oversight

Commodity Credit Corporation's Financial Statements for Fiscal Years 2018 and 2017

Published by the Department of Agriculture, Office of Inspector General on 2019-11-15.

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

        United States Department of Agriculture




  Commodity Credit Corporation's
  Financial Statements for Fiscal Year
  2018




Audit Report 06403-0001-11
                                                  OFFICE OF INSPECTOR GENERAL
November 2018
                          United States Department of Agriculture
                                 Office of Inspector General
                                  Washington, D.C. 20250



DATE:         November 9, 2018

AUDIT
NUMBER:       06403-0001-11

TO:           Board of Directors
              Commodity Credit Corporation

ATTN:         Perry Thompson
              Director
              Audits and Investigations

FROM:         Gil H. Harden
              Assistant Inspector General for Audit

SUBJECT:      Commodity Credit Corporation’s Financial Statements for Fiscal Year 2018


This report presents the results of the audit of Commodity Credit Corporation’s (CCC) financial
statements for the fiscal year ending September 30, 2018. The report contains an unmodified
opinion on the financial statements, as well as an assessment of CCC’s internal controls over
financial reporting and compliance with laws and regulations.

KPMG LLP, an independent certified public accounting firm, conducted the audit. In connection
with the contract, we reviewed KPMG LLP’s report and related documentation and inquired of
its representatives. Our review, as differentiated from an audit in accordance with Government
Auditing Standards, issued by the Comptroller General of the United States of America (U.S.),
was not intended to enable us to express, and we do not express, an opinion on CCC’s financial
statements; internal control; whether CCC’s financial management system substantially
complied with the Federal Financial Management Improvement Act of 1996 (FFMIA); or
conclusions on compliance with laws and regulations. KPMG LLP is responsible for the
attached auditor’s report, dated November 9, 2018, and the conclusions expressed in the report.
However, our review disclosed no instances where KPMG LLP did not comply, in all material
respects, with government auditing standards and the Office of Management and Budget 19-01,
Audit Requirements for Federal Financial Statements, in the performance of its engagement.

It is the opinion of KPMG LLP that the financial statements present fairly, in all material
respects, CCC’s financial position as of September 30, 2018, in accordance with accounting
principles generally accepted in the U.S.
Board of Directors, et al.                                                                    2

KPMG LLP’s report on CCC’s internal control over financial reporting identified two
deficiencies. Specifically, KPMG LLP identified weaknesses in CCC’s:

   ·   accounting for budgetary transactions, and

   ·   accounting estimates related to Grants Payable.

KPMG LLP considered the first deficiency to be a material weakness and the second one to be a
significant deficiency. The results of KPMG LLP’s tests of compliance with laws and
regulations disclosed instances of noncompliance related to the Anti-Deficiency Act and with
FFMIA.

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 during this engagement. 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.
                                KPMG LLP
                                Suite 12000
                                1801 K Street, NW
                                Washington, DC 20006




                                              Independent Auditors’ Report


Board of Directors, Commodity Credit Corporation
Inspector General, United States Department of Agriculture:

Report on the Financial Statements

We have audited the accompanying consolidated financial statements of the U.S. Department of Agriculture
(USDA), Commodity Credit Corporation (CCC), which comprise the consolidated balance sheet as of
September 30, 2018, and the related consolidated statements of net cost, and changes in net position, and
combined statement of budgetary resources for the year then ended, and the related notes to the consolidated
financial statements.

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

Auditors’ Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We
conducted our audit in accordance with auditing standards generally accepted in the United States of America,
in accordance with the standards applicable to financial audits contained in Government Auditing Standards
issued by the Comptroller General of the United States, and in accordance with Office of Management and
Budget (OMB) Bulletin No. 19-01, Audit Requirements for Federal Financial Statements. Those standards and
OMB Bulletin No. 19-01 require that we plan and perform the audit to obtain reasonable assurance about
whether the consolidated financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the
consolidated financial statements. The procedures selected depend on the auditors’ judgment, including the
assessment of the risks of material misstatement of the consolidated 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 consolidated 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 consolidated financial statements.

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

Opinion
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects,
the financial position of the U.S. Department of Agriculture, Commodity Credit Corporation as of September 30,
2018, and its net cost, changes in net position, and budgetary resources for the year then ended in accordance
with U.S. generally accepted accounting principles.



                                KPMG LLP is a Delaware limited liability partnership and the U.S. member
                                firm of the KPMG network of independent member firms affiliated with
                                KPMG International Cooperative (“KPMG International”), a Swiss entity.
Other Matters
Interactive Data
Management has elected to reference to information on websites or other forms of interactive data outside the
Annual Management Report to provide additional information for the users of its financial statements. Such
information is not a required part of the basic consolidated financial statements or supplementary information
required by the Federal Accounting Standards Advisory Board. The information on these websites or the other
interactive data has not been subjected to any of our auditing procedures, and accordingly we do not express
an opinion or provide any assurance on it.

Required Supplementary Information
U.S. generally accepted accounting principles require that the information in the Management’s Discussion and
Analysis and the Required Supplementary Information section be presented to supplement the basic
consolidated financial statements. Such information, although not a part of the basic consolidated financial
statements, is required by the Federal Accounting Standards Advisory Board who considers it to be an
essential part of financial reporting for placing the basic consolidated financial statements in an appropriate
operational, economic, or historical context. We have applied certain limited procedures to the required
supplementary information in accordance with auditing standards generally accepted in the United States of
America, which consisted of inquiries of management about the methods of preparing the information and
comparing the information for consistency with management’s responses to our inquiries, the basic
consolidated financial statements, and other knowledge we obtained during our audit of the basic consolidated
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 audit was conducted for the purpose of forming an opinion on the basic consolidated financial statements
as a whole. The Preface; Table of Contents; Message from the Executive Vice President; Performance Section;
Message from the Chief Financial Officer; Introduction to the Financial Statements, Required Supplementary
Information, and Other Information; Other Information; and Appendix: Glossary of Acronyms are presented for
purposes of additional analysis and are not a required part of the basic consolidated financial statements. Such
information has not been subjected to the auditing procedures applied in the audit of the basic consolidated
financial statements, and accordingly, we do not express an opinion or provide any assurance on it.

Other Reporting Required by Government Auditing Standards
Internal Control Over Financial Reporting
In planning and performing our audit of the consolidated financial statements as of and for the year ended
September 30, 2018, we considered the CCC’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 consolidated financial statements, but not for the purpose of expressing an opinion on the
effectiveness of the CCC’s internal control. Accordingly, we do not express an opinion on the effectiveness of
the CCC’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.

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 that might be material weaknesses or significant
deficiencies and therefore, material weaknesses or significant deficiencies may exist that have not been
identified. However, as described in the accompanying exhibits, we did identify certain deficiencies in internal
control that we consider to be a material weakness and a significant deficiency.




                                                       2
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 the entity’s financial
statements will not be prevented, or detected and corrected, on a timely basis. We consider the deficiencies in
Accounting for Budgetary Transactions, described in Exhibit I, to be a material weakness.

A significant deficiency is a deficiency, or a 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. We
consider the deficiencies in Accounting Estimates related to Grants Payable, described in Exhibit II, to be a
significant deficiency.

Compliance and Other Matters
As part of obtaining reasonable assurance about whether the CCC’s consolidated financial statements are free
from material misstatement, we performed tests of its compliance with certain provisions of laws, regulations,
contracts, and grant agreements, noncompliance with which could have a direct and material effect on the
determination of financial statement amounts. 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. The results of
our tests disclosed instances of noncompliance or other matters related to the Anti-Deficiency Act that are
required to be reported under Government Auditing Standards or OMB Bulletin No. 19-01, and which are
described in Exhibit III.

We also performed tests of its 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 audit, and accordingly, we do not express such an opinion. The results of our tests of
FFMIA disclosed instances, described in Exhibit III, in which the CCC’s financial management systems did not
substantially comply with applicable Federal accounting standards and the United States Government Standard
General Ledger at the transaction level. The results of our tests disclosed no instances in which the CCC’s
financial management system did not substantially comply with Federal financial management systems
requirements.

CCC’s Response to Findings
The CCC’s response to the findings identified in our audit is included in Exhibit IV. The CCC’s response was
not subjected to the auditing procedures applied in the audit of the consolidated financial statements and,
accordingly, we express no opinion on the response.

Purpose of the Other Reporting Required by Government Auditing Standards
The purpose of the communication described in the Other Reporting Required by Government Auditing
Standards section 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 the CCC’s internal control or
compliance. Accordingly, this communication is not suitable for any other purpose.




Washington D.C.
November 9, 2018




                                                          3
                             Exhibit I – Material Weakness in Internal Control over Financial Reporting


During Fiscal Year (FY) 2018, the Commodity Credit Corporation (CCC) undertook various audit
remediation efforts to address prior year material weaknesses and improve its internal controls and the
accounting for significant balances in its financial statements. Our responsibility under professional
standards requires the reporting of deficiencies that rise to the level of a material weakness and/or
significant deficiency that were identified during the execution of our audit. The material weakness
communicated in this Exhibit and the significant deficiency communicated in Exhibit II highlight matters that
require management attention and the further development of processes, procedures, and effective
controls related to (1) accounting for budgetary transactions (material weakness), and (2) accounting
estimates related to grants payable (significant deficiency).

The following criteria were considered in the determination and evaluation of the material weakness:

The Government Accountability Office’s (GAO) Standards for Internal Control in the Federal Government,
states:

    Documentation is a necessary part of an effective internal control system. Documentation is required
    for the effective design, implementation, and operating effectiveness of an entity’s internal control
    system […] Management develops and maintains documentation of its internal control system […]
    Management clearly documents internal control and all transactions and other significant events in a
    manner that allows the documentation to be readily available for examination.

    Management designs control activities in response to the entity’s objectives and risks to achieve an
    effective internal control system. Control activities are the policies, procedures, techniques and
    mechanisms that enforce management’s directives to achieve the entity’s objectives and address
    related risks. As part of the control environment component, management defines responsibilities,
    assigns them to key roles, and delegates authority to achieve the entity’s objectives. As part of the risk
    assessment component, management identifies the risks related to the entity and its objectives,
    including its service organizations; the entity’s risk tolerance; and risk responses. Management designs
    control activities to fulfill defined responsibilities and address identified risk responses.

