANCIAL STATEMENTS FOR FISCAL YEARS 2018 AND 2017



CONTENTS
Management’s Discussion and Analysis (Unaudited) ............................................................... 1
   Mission............................................................................................................................. 1
   Organizational Structure.................................................................................................... 2
      Organizational Chart ...................................................................................................... 2
      Organizational Functions ................................................................................................ 4
   Programs ......................................................................................................................... 6
      Insurance Plans and Types............................................................................................. 6
      Reimbursement Rates.................................................................................................... 9
      Underwriting Gain/Loss.................................................................................................. 9
      Specialty Crops.............................................................................................................. 9
      Pilot Programs ............................................................................................................. 10
      Published Regulations .................................................................................................. 10
   Performance Goals, Objectives and Results ...................................................................... 10
      Performance Goals of RMA ........................................................................................... 10
      Crop and Insurance Statistics ....................................................................................... 16
   Financial Statement Highlights and Analysis...................................................................... 21
      Assets......................................................................................................................... 21
      Liabilities..................................................................................................................... 22
      Analysis of Statement of Net Cost ................................................................................. 25
      Analysis of Statement of Budgetary Resources .............................................................. 27
   Systems, Controls and Legal Compliance .......................................................................... 27
   Other Management Information, Initiatives and Issues ..................................................... 29
Financial Statements .......................................................................................................... 30
      Balance Sheets............................................................................................................ 31
      Statements of Net Cost ................................................................................................ 32
      Statements of Changes in Net Position.......................................................................... 33
      Combined Statements of Budgetary Resources.............................................................. 34
   Notes to the Financial Statements.................................................................................... 35
      Note 1 – Summary of Significant Accounting Policies ..................................................... 35
      Note 2 – Fund Balance with Treasury ........................................................................... 40
      Note 3 – Cash Held Outside Treasury ........................................................................... 40
      Note 4 – Accounts Receivable ...................................................................................... 41
      Note 5 – General Property, Plant, and Equipment .......................................................... 41

                                                                                                                                       ii
   FEDERAL CROP INSURANCE CORPORATION/RISK MANAGEMENT AGENCY’S
        FINANCIAL STATEMENTS FOR FISCAL YEARS 2018 AND 2017

  Note 6 – Accounts Payable........................................................................................... 42
  Note 7 – Estimated Losses on Insurance Claims ............................................................ 43
  Note 8 – Other Liabilities.............................................................................................. 44
  Note 9 – Underwriting Gain .......................................................................................... 45
  Note 10 – Unearned Revenue....................................................................................... 45
  Note 11 – Liabilities Not Covered by Budgetary Resources ............................................. 46
  Note 12 – Commitments and Contingencies .................................................................. 47
  Note 13 – Undelivered Orders at the End of the Period .................................................. 47
  Note 14 – Net Position – Statement of Changes in Net Position ...................................... 47
  Note 15 – Statement of Budgetary Resources ............................................................... 49
  Note 16 – Explanation of Differences between the SBR & Budget of U.S. Government ..... 49
  Note 17 – Budget and Accrual Reconciliation................................................................. 50
  Note 18 – Subsequent Event ........................................................................................ 51
Required Supplementary Stewardship Information (Unaudited) ......................................... 52
Required Supplementary Information (Unaudited) ............................................................ 53
Other Information (Unaudited) ........................................................................................ 54
  Payment Integrity........................................................................................................ 54
  Fraud Reduction Report ............................................................................................... 62
  Reduce the Footprint ................................................................................................... 63
  Grants Oversight & New Efficiency (GONE) Act.............................................................. 64
Summary of Financial Statement Audit and Management Assurances ................................. 65




                                                                                                                           iii
     FEDERAL CROP INSURANCE CORPORATION/RISK MANAGEMENT AGENCY’S
          FINANCIAL STATEMENTS FOR FISCAL YEARS 2018 AND 2017



    MANAGEMENT’S DISCUSSION AND ANALYSIS
                (UNAUDITED)
MISSION
Risk Management Agency’s (RMA) mission is serving America’s agricultural producers
through effective, market-based risk management tools to strengthen the economic
stability of agricultural producers and rural communities. To carry out this mission,
RMA operates and manages the Federal Crop Insurance Corporation (FCIC).

FCIC provides crop insurance and risk management strategies to American producers.
Private sector insurance providers, approved by FCIC, sell and service the policies. RMA
develops and/or approves premium rates, administers the premium and expense
subsidies, approves and supports products, and reinsures the Approved Insurance
Providers (AIPs). In addition, RMA sponsors educational programs and seminars on risk
management.


                        History & Enabling Legislation


FCIC is a wholly-owned government corporation established February 16, 1938 by the
Federal Crop Insurance Act (7 U.S.C. 1501) and amended by the following:

   Federal Crop Insurance Act of 1980
   Federal Crop Insurance Reform and Department of Agriculture Reauthorization Act
    of 1994
   Federal Agriculture Improvement and Reform Act of 1996 (established RMA)
   Agriculture Research, Extension & Education Reform Act of 1998
   Agriculture, Rural Development, Food & Drug Administration, & Related Agencies
    Appropriations Act of 1999
   Agriculture Risk Protection Act of 2000
   Food, Conservation, and Energy Act of 2008
   Agricultural Act of 2014




    The Federal Crop Insurance Act, as amended, is hereafter referred to as the Act.


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    FEDERAL CROP INSURANCE CORPORATION/RISK MANAGEMENT AGENCY’S
         FINANCIAL STATEMENTS FOR FISCAL YEARS 2018 AND 2017

ORGANIZATIONAL STRUCTURE
RMA employs approximately 460 people in offices around the country. Martin Barbre is
the RMA Administrator and Manager of FCIC. Staff offices within the Office of the
Administrator are External Affairs, Office of Civil Rights, Program and Administrative
Support, the Office of the Chief Information Officer, and the Office of the Chief Financial
Officer.

The Agency has three divisions: Insurance Services, Product Management, and
Compliance. Insurance Services is responsible for program delivery (for example,
managing contracts with the companies that sell and service policies), and local
program administration and support. Product Management is responsible for
overseeing product development and program operations. Compliance monitors
program integrity and adherence to program provisions by both producers and private
insurance companies that participate in the program.

ORGANIZATIONAL CHART




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     FEDERAL CROP INSURANCE CORPORATION/RISK MANAGEMENT AGENCY’S
          FINANCIAL STATEMENTS FOR FISCAL YEARS 2018 AND 2017

RMA Office Locations

RMA is headquartered in Washington, DC. There is a national operations office located
in Kansas City, MO which includes Product Management, Office of Chief Information
Officer, External Affairs, and Office of the Chief Financial Officer. In addition, there are
six Compliance offices and ten Insurance Services regional offices located throughout
the country, as shown in the table below.


                    C FOM N
                   E a ga n M N



                                                                                                               Regional Compliance
                                                                              C F OIN
                                                                         India n a polis IN



                                                                                                               Offices locations

                                                                                                               •   Raleigh, NC
                                                                                                               •   Davis, CA
                                                                                                               •   Egan, MN
     C FO C A
    D a v is C A
                                       C FO MO
                                  K a ns a s C ity M O
                                                                                                C FO N C
                                                                                              R a leig h N C   •   Indianapolis, IN
                                                                                                               •   Kansas City, MO
                                                                                                               •   Dallas, TX

                                                          C FOT X
                                                         D a lla s T X




                                                                                                               Insurance Services
                                                                                                               Regional Office
                                                                                                               locations

                                                                                                               •   Raleigh, NC
                                                                                                               •   Davis, CA
                                                                                                               •   St. Paul, MN
                                                                                                               •   Springfield, IL
                                                                                                               •   Topeka, KS
                                                                                                               •   Billings, MT
                                                                                                               •   Jackson, MS
                                                                                                               •   Oklahoma City, OK
                                                                                                               •   Spokane, WA
                                                                                                               •   Valdosta, GA




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     FEDERAL CROP INSURANCE CORPORATION/RISK MANAGEMENT AGENCY’S
          FINANCIAL STATEMENTS FOR FISCAL YEARS 2018 AND 2017

ORGANIZATIONAL FUNCTIONS



                                                                  Board members left to right:
                                                                  Kenneth Ray Sneed, Iris Saenz,
                                                                  James Bardenhagen, Dr. Robert
                                                                  Johansson, John Finston, Michael
                                                                  Clemens, Rickey Bearden, and
                                                                  Martin Barbre.




Program Administration

The Board of Directors is the decision-making body for FCIC. FCIC Board of Directors is
subject to the general supervision of the Secretary of Agriculture. The Board consists of
the United States Department of Agriculture (USDA) Chief Economist (Chairman); the
USDA Under Secretary for Farm Production and Conservation plus one additional Under
Secretary; FCIC Manager (non-voting); four producers who are policyholders, one of
whom grows specialty crops; an individual involved in the insurance industry; and an
individual knowledgeable about reinsurance or regulation.

Office of the Administrator

Business activities are carried out by the following staff offices:

   External Affairs Staff:
    External Affairs Staff communicates with and provides information to the public and
    Congress about the Federal crop insurance program. External Affairs also provides
    guidance and training on communications, strategies, and issues to the Agency’s
    leadership.

   Office of Civil Rights:
    The Office of Civil Rights (OCR) focus is to ensure that customers, such as farmers
    and ranchers, including small, limited resource, and other socially disadvantaged
    groups, have the opportunity to participate and have equal access to all USDA/RMA
    programs and services. In addition, RMA ensures that all employees and applicants
    for employment are treated equally in regard to employment opportunities,
    recognition, promotions, and other employee benefits.




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     FEDERAL CROP INSURANCE CORPORATION/RISK MANAGEMENT AGENCY’S
          FINANCIAL STATEMENTS FOR FISCAL YEARS 2018 AND 2017

   Program and Administrative Support Staff:
    The Program & Administrative Support Staff provides services to the Agency ranging
    from regulatory administration, employee engagement activities, as well as
    continuity of operations and homeland security planning and execution.

   Office of the Chief Information Officer (OCIO):
    The OCIO staff is made up of 3 primary functional areas: Information Security,
    Capital Planning & Investment Control, and System Administration.

   Office of the Chief Financial Officer (OCFO):
    The OCFO staff is responsible for establishing and maintaining effective internal
    controls and policies over financial reporting and operations. The Budget Branch
    formulates and executes the RMA/FCIC budget as well as manages strategic
    planning and organizational performance management activities. The Accounting
    Branch processes and monitors financial transactions and prepares the financial
    statements.

Product Management

Product Management designs, develops, and maintains the crop insurance programs,
policies and standards; and establishes and maintains rates, prices, and actuarial
documents for coverage of crops in each county. Product Management is responsible
for the financial oversight of AIPs as well as processing the program receipts and
expenditures including AIP reimbursement and escrow funding.

Insurance Services

Insurance Services develops and manages contractual arrangements through AIPs,
cooperatives, and other financial service organizations. Insurance Services ensures
delivery partners meet published regulatory financial standards, administers corrective
actions, and educates producers through private and public education partners.
Insurance Services also engages outreach to ensure that all farmers and ranchers have
the opportunity to participate and have equal access to all RMA/USDA programs and
services.

Compliance

Compliance safeguards the integrity of the Federal crop insurance program through
operational reviews of crop insurance programs. Compliance is also responsible for
oversight of the data-mining processes used to monitor program compliance.
Compliance assists in the prosecution of criminal, civil, and administrative actions and
refers cases of fraud to the Office of Inspector General as required. Freedom of
Information Act (FOIA) and Privacy Act functions are performed within the Compliance
Division.

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    FEDERAL CROP INSURANCE CORPORATION/RISK MANAGEMENT AGENCY’S
         FINANCIAL STATEMENTS FOR FISCAL YEARS 2018 AND 2017

PROGRAMS
FCIC enters into reinsurance agreements with AIPs to market and service policies. The
conditions of reinsurance are defined in the Standard Reinsurance Agreements (SRA)
between the companies and FCIC. Under these agreements, AIPs agree to deliver
insurance products to eligible entities under certain terms and conditions.

AIPs are responsible for customer service and guarantee premium payment to FCIC.
FCIC reinsures the policies and provides an administrative and operating expense
reimbursement to AIPs for delivery of insurance products.

FCIC provides a subsidy for producers’ premiums and funds indemnity payments to
producers through escrow accounts. FCIC and AIPs share in underwriting gains or
losses.

INSURANCE PLANS AND TYPES
Revenue Policies

Revenue based products protect the producers against loss of revenue due to price
fluctuations and yield loss due to natural causes such as drought, excessive moisture,
hail, wind, frost, insects, and disease. Types of policies included are:
     Actual Revenue History
     Pecan Revenue Assurance
     Revenue Protection
     Revenue Protection with Harvest Price Exclusion

Actual Production History & Yield Protection Policies

Actual Production History and Yield Protection Policies insure producers against yield
losses due to natural causes such as drought, excessive moisture, hail, wind, frost,
insects, and disease. If the harvested plus any appraised production is less than the
yield insured, the producer is paid an indemnity based on the difference. Types of
policies included are:
     Actual Production History
     Yield Protection

Livestock Policies

Livestock policies are designed to insure against declining market prices or declining
margins. Coverage is determined using futures and options prices from commodity
exchange markets. Types of policies included are:
     Dairy Revenue Protection
     Livestock Risk Protection
     Livestock Gross Margin

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       FEDERAL CROP INSURANCE CORPORATION/RISK MANAGEMENT AGENCY’S
            FINANCIAL STATEMENTS FOR FISCAL YEARS 2018 AND 2017

Group Policies

Policies in this category are based on the experience of the county rather than
individual farms, these policies use: (1) Estimated county yields for insured crops as
determined by National Agricultural Statistics Service (NASS); (2) Weather data
collected and maintained by the National Oceanic and Atmospheric Administration’s
Climate Prediction Center; or (3) Weather data collected by the U.S. Geological Survey’s
Earth Resources Observation and Science. Types of policies included are:
     Area Yield Protection
     Area Revenue Protection
     Area Revenue Protection – Harvest Price Exclusion
     Rainfall Index
     Stacked Income Protection – Revenue Protection
     Stacked Income Protection – Revenue Protection with Harvest Price Exclusion

Other Policies

Policies that do not fall under other groups listed above are combined into this
grouping. Examples of policies in this category are dollar amount products based on
the cost of growing a crop or policies based on the producer’s historical gross revenue
to determine loss. Types of policies included are:

       Whole-Farm Revenue Protection
       Aquaculture Dollar Amount of Insurance
       Dollar Amount of Insurance
       Fixed Dollar Amount of Insurance
       Tree Based Dollar Amount of Insurance
       Yield Based Dollar Amount of Insurance
       Margin Protection

For more information on insurance plans visit: http://www.rma.usda.gov/policies/




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    FEDERAL CROP INSURANCE CORPORATION/RISK MANAGEMENT AGENCY’S
         FINANCIAL STATEMENTS FOR FISCAL YEARS 2018 AND 2017

The chart below shows the 20-year trend in insurance liability and types of insurance.