The Office of Management and Budget (OMB), Circular No. A-123, Managements Responsibility for
Enterprise Risk Management and Internal Control, states:

    Management is responsible to develop and maintain effective internal control […] This includes
    establishing and maintaining internal control to achieve specific objectives related to operations,
    reporting and compliance.

OMB Circular A-11, Preparation, Submission, and Execution of the Budget, states:

    Obligation means a legally binding agreement that will result in outlays, immediately or in the future.
    When you place an order, sign a contract, award a grant, purchase a service, or take other actions that
    require the Government to make payments to the public or from one Government account to another,
    you incur an obligation. It is a violation of the Anti-deficiency Act (31 U.S.C. 1341(a)) to involve the
    Federal Government in a contract or obligation for payment of money before an appropriation is made,
    unless authorized by law. This means you cannot incur obligations in a vacuum; you incur an obligation
    against budget authority in a Treasury account that belongs to your agency. It is a violation of the Anti-
    deficiency Act to incur an obligation in an amount greater than the amount available in the Treasury
    account that is available. This means that the account must have budget authority sufficient to cover
    the total of such obligations at the time the obligation is incurred. In addition, the obligation you incur
    must conform to other applicable provisions of law, and you must be able to support the amounts
    reported by the documentary evidence required by 31 U.S.C. 1501.




                                                      I-1
                Exhibit I – Material Weakness in Internal Control over Financial Reporting, Continued


Federal Accounting Standards Advisory Board (FASAB) Statement of Federal Financial Accounting
Standards (SFFAS) No. 21, Reporting Corrections of Errors and Changes in Accounting Principle, states:

    Errors in financial statements result from mathematical mistakes, mistakes in the application of
    accounting principles, or oversight or misuse of facts that existed at the time the financial statements
    were prepared. When errors are discovered after the issuance of financial statements, and if the
    financial statements would be materially misstated absent correction of the errors, corrections should
    be made as follows:
    a) If only the current period statements are presented, then the cumulative effect of correcting the
       error should be reported as a prior period adjustment.
    b) The nature of an error in previously issued financial statements and the effect of its correction on
       relevant balances should be disclosed. Financial statements of subsequent periods need not
       repeat the disclosures.

Accounting for Budgetary Transactions
During FY 2018, management continued to implement manual remediation procedures to address certain
aspects of the material weakness identified in prior years. However, we continued to identify deficiencies in
controls in the areas of undelivered orders (UDO) and delivered orders, budgetary funds control, and
borrowing authority, as described in further detail below, that collectively represent a material weakness,
and require further actions by CCC.

A. Undelivered and Delivered Orders

CCC incurs obligations and outlays to carry out its programs and activities. CCC’s broad range of activities
include farm price and income support programs, disaster assistance programs, conservation programs,
and international agriculture support programs. As of September 30, 2018 CCC’s UDO balance was $15.5
billion consisting of the Conservation Reserve Program (CRP), for $11.6 billion, the Agriculture Risk
Coverage (ARC)/Price Loss Coverage (PLC) program, for $1.5 billion, and other programs for $2.4 billion.
The primary programs within the CRP are CRP – Annual Rental and CRP – Cost Share (CSC).

CCC has not implemented sufficient controls across all relevant programs to periodically monitor UDO
balances at the program level to assess the validity and accuracy of open UDOs and to accurately and
timely identify those balances that require adjustments. To compensate for the deficiency in these controls,
CCC implemented manual remediation procedures to identify and correct for UDO balances that were
invalid as of October 1, 2017 at the specific program level. However, such remediation activities are highly
dependent on manual controls due to the lack of effective automated controls, which increases the risk of
material misstatement in CCC’s consolidated financial statements. These remediation activities resulted in
a net upward adjustment of approximately $77 million ($145 million upward adjustments offset by $68
million in downward adjustments), detailed in the following paragraphs, to the UDO balances as of
October 1, 2017.

Weaknesses in the CRP – CSC was the primary cause for the $145 million upward adjustment.
Specifically, CCC does not have adequately designed, implemented, and effective controls at the
appropriate level of precision to ensure that obligations are recognized at time of the contract execution.
For example, due to the long-term nature of the CRP - CSC contracts, payments to producers often are not
made until the fifth year of the contracts, and many county offices were only recognizing the contracts’
related obligations in the accounting records when payments are due and not when the contracts were
executed. In addition, CCC did not have automated or manual controls in place to ensure that a CRP –
CSC obligation is recorded when an obligation is recognized for a CRP – Annual Rental contract. As a
result of these weaknesses, as part of the overall $145 million upward adjustment, CCC recognized an
upward adjustment of $135 million to the October 1, 2017 UDO balances.



                                                     I-2
                Exhibit I – Material Weakness in Internal Control over Financial Reporting, Continued


Additional weaknesses in the CRP – CSC and the PLC programs were the primary cause for the $68
million downward adjustment. Specifically, CCC does not have sufficient controls in place to identify invalid
obligations in the CRP – CSC program, resulting in a downward adjustment of $25 million to the October 1,
2017 UDO balances related to the CRP – CSC program. In addition, sufficient controls were not in place to
detect and correct errors in the PLC UDO calculations, resulting in a downward adjustment of $27 million to
the October 1, 2017 UDO balances related to the PLC program.

In addition to the matters described above, we identified other weaknesses in the manual remediation
efforts related to October 1, 2017 UDO balances, as well as ongoing weaknesses in controls related to the
monitoring of current year UDO activity. Specifically, CCC incorrectly reduced the October 1, 2017
(beginning balance) and September 30, 2018 (ending balance) UDO balances by $77 million and $254
million, respectively, based upon the assumption that certain producer enrollments may not be approved.
As a result, the recorded October 1, 2017 and September 30, 2018 UDO balances related to ARC/PLC
were potentially understated by approximately $77 million and $254 million, respectively.

Across all other programs, we identified errors during our testing of beginning balances and new
obligations, upward adjustments, liquidations, and deobligations that occurred during FY 2018 that resulted
in a projected net upward adjustment of approximately $3 million ($11 million downward adjustment and
$14 million upward adjustment) to the October 1, 2017 UDO balance and a projected $12 million
overstatement of the September 30, 2018 UDO balance.

Further, during our testing of downward adjustments of prior year delivered orders, we identified errors that
were not detected by management because of deficiencies in controls over the recognition of downward
adjustments. Specifically, certain repayment activities within the Marketing Assistance Loans (MAL)
program resulted in the recognition of downward adjustments of prior year delivered orders for $86 million
that related to delivered orders in the current year and, therefore, should not have been recognized as a
downward adjustment of prior year delivered orders. CCC established the recognition of MAL program
transactions with the assumption that all MAL program activity would cross fiscal years; however, certain
aspects of the MAL program activity are short term in nature and occurs within the same fiscal year. CCC
subsequently corrected for this error in its September 30, 2018 consolidated financial statements.

B. Funds Control

As a resulting impact of the UDO remediation efforts, management identified potential and confirmed
instances of noncompliance with the Anti-Deficiency Act caused by the following deficiencies noted in
CCC’s budgetary funds controls:
   Obligations are recognized at a summary (“bulk”) level and not at a transactional level within its
    financial management systems;
   Automated budgetary funds controls are not designed and implemented within the related accounting
    systems; and
   Manual compensating budgetary funds controls are ineffective to prevent potential funds control
    violation.

In addition, ineffective budget formulation/apportionment processes exist, increasing the risk realized
related to ineffective budgetary funds controls. See Exhibit III – Compliance and Other Matters for
additional information related to the instances of noncompliance with the Anti-Deficiency Act.

C. Borrowing Authority

In addition to the deficiencies identified related to overall budgetary funds control and monitoring of the
validity and accuracy of open obligations, we also identified deficiencies related to CCC’s monitoring and
accounting for borrowing authority carried over from the prior year. As described in the notes to the
consolidated financial statements, CCC has permanent indefinite borrowing authority, which is used to

                                                     I-3
                Exhibit I – Material Weakness in Internal Control over Financial Reporting, Continued


finance most of its programs. Borrowing authority is established at the program level upon receipt of
apportionment from OMB, borrowing authority carried forward to the next fiscal year should align with open
obligations, net of any sequestrations, if relevant. CCC did not have sufficient controls in place to prevent,
detect, and correct errors in the carried forward borrowing authority balances. Specifically, we noted in
certain funds an overstatement in such balances by approximately $90 million, which management
subsequently corrected. In addition, we noted other borrowing authority carried over differences at the
specific program level that were not identified by management because the account relationship analysis
performed by management is only performed at the overall general ledger account and not at the specific
program level. Although these abnormal balances offset at the overall general ledger balance, without
detailed evaluations at the program level, material errors in such balances could exist and would not be
detected and corrected.

Recommendations:

We provided detailed recommendations in separate findings to management. In summary, we recommend
that CCC:

1. Implement effective UDO monitoring controls at the program level, whereby the responsibility for
   assessing the accuracy and validity of open obligations resides at the program level, and the
   accounting execution, if necessary, as a result of the programmatic monitoring resides with the CCC
   accountants.

2. Provide necessary training to the County field offices’ personnel over the requirements of OMB A-11
   for recording obligations, and, where necessary, ensure program handbooks are up to date regarding
   execution and related accounting, to ensure consistent understanding and recording of obligations in
   accordance with OMB A-11 across all field offices.

3. Implement effective automated and/or manual controls to evaluate the relationship between a CRP
   annual rental contract and CRP cost share contract; and develop and implement data analytic routines
   and management review controls related to program UDO populations to identify and correct for
   abnormalities in the data.

4. Strengthen management controls related to the annual ARC/PLC UDO calculation to ensure that it is
   performed at a level of precision to include relevant and accurate data elements, such as enrollments
   and crop prices that reflect the documentation submitted by the producer and approved by
   management.

5. Implement processes, procedures, and controls to ensure accurate recognition of adjustments to
   delivered orders are input into the accounting systems and perform periodic reviews of the accounting
   events to validate the results of recorded transactions.

6. Implement effective automated budgetary funds controls within its accounting systems to ensure that a
   funds control violation does not occur.