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    FEDERAL CROP INSURANCE CORPORATION/RISK MANAGEMENT AGENCY’S
         FINANCIAL STATEMENTS FOR FISCAL YEARS 2018 AND 2017

REIMBURSEMENT RATES

FCIC receives an appropriation to reimburse AIPs for their administrative and operating
costs. Reimbursement rates are a percentage of premium. The current SRA contains a
cap which is indexed for inflation for specific insurance plans and coverage levels. The
2018 reimbursement amount is $1.5 billion. Reimbursement rates are the same for
2018 and 2017 reinsurance years. The table below lists reimbursement rates under the
current SRA:

                                              Reimbursement Rates (depending
             Insurance Plans
                                                    on coverage level)
 Area Risk                                                                      12.0%
 Pasture Rangeland and Forage                                                   20.1%
 Revenue (Harvest Price Option)                                                 18.5%
 Other Additional Coverage                                                      21.9%
 Catastrophic Coverage                                                            6.0%


UNDERWRITING GAIN/LOSS

In addition to reimbursement of administrative and operating expenses, FCIC and AIPs
enter into agreements on sharing of gains and losses. Under these agreements, FCIC
assumes a portion of the loss risk on Federal crop insurance policies. The agreements
are adjusted annually as part of the AIPs plan of operations. A plan of operations is
submitted to RMA and approved prior to the beginning of the reinsurance year. In the
plan of operations, AIPs elect methodologies to share risk with FCIC. The plan of
operations becomes an appendix to the SRA for each reinsurance year (July 1 through
June 30).

SPECIALTY CROPS

Under the Act, FCIC reports to Congress on the progress and expected timetable for
expanding crop insurance coverage to new and specialty crops. The Specialty Crop
reports serve as a useful way to obtain a quick overview of processes and timelines
RMA follows to make new and specialty crop insurance products available to producers.
The latest report (available at https://www.rma.usda.gov/About-RMA/Laws-and-
Regulations/Published-Regulations-Archive) highlights several pilot programs and
privately developed products developed under section 508(h) of the Act.




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    FEDERAL CROP INSURANCE CORPORATION/RISK MANAGEMENT AGENCY’S
         FINANCIAL STATEMENTS FOR FISCAL YEARS 2018 AND 2017

PILOT PROGRAMS

The Act defines the process by which RMA develops and maintains pilot programs and
allows privately developed products to be submitted to FCIC under section 508(h).
Private submitters may submit a Concept Proposal for FCIC Board approval. A portion
of expected research and development funds may be advanced to create new insurance
products. Private submitters may also develop new policies at their own expense and
submit these products to FCIC. For FCIC Board approved products, the private
submitters may request reimbursement of research and development from FCIC.

PUBLISHED REGULATIONS

RMA periodically updates its regulations by publishing proposed, interim, and final rules
in the Federal Register. RMA seeks public comment on proposed revisions. Revisions
made to regulations improve risk management products available for producers and/or
clarify such regulations. During fiscal year 2018, RMA had 6 regulations in the
proposed, interim, or final rule stage. Published regulations can be found on the
Federal Register’s website at https://www.federalregister.gov.

PERFORMANCE GOALS, OBJECTIVES AND RESULTS

PERFORMANCE GOALS OF RMA

In 2015, RMA published its Strategic Plan in alignment with the USDA Strategic Plan.
The Strategic Plan has five goals with accompanying strategies and performance
measures. This section describes RMA performance goals and selected
accomplishments towards those goals.

    Increase the availability and effectiveness of Federal Crop
     Insurance as a risk management tool while enhancing and
     protecting the soundness of the program.

The RMA goal to increase the availability and effectiveness of the program is achieved
by:
     Ensuring American agricultural producers are better protected against the
      inherent risks of weather and price fluctuations,
     Enhancing rural communities’ income through indemnity payments to local
      producers who suffer insured losses, and
     Ensuring American taxpayers’ confidence in an actuarially sound insurance
      program.




                                                                                       10
       FEDERAL CROP INSURANCE CORPORATION/RISK MANAGEMENT AGENCY’S
            FINANCIAL STATEMENTS FOR FISCAL YEARS 2018 AND 2017

RMA’s primary performance measure under this goal, as shown in the following table, is
the annual normalized value of risk protection provided to agricultural producers
through the Federal crop insurance program. By “normalizing” or adjusting the actual
value of risk by parameters that smooth out the volatility of crop prices, the steady
climb in the value of risk protection provided to producers through the years is shown.

                          Baseline
                                          2017 Actual      2018 Actual      2018 Target
                           2012
 Annual normalized
 value of risk            $62.1 billion    $74.6 billion    $81.7 billion      $64.0 billion
 protection

Additional activities that contribute to the goals of increased availability and
effectiveness of the Federal crop insurance program are shown below.

       Whole-Farm Revenue Protection is available in every county in the United States.
        Eligibility for Whole-Farm Revenue Protection includes beginning farmers and
        farms that are exclusively livestock or greenhouse. Improvements were made
        for how Whole-Farm program protection accounts for producers who also have
        non-reinsured coverage on their crops.

       Pasture, Rangeland, and Forage, an area-based insurance plan that covers
        perennial pasture, rangeland, or forage used to feed livestock is available in all
        48 continuous states. Program expanded to provide organic coverage and
        increased program integrity with more accurate pricing methodology.

       New programs implemented include: crop insurance program triticale; option for
        sugarcane that provide payments to replace plants destroyed in their first or
        second year; and state-funded crop insurance subsidy for certified cover crop
        growers in Iowa.

       Coverage for blueberries was expanded to include blueberries planted in
        containers (select California counties).

       Eligibility for nursery crops was expanded by lowering the wholesale requirement
        from 50% of sales to 40% and added flexibility to the program by allowing for
        the field grown practice to have basic units by non-contiguous land.

       Improvements have been made to how cotton quality losses are covered.




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    FEDERAL CROP INSURANCE CORPORATION/RISK MANAGEMENT AGENCY’S
         FINANCIAL STATEMENTS FOR FISCAL YEARS 2018 AND 2017

Another performance measure is shown in the chart below. It is a graphic
representation of how RMA has met its goal to increase the value of risk protection for
farmers and ranchers across the United States. It shows actual values of the Federal
crop insurance program for the last five years.


                          Annual Actual Value of Risk Protection Provided
                             through Federal Crop Insurance Program
                                     Actual Vs. Goal (in grey)
                $120.00
                            $109.90                           $106.10       $108.74
                                        $102.53    $100.62
                $100.00


                 $80.00
                             $83.18     $83.90     $84.40      $84.90       $85.40
     billions




                 $60.00


                 $40.00


                 $20.00


                  $0.00
                              2014       2015       2016        2017         2018




    Ensure a fair and effective risk management product delivery
     system

RMA accomplishes fair and effective delivery of the program by ensuring all producers
have access to risk management products and information; compliance with Federal
Civil Rights statutes is ensured; and AIPs, their agents, and adjusters treat all producers
fairly. The designated underserved states are Alaska, Connecticut, Delaware, Hawaii,
Maine, Maryland, Massachusetts, Nevada, New Hampshire, New Jersey, New York,
Pennsylvania, Rhode Island, Utah, Vermont, West Virginia, and Wyoming.




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    FEDERAL CROP INSURANCE CORPORATION/RISK MANAGEMENT AGENCY’S
         FINANCIAL STATEMENTS FOR FISCAL YEARS 2018 AND 2017

One performance measure illustrates fair and effective delivery of the program is shown
below where the table lists value of risk protection in underserved states.

                                           2017            2018
                      Baseline 2013                                     2018 Target
                                           Actual        Estimate
 Actual Value of
 Risk Protection in
                           $1.6 billion   $2.1 billion   $2.3 billion      $2.2 billion
 Underserved
 States

RMA has provided enhanced crop insurance coverage to new and beginning farmers
and ranchers which participate in beginning farmer crop insurance incentives. These
incentives make crop insurance more affordable and more effective for beginning
farmers, which supports new and beginning farmers in the critical first few years of
farming.

These benefits include:
    Exemption from paying the administrative fee for catastrophic and additional
      coverage policies
    Additional 10 percentage points of premium subsidy for additional coverage
      policies that have premium subsidy
    Use of production history of farming operations that they were previously
      involved in the decision making or physical activities
    Increase in the substitute Yield Adjustment, which allows producers to replace a
      low yield due to an insured cause of loss, from 60 to 80 percent of the
      application Transitional Yield (T-Yield).

For the 2018 reinsurance year, there were more than 16,500 beginning farmers and
ranchers insured spanning more than 4.1 million acres. They saved more than $17
million in reduced premiums and administrative fees.

    Educate stakeholders to ensure knowledge of and access to
     risk management tools and products

RMA educates stakeholders by ensuring producers are knowledgeable about risk
management tools and products, educational resources are leveraged through
partnerships with other governmental and nongovernmental entities, and producers
have access to regionalized risk management education and information through RMA
regional offices.




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       FEDERAL CROP INSURANCE CORPORATION/RISK MANAGEMENT AGENCY’S
            FINANCIAL STATEMENTS FOR FISCAL YEARS 2018 AND 2017

RMA measures the ability to educate stakeholders and ensure knowledge and access to
risk management tools and products by a variety of measures. During the current
application cycle, RMA awarded 56 risk management education partnership agreements
in the amount of $6.1 million and 24 cooperative agreements for Targeted States in the
amount of $4.7 million.

The following table summarizes another performance measure in risk management
education opportunities.

                 Baseline   2014       2015       2016       2017        2018        2018
                  2013      Actual     Actual     Actual     Actual    Estimate     Target
 Number of
 Producers
 Attending
                   48,403 155,027      109,276    120,859   113,948     120,000      50,000
 Risk
 Management
 Education
 Number of
 Producers
 Provided
 Education        104,373 156,581       55,195     39,635     70,605     38,260    115,000
 through
 Regional
 Offices

The table above shows a spike in participation in 2013 and 2014. This is likely due to
the demand for information about the multiple changes in the 2014 Farm Bill legislation.
The decrease in participation after 2014 reflects a stable time in the program.

    Safeguard the integrity of the Federal crop insurance
     program

RMA safeguards the integrity of the program by ensuring tax dollars are used
appropriately. RMA addresses insurance fraud, waste, and abuse. RMA ensures AIPs
fully comply with FCIC regulations. RMA safeguards the integrity of the Federal crop
insurance program through multiple layers of compliance activity.

Select performance activities that contribute to the goal of improved integrity and show
RMA’s commitment to safeguarding the Federal crop insurance program are shown
below.

       In fiscal year 2018 and 2017, RMA reported an improper payment rate of 1.81%
        and 1.96% respectively, which met the reduction target of 1.95% and 2.01% for
        those years.
                                                                                       14
       FEDERAL CROP INSURANCE CORPORATION/RISK MANAGEMENT AGENCY’S
            FINANCIAL STATEMENTS FOR FISCAL YEARS 2018 AND 2017

       RMA utilizes an enhanced process for AIP Performance Reviews (APR). The
        reviews are used to determine whether an AIP’s internal controls and operations
        comply with SRA requirements and whether the AIP demonstrates satisfactory
        performance in the areas reviewed.

For fiscal years 2017 and prior, RMA was identified by USDA as a high-priority program.
A high-priority program is a program that has $750 million in estimated improper
payments in one year. A program that is identified as high-priority in one year, but in
subsequent years reports an improper payment estimate below $750 million can be
taken off this list. RMA was below this threshold for the last three consecutive
reporting years. As of October 2017, RMA received notification that it has been
removed from the annual high-priority improper payment reporting.

RMA uses a statistically valid estimate of the improper payment rate and of the dollar
amount of improper payments for FCIC. The improper payment reviews include all
payment categories (premium subsidies, A&O subsidies, and indemnity payments) and
considers how an improper payment can occur. A simple random sample is used to
select the policies for review.

For fiscal year 2017 and beyond, RMA has an OMB approved statistically valid sampling
methodology.

The following table illustrates the improper payment rate performance measure. This
measure is used across government to evaluate program effectiveness and shows the
outcome of safeguarding the integrity of the Federal crop insurance program.

                             Baseline
                                              2017 Actual        2018 Actual          2018 Target
                              2013
 Improper Payment
                                   5.23%               1.96%              1.81%            4.90%*
 Rate
*This target published in the 2015 strategic plan. 2018 reduction target was 1.95%.




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    FEDERAL CROP INSURANCE CORPORATION/RISK MANAGEMENT AGENCY’S
         FINANCIAL STATEMENTS FOR FISCAL YEARS 2018 AND 2017

    Create an RMA for the 21st century that is high performing,
     efficient, and adaptable

RMA has several performance activities that contribute to the goal of improving the
workplace including modernizing its Information Technology (IT) infrastructure,
allowing the organization to accomplish its mission more efficiently.

An example of RMA improvements is a new review process known as the APR. This is a
primary tool for assessing AIP compliance with the SRA, FCIC policies and procedures,
and related laws and regulations. The APR connects evaluation tools to specific laws
and regulations in a consistent and standard process.

CROP AND INSURANCE STATISTICS

Three types of years are referred to in this financial report. The financial statements
are for fiscal years which run from October 1 to September 30. Crop year refers to the
year in which a crop is harvested. Reinsurance year is based on the yearly reinsurance
agreements with AIPs and runs from July 1 to June 30. Statistics are maintained for
policies, farmer paid premium, premium subsidy, total premium, indemnities, loss ratio,
and insurance protection on a crop year basis. General ledger transactions include
reinsurance year attributes. Multiple reinsurance years are active during each fiscal
year.

Federal crop insurance program statistics are shown below. The indemnities and loss
ratios for 2018 are estimated as they are not known at the time the financial
statements are prepared.

  Program Information              Crop Year 2018               Crop Year 2017
      Comparison                     (Estimated)                   (Actual)
 Number of Policies                           1.10 million                 1.12 million
 Farmer Paid Premium                         $3.64 billion                $3.71 billion
 Premium Subsidies                           $6.27 billion                $6.36 billion
 Total Premium                               $9.91 billion               $10.07 billion
 Indemnities                                 $8.38 billion                $5.36 billion
 Loss Ratio                                          85%                          53%
 Insurance Protection                      $109.08 billion              $106.10 billion




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     FEDERAL CROP INSURANCE CORPORATION/RISK MANAGEMENT AGENCY’S
          FINANCIAL STATEMENTS FOR FISCAL YEARS 2018 AND 2017

FCIC insures 122 types of crops for crop year 2018. The top crops in volume are listed
below, with the remaining crops (pasture, rangeland, forage; apples; almonds;
potatoes; beans, etc...) grouped together as All Other. The chart below illustrates
premiums on the top five crops representing 78% of total premium in crop year 2018
and 79% of total premium in crop year 2017.

                                    Crop Year 2018*                      Crop Year 2017
             Crop
                                       (billions)                           (billions)
 Corn                                                  $3,143                                $3,454
 Soybean                                               $2,227                                $2,556
 Wheat                                                      $994                               $893
 Cotton                                                $1,129                                  $935
 Sorghum                                                    $155                               $154
 All Other                                             $2,166                                $2,082
 Total                                                 $9,814                              $10,074
*Approximately 99% of all Premium is known at Sept. 30 , but the total premium will not be known until
                                                       th

 the next fiscal year.

As noted on the chart above total premiums have decreased. The projected crop prices
remained relatively stable between 2017 and 2018 at acreage reporting dates. Below is
the RMA’s projected price data for top crops as of acreage reporting dates. The
projected prices are different than the final harvest price which is used to calculate
indemnities.




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                  FEDERAL CROP INSURANCE CORPORATION/RISK MANAGEMENT AGENCY’S
                       FINANCIAL STATEMENTS FOR FISCAL YEARS 2018 AND 2017


                                                    US Price for Top Crops
                                                         2014-2018
                                     $12
  Price per Bushel/Pound




                                     $10

                                       $8

                                       $6

                                       $4

                                       $2

                                       $0
                                             2014         2015        2016         2017         2018
                            Soybeans        11.32         9.73         8.87        10.20        10.14
                            Wheat            6.76         6.01         5.22         5.09         5.55
                            Corn             4.59         4.14         3.86         3.94         3.93
                            Grain Sorghum    4.43         3.99         3.73         3.82         3.81
                            Cotton           0.78         0.63         0.61         0.73         0.75


                              Losses (2017 and 2016 Cause of Loss, Indemnity by Region)

FCIC/RMA issues the annual financial report based on a fiscal year ending September
30. The growing season for the crops that constitute most of FCIC’s book of business
does not end until October or November. As a result, the majority of losses for a given
crop year are paid out in the following fiscal year.

In crop year 2017, the overall loss ratio was .53 compared to a loss ratio of .42 in crop
year 2016. In 2017, the top factor for losses was drought. In 2016, the top factor for
losses was excess moisture.

                          In crop year 2017, the top causes of loss were: drought in the Midwest,
                           Northern and Southern Plains and excess moisture primarily in the Midwest,
                           Southwest, and Southern region.

                          In crop year 2016, the top causes of loss were: excess moisture primarily in the
                           Northern, Central, and Southern Plains, and California; drought in the Northern
                           Plains, Northeast, and Southeast; and hail in the Northern, Central, and Southern
                           Plains.




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    FEDERAL CROP INSURANCE CORPORATION/RISK MANAGEMENT AGENCY’S
         FINANCIAL STATEMENTS FOR FISCAL YEARS 2018 AND 2017

The losses for crop year 2016 were historically low. Losses in 2017 increased but
remained relatively low. The following maps show the indemnities reported by region
for crop year 2017 and 2016 (primarily paid in fiscal years 2018 and 2017,
respectively).




                                                                                      19
FEDERAL CROP INSURANCE CORPORATION/RISK MANAGEMENT AGENCY’S
     FINANCIAL STATEMENTS FOR FISCAL YEARS 2018 AND 2017




                                                              20
    FEDERAL CROP INSURANCE CORPORATION/RISK MANAGEMENT AGENCY’S
         FINANCIAL STATEMENTS FOR FISCAL YEARS 2018 AND 2017

FINANCIAL STATEMENT HIGHLIGHTS AND ANALYSIS

ASSETS

Funding

RMA maintains two separate funds: the Insurance Fund and the Salaries and Expenses
(S&E) Fund. The Insurance Fund is used to pay for the crop and livestock insurance
programs. The funding for the insurance fund is mandatory funding with “such sums as
necessary” to carry out the program. The S&E Fund is used to pay RMA’s salaries and
administrative expenses. The funding for the S&E Fund is an annual appropriation set
by Congress. The financial statements present both funds.

Assets

                             Fiscal Year 2018 – Assets
                                     (millions)
 Fund Balance with Treasury (Note 2)                                         $ 4,805
 Cash Held Outside of Treasury (Note 3)                                      $    119
 Accounts Receivable, Net (Note 4)                                           $    242
 General Property, Plant and Equipment
                                                                             $     18
 (Note 5)

The majority of the assets are Fund Balance with Treasury (FBWT), Cash Held Outside
of Treasury (CHOT), and Accounts Receivable (AR). At the end of each fiscal year, RMA
returns unobligated funds excluding the balances for Capital Stock, Paid-in Capital, and
the Contingency Fund to the U.S Treasury. In 2018, RMA returned $5.5 billion
compared to the $6.8 billion returned in 2017. The normal collection of revenue due to
FCIC on the last day of the fiscal year and lower than budgeted losses resulted in large
amount of funds returned to Treasury.

FBWT is a cash-like account which represents funds available which have not been
disbursed and CHOT consists of amounts funded into escrow accounts for which AIP’s
indemnity payments have not yet cleared. Together, these two accounts make up the
cash held by FCIC.

AR with the public represents premiums from AIPs due to FCIC for crop insurance
written by AIPs and reinsured by FCIC. AIPs are responsible for collecting the premium
from the producer and paying FCIC, whether or not the premium has been collected
from the producer. Premiums are collected at the end of the growing season. As a
result, significant amounts of premium are due in the fall, around the end of the fiscal
year.

                                                                                      21
    FEDERAL CROP INSURANCE CORPORATION/RISK MANAGEMENT AGENCY’S
         FINANCIAL STATEMENTS FOR FISCAL YEARS 2018 AND 2017

LIABILITIES

Liabilities

The majority of FCIC/RMA liabilities are estimated. The following table summarizes
FCIC/RMA liabilities.

                              Fiscal Year 2018 – Liabilities
                                        (millions)
 Estimated Losses on Insurance Claims (Note 7)                               $     6,091
 Underwriting Gain (Note 9)                                                  $     4,235
 Accounts Payable (Note 6)                                                   $     1,515
 Unearned Revenue (Note 10)                                                  $       613
 Federal Employee Benefits                                                   $          2
 Other Liabilities (Note 8)                                                  $        19

Estimated Losses on Insurance Claims

The Estimated Losses on Insurance Claims make up the majority of liabilities.
Estimated losses were calculated based on Statement of Federal Financial Accounting
Standards (SFFAS) No. 5, Accounting for Liabilities of the Federal Government. The
claims Incurred But Not Reported (IBNR), Premium Deficiency Reserve (PDR), and
change in CHOT make up the estimated loss on insurance claims balance sheet line
item. PDR is a liability for premium subsidy deferred to next fiscal year where it will be
used to pay out not yet incurred indemnities. PDR is estimated at the same rate as
unearned premium.

       Estimating Losses

FCIC establishes premium to attain an expected long-term loss ratio of 1.0. The
premium cost for policies is determined by evaluating loss experience in the program by
county, crop, and pricing to equal projected losses over the long term. Losses are
divided into premium to arrive at a loss ratio. A loss ratio of less than 1.0 means there
are less losses than premium. A loss ratio greater than 1.0 means the losses are
greater than premium. For the Federal crop insurance program, loss ratios are
measured periodically in relation to reinsurance year which runs from July 1 through
June 30. The eventual total loss ratio depends on many variables including weather
patterns and commodity prices. A projection of total indemnities is made at the end of
each fiscal year based on current conditions. Total indemnities will not be known until
several months after the end of the fiscal year; therefore, the financial statements are
based on a projection.

                                                                                        22
    FEDERAL CROP INSURANCE CORPORATION/RISK MANAGEMENT AGENCY’S
         FINANCIAL STATEMENTS FOR FISCAL YEARS 2018 AND 2017

Actual losses are reported and recorded prior to the end of the fiscal year. The IBNR is
the difference between the total losses expected to have occurred in the current year
and losses that have been reported in the current year. PDR and unearned premium
are reserves set aside for the portion of the insurance period that falls into the next
fiscal year. PDR is the government subsidized portion of the reserves and unearned
premium is related to the producer paid premium.

      Uncertainty in Estimating Losses

Estimated losses are calculated as of September 30, 2018. In 2018, multiple hurricanes
occurred late in the growing season. RMA’s normal process for projecting losses is
based on the September NASS report which was released on September 12 prior to the
late season hurricanes. At this time, the financial impact of the hurricanes is unknown.

There are a variety of additional risk factors that expose FCIC’s liability estimates to
uncertainty. The growing season for crops that constitute most of FCIC’s book of
business does not end until October or November. As of September 30, most crop
insurance claims that will eventually be attributed to the current reinsurance year have
not yet been submitted. A projection of total indemnities is made at the end of each
fiscal year based on current conditions. Late season weather conditions and price
changes in commodities can significantly impact actual losses. When actual losses are
realized, upward or downward adjustments are made and reflected in financial
statements of subsequent years.




                                                                                       23
      FEDERAL CROP INSURANCE CORPORATION/RISK MANAGEMENT AGENCY’S
           FINANCIAL STATEMENTS FOR FISCAL YEARS 2018 AND 2017

The table below shows that most losses for a given reinsurance year are realized in
future fiscal years. For example, the majority of losses attributed to reinsurance year
2017 were reported and paid in fiscal year 2018.

                                                                               2018 (est.)         2017
                     Reinsurance Year
                                                                                (millions)       (millions)
 Losses Claimed and Paid in Current Fiscal Year                                      $   2,088     $     1,756
 Losses Paid in Subsequent Fiscal Years                                                  6,308           3,839
 Total Losses                                                                        $   8,396     $     5,595

Although FCIC uses an actuarial model to project overall losses, the model is subject to
a high level of uncertainty. In the last 10 years, the difference between the actual and
estimated loss ratio has exceeded 10 points 90% of the time (9 of 10 years). The
relatively high variance of this estimate reflects the large degree of uncertainty inherent
in predicting losses before the end of the reinsurance year. Actual loss ratios in the last
10 years have varied from a low of 42% to a high of 157%. The average actual loss
ratio for the past ten years was 80%.

The following table is updated as of the end of September 2018 and summarizes
premiums and losses by crop year.

                Summary of Premium and Losses by Crop Year
            Actual (millions)                     Loss Ratio
               Premiums
  Crop Year                 Losses ($) Actual    Projected                                        Difference
                   ($)
     2008         9,851        8,680    88%         63%                                                (25%)
     2009         8,951       5,222     58%         66%                                                  8%
     2010         7,595       4,254     56%         41%                                                (15%)
     2011        11,972       10,869    91%         112%                                                21%
     2012        11,117       17,451   157%         185%                                                28%
     2013        11,808       12,085   102%         76%                                                (26%)
     2014        10,073       9,136     91%         74%                                                (17%)
     2015        9,767        6,312     65%         84%                                                 19%
     2016        9,328        3,909     42%         66%                                                 24%
    2017*        10,074       5,362     53%         99%                                                 46%
   2018 EST      9,912        8,376                 85%
*Projected loss ratio was adjusted to account for multiple hurricanes in September


Underwriting Gain

Underwriting gain is the AIP portion of earnings on the insurance book of business. A
periodic settlement, as stipulated in the SRA, is calculated where the results of business
written by AIPs are determined and an experience-rated gain or loss on business ceded

                                                                                                               24
    FEDERAL CROP INSURANCE CORPORATION/RISK MANAGEMENT AGENCY’S
         FINANCIAL STATEMENTS FOR FISCAL YEARS 2018 AND 2017

from AIPs is computed. The timing of payment to AIPs for reinsurance gains is
stipulated by the SRA. Payments to AIPs for net gain is disbursed in the second fiscal
year following the reinsurance year.

Accounts Payable

Accounts Payable includes amounts due to AIPs for reimbursement of administrative
and operating expenses associated with the delivery of the Federal crop insurance
program. The program’s administrative and operating reimbursement has averaged
$1.4 billion over the past 10 years. There is a cap stipulated in the SRA that limits
administrative and operating reimbursement on most policies.

Unearned Revenue

Premium revenue is comprised of producer paid premium. Producer paid premium is
recognized as earned proportionately over each crop’s growing season. The portion of
producer paid premium not recognized at the end of the fiscal year is classified as
Unearned Revenue in the balance sheet.