7. Implement effective internal controls to review and reconcile the general ledger account inter-
   relationships, between borrowing authority and other budgetary accounts. In addition, we recommend
   CCC record borrowing authority at the appropriate program level to prevent abnormal balances, which
   assist in meaningful account review and reconciliation.




                                                      I-4
                         Exhibit II – Significant Deficiency in Internal Control over Financial Reporting


The following criteria were considered in the determination and evaluation of the significant deficiency:

GAO Standards for Internal Control in the Federal Government, states:

    Documentation is a necessary part of an effective internal control system. Documentation is required
    for the effective design, implementation, and operating effectiveness of an entity’s internal control
    system […] Management develops and maintains documentation of its internal control system […]
    Management clearly documents internal control and all transactions and other significant events in a
    manner that allows the documentation to be readily available for examination.

    Management designs control activities in response to the entity’s objectives and risks to achieve an
    effective internal control system. Control activities are the policies, procedures, techniques and
    mechanisms that enforce management’s directives to achieve the entity’s objectives and address
    related risks. As part of the control environment component, management defines responsibilities,
    assigns them to key roles, and delegates authority to achieve the entity’s objectives. As part of the risk
    assessment component, management identifies the risks related to the entity and its objectives,
    including its service organizations; the entity’s risk tolerance; and risk responses. Management designs
    control activities to fulfill defined responsibilities and address identified risk responses.

OMB Circular No. A-123, Managements Responsibility for Enterprise Risk Management and Internal
Control, states:

    Management is responsible to develop and maintain effective internal control […] This includes
    establishing and maintaining internal control to achieve specific objectives related to operations,
    reporting and compliance.

FASAB Technical Release (TR) No. 12, Accrual Estimate for Grant Programs, states:

    Agencies should document and maintain support for the data and assumptions used to develop grant
    accrual estimates. The documentation will facilitate the agency’s review of the assumptions, a key
    internal control, and will also facilitate the auditor’s testing of the estimates. Documentation should be
    complete and stand on its own, i.e., a knowledgeable independent person could perform the same
    steps and replicate the same results. If the documentation were from a source that would normally be
    destroyed, then copies should be maintained in the file for the purpose of reconstructing the estimates.

Accounting Estimates related to Grants Payable
CCC’s consolidated financial statements includes several estimates to account for Accrued Liabilities;
Direct Loans and Loan Guarantees, Net; and Grants Payable, related to Parent/Child activity. While
improvements have been made by management in its controls related to accrued liabilities and direct loans
and loan guarantees, weaknesses in CCC’s processes, procedures, and controls continue to exist related
to the accounting for grants payable (parent/child transactions).

The parent/child accounting and reporting guidance provided by OMB Bulletin No. A-136, Financial
Reporting Requirements, states, “The parent must report all budgetary and proprietary activity in its
financial statements.” CCC’s grant programs are administered through a parent/child agreement where
CCC is the parent and another Federal agency is the child. While improvements have been made in the
recording of grant data, we continued to identify areas needing improvement, similar to the prior year. We
noted that management did not evaluate or perform a review, at an adequate level of precision, over the
underlying data used in the estimation methodology. This data was not compared to other corroborating
documentation, such as grant contracts, Treasury disbursements, and SF-425s (Federal Financial Reports)
to validate the completeness and accuracy of the underlying data used in its grant accrual methodology.




                                                     II-1
            Exhibit II – Significant Deficiency in Internal Control over Financial Reporting, Continued


Recommendations:

We provided detailed recommendations in separate findings to management. In summary, we recommend
that CCC, strengthen the management review controls to validate the completeness and accuracy of the
data being used in the grant calculator (estimate methodology). This process should be refined to include a
more thorough review and analysis using other source documentation utilized by CCC’s partner agency.




                                                    II-2
                                                              Exhibit III – Compliance and Other Matters


Noncompliance with the Anti-Deficiency Act
Title 31 U.S. Code (U.S.C.) Section 1517 states that an officer or an employee of the United States
Government may not make or authorize an expenditure or obligation exceeding an apportionment or an
amount permitted by regulations as specified by Title 31 U.S.C. Section 1514. If an officer or employee of
an executive agency or of the District of Columbia government violates subsection (a) of this section, the
head of the executive agency or the Mayor of the District of Columbia, as the case may be, shall report
immediately to the President and Congress all relevant facts and a statement of actions taken. A copy of
each report shall also be transmitted to the Comptroller General on the same date the report is transmitted
to the President and Congress.

A. Known Noncompliance with the Anti-Deficiency Act (ADA)

Interest Expense related to Debt with Treasury Exceeded Apportionment
    During FY 2016, CCC recognized expenditures for interest to Treasury that exceeded amounts initially
    apportioned by the OMB. CCC expended approximately $46.1 million in interest to Treasury, when the
    original apportioned amount was only $29.9 million. CCC is in the process of finalizing the necessary
    reporting of the violation and notifying the required parties, such as the President, Congress, and
    Comptroller General.

Obligations related to ARC – County Exceeded Apportionment
    During FY 2017, CCC received an apportionment from OMB related to the ARC program (Crop Year
    2017) in the amount of $851 million, which included $776 million for ARC – County (CO) and $75
    million for ARC – Individual (IC). During FY 2017, CCC recognized an obligation for ARC-CO in the
    amount of $2.3 billion, prior to obtaining an updated apportionment from OMB. CCC is in the process of
    finalizing the necessary reporting of the violation and notifying the required parties, such as the
    President, Congress, and Comptroller General.

B. Potential Noncompliance with the ADA

CCC management is currently documenting a statement of facts for the following potential violations and
through consultation with the USDA Office of General Council, OMB, and others will determine if an actual
violation of the act occurred.

CRP – Annual Rental
    During FY 2017, the accounting treatment for obligations related to the CRP – Annual Rental program
    was determined to be in error such that the entire (multi-year) contract value should have been
    obligated upon execution of the agreement, instead of recording the obligation for only the annual
    portion of the long-term contract value. As a result, in FY 2017, CCC recognized approximately $10
    billion in obligations as a beginning balance adjustment, whereby apportioned authority may not have
    been available in the related prior years.

Emergency Forestry Conservation Reserve Program
    Similar to CRP - Annual Rental, CCC did not recognize an obligation for the full value of the long-term
    contract when the contract was signed in prior years. As a result, CCC recognized approximately $2
    million in obligations, whereby apportioned authority may not have been available.

Food for Progress Program
    During FY 2017, CCC recorded disbursements related to the Food for Progress program related to
    administrative expenses for approximately $1.1 million. Such payments were made from funding
    established for freight charges as the administrative funding was fully expended.



                                                    III-1
                                                  Exhibit III – Compliance and Other Matters, Continued


Non-Insured Assistance Program – Frost Freeze
    During FY 2018, CCC identified payments that exceeded initial apportionment by approximately $888.

Tree Assistance Program (TAP) and Non-Insured Assistance Program – Puerto Rico
    During FY 2018, CCC identified a potential ADA violation related to TAP contracts in Puerto Rico for
    program years 2014, 2015, and 2017 that were approved but not entered into the program application,
    and, therefore, no related obligations were recognized. Evaluation is ongoing to determine if funding
    exists in the current and prior years upon recognition of these obligations.

ARC – CO
    During FY 2018, CCC identified a potential ADA violation related to the ARC – CO program which had
    Crop Year 2017 enrollments approved in FY 2018 that exceeded the available funding. It was noted
    that the ARC program system functionality does not validate funds availability at the time of approved
    enrollment, instead availability of funds is validated at time of payment.

Food for Peace Program
    During FY 2018, CCC identified a potential ADA violation related to grants managed through a parent-
    child relationship with the United States Agency for International Development (USAID). As part of the
    grant close out process during FY 2018, CCC identified certain grants that required additional funds to
    execute the close out process; however, it was not yet determined if sufficient funds existed at the
    grant fiscal year level.

Biomass Crop Assistance Program (BCAP)
    During FY 2018, CCC identified a potential ADA violation related to the BCAP. During the FY 2017
    Quarterly UDO Certification process, CCC identified 12 contracts as invalid and were deobligated.
    During, FY 2018, through further analysis, CCC determined these contracts were still valid and
    obligations should be re-established. However, no funding was available in FY 2018 to re-establish
    these obligations.

United States Warehouse Act Program
    During FY 2018, CCC funding was provided to and used by FSA to reimburse the FSA Administrative
    Salaries and Expenses account for FSA personnel who performed CCC storage activities, when such
    funding was already provided in the FSA Salaries and Expenses appropriation.

Recommendation:

We recommend that management, through coordination with other necessary parties, complete the
evaluation related to the ADA matters, communicate to necessary parties (Congress, President, and
Comptroller General) if it is determined that a reportable violation occurred, and implement policies and
procedures to prevent future violations.
Noncompliance with the Federal Financial Management Improvement Act of 1996 (FFMIA)
The FFMIA, Section 803(a) requires that Federal financial management systems comply with (1) Federal
system requirements, (2) Federal accounting standards, and (3) the United States Government Standard
General Ledger at the transaction level. FFMIA emphasizes the need for agencies to have systems that
can generate timely, reliable, and useful information with which to make informed decisions to ensure
ongoing accountability. FFMIA requirements apply to Chief Financial Officers Act of 1990 (CFO Act)
agencies as well as Government Corporation Control Act Agencies that are components of a CFO Act
agency.




                                                    III-2
                                                  Exhibit III – Compliance and Other Matters, Continued


During our audit, we identified instances where the financial management systems did not substantially
comply with applicable Federal accounting standards and the United States Government Standard General
Ledger (USSGL) at the transaction level. For example:

   Federal accounting standards - We identified a material weakness related to multiple elements of
    accounting for budgetary transactions, as reported in Exhibit I, which provide an indication that CCC’s
    financial management systems were substantially non-compliant with Federal accounting standards.

   USSGL at the transaction level – As also identified by management in its Annual Statement of
    Assurance and reported within aspects of the material weakness communicated in Exhibit I, CCC’s
    financial management systems did not record certain accounting events, at the transaction level, in
    accordance with the USSGL.

Recommendation:

We recommend that management implement the recommendations presented in Exhibit I, to resolve the
instances of noncompliance with FFMIA.




                                                    III-3
       Exhibit IV – CCC’s Response to Findings




IV-1
 U.S. DEPARTMENT OF
     AGRICULTURE
 COMMODITY CREDIT
    CORPORATION




2018 ANNUAL MANAGEMENT
        REPORT
U.S. Department of Agriculture
Commodity Credit Corporation

1400 Independence Avenue, S.W.
     Washington, DC 20250

2018 Annual Management Report
                                        PREFACE

This Annual Management Report shows the results of the Commodity Credit
Corporation’s (CCC) operations for fiscal year (FY) 2018. This report meets the
requirements of the CCC Charter Act, as amended, and the Government Corporation
Control Act, as amended. The electronic version of this report can be found at
http://www.usda.gov/oig.

The Management’s Discussion and Analysis section of the report contains the purpose,
authority, mission, and goals of the Corporation; financial summaries, program
summaries, and performance measures. This report also includes the auditors’ report,
performance information, financial statements and accompanying notes.



In accordance with Federal civil rights law and U.S. Department of Agriculture (USDA)
civil rights regulations and policies, the USDA, its Agencies, offices, and employees, and
institutions participating in or administering USDA programs are prohibited from
discriminating based on race, color, national origin, religion, sex, gender identity
(including gender expression), sexual orientation, disability, age, marital status,
family/parental status, income derived from a public assistance program, political beliefs,
or reprisal or retaliation for prior civil rights activity, in any program or activity conducted
or funded by USDA (not all bases apply to all programs). Remedies and complaint filing
deadlines vary by program or incident.

Persons with disabilities who require alternative means of communication for program
information (e.g., Braille, large print, audiotape, American Sign Language, etc.) should
contact the responsible Agency or USDA's TARGET Center at (202) 720-2600 (voice and
TTY) or contact USDA through the Federal Relay Service at (800) 877-8339. Additionally,
program information may be made available in languages other than English.

To file a program discrimination complaint, complete the USDA Program Discrimination
Complaint Form, AD-3027, found online at https://www.ascr.usda.gov/filing-program-
discrimination-complaint-usda-customer and at any USDA office or write a letter
addressed to USDA and provide in the letter all of the information requested in the form.
To request a copy of the complaint form, call (866) 632-9992. Submit your completed
form or letter to USDA by: (1) mail: U.S. Department of Agriculture, Office of the Assistant
Secretary for Civil Rights, 1400 Independence Avenue, SW, Washington, D.C. 20250-
9410; (2) fax: (202) 690-7442; or (3) email: program.intake@usda.gov.

USDA is an equal opportunity provider, employer, and lender.

                                               i
                                Table of Contents
PART I: MANAGEMENT’S DISCUSSION AND ANALYSIS (UNAUDITED)......... 2
 MISSION STATEMENT ....................................................................................... 3
 HISTORY OF THE COMMODITY CREDIT CORPORATION ................................................. 4
 STRUCTURE OF THE COMMODITY CREDIT CORPORATION .............................................. 6
 ORGANIZATIONAL STRUCTURE ............................................................................ 8
 CCC PROGRAM AREAS...................................................................................... 9
 EXPECTED MARKET CONDITIONS AND GOVERNMENT PAYMENTS .................................. 11
 2018 PERFORMANCE HIGHLIGHTS SUMMARY ......................................................... 16
 FINANCIAL HIGHLIGHTS .................................................................................. 17
 MANAGEMENT CONTROLS, SYSTEMS, AND COMPLIANCE WITH LAWS AND REGULATIONS ...... 20
 FEDERAL MANAGERS’ FINANCIAL INTEGRITY ACT .................................................... 27
 FEDERAL FINANCIAL MANAGEMENT IMPROVEMENT ACT ............................................. 28
 ANTI-DEFICIENCY ACT ................................................................................... 29
 LIMITATIONS OF THE FINANCIAL STATEMENTS ........................................................ 32
PART II: PERFORMANCE SECTION (UNAUDITED) .................................... 33
 CCC STRATEGIC GOALS.................................................................................. 34
 CONSERVATION PROGRAM AREA ........................................................................ 35
 INCOME SUPPORT AND DISASTER ASSISTANCE PROGRAM AREA ................................... 38
 COMMODITY OPERATIONS AND FOOD AID PROGRAM AREA ......................................... 42
 MARKET DEVELOPMENT PROGRAM AREA ............................................................... 45
 EXPORT CREDIT PROGRAM AREA........................................................................ 51
PART III: FINANCIAL SECTION ............................................................. 55
 MESSAGE FROM THE CHIEF FINANCIAL OFFICER ..................................................... 56
 INTRODUCTION TO THE FINANCIAL STATEMENTS, REQUIRED SUPPLEMENTARY INFORMATION,
 AND OTHER INFORMATION ............................................................................... 57
 FINANCIAL STATEMENTS ................................................................................. 59
 NOTES TO THE FINANCIAL STATEMENTS ............................................................... 63
PART IV: REQUIRED SUPPLEMENTARY INFORMATION (UNAUDITED) ....... 106
PART V: OTHER INFORMATION (UNAUDITED) ...................................... 109
 SUMMARY OF FINANCIAL STATEMENT AUDIT ........................................................            110
 SUMMARY OF MANAGEMENT ASSURANCES...........................................................              111
 PAYMENT INTEGRITY ....................................................................................   112
 FRAUD REDUCTION REPORT ...........................................................................       113
 SUMMARY OF FEDERAL GRANT AND COOPERATIVE AGREEMENT AWARDS ......................                         116
APPENDIX: GLOSSARY OF ACRONYMS ................................................ 117




                                                     ii
                                    Table of Contents - Tables
Table 1: Summary of Assets ................................................................................................................................... 17
Table 2: Summary of Liabilities ............................................................................................................................... 18
Table 3: Summary of Net Cost of Operations by Strategic Goal ....................................................................... 18
Table 4: Summary of New Obligations and Upward Adjustments ..................................................................... 19
Table 5: Summary of Agency Net Outlays ............................................................................................................ 19
Table 6: Summary of Performance Measure for Riparian and Grass Buffers Acreage ................................. 36
Table 7: Summary of Performance Measure for Restored Wetland Acreage ................................................. 37
Table 8: Summary of Performance Measure for ARC/PLC program ................................................................ 41
Table 9: Summary of Performance Measure for Commodity Operations Program ........................................ 43
Table 10: Summary of Performance Measure for Market Development .......................................................... 49
Table 11: Summary of Performance Measure for GSM ...................................................................................... 53
Table 12: Summary of Performance Measure for Economic Return Ratio ...................................................... 54
Table 13: Fund Balance with Treasury .................................................................................................................. 70
Table 14: Accounts Receivable, Net ...................................................................................................................... 71
Table 15: Commodity Loans Receivable by Commodity, Net ............................................................................ 72
Table 16: Direct Loans and Defaulted Guaranteed Loans, Net ......................................................................... 76
Table 17: Total Amount of Direct Loans Disbursed (Post-1991) ....................................................................... 77
Table 18: Guaranteed Loans Disbursed ............................................................................................................... 77
Table 19: Guaranteed Loans Outstanding ............................................................................................................ 78
Table 20: Loan Guarantee Liability (Present Value Method for Post-1991 Guarantees)............................... 78
Table 21: Subsidy Expense for Direct Loans by Program and Component..................................................... 79
Table 22: Subsidy Expense for Loan Guarantees by Program and Component ............................................ 80
Table 23: Subsidy Rates for Direct Loans by Program and Component .......................................................... 80
Table 24: Subsidy Rates for Loan Guarantees by Program and Component ................................................. 81
Table 25: Subsidy Cost Allowance Balances Direct Loans ................................................................................ 81
Table 26: Schedule for Reconciling Loan Guarantee Liability ........................................................................... 82
Table 27: Commodity Inventory and Related Property ....................................................................................... 86
Table 28: General Property and Equipment ......................................................................................................... 88
Table 29: Advances to Others ................................................................................................................................ 88
Table 30: Total Liabilities ......................................................................................................................................... 89
Table 31: Debt to the Treasury, Categorized as Interest Bearing ..................................................................... 91
Table 32: Other Liabilities ........................................................................................................................................ 93
Table 33: Accrued Liabilities ................................................................................................................................... 96
Table 34: Costs and Earned Revenue by Strategic Goal and Program ......................................................... 100
Table 35: Direct and Reimbursable New Obligations and Upward Adjustments .......................................... 101
Table 36: Undelivered Orders at the End of the Period .................................................................................... 102
Table 37: Custodial Activities ................................................................................................................................ 103
Table 38: Budget and Accrual Reconciliation ..................................................................................................... 105
Table 39: Summary of Improper Payment Results ............................................................................................ 112
Table 40: Agency Transactional Control Objectives to Reduce Fraud: .......................................................... 114
Table 41: Summary of Federal Grant and Cooperative Agreement Awards and Balances ........................ 116




                                                                                  iii
                                Table of Contents – Charts
Chart 1: Government Payments 2008-2018F ....................................................................................................... 15
Chart 2: Summary of Strategic Goals .................................................................................................................... 34




                                                                            iv
Message from the Executive Vice President




                    1
 Part I: Management’s
Discussion and Analysis
      (Unaudited)




Certain information contained in this discussion is considered “forward-
looking information” as defined by the Federal Accounting Standards
Advisory Board’s (FASAB) Statement of Federal Financial Accounting
Standards (SFFAS) No. 15, Management’s Discussion and Analysis.
Such forward-looking information includes estimates and is subject to
risks and uncertainties that could cause actual results to differ materially
from this discussion.




                                     2
           COMMODITY CREDIT CORPORATION
            Management’s Discussion and Analysis (Unaudited)

                Mission Statement


The Commodity Credit Corporation is a Government-
owned and operated entity dedicated to:

  Stabilizing, supporting, and protecting farm income
   and prices.

  Conserving soil, air, and water resources and
   protecting and improving wildlife habitats.

  Maintaining balanced and adequate supplies of
   agricultural commodities and aiding in their orderly
   distribution.

  Developing new domestic and foreign markets and
   marketing facilities for agricultural commodities.