Other Liabilities

In fiscal year 2018, Other Liabilities (Note 8) include Intragovernmental of $5 million
and Other Liabilities with the Public of $14 million.




                                                                                          25
    FEDERAL CROP INSURANCE CORPORATION/RISK MANAGEMENT AGENCY’S
         FINANCIAL STATEMENTS FOR FISCAL YEARS 2018 AND 2017

ANALYSIS OF STATEMENT OF NET COST

The following table presents the results of net cost of operations for each fiscal year.

                                Statement of Net Costs
                                        Fiscal Year 2018           Fiscal Year 2017
               Cost
                                            (millions)                 (millions)
 Total Intragovernmental Costs                    $        83                 $       76
 Indemnities                                           4,232                       7,270
 Program Delivery Costs                                1,530                       1,488
 Other Program Costs                                       71                         74
         Total Costs                              $   5,916                   $   8,908
 Less:
 Premium Revenue                                       3,670                       3,667
 Net (Gain)/Loss on Business
                                                      (3,264)                     (1,590)
 Ceded from AIPs
 Other Revenue                                             46                         48
         Total Revenue                            $      452                  $   2,125
         Net Cost of Operations                   $   5,464                   $   6,783

FCIC’s net cost of operations decreased $1.32 billion from fiscal year 2017 to fiscal year
2018. The changes in indemnities and net gain on business ceded from AIPs are the
two components impacting the variance in net cost of operations. The differential
between the Reinsurance Year 2017 loss estimates at September 30,2017 (.99) versus
the actual loss at September 30, 2018 (.53) is the major factor contributing to the
changes.




                                                                                           26
    FEDERAL CROP INSURANCE CORPORATION/RISK MANAGEMENT AGENCY’S
         FINANCIAL STATEMENTS FOR FISCAL YEARS 2018 AND 2017

ANALYSIS OF STATEMENT OF BUDGETARY RESOURCES

The following table presents the components of the Statement of Budgetary Resources
for each fiscal year.

                          Statement of Budgetary Resources
                                        Fiscal Year 2018          Fiscal Year 2017
               Resource
                                            (millions)                (millions)
 Budgetary Resources                             $   10,897                 $    9,426
 Net Outlays                                     $     6,525                $    4,293

Overall, FCIC had $1.5 billion more in budgetary resources at the end of fiscal year
2018. The budgetary resources are comprised of appropriations, collections from the
public, and excess funds returned to Treasury. In fiscal year 2018, FCIC/RMA received
$112 million more in appropriations and returned $1.3 billion less to Treasury due to
higher losses paid in the fiscal year. This was offset by $85 million more in spending
authority from offsetting collections in fiscal year 2018.

Net Outlays are total cash disbursements less collections. Net outlays were $2.2 billion
more in fiscal year 2018.




                                                                                      27
    FEDERAL CROP INSURANCE CORPORATION/RISK MANAGEMENT AGENCY’S
         FINANCIAL STATEMENTS FOR FISCAL YEARS 2018 AND 2017

SYSTEMS, CONTROLS AND LEGAL COMPLIANCE
MANAGEMENT ASSURANCES

Federal Manager’s Financial Integrity Act (FMFIA) Assurance

RMA management is responsible for establishing and maintaining effective internal
controls to ensure the effectiveness of operations, reliability of reporting, compliance
with applicable laws and regulations, and safeguarding of assets. RMA has conducted
its assessment of internal controls and financial systems pursuant to Sections 2 and 4 of
FMFIA. Based on the results of this evaluation, RMA can provide an unmodified
statement of assurance that its internal control over the effectiveness and efficiency of
operations and compliance with laws and regulations, as of September 30, 2018 and
2017, was operating effectively with the exception of one material weakness found in
the internal controls over financial reporting, as it relates to the estimated losses on
insurance claims calculation for fiscal year 2018.

Federal Financial Management Improvement Act (FFMIA) Assurance

RMA has evaluated its financial management systems under FFMIA for the period ended
September 30, 2018. Based on the result of our evaluation, the Agency is in substantial
compliance with the FFMIA for the following sections:
      1. Federal Financial Management System Requirements;
      2. Applicable Federal Accounting Standards; and
      3. United States Standard General Ledger at the Transaction Level.

Assurance for Internal Control over Financial Reporting

In addition, RMA conducted its assessment of the effectiveness of internal control over
financial reporting, which includes safeguarding assets and compliance with applicable
laws and regulations, in accordance with the requirements of the Office of Management
and Budget’s (OMB), Circular A-123, Management’s Responsibility for Enterprise Risk
Management and Internal Control. Based on the results of this evaluation, FCIC can
provide reasonable assurance that its internal control over financial reporting as of June
30, 2018 and 2017 was operating effectively and no material weaknesses were found in
the design or operation of internal control over financial reporting.

Compliance with Laws and Regulations

No non-compliance with laws and regulations was noted by RMA.




                                                                                        28
    FEDERAL CROP INSURANCE CORPORATION/RISK MANAGEMENT AGENCY’S
         FINANCIAL STATEMENTS FOR FISCAL YEARS 2018 AND 2017

Limitations on Financial Statements

Financial statements have been prepared to report the financial position and results of
FCIC/RMA’s operations, pursuant to the requirements of Financial Statements of
Agencies, Title 31 United States Code 3515 (b). While the statements have been
prepared from the books and records of FCIC/RMA in accordance with Generally
Accepted Accounting Principles (GAAP) for Federal entities and the formats prescribed
by OMB, the statements are in addition to the financial reports used to monitor and
control budgetary resources, which are prepared from the same books and records.
The statements should be read with the understanding they are for a component of the
United States Government, a sovereign entity.

Improper Payments Elimination and Recovery Improvement Act (IPERIA)

RMA uses an OMB approved statistical sampling methodology to estimate the amount of
improper payments in the Federal crop insurance program. FCIC had an improper
payment rate of 1.81% in 2018 and 1.96% in 2017, which surpassed the reduction
targets of 1.95% and 2.01%, respectively.

OTHER MANAGEMENT INFORMATION, INITIATIVES AND ISSUES
DIGITAL ACCOUNTABILITY AND TRANSPARENCY ACT (DATA ACT)

The Digital Accountability and Transparency Act (DATA Act) was enacted on May 9,
2014. This Act amends the Federal Funding Accountability and Transparency Act of
2006 (FFATA) and requires reporting of all Federal Funds, as well as Financial
Assistance and Procurement transactions, to a public website. FFATA requires reporting
of obligations and award-related information for all Federal financial assistance and
procurement awards. The DATA Act expands upon FFATA by adding U.S. Department
of the Treasury (Treasury) account level reporting; this includes reporting all Treasury
Account Symbols that fund each award and contract transaction, budget authority,
program activity, outlays, and budget object classes, among other data elements. The
DATA Act also requires the Federal Government to collectively standardize the data
elements that will be reportable under the DATA Act.

RMA OCFO is currently reporting under the requirements for DATA Act and continues to
work closely with USDA OCFO Financial Management Services to ensure the information
meets all the standards and formats required.




                                                                                     29
FEDERAL CROP INSURANCE CORPORATION/RISK MANAGEMENT AGENCY’S
     FINANCIAL STATEMENTS FOR FISCAL YEARS 2018 AND 2017




        FINANCIAL STATEMENTS




                                                              30
    FEDERAL CROP INSURANCE CORPORATION/RISK MANAGEMENT AGENCY’S
         FINANCIAL STATEMENTS FOR FISCAL YEARS 2018 AND 2017

                           RISK MANAGEMENT AGENCY
                     FEDERAL CROP INSURANCE CORPORATION
                                 BALANCE SHEETS
                        As of September 30, 2018 and 2017
                                   (in millions)

                                                              2018               2017
 Assets
 Intragovernmental
   Fund Balance with Treasury (Note 2)                   $          4,805    $     4,736
 With the Public
   Cash Held Outside Treasury (Note 3)                                119            157
   Accounts Receivable, Net (Note 4)                                  242            305
   General Property, Plant and Equipment (Note 5)                      18             18
 Total Public Assets                                                  379            480
 Total Assets                                            $          5,184    $     5,216

 Liabilities (Note 11)
 Intragovernmental
   Other Liabilities                                     $              5    $          1
 With the Public
   Accounts Payable (Note 6)                                        1,515          1,474
   Federal Employee Benefits                                            2              2
   Other Liabilities
      Estimated Losses on Insurance Claims (Note 7)                 6,091          7,908
      Unearned Revenue (Note 10)                                      613            636
      Underwriting Gain (Note 9)                                    4,235          3,577
      Other Liabilities (Note 8)                                       14             17
   Total Other Liabilities                                         10,953         12,138
 Total Liabilities                                       $         12,475    $    13,615

 Commitments and Contingencies (Note 12)
 Net Position (Note 14)
  Capital Stock                                          $            500    $        500
  Additional Paid-in Capital                                           38              38
  Unexpended Appropriations                                            67              64
  Cumulative Results of Operations                                 (7,896)         (9,001)
 Total Net Position                                      $         (7,291)   $     (8,399)

 Total Liabilities and Net Position                      $          5,184    $     5,216


The accompanying notes are an integral part of these statements.


                                                                                        31
    FEDERAL CROP INSURANCE CORPORATION/RISK MANAGEMENT AGENCY’S
         FINANCIAL STATEMENTS FOR FISCAL YEARS 2018 AND 2017

                           RISK MANAGEMENT AGENCY
                    FEDERAL CROP INSURANCE CORPORATION
                            STATEMENTS OF NET COST
                For the Years Ended September 30, 2018 and 2017
                                  (in millions)

                                                               2018              2017
 Program Costs
 Intragovernmental Gross Costs
   Benefit Program Costs                                   $          13     $       13
   Imputed Costs                                                      17             14
   Reimbursable Costs                                                 53             49
 Total Intragovernmental Costs                             $          83     $       76

 Gross Costs with the Public
   Indemnities                                             $       4,232     $    7,270
   Program Delivery Costs                                          1,530          1,488
   Other Program Costs                                                71             74
 Total Gross Costs with the Public                         $       5,833     $    8,832

 Less: Earned Revenue from the Public
   Premium Revenue                                         $        3,670    $     3,667
   Net (Gain)/Loss on Business Ceded from AIPs                     (3,264)        (1,590)
   Other Revenue                                                       46             48
 Total Earned Revenue with the Public                      $         452     $    2,125

 Net Costs with the Public                                         5,381          6,707

 Net Cost of Operations                                    $       5,464     $    6,783


The accompanying notes are an integral part of these statements.




                                                                                          32
    FEDERAL CROP INSURANCE CORPORATION/RISK MANAGEMENT AGENCY’S
         FINANCIAL STATEMENTS FOR FISCAL YEARS 2018 AND 2017

                            RISK MANAGEMENT AGENCY
                     FEDERAL CROP INSURANCE CORPORATION
                   STATEMENTS OF CHANGES IN NET POSITION
                 For the Years Ended September 30, 2018 and 2017
                                   (in millions)

                                                            2018               2017
 Capital Stock                                          $           500    $      500


 Additional Paid-in-Capital                             $            38    $          38

 Unexpended Appropriations
 Beginning Balance                                      $            64    $          64

 Budgetary Financing Sources
  Appropriations Received                                      12,047           11,935
  Appropriations Transferred (Out)                                 (5)              (5)
  Return to Treasury (Indefinite & Canceled
     Authority)                                                (5,491)          (6,758)
  Appropriations Used                                          (6,548)          (5,172)
 Total Unexpended Appropriations                        $          67      $        64

 Cumulative Results of Operations
 Beginning Balance                                      $      (9,001)     $    (7,408)

 Budgetary Financing Sources
  Appropriations Used                                              6,548         5,172
  Transfers without Reimbursement                                      4             4

 Other Financing Sources (Non-exchange)
   Imputed Financing Sources                                       17               14
 Total Financing Sources                                        6,569            5,190
 Net Cost of Operations                                        (5,464)          (6,783)
 Net Change                                                        1,105        (1,593)

 Cumulative Results of Operations (Note                 $      (7,896)     $    (9,001)
 14)

 Net Position                                           $      (7,291)     $    (8,399)


The accompanying notes are an integral part of these statements.



                                                                                           33
    FEDERAL CROP INSURANCE CORPORATION/RISK MANAGEMENT AGENCY’S
         FINANCIAL STATEMENTS FOR FISCAL YEARS 2018 AND 2017

                            RISK MANAGEMENT AGENCY
                     FEDERAL CROP INSURANCE CORPORATION
                COMBINED STATEMENTS OF BUDGETARY RESOURCES
                 For the Years Ended September 30, 2018 and 2017
                                   (in millions)
                                                              2018              2017
 Budgetary Resources
 Unobligated Balance from Prior Year Budget
                                                         $           584           580
 Authority, net
  Appropriations (Note 15)                                          6,553         5,171
  Spending Authority from Offsetting Collections                    3,760         3,675
 Total Budgetary Resources                               $         10,897   $     9,426

 Status of Budgetary Resources
 New Obligations and Upward Adjustments                  $         10,315   $     8,846
 Unobligated Balance, End of Year
   Apportioned                                                       578           577
   Expired Unobligated Balance, End of Year                            4             3
 Unobligated Balance, End of Year                                    582           580
 Total Budgetary Resources                               $         10,897   $     9,426


 Net Outlays
 Outlays, net                                            $          6,525   $     4,293


The accompanying notes are an integral part of these statements.




                                                                                       34
    FEDERAL CROP INSURANCE CORPORATION/RISK MANAGEMENT AGENCY’S
         FINANCIAL STATEMENTS FOR FISCAL YEARS 2018 AND 2017

NOTES TO THE FINANCIAL STATEMENTS

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation and Accounting

The accompanying financial statements have been prepared to report balance sheet,
net cost, changes in net position, and budgetary resources. The financial statements
have been prepared from books and records in accordance with Generally Accepted
Accounting Principles (GAAP). GAAP for Federal financial reporting entities recognizes
the Federal Accounting Standards Advisory Board as the standard-setting body. The
financial statements are presented in accordance with the Office of Management and
Budget (OMB) Circular A-136, Financial Reporting Requirements, which was revised in
July 2018.

Accounting transactions are recorded on both an accrual and budgetary basis of
accounting. Accrual accounting recognizes revenues when earned and expenses are
recognized when incurred, without regard to receipt or payment of cash. Budgetary
accounting facilitates compliance with legal constraints and controls over the use of
Federal funds.

Three types of years are referred to in this financial report. The financial statements
are for fiscal years which run from October 1 to September 30. Crop year refers to the
year in which a crop is harvested. Reinsurance year is based on the yearly reinsurance
agreements with Approved Insurance Providers (AIPs) and runs from July 1 to June 30.
Statistics are maintained for policies, farmer paid premium, premium subsidy, total
premium, indemnities, loss ratio, and insurance protection on a crop year basis.
General ledger transactions include reinsurance year attributes. Multiple reinsurance
years are active during each fiscal year.

Fund Balance with Treasury

Fund Balance with Treasury (FBWT) represents the aggregate amount of funds in
FCIC’s accounts with Treasury for which FCIC is authorized to make expenditures and
pay liabilities. FCIC’s FBWT consists of appropriated funds and receipts collected from
non-Federal entities.

Cash Held Outside Treasury

Cash Held Outside Treasury (CHOT) consists of amounts funded into escrow accounts
for which AIP’s indemnity checks have not yet cleared.




                                                                                         35
    FEDERAL CROP INSURANCE CORPORATION/RISK MANAGEMENT AGENCY’S
         FINANCIAL STATEMENTS FOR FISCAL YEARS 2018 AND 2017

Accounts Receivable

Accounts Receivable with the public represents premiums from AIPs due to FCIC for
crop insurance written by AIPs and reinsured by FCIC. AIPs are responsible for
collecting premium from the producer and paying FCIC, whether or not premium has
been collected from the producer. Accounts receivable also includes producers’
accounts receivable that represents amounts due from individual producers for interest,
overpaid indemnities, and debts which are payable directly to FCIC.

The Accounts Receivable due from AIPs and Accounts Payable due to AIPs on the
monthly settlement are listed as gross amounts on the balance sheet.

General Property, Plant, and Equipment

General Property, Plant, and Equipment consist of office furniture, computer equipment,
and computer software. Property, plant, and equipment with an acquisition cost of
$25,000 or more; internal use software with an acquisition cost of $100,000 or more;
and an estimated useful life of at least two years is capitalized. Property and
equipment with an acquisition cost of less than $25,000 is expensed when purchased.
Property and equipment is depreciated using the straight-line method over useful lives
that range from 6 to 10 years. There are no restrictions on the use or convertibility of
FCIC’s property and equipment.

Accounts Payable

Accounts Payable includes amounts due to AIPs for reimbursement of Administrative
and Operating (A&O) expenses associated with delivering the crop insurance program.
The Standard Reinsurance Agreement (SRA) provides for reimbursement to the insured
companies for program delivery costs. The payments for program delivery costs are
due the first month of the following fiscal year.

Retirement Plans

SFFAS No. 5, Accounting for Liabilities of the Federal Government, requires Federal
entities to recognize an expense for pensions and other retirement benefits at the time
the employee’s services are rendered. The purpose of recognizing this expense is to
record and report the full cost of each entity’s operation. A corresponding revenue,
Imputed Financing Sources, is recognized to the extent pension and other retirement
benefit expenses exceed the amount paid to the United States Office of Personnel
Management.




                                                                                      36
    FEDERAL CROP INSURANCE CORPORATION/RISK MANAGEMENT AGENCY’S
         FINANCIAL STATEMENTS FOR FISCAL YEARS 2018 AND 2017

Net Position

Net position is the residual difference between assets and liabilities and is composed of
capital stock, additional paid-in capital, contingency fund, unexpended appropriations,
temporary reduction (due to sequestration), and cumulative results of operations.
Unexpended appropriations represent the amount of unobligated and unexpended
budget authority. Unobligated balances are the amount of appropriations or other
authority remaining after deducting the cumulative obligations from the amount
available. Cumulative results of operations are the net result of FCIC’s operations since
inception.

Unearned Revenue

Premium revenue is comprised of producer paid premium. Producer paid premium is
recognized as earned proportionately over each crop’s growing season. The portion of
producer paid premium not recognized at the conclusion of the fiscal year is classified
as Unearned Revenue in the balance sheet. Just as a liability is established for the
unearned portion of producer paid premium, a liability is also established for the
premium subsidy deferred to next fiscal year where it will be used to pay out not yet
incurred indemnities. The Premium Deficiency Reserve (PDR) is estimated at the same
rate as unearned premium and is included in the Estimated Loss on Insurance Claims
Liability in the balance sheet.

Insurance Fund appropriations, Salaries and Expense (S&E) Fund appropriations, and
other financing sources are recognized when expended, which corresponds to when the
expenses are incurred.

Loss Recognition

Estimated losses are calculated based on SFFAS No. 5. Claims incurred during the
period are recognized as losses. The liability for estimated losses on insurance claims
represents those claims incurred but not reported to FCIC as of the balance sheet date
and reported unpaid claims. The estimation of these liabilities relies on calculations
using historical-yield estimates provided by USDA’s National Agricultural Statistical
Service (NASS) and commodity futures prices. The September NASS report released on
September 12 did not include information on the August and September hurricanes. As
a result, RMA used data available from experts in the field to determine a reasonable
estimate for losses related to hurricanes.

There are uncertainties associated with assumptions used to estimate losses on
insurance claims. As a result, the ultimate liability may differ significantly from the
recorded estimate. These uncertainties may include: actual yields which may be
different than those provided by the NASS estimates; changes in weather patterns close
to harvesting dates, which could affect yields but not be reflected in the NASS

                                                                                       37
    FEDERAL CROP INSURANCE CORPORATION/RISK MANAGEMENT AGENCY’S
         FINANCIAL STATEMENTS FOR FISCAL YEARS 2018 AND 2017

estimates; commodity prices which may change from those in the market because of
many factors (such as weather, yields, and economic conditions); and significant
catastrophic weather events (i.e. hurricanes and freezes) occurring near the balance
sheet date which could affect estimated crop yields and crop prices. Indemnity costs
are paid from premium proceeds, including producer paid premium and premium
subsidies. If indemnity costs exceed total premium, additional funds will be
apportioned to FCIC.

Use of Estimates

The preparation of financial statements requires management to make estimates and
assumptions that affect reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and reported
amounts of revenues and expenses during the reporting period. Actual results could
differ from those estimates.

FCIC financial statements show estimates on the Balance Sheet and Statement of Net
Cost on the following line items: Balance Sheet - Estimated Losses on Insurance
Claims, Unearned Revenue, and Underwriting Gain; Statement of Net Cost –
Indemnities, Program Delivery Costs, Premium Revenue, Net (Gain)/Loss on Business
Ceded from AIPs, and Other Revenue.

Contingencies

Various lawsuits, claims, and proceedings are pending against FCIC. In accordance
with SFFAS No. 5, FCIC records accruals for such contingencies when it is probable that
a liability will be incurred, and the amount of the loss can be reasonably estimated.
If there is a reasonable possibility that a loss will occur, FCIC discloses the nature of the
contingency and an estimate of the possible liability, an estimate of the range of the
possible liability, or a statement that such an estimate cannot be made. See Note 12,
Commitments and Contingencies, to the financial statements for related disclosures.

Apportionment Categories of Obligations Incurred

The Insurance Fund receives a direct apportionment that is apportioned by program
(Category B). Fiscal years 2018 and 2017 insurance fund obligations incurred were
$10.2 billion and $8.8 billion, respectively. In each fiscal year 2018 and 2017, the S&E
appropriation was $74.8 million. The S&E fund is apportioned by time (Category A).
According to Section 516 of the Act, RMA is authorized to annually transfer up to $9
million (subject to sequestration) from the FCIC fund to the S&E fund. These funds are
available to reimburse expenses incurred for the operations and review of policies,
plans of insurance, and related materials; and to assist the Corporation in maintaining
actuarial soundness and financial integrity. In fiscal year 2018, RMA transferred $8.3


                                                                                          38
    FEDERAL CROP INSURANCE CORPORATION/RISK MANAGEMENT AGENCY’S
         FINANCIAL STATEMENTS FOR FISCAL YEARS 2018 AND 2017

million and in fiscal year 2017, RMA transferred $8.7 million. In fiscal year 2018 and
fiscal year 2017, S&E obligations were $83.2 million and $83.1 million, respectively.

Premium Deficiency Reserve

Premium Deficiency Reserve is a liability for premium subsidy deferred to next fiscal
year where it will be used to pay out not yet incurred indemnities in excess of producer
premiums. PDR is estimated at the same rate as unearned premium. Premium subsidy
represents the subsidized portion, covered by appropriations, of total premiums on the
crop insurance program.

Underwriting Gain/Loss

Underwriting gain/loss is the AIPs portion of earnings or losses on the insurance book
of business due from or to FCIC. A periodic settlement, as stipulated in the SRA, is
calculated where results of business written by AIPs are determined and an experience-
rated gain or loss on business ceded from AIPs is computed. Payments due to AIPs for
a net gain are paid in the second fiscal year following the reinsurance year. Losses are
paid to FCIC periodically.

Changes in Presentation

Per instructions from the Office of Management and Budget (OMB), the presentation of
the Statement of Budgetary Resources was changed in fiscal year 2018 to reflect
requirements of the Federal Accounting Standards Advisory Board.

RMA implemented SFFAS 53, Budget and Accrual Reconciliation (BAR), that amends
requirements for a reconciliation between budgetary and financial accounting
information established by SFFAS 7, Accounting for Revenue and Other Financing
Sources and Concepts for Reconciling Budgetary and Financial Accounting. The BAR
replaces the Reconciliation of Net Cost of Operations (Proprietary) to Budget. The BAR
displays the relationship between the net outlays on a budgetary basis and the net cost
of operations during the reporting period. The 2017 presentation has been updated to
reflect the new standard.




                                                                                         39
    FEDERAL CROP INSURANCE CORPORATION/RISK MANAGEMENT AGENCY’S
         FINANCIAL STATEMENTS FOR FISCAL YEARS 2018 AND 2017

NOTE 2 – FUND BALANCE WITH TREASURY

Fund balance with treasury at September 30, 2018 and 2017 consists of:

                                                         Insurance
                                        S&E Fund                             Total
               2018                                         Fund
                                        (millions)                         (millions)
                                                         (millions)
 Obligated not yet disbursed                $      14     $     4,180       $      4,194
 Unobligated available                              1             577                578
 Unobligated unavailable                            4              29                 33
 Total Fund Balance with Treasury           $      19     $     4,786       $      4,805
                                                         Insurance
                                        S&E Fund                             Total
               2017                                         Fund
                                        (millions)                         (millions)
                                                         (millions)
 Obligated not yet disbursed                $      13     $     4,120       $      4,133
 Unobligated available                              1             576                577
 Unobligated unavailable                            3              23                 26
 Total Fund Balance with Treasury           $      17     $     4,719       $      4,736

FCIC maintains separate accounts for S&E (appropriated) and Insurance (revolving)
funds. The S&E fund is used to pay administrative and operating expenses of RMA.
The Insurance fund is used to pay losses, A&O subsidies known as program delivery
costs, and other costs authorized in the Act. All funds are currently available to FCIC
except for the prior year unobligated balances in the S&E fund and temporarily
sequestered amounts in the Insurance fund. The unobligated unavailable amount
includes sequestered funds.

NOTE 3 – CASH HELD OUTSIDE TREASURY

Cash held outside of treasury as of September 30, 2018 and 2017 is:

                                           2018       2017
 CASH HELD OUTSIDE TREASURY
                                         (millions) (millions)
 Balance                                 $      119 $      157

Cash held outside of treasury consist of funds in FCIC escrow accounts. The accounts
are used by AIPs to pay farmer losses. Accounts fluctuate as payables vary from day to
day.




                                                                                          40
    FEDERAL CROP INSURANCE CORPORATION/RISK MANAGEMENT AGENCY’S
         FINANCIAL STATEMENTS FOR FISCAL YEARS 2018 AND 2017

NOTE 4 – ACCOUNTS RECEIVABLE

Accounts receivable and allowance for uncollectible accounts as of September 30, 2018
and 2017 are:

                        Gross Accounts           Allowance for         Net Accounts
    Fiscal Year           Receivable              Uncollectible         Receivable
                          (millions)           Accounts (millions)      (millions)
       2018                      $   246                 $     (4)          $    242
       2017                      $   306                 $      (1)         $    305

Accounts receivable includes premiums from AIPs due to FCIC. AIPs are responsible for
collecting premium and paying FCIC whether or not they have received premium from
the producer. Also included are amounts due from individual producers for interest,
overpaid indemnities, and debts which are payable directly to FCIC. The allowance for
uncollectible accounts is based on historical experience. The higher balance in 2017 is
mostly due to RMA allowing AIPs to defer uncollected premium for areas affected by
hurricanes.

There is approximately $48.1 million of criminal restitution owed to FCIC. Of this
amount, only $3.4 million is currently included in the gross accounts receivable balance
and is monitored by RMA. Most of the $3.4 million is included in the calculation of the
allowance for doubtful accounts. The remaining $44.7 million is over 2 years old and
has been removed from the accounts receivable balance and is categorized as Currently
Not Collectible per OMB Circular No A-129, Policies for Federal Credit Programs and
Non-Tax Receivables. The corresponding cases related to this amount have been turned
over to the Department of Justice for monitoring and control of any collections. RMA
believes the probability of significant collections for these cases are low.