                                   3
                       COMMODITY CREDIT CORPORATION
                       Management’s Discussion and Analysis (Unaudited)


 History of the Commodity Credit Corporation
The Commodity Credit Corporation (hereinafter CCC or Corporation) is a wholly owned
United States government corporation created in 1933 to stabilize, support, and protect
farm income and prices. It was federally chartered by the CCC Charter Act of 1948
(P.L. 80-806) and its statutory authority for operations is found there and in 62 Stat. 1070;
15 U.S.C. 714, et seq. CCC is authorized to buy, sell, lend, make payments and engage
in other activities for the purpose of increasing production, stabilizing prices, assuring
adequate supplies, and facilitating the efficient marketing of agricultural commodities.
Under its Charter Act, CCC has capital stock in the amount of $100 million subscribed by
the Department of the Treasury.

CCC provides the mechanism for financing USDA’s farm price and income support
commodity programs, commodity export credit guarantees, and agricultural export
subsidies. The programs funded through CCC are administered primarily by the Farm
Service Agency (FSA) and the Foreign Agricultural Service (FAS). CCC helps maintain
balanced and adequate supplies of agricultural commodities and aids in their orderly
distribution. Further, the Federal Agriculture Improvement and Reform Act of 1996 (1996
Farm Bill) (P.L. 104-127) expanded CCC’s mandate to include funding for several
conservation programs, such as the Conservation Reserve Program (CRP), and made
conservation one of CCC’s missions. CCC has the authority to borrow up to $30 billion
from the Department of the Treasury to carry out its mission. Net losses from its
operations subsequently are restored through the congressional appropriations process.

America’s agricultural producers are assisted by CCC through commodity and farm
storage facility loans, commodity purchases, disaster assistance, and income support
payments. In addition, CCC provides incentives and payments to landowners to establish
conservation practices on their land.

The Corporation provides agricultural commodities to other federal agencies and foreign
governments. It also donates commodities to domestic and international relief agencies
as well as foreign countries. CCC assists in the development of new domestic and foreign
markets for American agricultural commodities. It also extends direct credit and
guarantees commodity sales to foreign countries throughout the world.




                                              4
                       COMMODITY CREDIT CORPORATION
                       Management’s Discussion and Analysis (Unaudited)


CCC has its own disbursing authority and utilizes the Federal Reserve Bank (FRB)
system and the Department of the Treasury to make payments. This disbursing authority
allows CCC to make payments quickly and to provide financial support to America’s
producers and farmers immediately.

CCC has multiple funding mechanisms:
   •   Under its Charter Act, CCC has a permanent indefinite borrowing authority, as
       defined by Office of Management and Budget (OMB) in Circular A-11, Preparation,
       Submission, and Execution of the Budget, to fund most of the programs operated
       out of the revolving fund. Borrowing authority permits the Corporation to incur
       obligations and authorizes it to borrow funds to liquidate the obligations. This fund
       also receives money from loan repayments, inventory sales, interest income, fees,
       and reimbursement for realized losses.
   •   Under the Federal Credit Reform Act of 1990 (FCRA), as amended, CCC also has
       a separate permanent indefinite borrowing authority to fund disbursements for
       credit reform financing as well as pre-credit reform liquidating programs.
   •   Lastly, CCC receives direct appropriations for specific programs, such as its credit
       reform programs, foreign grant and donation programs, and disaster relief.




                                              5
                       COMMODITY CREDIT CORPORATION
                       Management’s Discussion and Analysis (Unaudited)


Structure of the Commodity Credit Corporation
CCC is managed by a Board of Directors, subject to the general supervision and direction
of the Secretary of Agriculture, who is an ex-officio director and chairperson of the Board.
The Board consists of six members, in addition to the Secretary, who are appointed by
the President of the United States. All members of the Board and Corporation officers
are USDA officials. CCC officers, directly or through officials of designated USDA
agencies, maintain liaison with numerous other governmental and private trade
operations. See the current organizational structure on page eight.

CCC has no operating personnel. Its price support, storage, and reserve programs, and
domestic acquisition and disposal activities are carried out primarily through the
personnel and facilities of FSA. FAS is programmatically responsible for certain CCC
activities outside the United States. Also involved with CCC activities are USDA
Agricultural Marketing Service (AMS), USDA Natural Resources Conservation Service
(NRCS), and the United States Agency for International Development (USAID), through
an allocation transfer.

Most CCC programs are delivered through an extensive nationwide network of FSA field
offices, including approximately 2,100 USDA Service Centers and 51 State-level offices
(including Puerto Rico). This network enables CCC to maintain a close relationship with
customers, successfully addressing their needs and continually improving program
delivery.    FSA implements CCC-funded programs for income support, disaster
assistance, conservation, and international food procurement.

Though FSA provides the majority of staff for CCC, several CCC-funded programs fall
under purview of AMS, FAS or NRCS. AMS administers programs that create domestic
and international marketing opportunities for U.S. producers of food, fiber, and specialty
crops. AMS also provides the agriculture industry with valuable services to ensure the
quality and availability of wholesome food for consumers across the country.

FAS has the primary responsibility for USDA international activities - market development,
trade agreements and negotiations, and the collection and analysis of statistics and
market information. It also administers USDA export credit guarantee and certain food
aid programs and helps increase income and food availability in developing nations by
mobilizing expertise for agriculturally led economic growth.




                                              6
                      COMMODITY CREDIT CORPORATION
                      Management’s Discussion and Analysis (Unaudited)


NRCS provides leadership in a partnership effort to help American private landowners
and managers conserve their soil, water, and other natural resources. It also provides
financial assistance for conservation activities. CCC reaches out to all segments of the
agricultural community, including underserved and socially disadvantaged farmers and
ranchers to ensure that CCC programs and services are accessible to everyone.

Through a parent/child relationship, CCC allocates funding which supports various
activities led by USAID, including the Food for Peace (FFP) program. The mission of FFP
is to reduce hunger and malnutrition and ensure that all people at all times have access
to sufficient food for a healthy and productive life. FFP provides emergency food
assistance to those affected by conflict and natural disasters and provides development
food assistance to address the underlying causes of hunger. CCC provides funding for
the purchase of commodities and for transportation costs in support of FFP operations.
USAID executes the programs and the results are passed back to CCC for financial
reporting purposes.




                                             7
                      COMMODITY CREDIT CORPORATION
                       Management’s Discussion and Analysis (Unaudited)


                     Organizational Structure
                                CCC Board of Directors
                    Chairperson, Sonny Perdue, Secretary of Agriculture
             Vice Chairperson, Stephen Censky, Deputy Secretary of Agriculture
        Member, Ted McKinney Under Secretary, Trade and Foreign Agricultural Affairs
        Member, Gregory Ibach, Under Secretary, Marketing and Regulatory Programs
Member, Stephen Vaden, Principle Deputy General Counsel, Office of the General Counsel (OGC)
                   Member, Vacant*, Chief Financial Officer (CFO), USDA
                 Member, Gary Washington, Chief Information Officer, USDA


                                        CCC Officers
President, William “Bill” Northey, Under Secretary, Farm Production and Conservation (FPAC)
        Executive Vice President, Robert Stephenson, Chief Operating Officer, FPAC
 Secretary, Joy Harwood, Acting Deputy Chief Operating Officer, Enterprise Services, FPAC
                Assistant Secretary, Monique B. Randolph, Staff Specialist, FSA
                        Chief Financial Officer, Margo Erny, CFO, FPAC


                                        CCC Advisors
Associate General Counsel, Ralph A. Linden, OGC, International Affairs, Food Assistance, and
                                Farm and Rural Programs
                            White House Liaison, Carly Miller

                      * Pending Senate confirmation and/or appointment by the President.




                                                 8
                       COMMODITY CREDIT CORPORATION
                       Management’s Discussion and Analysis (Unaudited)


                          CCC Program Areas
CCC funds many programs that fall under multiple agencies within the USDA. Each CCC-
funded program helps achieve parts of both CCC’s mission and the strategic plan of the
agency under which the program falls. CCC’s mission and strategic goals are achieved
through the successful implementation of the following key program areas:

Income Support and Disaster Assistance – Income support and disaster assistance
programs (DAP) provide financial assistance to protect farmers and ranchers from
fluctuations in market conditions and unexpected natural or man-made disasters.
Assistance is provided through income support and DAP, administered by FSA.

Conservation – Conservation programs offer farmers and ranchers a variety of financial
and economic incentives to conserve natural resources on the nation’s privately owned
farmlands. These programs focus on reducing erosion, protecting streams and rivers,
restoring and establishing fish and wildlife habitats, and improving air quality through
several conservation incentive payments, technical assistance, and cost-share programs.
FSA and NRCS administer CCC conservation programs.

Commodity Operations and Food Aid – Commodity operations, funded by CCC, purchase
and deliver processed commodities under various domestic distribution programs, as well
as commodities under Title II and Title III of the Agricultural Trade Development and
Assistance Act of 1954 (Public Law 480 or P.L. 480), the Food for Progress Program.
AMS oversees the procurement, acquisition, storage, disposition, and distribution of
commodities, and the administration of the United States Warehouse Act (USWA). These
programs help achieve domestic farm program price support objectives, produce a
uniform regulatory system for storing agricultural products, and ensure the timely
provision of food products for domestic and international food assistance programs and
market development programs.

Foreign Market Development Programs and Export Credit Programs – USDA agencies
work to expand and maintain markets for agricultural products, and are critical to the long-
term health and prosperity of the U.S. agricultural sector. With 95 percent of the world’s
population living outside the United States, future growth in demand for food and
agricultural products will occur primarily in overseas markets.

   •   Foreign Market Development (FMD) (Cooperator) Programs - CCC funds used in
       market development programs play a critical role in helping to open new markets
       and in facilitating U.S. competitiveness by providing technical assistance in the


                                              9
                       COMMODITY CREDIT CORPORATION
                       Management’s Discussion and Analysis (Unaudited)


       utilization of U.S. commodities and promoting the quality, availability, value and
       health characteristics of U.S. products. Working in partnership with U.S. private
       industry associations, the programs provide support for the growth of mutually
       beneficial trade. FAS administers CCC FMD programs.