                                                                                     41
    FEDERAL CROP INSURANCE CORPORATION/RISK MANAGEMENT AGENCY’S
         FINANCIAL STATEMENTS FOR FISCAL YEARS 2018 AND 2017

NOTE 5 – GENERAL PROPERTY, PLANT, AND EQUIPMENT

General Property, Plant, and Equipment as of September 30, 2018 and 2017 is:

                                  2018 (in millions)
                                                          Accumulated
                  Category                    Cost                          Book Value
                                                          Depreciation
 Equipment                                     $      3         $     (3)       $     0
 Internal Use Software                               57              (42)            15
 Internal Use Software in Development                 3                0              3
 Total                                         $     63         $    (45)       $    18
                                  2017 (in millions)
                                                          Accumulated
                  Category                    Cost                          Book Value
                                                          Depreciation
 Equipment                                     $      3         $     (3)       $     0
 Internal Use Software                               51              (35)            16
 Internal Use Software in Development                 2                0              2
 Total                                         $     56         $    (38)       $    18

FCIC has implemented a new software to replace its reinsurance program systems. In
accordance with Statement of Federal Financial Accounting Standards (SFFAS) No. 10,
Accounting for Internal Use Software, contractor and RMA internal staff costs related to
the new system will be amortized over a period of 5 years.

NOTE 6 – ACCOUNTS PAYABLE

Payment of delivery costs is made in October of each fiscal year following the
reinsurance year. Therefore, delivery costs are included in the accounts payable line in
each fiscal year.

Total accounts payable as of September 30, 2018 and 2017 are:

     Accounts                  2018                    2017
      Payable                (millions)              (millions)
 Delivery Costs                     $ 1,515                $ 1,473
 Other                                    0                      1
 Total                              $ 1,515                $ 1,474



                                                                                      42
    FEDERAL CROP INSURANCE CORPORATION/RISK MANAGEMENT AGENCY’S
         FINANCIAL STATEMENTS FOR FISCAL YEARS 2018 AND 2017

NOTE 7 – ESTIMATED LOSSES ON INSURANCE CLAIMS

The following table summarizes the activity in the accrual for estimated losses on
insurance claims and net balance as of September 30, 2018 and 2017:

   Estimated Losses on Insurance                   2018                   2017
                  Claims                        (millions)              (millions)
 Balance as of October 1                         $       7,908           $       5,209
 Incurred Related to:
    Current Year                                          6,998                  8,427
    Prior Years                                          (2,744)                (1,274)
 Total Incurred                                  $        4,254          $       7,153
 Paid Related to:
    Current Year                                         (2,088)                (1,756)
    Prior Years                                          (3,961)                (2,815)
 Total Paid                                      $       (6,049)         $      (4,571)
 Change in Premium Deficiency Reserve                       (22)                   117
 Net Balance as of September 30                  $        6,091          $       7,908

This note breaks out Losses Incurred and Paid by reinsurance year the loss is related
to.

The indemnity projection is based on two major factors: losses due to a shortfall in
yield and changes in commodity prices impacting revenue plans. The principal data
source for yield projections is the NASS Crop Production report. The Crop Production
report is considered to represent USDA’s official perspective on the current state of
agricultural production. It is based on a survey of growers along with inspections of
randomly selected sections of farms. Although the Crop Production report is scrutinized
by multiple sources, it is still an estimate and is subject to some uncertainty. In 2017,
RMA also used data available from experts in the field to determine a reasonable
estimate for losses related to hurricanes. In 2018, RMA evaluated the impact of
Hurricane Florence and determined the normal estimation process will be sufficient to
cover the losses.

The revenue plans of insurance base their indemnities on the futures prices for specific
contracts and exchanges. The best prediction of the final price for the futures contract
is the most current price of the relevant commodities exchange. At the time the
indemnity projection is made, up-to-date futures prices are taken from multiple
exchanges’ web sites. Again, this is subject to uncertainty due to fluctuations in
markets.




                                                                                        43
    FEDERAL CROP INSURANCE CORPORATION/RISK MANAGEMENT AGENCY’S
         FINANCIAL STATEMENTS FOR FISCAL YEARS 2018 AND 2017

The change in liability is represented by expenses recognized for both current and prior
reinsurance years’ policies, and the claims paid for both current and prior insurance
years’ policies.

Fiscal Year 2018
The beginning balance in fiscal year 2018 represents the estimated losses for
reinsurance year 2017 which was associated with a loss ratio of .99. The actual loss
ratio for reinsurance year 2017 was .55 resulting in $3 billion fewer losses than were
estimated.

Fiscal Year 2017
The beginning balance in fiscal year 2017 represents the estimated losses for
reinsurance year 2016 which was associated with a loss ratio of .66. The actual loss
ratio at September 30, 2017 for reinsurance year 2016 was .42 resulting in $2.3 billion
fewer losses than were estimated.

Comparing 2018 and 2017
The estimated losses were higher in fiscal year 2017 compared to 2018. The higher
amount in the estimated losses in 2017 was due to hurricane damage and other
weather events throughout the country.

Commodity prices and detrimental weather conditions, including hurricanes and severe
drought in the Upper Midwest contributed to higher estimated loss ratio in reinsurance
year 2017.

NOTE 8 – OTHER LIABILITIES

Other Current Liabilities as of September 30, 2018 and 2017 consist of:

  Other Liabilities, Federal and Non-                2018                   2017
                 Federal                           (millions)             (millions)
 Intragovernmental:
    Other Accrued Liabilities, Federal                $         5             $        1

 With the Public:
   Estimated Delivery Costs                                    5                    7
   Annual Leave Liability                                      5                    5
   Accrued Payroll and Benefits                                2                    2
   Other Accrued Liabilities                                   2                    3
 Total Other Liabilities, with the Public             $       14              $    17

 Total Other Liabilities                              $       19              $    18


                                                                                           44
    FEDERAL CROP INSURANCE CORPORATION/RISK MANAGEMENT AGENCY’S
         FINANCIAL STATEMENTS FOR FISCAL YEARS 2018 AND 2017

NOTE 9 – UNDERWRITING GAIN

The liability for underwriting gain as of September 30, 2018 and 2017 is:

                                                        2018                  2017
              Underwriting Gain
                                                      (millions)            (millions)
 Current Year Estimated Gains                            $ 1,638              $      994
 Actual Underwriting Gains                                   2,597                 2,583
 Total Underwriting Gain Liability                       $ 4,235              $    3,577

The Underwriting Gain Liability for fiscal year 2018 includes amounts for reinsurance
year 2018 and 2017. The estimated reinsurance year 2018 underwriting gain was
$1,638 million and was based on an estimated loss ratio of .85. The reinsurance year
2017 actual Underwriting Gain $2,597 million was based on an actual overall loss ratio
of .53 and will be paid in fiscal year 2019.

At the end of fiscal year 2017, the Underwriting Gain Liability includes amounts for
reinsurance years 2017 and 2016. The estimated reinsurance year 2017 underwriting
gain was $994 million and was based on a loss ratio of .99. The reinsurance year 2016
Underwriting Gain $2,583 million was based on an actual overall loss ratio of .42 and
was paid in fiscal year 2018.

NOTE 10 – UNEARNED REVENUE

Unearned revenue at September 30, 2018 and 2017 is:

                                                        2018                  2017
              Unearned Revenue
                                                      (millions)            (millions)
 Total Unearned Revenue                                  $     613              $    636

Premium revenue is comprised of producer paid premium. Producer paid premium is
recognized as earned proportionately over each crop’s growing season. The portion of
producer paid premium not recognized at the conclusion of the fiscal year is classified
as Unearned Revenue in the balance sheet.




                                                                                      45
     FEDERAL CROP INSURANCE CORPORATION/RISK MANAGEMENT AGENCY’S
          FINANCIAL STATEMENTS FOR FISCAL YEARS 2018 AND 2017

NOTE 11 – LIABILITIES NOT COVERED BY BUDGETARY
RESOURCES

Liabilities not covered by budgetary resources at September 30, 2018 and 2017 are:

                                                              2018             2017
                      Liabilities
                                                            (millions)       (millions)
 Estimated Losses on Insurance Claims                         $ 5,972          $ 7,751
 Underwriting Gain                                                 1,638             994
 Unfunded Leave                                                        4                4
 FECA                                                                  2                2
 Total Liabilities Not Covered by Budgetary Resources         $ 7,616          $ 8,751

 Total Liabilities Covered by Budgetary Resources              $   4,246        $     4,228

 Total Liabilities Not Requiring Budgetary Resources           $     613        $      636

 Total Liabilities                                             $ 12,475         $ 13,615

Estimated losses on insurance claims liabilities not covered by budgetary resources
were approximately $6 billion as of September 30, 2018, and $7.8 billion as of
September 30, 2017. Reported unpaid claims that are funded by budgetary resources
are excluded from estimated losses on insurance claims. Since FCIC is funded by “such
sums as necessary,” liabilities related to losses are usually funded in the year they will
be disbursed.

Underwriting gains are paid two fiscal years after the end of the reinsurance year.
Fiscal year 2018 underwriting gain liability of $4.2 billion includes both 2018 and 2017
reinsurance years. However, only reinsurance year 2017 is funded as of September 30,
2018.

For fiscal years 2018 and 2017, Federal Employees Compensation Act (FECA) liability is
$2 million for both years. Included are Intragovernmental Other Liabilities of
approximately $.4 million for fiscal year 2018 and $.5 million for fiscal year 2017 for an
unfunded FECA liability. Unfunded annual leave is also a liability not covered by
budgetary resources. Annual leave is accrued as it is incurred, and the accrual is
reduced as it is taken. The balances in the accrued annual leave account were adjusted
to reflect current pay rates and annual leave balances.

This note has been updated to include a separate line for liabilities not requiring
budgetary resources which includes Unearned Revenue.



                                                                                         46
    FEDERAL CROP INSURANCE CORPORATION/RISK MANAGEMENT AGENCY’S
         FINANCIAL STATEMENTS FOR FISCAL YEARS 2018 AND 2017

NOTE 12 – COMMITMENTS AND CONTINGENCIES

FCIC is a defendant in litigation cases arising during the normal course of business. To
defend its policies and procedures FCIC may pay litigation expenses and judgments
over and above the indemnities found in the SRA for AIPs. For this reason, FCIC is
consulted and approves significant decisions in the litigation process. After consultation
with legal counsel, management believes that none of these items, other than those
noted herein, are expected to have a materially adverse effect on FCIC’s financial
statements.

A contingency is considered probable when the chance of the future confirming event
or events occurring is likely to occur. FCIC has two ongoing cases in which legal
counsel believes the chances of unfavorable outcome is likely.

Payment for these cases have been deemed probable for an estimated amount of $8
million. FCIC has recognized a liability in the financial statements for $8 million but will
continue to contest certain aspects of these cases.

NOTE 13 – UNDELIVERED ORDERS AT THE END OF THE PERIOD

Undelivered Orders as of September 30, 2018 and 2017 are:

                                                    2018                    2017
                                                  (millions)              (millions)
 Undelivered Orders, Federal                        $        44            $         40
 Undelivered Orders, Non-Federal                             24                      21
 Total Undelivered Orders                           $        68            $         61

Undelivered Orders are goods and services obligated but not received as of the end of
the fiscal year.

NOTE 14 – NET POSITION – STATEMENT OF CHANGES IN NET
POSITION

Net position is the difference between assets and liabilities of an agency as of the
financial statement date. Net position consists of cumulative results of operations and
unexpended appropriations. The Cumulative Results of Operations is the net difference
between expenses, net appropriations, revenue, and transfers from the inception of the
program.

The beginning balance of Cumulative Result of Operations in fiscal year 2018 was $1.6
billion lower than fiscal year 2017 due to normal program variability. The Cumulative
Results of Operations at the end of fiscal year 2018 was ($7.9) billion.

                                                                                          47
    FEDERAL CROP INSURANCE CORPORATION/RISK MANAGEMENT AGENCY’S
         FINANCIAL STATEMENTS FOR FISCAL YEARS 2018 AND 2017

Unexpended appropriations consist of appropriations received less appropriations used
or returned to Treasury. Based on expected higher premiums in fiscal year 2018, FCIC
requested $112 million more appropriations than fiscal year 2017. The amount of
appropriations used was approximately $1.4 billion more in fiscal year 2018 than fiscal
year 2017. FCIC returned $5.5 billion to Treasury in fiscal year 2018, compared to $6.8
billion in fiscal year 2017.

Capital Stock

Section 1504 (a) of the Act authorizes capital stock of $500 million subscribed by the
United States, and issued to the Secretary of the Treasury. There has been no change
in the capital stock issued since August 15, 1985.




                                                                                     48
    FEDERAL CROP INSURANCE CORPORATION/RISK MANAGEMENT AGENCY’S
         FINANCIAL STATEMENTS FOR FISCAL YEARS 2018 AND 2017

NOTE 15 – STATEMENT OF BUDGETARY RESOURCES

Budgetary Resources/Appropriations as of September 30, 2018 and 2017 are:

       Budgetary Resources/                      2018                    2017
            Appropriations                     (millions)              (millions)
 Appropriations Received Program Fund            $     11,973           $     11,860
 Appropriations Received S&E Fund                          75                      75
 Return to Treasury                                    (5,490)                 (6,759)
 Other                                                     (5)                     (5)
 Appropriations                                  $      6,553           $       5,171

FCIC receives a permanent indefinite appropriation for the Insurance Fund each fiscal
year for premium subsidy, reinsurance administrative and operating reimbursement
expense, and other programs specified in the Act. At the end of the fiscal year FCIC
returns unobligated balances to Treasury.