   •   Export Credits – CCC export credit guarantee programs, administered by FAS in
       conjunction with FSA, serve to increase and maintain exports of U.S. agricultural
       commodities by expanding access to trade finance which assists countries,
       particularly developing countries and emerging markets, in meeting their food and
       fiber needs. To expand exports of U.S. agricultural commodities, the export credit
       programs support financing of sales of agricultural commodities, and sales of
       goods and services to establish or improve facilities and infrastructure in emerging
       markets.

The current Farm Bill, which impacts many programs, expired at the end of fiscal year
2018. Current and future CCC programs could be impacted by the provisions that may
be included in a new Farm Bill, which had not been enacted by Congress as of the date
of this Annual Management Report.




                                             10
                            COMMODITY CREDIT CORPORATION
                             Management’s Discussion and Analysis (Unaudited)


                 Expected Market Conditions and
                    Government Payments1
Farm producers’ net cash income 2 and net farm income 3 are both forecast to decline in
2018 relative to 2017 4 estimates. Crop, animal, and animal related receipts are each
forecast to remain stable, showing only fractional changes, as most prices show little
change but remain relatively weak. In some cases, higher quantities sold offset lower
expected prices.

Based on USDA’s Economic Research Service (ERS) projections made in August 2018,
net cash income for 2018 was forecast at $91.5 billion, down 12.0 percent from 2017.
Net farm income, a broader measure of profits, was forecast to decline 13.0 percent
relative to 2017 to $65.7 billion. The fall in net cash income reflects farm cash receipts
that are stable but accompanied by a sharp increase in farm production expenses. The
smaller drop in net farm income also reflects the accounting for noncash items, including
changes in inventories, economic depreciation, and gross imputed rental income of
operator dwellings.

The projected drop in 2018 net farm income follows a 22.5 percent increase in 2017. The
2018 projection of $65.7 billion for 2018 is down dramatically compared with the record

1
  The data in this section was drawn from the “2018 Farm Sector Income Forecast” published in August
2018 (USDA, Economic Research Service). Forecasts do not include payments under the Market
Facilitation Program, as details were released too late to incorporate in the forecast. Commodity supply,
demand, and price projections are published monthly by USDA in the World Agricultural Supply and
Demand Estimates (USDA, Office of the Chief Economist). In addition, USDA’s 10-year supply,
demand and price projections are issued annually in February (USDA, Office of the Chief Economist).
2
  Net cash income is gross cash income (for example, from cash receipts for crop and livestock sales, and
from government payments) less all cash expenses generated during the calendar year including for feed,
seed, fertilizer, property taxes, interest on debt, wages to hired labor, contract labor and rent to non-operator
landlords. Higher net cash income means more cash available to draw down debt, pay taxes, cover family
living expenses, and invest. It is not a comprehensive measure of profitability, however, because it does
not account for noncash income changes, including adjustments in farm inventory, accounts payable,
accounts receivable, and capital consumption.
3
  Net farm income refers to the return (both monetary and non-monetary) to farm operators for their labor,
management and capital, after all production expenses have been paid (that is, gross farm income minus
production expenses). Net cash income includes only cash receipts and expenses; net farm income is net
cash income plus the value of home consumption, changes in inventory, capital replacement, and implicit
rent and expenses related to the farm operator’s dwelling that are not reflected in cash transactions during
the year.
4
  All data in “Expected Market Conditions and Government Payments”, unless otherwise noted, are on a
calendar year basis.

                                                      11
                      COMMODITY CREDIT CORPORATION
                       Management’s Discussion and Analysis (Unaudited)


high of $123.8 billion of 2013. In nominal terms, net farm income in 2018 would be the
lowest since 2006. In real terms (adjusted for inflation), 2018 net farm income would be
the lowest since 2002.

Government payments made in 2018 (those made "directly" by the U.S. Government to
farmers and ranchers such as Agriculture Risk Coverage (ARC), Price Loss Coverage
(PLC), and conservation program payments) were forecast to decline 17 percent relative
to 2017 to approximately $9.5 billion. Refer to the Government Payments Forecast
section for further detail.

Impact of Trade Mitigation Measures Not Yet Estimated

The 2018 forecast for government payments and thus 2018 net farm income does not
consider measures to respond to the impact of retaliatory tariffs on U.S. agricultural
goods. USDA announced details in late August just prior to the release of the new farm
income forecasts. The bulk of the initial payments to be made under the Market
Facilitation Program (MFP) are expected to reach $4.7 billion, and cover soybeans,
wheat, cotton, sorghum, corn, dairy and hog production. Almonds and sweet cherries
were added to the list in late September 2018. MFP payments began in September, with
the majority of payments expected to be made in early fiscal year 2019 when the impacted
crops will be harvested. The actual amount could also be adjusted in cases where a
producer’s adjusted gross income exceeds the limit of $900,000 or where payments
would exceed the $125,000 payment limit. The latest fact sheet at the time of publication
of this report related to MFP can be found at https://www.farmers.gov/sites/default
/files/documents/Market_Facilitation_Program_Fact_Sheet_September_2018B.pdf.

In addition to the MFP, there will be a Food Purchase and Distribution Program
implemented during fiscal year 2019 to purchase up to $1.2 billion in commodities unfairly
targeted by unjustified retaliation to be administered by AMS. These will be spread over
several months, so they will likely have only a small impact on the 2018 forecast. The
potential boost to farm income will be also less apparent as these purchases will have a
more indirect benefit to producers than direct payments.

Cash Receipts Were Expected to Show Little Change in 2018

The August projections indicate that farm producers’ cash receipts were forecast to
remain stable in 2018. Both crop, animal and animal related receipts were forecast to be
relatively unchanged from 2017. Crop cash receipts (the cash income from crop sales

                                             12
                       COMMODITY CREDIT CORPORATION
                        Management’s Discussion and Analysis (Unaudited)


during 2018) were forecast to slip fractionally from 2017 levels, while cash receipts for
broilers, hogs, and cattle/calves were expected to rise just fractionally, after posting
substantial gains in 2017.

Crop cash receipts were forecast to fall $0.5 billion in 2018 as prices remain relatively low
for most field crops. Wheat is the key exception, with receipts forecast to increase 6.3
percent from 2017 despite an expected decline in quantities sold which is more than
outweighed by higher prices. Corn receipts were expected to decline 1.8 percent from
2017 on an expected decline in quantities sold. Corn is the largest crop by both volume
and total value. Soybean receipts are expected to dip slightly (down 0.1 percent) in 2018
as lower prices offset higher quantities sold. Rice receipts were forecast to decrease 1.8
percent, with lower quantities sold after a smaller crop in 2017. The expected small
increase in 2018 cotton receipts reflects higher upland cotton receipts that outweigh a
decline in cottonseed receipts.

Vegetable and melon cash receipts were expected to fall 3.8 percent in 2018, despite
expected increases in dry bean and potato receipts. Cash receipts for fruits and nuts
were expected to decline slightly (2.2 percent) in 2018.

Milk receipts were expected to decrease 7.4 percent in 2018, due to a projected price
decline that outweighs a higher quantity sold. Cash receipts from cattle and calves were
expected to fall 1.1 percent in 2018 as forecast price declines more than offset higher
quantities sold. Hog cash receipts were expected to decline 7.7 percent, reflecting a large
price drop. Poultry and egg cash receipts were expected to rise significantly (12.1
percent) in 2018, as both broiler and egg receipts increase on higher prices and higher
volumes. These gains easily outweigh a 17.8 percent decline in turkey cash receipts due
to lower prices and lower quantities.

Farm Production Expenses Were Expected to Increase

For 2018, producers’ production expenses were forecast higher at $365.9 billion, up from
$354.1 billion in 2017, an increase of 3.3 percent. The net increase reflects forecast
higher expenses for fuel/oils, interest expenses, hired labor, and feed. The biggest dollar
increase was $3.2 billion for interest, followed by $2.6 billion for feed, $2.3 billion for
fuels/oil, and $1.5 billion for hired labor. One bright spot for input costs was a forecast
$1.0 billion decline (4.6 percent) for fertilizer, lime, and soil conditioners. This continues
a 6-year downward trend for fertilizer that reflects low natural gas prices and a big
increase in domestic nitrogen fertilizer production coming on stream in recent years.

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                       Management’s Discussion and Analysis (Unaudited)


A forecast 17.8 percent increase for fuels and oils would result in the highest spending
on this expense since 2014 and the second consecutive yearly increase after a few years
of low fuel costs due to weak oil prices. In addition, labor costs were forecast to increase
in 2018 by 5.1 percent due to the tight labor market and wage rate increases. Interest
expenses were expected to increase by 17.3 percent, driven by higher forecast debt
levels and rising interest rates.

Farm Equity Expected to Increase

USDA’s ERS expects farm sector equity in 2018 to increase by 0.8 percent but debt-to-
asset levels for the sector were forecast to increase slightly, continuing an upward trend
that started in 2012. Both producers’ farm sector assets and debt are expected to rise,
with assets projected up 1.2 percent and farm sector debt up 3.5 percent relative to 2017.
The increase in farm sector assets is largely due to an increase in farm real estate assets.
The increase in farm sector debt largely reflects higher real estate debt.

Government Payments Were Forecast Lower
Direct government farm program payments include payments from the programs created
in the Agricultural Act of 2014 (2014 Farm Bill) as well as other programs, but do not
include Federal Crop Insurance Corporation insurance indemnity payments. Direct
government farm program payments in 2018 were forecast to decline by 17.4 percent,
$2.0 billion, from 2017 levels (see Chart 1). While overall conservation payments are
expected to show little change in 2018, large declines are anticipated for ARC and PLC.
Combined payments are projected at $3.5 billion in 2018, down 50 percent from 2017,
and the lowest since the implementation of the programs under the 2014 Farm Bill. The
decline mainly reflects decreasing revenue guarantees under ARC due to lower prices in
recent years.

PLC is a price-based program while ARC is a revenue-based program. The $1.2 billion
(37 percent) decrease in PLC payments in 2018 mostly reflects expected increases in
2017 market-year prices for commodities (including wheat and long-grain rice) where
payments are expected, reducing their 2018 calendar year PLC payments. The $2.3
billion decrease in ARC payments from calendar year 2017 (2016 crop year ARC
payments) to calendar year 2018 (2017 crop year ARC payments) reflects generally lower




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                       Management’s Discussion and Analysis (Unaudited)


2017 county revenue guarantees than for 2016. Prices have declined for the crops
enrolled in ARC (i.e., corn), but yields have increased, so actual revenues have not fallen
as much as prices. Almost all corn and soybean base acres, and almost 60 percent of
wheat base acres, elected the ARC program for 2014-2018 crops.