NOTE 16 – EXPLANATION OF DIFFERENCES BETWEEN THE SBR
AND BUDGET OF THE U.S. GOVERNMENT

  Fiscal Year 2017 Statement of Budgetary Resources v. President’s Budget
                                (in millions)

                                     Budgetary         Obligations
                      Account        Resources          Incurred         Net Outlays
Statement of Budgetary Resources:
                  Insurance Fund      $      9,339      $     8,763        $    4,207
                       S&E                      87               83                86
                             Total    $      9,426      $     8,846        $    4,293
Reconciling Items:
    Expired
                                                (3)                0                    0
   Accounts
Rounding Difference                              1                 0                    0
                             Total    $         (2)     $          0       $            0
Budget of the
United States                         $     9,424       $     8,846        $    4,293
Government


                                                                                        49
    FEDERAL CROP INSURANCE CORPORATION/RISK MANAGEMENT AGENCY’S
         FINANCIAL STATEMENTS FOR FISCAL YEARS 2018 AND 2017

FCIC’s Statement of Budgetary Resources serves as a tool to link budget execution data
to information reported in the “actual” column of the Program and Financing Schedules
in the Appendix of the Budget of the United States Government (referred to as the
President’s Budget) as well as information reported in the Report on Budget Execution
and Budgetary Resources (SF-133). The permanent indefinite appropriation for the
crop insurance program is used to cover premium subsidy, delivery expenses, losses in
excess of premiums, and initiatives. Some reporting differences do exist between
comparable amounts in the Statement of Budgetary Resources (SBR), the President’s
Budget, and the SF-133. The table above is a comparison of the fiscal year 2017
Statement of Budgetary Resources, and the President’s Budget. The comparison
between the fiscal year 2018 Statement of Budgetary Resources and the fiscal year
2018 actual numbers presented in the fiscal year 2020 Budget cannot be performed as
the fiscal year 2020 Budget is not yet available. The fiscal year 2020 Budget is
expected to be published in February 2019 and will be available from the Government
Printing Office.

NOTE 17 – BUDGET AND ACCRUAL RECONCILIATION

FCIC early implemented SFFAS 53, Budget and Accrual Reconciliation (BAR) beginning
in fiscal year 2018. The BAR replaces the statement of financing. The BAR explains the
relationship between the entity's net outlays on a budgetary basis and the net cost of
operations during the reporting period.

Budgetary and financial accounting information differ. Budgetary accounting is used for
planning and control purposes and relates to both the receipt and use of cash, as well
as reporting the federal deficit. Financial accounting is intended to provide a picture of
the government's financial operations and financial position. It presents information on
an accrual basis. The accrual basis includes information about costs arising from the
consumption of assets and the incurrence of liabilities. The reconciliation of net outlays,
presented on a budgetary basis, and the net cost, presented on an accrual basis,
provides an explanation of the relationship between budgetary and financial accounting
information. The reconciliation serves not only to identify costs paid for
in the past and those that will be paid in the future, but also to assure integrity
between budgetary and financial accounting. The schedule on the follow page
illustrates this reconciliation by listing the key differences between net cost and net
outlays.

Generally, insurance loss estimates are expensed in the year prior to being funded and
disbursed. Changes in the loss estimate from year to year contribute to variances in
Components of Net Cost that are Not Part of Net Outlays.




                                                                                         50
    FEDERAL CROP INSURANCE CORPORATION/RISK MANAGEMENT AGENCY’S
         FINANCIAL STATEMENTS FOR FISCAL YEARS 2018 AND 2017


                                                              2018            2017
          Budgetary Accrual Reconciliation
                                                            (millions)      (millions)
 Net Cost                                                    $ 5,464         $ 6,783


 Components of Net Cost that are Not Part of Net
 Outlays
 Property, plant, and equipment depreciation                  $       (7)    $       (8)
 Accounts receivable                                                 (63)            97
 Accounts payable                                                    (41)           (38)
 Insurance and guarantee program liabilities                      (2,577)        (2,650)
 Other liabilities                                                 3,759            119
 Federal employee retirement benefits costs paid by
 Office of Personnel Management (OPM) and imputed                    (17)           (14)
 agency
    Total Components of Net Cost that are Not Part of
                                                              $   1,054      $ (2,494)
    Net Outlays

 Components of Net Outlays that are Not Part of
 Net Cost
 Acquisition of capital assets                                $        7     $        4
   Total components of Net Outlays that are not part of
                                                              $        7     $        4
   Net Cost

 Net Outlays                                                  $   6,525      $    4,293

 Related amounts of the Statement of Budgetary
 Resources
 Outlays, gross                                               $ 10,286       $    7,970
 Actual offsetting collections                                  (3,761)          (3,677)

 Net Outlays                                                  $   6,525      $    4,293

NOTE 18 – SUBSEQUENT EVENT

Hurricane Michael struck southeast United States in October 2018 after the balance
sheet date but prior to the release of the financial statements. The hurricane resulted
in significant flooding impacting crops covered in the Federal Crop Insurance program;
however, the full impact is not yet known.




                                                                                      51
     FEDERAL CROP INSURANCE CORPORATION/RISK MANAGEMENT AGENCY’S
          FINANCIAL STATEMENTS FOR FISCAL YEARS 2018 AND 2017

REQUIRED SUPPLEMENTARY STEWARDSHIP INFORMATION
(UNAUDITED)
Risk Management Education Partnerships

FCIC provides education and training on crop insurance programs and risk management
strategies to agricultural producers and ranchers. Requests for Applications (RFAs) are
prepared each year and announce solicitations for partners in that effort in Grants.gov.

RFAs were announced in 2018 for Crop Insurance in Targeted States Program and the
Risk Management Education Partnership Program. Partnerships with qualified
applicants provide education, outreach assistance and related tools and information on
crop insurance programs and risk management strategies. Awards are given on a
competitive basis and awarded for a one-year term. Awardees must demonstrate non-
financial benefits and agree to substantial involvement by FCIC in the project. Funding
for this work is authorized in section 522 and 524 of the Act.

Partnerships were established with the private industry and these organizations work
with Women, Hispanics, African Americans, Asian Americans, Native Americans,
Immigrants, Military Veterans, Organic Crops, Beginning Producers, Specialty Crop
Producers & Ranchers, New Markets, Livestock Farmers, Limited Resource, Retiring-
Transitioning, Strikeforce, Socially Disadvantaged, Sustainable Producers, Traditional,
Value-Added and Small Farms & Ranches.

Education efforts are improved by expanding State and Regional education
partnerships; encouraging the development of information and technology-based
decision aids; facilitating local crop insurance education and risk management training
workshops throughout the nation through cooperative agreements with educational
institutions, community-based outreach organizations, and other qualified entities.

    Summary of RME Initiatives             2018
                                                            2017        2016          2015         2014
      Since Fiscal Year 2013             Estimate
 RME obligations (millions)                 $ 11        $      10       $      9     $       7     $      9
 Number of producers attending RME
                                         120,000         113,948        120,859         109,276   155,027*
 sessions
*2014 number was higher due to increased outreach associated with the rollout of the Farm Bill.


FCIC awarded agreements under two distinct programs: (1) Risk Management
Education Partnerships Program, Catalog of Federal Domestic Assistance (CFDA)
10.460; and, (2) Crop Insurance in Targeted States Program, CFDA 10.458.

FCIC awarded 56 cooperative agreements for $6.1 million for the delivery of training to
U.S. farmers and ranchers in managing production, marketing, financial, legal, and
human risk. The program gives priority to educating producers of crops currently not

                                                                                                          52
    FEDERAL CROP INSURANCE CORPORATION/RISK MANAGEMENT AGENCY’S
         FINANCIAL STATEMENTS FOR FISCAL YEARS 2018 AND 2017

insured under Federal crop insurance, specialty crops, and underserved commodities,
including livestock and forage; and providing collaborative partnerships to develop and
deliver crop insurance education and other risk management training.

Targeted States

FCIC awarded 24 cooperative agreements for $4.7 million in underserved states for
crop insurance education to producers under the Crop Insurance in Targeted States
Program. The Act directs FCIC to increase crop insurance education in certain areas of
the country that have been historically underserved by the Federal crop insurance
program. The Secretary determined that seventeen states met the underserved
criteria. These states are Alaska, Connecticut, Delaware, Hawaii, Maine, Maryland,
Massachusetts, Nevada, New Hampshire, New Jersey, New York, Pennsylvania, Rhode
Island, Utah, Vermont, West Virginia, and Wyoming.

REQUIRED SUPPLEMENTARY INFORMATION (UNAUDITED)
2018 Risk Assumed

FCIC identifies the risk assumed as the total amount of premium for the current
reinsurance year. The total premium has been calculated using generally accepted
actuarial methods to attain a forecasted break-even loss ratio of 1.0. As a result, the
risk assumed is equal to the total premium.

Risk Assumed is $9,937 million, less the actual losses recorded of $2,088 million
resulting in an Estimate of Unpaid Losses of $7,849 million.


                  Risk Assumed                                   (millions)
 Estimate of Losses                                                       $         7,849
 Risk Assumed                                                             $      9,937




                                                                                            53
    FEDERAL CROP INSURANCE CORPORATION/RISK MANAGEMENT AGENCY’S
         FINANCIAL STATEMENTS FOR FISCAL YEARS 2018 AND 2017

OTHER INFORMATION (UNAUDITED)

PAYMENT INTEGRITY

Since fiscal year 2000, agencies have reported efforts to reduce improper payments.
The Improper Payments Information Act of 2002 (IPIA), the Improper Payments
Elimination and Recovery Act of 2010 (IPERA) and the Improper Payments Elimination
and Recovery Improvement Act of 2012 (IPERIA), require that executive agencies
identify programs that may be susceptible to significant improper payments, estimate
the annual amount of improper payments, and submit those estimates to Congress. A
program with significant improper payments (a high-risk program) has both a 1.5
percent improper payment rate of the total program outlays and at least $10 million in
improper payments or exceeds $100 million dollars in improper payments.
Implementing guidance for IPERIA is located in OMB Circular A-123, Management’s
Responsibility for Enterprise Risk Management and Internal Control, Appendix C,
Requirements for Effective Estimation and Remediation of Improper Payments. RMA is
identified by USDA as susceptible to significant improper payments (a high-risk
program). In fiscal year 2018 and 2017, FCIC had an improper payment rate of 1.81%
and 1.96% respectively, which exceeded the reduction target of 1.95% and 2.01%.

For fiscal years 2017 and prior, RMA was identified by USDA as a high-priority program.
A high-priority program is a program that has $750 million in estimated improper
payments in one year. A program that is identified as high-priority in one year, but in
subsequent years reports an improper payment estimate below $750 million can be
taken off this list. RMA was below this threshold for the last three consecutive
reporting years. As of October 2017, RMA received notification that it has been
removed from the annual high-priority improper payment reporting.

More detailed information on improper payments and data reported in prior audit report
can be found at https://paymentaccuracy.gov/.

Sampling and Estimation

RMA uses a statistically valid estimate of the improper payment rate and of the dollar
amount of improper payments for FCIC. The improper payment reviews include all
payment categories (premium subsidies, A&O subsidies, and indemnity payments) and
consider how an improper payment can occur. A simple random sample is used to
select the policies for review.

For fiscal year 2017 and beyond, OMB has approved RMA’s statistically valid sampling
methodology. Sampling period for fiscal year 2018 is reinsurance year 2016, which is
based on the yearly reinsurance agreements in effect with AIPs for the period July 2015
to June 2016.


                                                                                     54
    FEDERAL CROP INSURANCE CORPORATION/RISK MANAGEMENT AGENCY’S
         FINANCIAL STATEMENTS FOR FISCAL YEARS 2018 AND 2017

Improper Payment Reporting

RMA’s most recent IPERIA data is for fiscal year 2018, examining reinsurance year 2016
data. Table 1 shows the sampling and estimation results by reinsurance year for the
FCIC Program Fund.

Table 1: Payment Integrity Outlook ($ in millions) – by reinsurance year
(RY)

                                                                RY 2017
              FCIC Program Fund         RY 2015     RY 2016
                                                                  Est.

            Outlays $                       9,162      10,170       7,883


            Properly Paid %               98.04%      98.19%


            Improper Payment (IP) %        1.96%       1.81%       1.80%


            Properly Paid $                 8,982       9,986


            IP $                              180         184         142


            Overpayment $                     168         154


            Underpayment $                     12          30




                                                                                    55
    FEDERAL CROP INSURANCE CORPORATION/RISK MANAGEMENT AGENCY’S
         FINANCIAL STATEMENTS FOR FISCAL YEARS 2018 AND 2017

Table 2 provides information on the estimated amount of improper payments made
directly by the Government and the amount of improper payments made by recipients
of Federal money.

Table 2: Improper Payment Additional Breakdown ($ in millions)

             Reinsurance Year 2016 Reported in Fiscal Year 2018
                                             Federal         Recipients of
                 Program
                                          Government        Federal Money
 FCIC Program Fund                        $             0 $            184

Table 3 provides the breakdown of FCIC Program Fund overpayment and
underpayment dollars for reinsurance year 2016.

Table 3: Type of Improper Payment ($ in millions)

               Reinsurance Year 2016 Reported in Fiscal Year 2018
                                            Overpayments Underpayments
              FCIC Program Fund
                                                   $              $
 Inability to Authenticate Eligibility
   Data Needed Does Not Exist                    $            108 $                16
 Administrative or Process Error made by
                                                               46                  14
 Other Party
 TOTAL                                           $            154 $                30

Improper Payment Corrective Actions

RMA has developed Corrective Action Plans that includes the following actions taken to
recover and prevent future improper payments:




                                                                                     56
     FEDERAL CROP INSURANCE CORPORATION/RISK MANAGEMENT AGENCY’S
          FINANCIAL STATEMENTS FOR FISCAL YEARS 2018 AND 2017


 Inability to Authenticate Eligibility: Data Needed Does Not Exist

 Corrective Actions:

 Almost half of the Inability to Authenticate errors were related to Audit of Production History
 (APH), which includes the acceptability of production records and the accuracy of production
 certification. To clarify consequences of production certification audits, RMA made changes in
 the 2018 Crop Insurance Handbook outlining exceptions to assigned yield procedures. In
 addition, for the 2019 Crop Insurance Handbook, RMA will be editing the production evidence
 language to improve clarity and minimize burdensome reporting requirements for acceptable
 records. Action will be completed by December 2018.
 Acreage reporting issues were the other primary cause of Inability to Authenticate errors. A
 Regional Compliance Office, in collaboration with RMA’s Business Analytics Division and
 geographic information system specialists, will be conducting a program review to help
 identify land that’s chronically unavailable for planting and/or ineligible for inclusion on an
 acreage report. Action will be completed by September 2019.


 Administrative or Process Error Made by Other Party

 Corrective Actions:

 Each year, RMA provides a broad overview to the Approved Insurance Providers (AIPs, the
 private-sector partners) of the types of errors identified during the IPERIA review process. To
 address the diverse types of administrative or process errors (e.g., acreage reporting, APH,
 application, claim), RMA will provide a more detailed analysis to the AIPs to help them better
 identify and control the specific types of problems, such as a signature type, contributing to
 the errors.


Internal Control over Improper Payments

Table 4 shows RMA has implemented internal controls to prevent improper payments,
but there is room for improvement. RMA has communicated updated policies and
guidance to staff. Managers built an atmosphere in which reducing improper payments
is a top priority. RMA established accountability through performance standards,
examined root causes of error, developed appropriate corrective actions, and engaged
critical stakeholders through communication and educational efforts.




                                                                                                   57
         FEDERAL CROP INSURANCE CORPORATION/RISK MANAGEMENT AGENCY’S
              FINANCIAL STATEMENTS FOR FISCAL YEARS 2018 AND 2017

Table 4: Status of Internal Controls for Federal Crop Insurance Program Payments

                                                FCIC
     Internal Control Standards               Program
                                                Fund
    Control Environment                           3
    Risk Assessment                                3
    Control Activities                             3
    Information and Communication                  3
    Monitoring                                     3

4   =   Sufficient controls are in place to prevent Improper Payments (IP)
3   =   Controls are in place to prevent IPs but there is room for improvement
2   =   Minimal controls are in place to prevent IPs
1   =   Controls are not in place to prevent IPs

Accountability

RMA senior accountable officials’ annual performance plans are tied to Goal #4 of the
RMA Strategic Plan – “Safeguarding the integrity of the Federal crop insurance
program.” The performance measure is to reduce the improper payment rate from
5.23% in 2013 to 4.9% by 2018. RMA exceeded its strategic targets. Actual improper
payment rate was reduced to 1.81% and 1.96% for fiscal years 2018 and 2017,
respectively.

RMA incorporated standards in fiscal year 2018 annual performance plans to ensure
compliance personnel conduct IPERIA reviews to measure the Federal crop insurance
program improper payment error rate and perform data mining reviews to identify,
reduce, and collect improper payments. RMA conducted IPERIA reviews between April
2017 - March 2018 using statistical sampling and data mining reports.

Agency Information Systems and Other Infrastructure

One of RMA’s primary tools for assessing AIPs’ compliance with all crop insurance program
requirements is the AIP Performance Review (APR). During fiscal year 2018, RMA completed
APRs of six AIPs to evaluate their internal controls to identify and address program
vulnerabilities.




                                                                                            58
    FEDERAL CROP INSURANCE CORPORATION/RISK MANAGEMENT AGENCY’S
         FINANCIAL STATEMENTS FOR FISCAL YEARS 2018 AND 2017

Barriers

RMA is not subject to any critical statutory or regulatory barriers to reducing improper
payments.

Recapture of Improper Payments Reporting

In fiscal year 2018, USDA required all programs over $1 million in annual expenditures
to perform payment recapture audits. The following table highlights the payment
recapture activities completed by RMA in fiscal year 2018.

Table 5: Overpayments Recaptured through Payment Recapture Audits
($ in millions)


               Overpayments Recaptured through
               Payment Recapture Audits - Other


  Fiscal      Amount         Amount          Recapture
  Year       Identified     Recaptured         Rate


   2018          $11             $7             59%


      Overpayments Recaptured through
      Payment Recapture Audits - Other
   Fiscal
                    Recapture Rate Target
   Year

    2019                      100%

    2020                      100%




                                                                                           59
       FEDERAL CROP INSURANCE CORPORATION/RISK MANAGEMENT AGENCY’S
            FINANCIAL STATEMENTS FOR FISCAL YEARS 2018 AND 2017

The following table shows the amount recaptured and disposition of those funds.

Table 6: Disposition of Funds Recaptured Through Payment Recapture Audit
Programs ($ in millions)

                              Fiscal Year 2017
                            Amount            Type of                 Original
      Program              Recovered         Payment                  Purpose
 FCIC Program Fund       $            7    Crop Insurance         $              7

Any overpayments recovered will be returned to the Federal Crop Insurance Program
Fund to be used for its original purpose.

The following table presents the aging of outstanding overpayments identified in the
payment recapture audits.

Table 7: Aging of Outstanding Overpayments Identified in the Payment
Recapture Audits ($ in millions)

                                               Amount          Amount          Amount
                               Amount       Outstanding      Outstanding     Determined
                 Type of     Outstanding    (6 months to       (over 1        to not be
  Program       Payment     (0-6 months)       1 year)          year)        collectable
 FCIC
                   Crop
 Program                        $      0         $     0          $     1            $   0
                Insurance
 Fund

The table identifies amounts not yet collected as of 3rd quarter fiscal year 2018.

Reduction of Improper Payments with the Do Not Pay Initiative (DNP)

RMA has incorporated the Do Not Pay (DNP) databases as listed below.

       RMA has integrated Social Security Administrator’s full death file into its system
        to verify insurance policies received from AIPs prior to acceptance. Once crop
        insurance is awarded, any subsequent payments for indemnities are required
        regardless of DNP matches. Most of the award verification process is performed
        by the AIPs, not RMA.

       RMA verifies the AIPs registration in System for Award Management (SAM) and
        checks AIPs in the DNP website before the SRA is approved.




                                                                                             60
    FEDERAL CROP INSURANCE CORPORATION/RISK MANAGEMENT AGENCY’S
         FINANCIAL STATEMENTS FOR FISCAL YEARS 2018 AND 2017

    RMA payments for reinsurance funds to a payee other than AIPs (e.g., refund of
     overpaid debt to a producer) are reviewed against the death master file through
     the DNP working system on a pre-payment basis.

    Risk Management Education Cooperative Agreements are awarded annually with
     a one-year period of performance. Before awarding the agreement, RMA staff
     reviews SAM for Exclusion Records (referred to in IPERIA as Excluded Parties List
     System/EPLS) Public & Restricted [General Services Administration] and the
     Federal Awardee Performance and Integrity Information System (FAPIIS)
     through SAM.




                                                                                    61
    FEDERAL CROP INSURANCE CORPORATION/RISK MANAGEMENT AGENCY’S
         FINANCIAL STATEMENTS FOR FISCAL YEARS 2018 AND 2017

FRAUD REDUCTION REPORT

As required under the Fraud Reduction and Data Analytics Act of 2015, RMA is reporting
on its efforts to reduce fraud. RMA has developed policies and procedures to identify
fraud risks (i.e., program vulnerability reporting tool, data analytics, and hotlines) and
determine appropriate responses. RMA CFO and CIO staff document and assess the
internal controls related to financial reporting each year. The results of the assessment
are communicated to USDA's OCFO staff.

RMA conducts annual Risk Assessments under the OMB Circular, A-123 review process.
The A-123 Risk Assessment identifies overall program assessment. The A-123,
Appendix A risk assessments specifically identifies risks that impact financial statement
accounts and disclosures for each of the business cycles and the related computer
controls. RMA provides an annual Statement of Assurance for FMFIA and FFMIA.

RMA has also taken steps to follow guidance on establishing and reporting entity level
controls associated with Enterprise Risk Management.

Additionally, RMA’s Compliance Office is responsible for assessing program vulnerability,
fraud, and abuse; investigating alleged/indicated instances of fraud and abuse; and
recommending changes in policies, procedures, and agreements within the Federal crop
insurance program. The Compliance Office conducts operational reviews of the AIPs on
a tri-annual basis to analyze and assess the AIP’s compliance with the reinsurance
agreements. RMA utilizes data mining to identify anomalous crop insurance records
requiring additional scrutiny.

RMA Compliance is also responsible for reviewing all reports of suspected fraud or
abuse referred by the USDA, Office of Inspector General, Farm Service Agency, AIPs,
and the public. RMA has a Special Investigations Branch (SIB) within the Compliance
Office that investigates complex, high-profile cases of alleged fraud, waste, and abuse.

SIB works in conjunction with the Office of Inspector General (OIG), RMA Compliance
Offices, and the Farm Service Agency when conducting its investigations. If a case of
fraud is substantiated, SIB investigators work with the OIG to investigate and prepare
the case for referral for criminal prosecution or Federal civil action. SIB also refers
cases to the RMA Administrator for disqualification, civil fine, suspension, and
debarment.




                                                                                          62
            FEDERAL CROP INSURANCE CORPORATION/RISK MANAGEMENT AGENCY’S
                 FINANCIAL STATEMENTS FOR FISCAL YEARS 2018 AND 2017

REDUCE THE FOOTPRINT

RMA does not own buildings or real property but leases all of its office space. RMA’s
management utilizes the Reduce the Footprint policy by consolidating regional and
compliance offices at existing locations into USDA offices, if space is available.

In fiscal years 2017 and 2018, no consolidation of office space occurred. The
consolidations that were originally planned for fiscal year 2018 are scheduled to be
completed as noted below.

            Spokane, WA Regional Office into a Spokane area Federal lease that combines
             several USDA and other government agencies into one location (scheduled
             completion 2nd quarter fiscal year 2019)

            St. Paul, MN Regional Office and Eagan, MN Compliance Office into one co-
             located RMA Minneapolis/St. Paul area office (scheduled completion 1st quarter
             fiscal year 2019)

RMA maintains a real estate inventory database. RMA continues to evaluate offices as
leases expire with the goal of saving space and co-locating wherever possible.

The following summarizes the square footage and total annual costs for RMA leases. All
RMA leases are full service leases with no operation and maintenance costs.
 
                                    Fiscal Year                        Change in
        Square Footage                                Fiscal Year
                                        2015                             Square
         (in thousands)                                  2017
                                      Baseline                          Footage
  RMA GSA Lease Assignments                   119              123                (4)
  RMA Leases                                        16                12                   4
  Total                                            135              135                    0
 
     
                                         Fiscal Year
                Lease Costs                                Fiscal Year        Change in
                                            2015
              (in thousands)                                  2017           Lease Costs
                                          Baseline
  RMA GSA Lease Assignments                   $ 2,848            $ 2,710           $    138
  RMA Leases                                       250               185                 65
  Total                                        $ 3,098           $ 2,895           $    203




                                                                                              63
    FEDERAL CROP INSURANCE CORPORATION/RISK MANAGEMENT AGENCY’S
         FINANCIAL STATEMENTS FOR FISCAL YEARS 2018 AND 2017

GRANTS OVERSIGHT & NEW EFFICIENCY (GONE) ACT

Management Procedures Memorandum 2016-04 (GONE Act Reporting of Unclosed
Grant and Cooperative Agreement Awards for Which the Period of Performance Has
Expired More Than Two Years, Summary of Required Agency Actions) requires RMA to
present information related to Federal grant and cooperative agreement awards and
balances that have not been closed out.

Agencies are required to report the total number of Federal grant and cooperative
agreement awards and balances where closeout has not yet occurred, but the period of
performance has elapsed by more than two years. RMA has no cooperative
agreements that meet this criteria. RMA does not issue any grants. RMA has
experienced no challenges that would cause delays in cooperative agreement award
closeout.




                                                                                  64
    FEDERAL CROP INSURANCE CORPORATION/RISK MANAGEMENT AGENCY’S
         FINANCIAL STATEMENTS FOR FISCAL YEARS 2018 AND 2017

SUMMARY OF FINANCIAL STATEMENT AUDIT AND
MANAGEMENT ASSURANCES
FCIC is required to undergo an annual independent audit of its financial statements. In
addition, FCIC is required to conduct annual assessments of internal controls over
financial reporting and compliance with laws and regulations. The following tables list
the results of the audit and assessments.

Table 1:


 Summary of Financial Statement Audit

 Audit Opinion                  Unmodified
 Restatement                    No
                                Beginning                                      Ending
 Material Weaknesses                         New     Resolved Consolidated
                                 Balance                                       Balance
 Total Material Weaknesses          0          1         0            0           1

Table 2:


 SUMMARY OF MANAGEMENT ASSURANCES

 Effectiveness of Internal Control over Financial Reporting (FMFIA Section 2)

 Statement of Assurance         Unmodified
                                Beginning                                      Ending
 Material Weaknesses                         New     Resolved Consolidated
                                 Balance                                       Balance
 Total Material Weaknesses          0          0         0            0           0

 Effectiveness of Internal Control over Operations (FMFIA Section 2)

 Statement of Assurance         Unmodified
                                 Bginning                                      Ending
 Material Weaknesses                         New     Resolved Consolidated
                                 Balance                                       Balance
 N/A                                0          0         0            0           0
 Total Material Weaknesses          0          0         0            0           0




                                                                                     65
   FEDERAL CROP INSURANCE CORPORATION/RISK MANAGEMENT AGENCY’S
        FINANCIAL STATEMENTS FOR FISCAL YEARS 2018 AND 2017


Conformance with Federal Financial Management System Requirements
(FMFIA Section 4)
Statement of Assurance          Federal systems conform
                                Beginning                                      Ending
Non-conformances                              New    Resolved Consolidated
                                 Balance                                       Balance
N/A                                 0          0        0          0              0
Total Non-conformances              0          0        0          0             0
Compliance with Section 803(a) of the Federal Financial Management
Improvement Act
                                            Agency                  Auditor
1. Federal Financial
  Management System              Compliance noted           Compliance noted
  requirements
2. Applicable Federal
                                 Compliance noted           Compliance noted
  Accounting Standards
3. USSGL at Transaction Level    Compliance noted           Compliance noted




                                                                                     66
Learn more about USDA OIG
Visit our website: www.usda.gov/oig/index.htm
Follow us on Twitter: @OIGUSDA

How to Report Suspected Wrongdoing in USDA Programs

Fraud, Waste, and Abuse
File complaint online: www.usda.gov/oig/hotline.htm

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In Washington, DC 202-690-1622
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