In addition to introducing the ARC and PLC programs, the 2014 Farm Bill reduced the
scope of CRP. The CRP enrollment ceiling for fiscal year 2018 was 24 million acres,
down from the 32 million acre ceiling in the Food, Conservation, and Energy Act of 2008
(2008 Farm Bill). Even though acreage declined, CRP payments do not vary greatly from
year-to-year (at slightly less than $2 billion) because land rents have increased and more
costly practices (such as filter strips and shelterbelts) have been enrolled.

Marketing Loan Benefits are composed of Marketing Loan Gains and Loan Deficiency
Payments (LDP). These are forecast to decline to a marginal amount in 2018, reflecting
expected higher prices for wheat compared to 2017. Prices for other crops are not
forecast to be low enough to trigger marketing loan benefits in 2018. The Dairy Margin
Protection Program (MPP) is forecast to pay out $218.3 million in 2018, after payments
in 2017 were minimal. This largely reflects adjustments in the program made under the
Bipartisan Budget Act of 2018.

                       Chart 1: Government Payments 2008-2018F




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                       COMMODITY CREDIT CORPORATION
                       Management’s Discussion and Analysis (Unaudited)


      2018 Performance Highlights Summary
The CCC mission and strategic goals are achieved through the successful
implementation of key programs.

CCC met its fiscal year 2018 goals for both riparian/grass buffers and restored wetland
acres. However, CRP enrollment has declined from its peak in 2008 due to disruptions
in the CRP authorization and varying crop prices. These factors reduced the availability
for enrollment and encouraged landowners to bring land back into crop production. Total
CRP enrollment currently stands at 22.6 million acres. These acres help reduce nitrogen,
phosphorus, and sediment pollution and runoff by more than 85 percent annually.

The ARC and PLC programs enable producers to make a one-time election to reallocate
crop bases, update program payment yields and select the type of coverage (price
protection, county revenue protection, and/or individual revenue protection) for crop years
2014-2018. CCC met its goal by enrolling 1.67 million farms into these programs.

CCC did not meet its annual performance goal of conducting warehouse examinations,
on average, at least annually. CCC has implemented a licensing requirement, including
inspection and examination procedures for all port and trans-loading facilities receiving,
storing, handling, and shipping export food assistance commodities for the USAID and
CCC food assistance programs P.L. 480, Title II and III, Food for Progress, Section 416(b)
and McGovern-Dole International Food for Education and Child Nutrition programs.
Commodities purchased by CCC are stored or handled only through International Food
Aid Warehouses licensed under USWA.

In fiscal year 2018, the CCC Export Credit Guarantee Program supported $2 billion in
exports of U.S. commodities. Program use is tied to risk perception in the international
financial markets, with program use increasing as the perception of risk increases. For
2018 program use increased by 25 percent over fiscal year 2017. Fiscal year 2018 saw
the program maintain its negative budget subsidy rate, meaning that income was
projected to be sufficient to cover the program’s operating costs and any losses.




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                      COMMODITY CREDIT CORPORATION
                      Management’s Discussion and Analysis (Unaudited)


                         Financial Highlights
CCC provides financial information to stakeholders to facilitate decision-making in
execution of CCC’s mission to stabilize, support, and protect farm income and prices.
The information that follows has been prepared from the accounting records of the
Corporation as of September 30, 2018, in accordance with the United States Generally
Accepted Accounting Principles (U.S. GAAP) promulgated by the FASAB. CCC has a
parent/child relationship with the USAID. The child fund activities are part of the CCC
financial statements.

Assets: The Consolidated Balance Sheet reflected Total Assets of $5.83 billion as of
September 30, 2018. This mainly consisted of $2.90 billion in Fund Balance with
Treasury and $2.19 billion in Direct Loans and Loan Guarantees, Net.

                              Table 1: Summary of Assets



                                                                         In Millions
     Fund Balance with Treasury                                          $ 2,897
     Accounts Receivable, Net                                                   64
     Commodity Loans, Net                                                      476
     Direct Loans and Loan Guarantees, Net                                   2,189
     Other                                                                     207
     Total Assets                                                        $   5,833




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                        COMMODITY CREDIT CORPORATION
                        Management’s Discussion and Analysis (Unaudited)


Liabilities:
The Consolidated Balance Sheet reflected Total Liabilities of $16.72 billion as of
September 30, 2018. This mainly consists of $10.65 billion in Debt to the Treasury and
$4.83 billion in Accrued Liabilities.

                               Table 2: Summary of Liabilities

                                                                               In Millions
  Debt to the Treasury                                                     $      10,647
  Resources Payable to Treasury                                                       827
  Accounts Payable                                                                    121
  Grants Payable                                                                      208
  Accrued Liabilities                                                               4,829
  Other                                                                                 91
  Total Liabilities                                                        $      16,723


Ending Net Position:
CCC’s Net Position, as of September 30, 2018, was ($10.89) billion. Net Position includes
Capital Stock, Unexpended Appropriations, and Cumulative Results of Operations.

Net Cost of Operations:
Net Cost of Operations is categorized based on CCC’s strategic goals. Net Cost of
Operations was $9.61 billion for the year ended September 30, 2018.

              Table 3: Summary of Net Cost of Operations by Strategic Goal

                                                                               In Millions
    Provide a Financial Safety Net for Farmers and Ranchers                $       5,066
    Increase Stewardship of Natural Resources While Enhancing the
    Environment                                                                   2,532
    Ensure Commodities are Procured and Distributed Effectively and
                                                                                     250
    Efficiently
    Increase U.S. Food and Agricultural Exports                                   1,761
    Total Net Cost of Operations                                           $      9,609




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                      COMMODITY CREDIT CORPORATION
                      Management’s Discussion and Analysis (Unaudited)


New Obligations and Upward Adjustments:
New Obligations and Upward Adjustments were $14.73 billion for the year ended
September 30, 2018.


            Table 4: Summary of New Obligations and Upward Adjustments


                                                                             In Millions
    New Obligations and Upward Adjustments:
     Direct                                                                  $ 14,729
     Reimbursable                                                                   1
    Total Obligations                                                        $ 14,730


Net Outlays:
Net Outlays were $12.32 billion for the fiscal year ended September 30, 2018.


                       Table 5: Summary of Agency Net Outlays


                                                                               In Millions
    Net Outlays:
     Outlays, Net                                                        $       12,352
     Less: Distributed Offsetting Receipts                                          (32)
    Total Agency Net Outlays                                             $       12,320




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        Management’s Discussion and Analysis (Unaudited)


 Management Controls, Systems, and
Compliance with Laws and Regulations
      FMFIA and FFMIA Assurance Statement:




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                      COMMODITY CREDIT CORPORATION
                      Management’s Discussion and Analysis (Unaudited)


       Federal Managers’ Financial Integrity Act
Overview
The Federal Managers’ Financial Integrity Act (FMFIA) requires ongoing evaluations of
internal controls and financial management systems. These evaluations lead to an
annual statement of assurance that:

   •   Obligations and costs comply with applicable laws and regulations;

   •   Federal assets are       safeguarded      against    fraud,       waste,   abuse,   and
       mismanagement;

   •   Transactions are accounted for and properly recorded; and

   •   Financial management systems conform to standards, principles, and other
       requirements to ensure that federal managers have timely, relevant, and
       consistent financial information for decision-making purposes.

CCC evaluated its internal controls in accordance with OMB Circular A-123,
Management’s Responsibility for Enterprise Risk Management and Internal Control.

CCC operates a comprehensive internal control program. This program ensures
compliance with the requirements of FMFIA and other laws, and OMB Circular A-123,
Appendix A. The Corporation, and all managers conducting Corporation business or
acting on behalf of the Corporation must ensure that their programs operate efficiently
and effectively, and comply with relevant laws. They must also ensure that financial
management systems conform to applicable laws, standards, principles, and related
requirements. In conjunction with the USDA's Office of the Inspector General (OIG) and
the Government Accountability Office (GAO), CCC’s management works decisively to
determine the root causes of its material weaknesses so that it can direct resources to
focus on their remediation.

CCC remains committed to reducing and eliminating the risks associated with its
deficiencies. It also strives to efficiently and effectively operate its programs in
compliance with FMFIA and other applicable laws and regulations.




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                      Management’s Discussion and Analysis (Unaudited)


Fiscal Year 2018 Results
Based on the results of the evaluations, CCC can provide reasonable assurance that
internal controls are in place and operating effectively, except for the material
weaknesses and significant deficiencies discussed in this section, resulting from its
financial statement audits and annual A-123, Appendix A assessments.

CCC ended fiscal year 2018 with two open material weaknesses. The material weakness
of accounting estimates resulting from the 2016 financial statement audit and the
significant deficiency of other accounting estimates resulting from the OMB Circular A-
123, Appendix A assessment were consolidated with the material weakness of
accounting estimates resulting from the 2017 financial statement audit. The material
weakness of accounting estimates has been reassessed to a significant deficiency and
is in the process of being cleared by OIG and OCFO. The material weaknesses of
financial reporting and maintenance of accounting records were resolved during the fiscal
year. The material weakness related to funds control was consolidated with the material
weakness of accounting for budgetary transactions, which was confirmed to continue to
exist.

The significant deficiency of reconciling Fund Balance with Treasury was confirmed to
still exist in 2018, and one deficiency of maintaining, controlling and monitoring the
general ledger was elevated to a significant deficiency resulting from the OMB Circular
A-123, Appendix A assessment.

The Chief Financial Officer’s Statement of Assurance provides reasonable assurance that
CCC's system of internal control complies with FMFIA objectives.

Federal Financial Management Improvement Act
The Federal Financial Management Improvement Act (FFMIA) is designed to improve
financial and program managers’ accountability, provide better information for decision-
making, and improve the efficiency and effectiveness of federal programs. FFMIA
requires that financial management systems provide reliable, consistent disclosure of
financial data in accordance with U.S. GAAP and standards. These systems must also
comply substantially with the following three areas of FFMIA: (1) federal financial
management system requirements; (2) applicable federal accounting standards; and (3)
the United States Standard General Ledger (USSGL) at the transaction level.




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                       COMMODITY CREDIT CORPORATION
                       Management’s Discussion and Analysis (Unaudited)

During fiscal year 2018, CCC evaluated its financial management systems to assess
substantial compliance with FFMIA. CCC management made the determination that CCC
demonstrated substantial compliance with Section 1; however, CCC is not substantially
compliant with Section 2, applicable accounting standards, or 3, the USSGL at the
transaction level, with respect to funds control.

CCC plans to correct the funds control material weakness through full migration to the
Department’s enterprise solution under the Financial Management Modernization
Initiative (FMMI). The FMMI system will be CCC’s integrated general ledger system at
the transaction level, providing management with timely information to monitor and control
the status of budgetary resources recorded in the general ledger. CCC continues to
implement programs into FMMI for full funds control at the transaction level. CCC
anticipates that when all material programs are fully implemented, CCC will be
substantially compliant with Section 3 for FFMIA.

CCC management continued to make significant progress in fiscal year 2018 toward
implementing complete funds control; however, the lack of the financial system
functionality to record all obligations at the transaction level at the time the obligation
occurs increases the risk that funds could be disbursed or obligations incurred with no or
insufficient budget authority to fund the expense or obligation. Although CCC
implemented manual controls in order to compensate for the system’s inherent limitation,
the controls may not be adequate to eliminate the risks of an ADA violation occurring and
may not prevent or detect violations timely.

CCC implemented several business process and system improvements to record, track,
and report obligations at the detail transaction level, which is a major step towards
mitigating CCC’s material weakness. A phased implementation has been in progress to
bring various CCC program and financial management applications into full compliance
with FFMIA. Complete implementation for full funds controls is targeted for completion
by fiscal year 2021.



                           Anti-Deficiency Act
During fiscal year 2018, CCC management continued to analyze and investigate in
coordination with the USDA OGC, USDA Office of the Chief Financial Officer, and OMB
various potential instances of non-compliance with the ADA. Such instances either (1)
occurred and were identified in prior years; (2) occurred in a prior year but were identified


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                       COMMODITY CREDIT CORPORATION
                       Management’s Discussion and Analysis (Unaudited)


in the current year; or (3) occurred and were identified in the current year. The following
summarizes those potential violations.

In fiscal year 2018, CCC confirmed two violations of the ADA:

In fiscal year 2016, CCC expended approximately $46.1 million in interest to the
Department of the Treasury, $16.2 million more than the apportioned amount of $29.9
million. After further review of the legal authority of CCC with respect to the apportionment
requirements, CCC was informed by OMB and OGC that it was a violation. CCC
subsequently received a new apportionment in April 2016 that cured the violation.
Completion of a report to the President and Congress, detailing relevant facts and a
statement of actions taken, is planned for fiscal year 2019.

Agriculture Risk Coverage – County (ARC-CO): On November 10, 2016, OMB approved
an ARC-CO apportionment providing a total of $851 million for crop year 2017 ARC
funding. This funding was divided between ARC-CO ($776 million) and ARC – Individual
($75 million). As part of fiscal year-end close for fiscal year 2017, CCC recorded an
obligation of $2.3 billion for crop year 2017 ARC-CO. This exceeded the apportioned
amount by $1.5 billion. Completion of a report to the President and Congress, detailing
relevant facts and a statement of actions taken, is planned for fiscal year 2019.

In fiscal year 2018, CCC reported the following potential violations of the ADA:

Food for Progress: In fiscal year 2017, CCC paid Food for Progress administrative
invoices from freight funds totaling over $1 million, when there was no funding remaining
obligated for this agreement. Documentation of the background and statement of facts
and analysis was provided to OGC in September 2018.

Tree Assistance Program (TAP): During fiscal year 2018, CCC identified TAP contracts
for program years 2014, 2015, and 2017 that were approved but not entered into the
program application, and therefore no related obligations were recorded. Documentation
of the background and statement of facts and analysis was still underway as of September
30, 2018.

Non-Insured Assistance Program (NAP) Frost Freeze (FFN): CCC identified NAP
payments exceeding apportionment by $888. Documentation of the background and
statement of facts and analysis was still underway as of September 30, 2018.

ARC-CO: In fiscal year 2018, CCC identified crop year 2017 enrollments for the ARC-CO
program that exceeded available funding at the time of enrollment approval.

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                       COMMODITY CREDIT CORPORATION
                       Management’s Discussion and Analysis (Unaudited)


Documentation of the background and statement of facts and analysis was still underway
as of September 30, 2018.

USAID grants: Pursuant to the Grants Oversight and New Efficiency (GONE) Act, CCC
is required to report quarterly, the number of federal grant and cooperative agreement
awards and balances of USAID for which closeout has not yet occurred but for which the
period of performance has elapsed more than two years with zero and undisbursed
balances. At the end of the third quarter of fiscal year 2018, USAID reported to CCC
grants that had not been closed out in the greater than 5-years category. As part of the
grant closeout in fiscal year 2018, CCC identified certain grants that required additional
funds to perform the grant closeout. Documentation of the background and statement of
facts and analysis was still underway as of September 30, 2018.

USWA: During fiscal year 2018 FSA used CCC funds to reimburse the Administrative
Salaries and Expenses account for FSA personnel who performed CCC storage activities.
Documentation of the background and statement of facts and analysis was still underway
as of September 30, 2018.

Biomass Crop Assistance Program: During the fiscal year 2017 Quarterly Unliquidated
Obligations (ULO) Certification process, CCC identified 12 contracts that were invalid and
required deobligation. After further analysis in fiscal year 2018, CCC determined that
such contracts should be reestablished. However, no funding was available in fiscal year
2018 to reestablish the related obligations. Documentation of the background and
statement of facts and analysis was still underway as of September 30, 2018.

Other potential ADA violations:

CRP annual rental: During fiscal year 2017, management identified that it had not
obligated the full value of multi-year (10-15 years) contracts at the time of contract
execution. As a result, CCC recorded a retrospective adjustment of $10 billion to increase
undelivered orders (UDO) beginning balance in fiscal year 2017. As of September 30,
2018, CCC continues to evaluate the facts and circumstances of the potential ADA, in
consultation with FSA-OGC, OIG-OGC, and GAO.

Emergency Forestry CRP: CCC failed to record the obligation for the full value of the long-
term contract when the contract was signed. As a result, CCC obligated a total of $2.2
million for long-term contracts. Because the facts and circumstances are similar, the
status of this potential ADA violation is linked to the continuing research on the CRP
annual rental potential ADA violation.


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                       Management’s Discussion and Analysis (Unaudited)


       Limitations of the Financial Statements
The principal financial statements have been prepared to report the financial position and
results of operations of the entity, pursuant to the requirements of 31 U.S.C. 3515 (b),
Financial Statements of Agencies. The statements have been prepared from the books
and records of the entity in accordance with U.S. GAAP for federal entities and the formats
prescribed by OMB. Reports used to monitor and control budgetary resources are
prepared from the same books and records. The statements should be read with the
realization that they are for a component of the U.S. Government, a sovereign entity.




                                             32
Part II: Performance
Section (Unaudited)




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                           COMMODITY CREDIT CORPORATION
                              Performance Section (Unaudited)

                         CCC Strategic Goals
Given that most of CCC services are carried out by the employees of FSA, AMS, NRCS,
FAS and USAID, the mission of CCC aligns towards the strategic goals of the Department
as well as to the strategic goals of FSA, AMS, NRCS and FAS. Each of these strategic
goals, in turn, has objectives that support the results that each agency wants to achieve.
The performance measures allow CCC to tangibly measure how well it achieved these
objectives without creating a duplicate reporting burden. The chart below summarizes
the relationship between the current USDA strategic goals and each agency’s strategic
goals, and CCC program areas.
                          Chart 2: Summary of Strategic Goals




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                               Performance Section (Unaudited)

                 Conservation Program Area
                            MISSION ELEMENT
    Conserving soil, air, and water resources and protecting and improving wildlife
                                        habitats


Program Overview

CRP encourages producers to plant long-term, resource-conserving perennial vegetative
covers to improve water and air quality, control soil erosion, sequester carbon, and
enhance wildlife habitat on land formerly used for agricultural production. In return, the
program provides participants with annual rental payments, cost-sharing implementation
costs, and technical assistance. Contract terms run between 10 and 15 years. CRP is
designed to restore and enhance wetland and riparian areas to improve water quality and
provide quality habitat for waterfowl and other wildlife.

The program includes several initiatives for wetland restoration and enhancement. CRP
wetland initiatives include the 582,000-acre Floodplain Wetland Restoration Initiative, the
250,000-acre Bottomland Hardwood Timber Initiative, the 768,000-acre Non-Floodplain
and Playa Wetland Restoration Initiative, and the 600,000-acre Prairie Pothole Duck
Nesting Habitat Initiative. CRP includes a number of riparian practices that are accepted
on a continuous basis. A component of CRP, "Grassland", is designed to enroll lands
already in grass covers. This practice helps landowners and operators protect grassland,
including rangeland and pastureland, and mitigates grassland conversion to cropland or
development. The program emphasizes support for grazing operations, plant and animal
biodiversity, and eligible land containing shrubs and forbs.

Summary of Program Results
CRP buffer practice is estimated to end fiscal year 2018 at 1.53 million enrolled acres.
Wetland practice is expected to end the year at 2.29 million enrolled acres.

Total CRP enrollment currently stands at 22.6 million acres. These acres help reduce
nitrogen, phosphorus, and sediment pollution by more than 85 percent annually on
enrolled lands. Buffers intercept runoff into adjacent land during crop production. CRP
also helps increase carbon sequestered in enrolled soils and vegetation. Overall, CRP
efforts contribute to increased wildlife populations, and have added more than two million
ducks to the Prairie Pothole Region annually, protecting Sage Grouse populations in
Eastern Washington and Lesser Prairie Chicken populations in the southern Great Plains,

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                               COMMODITY CREDIT CORPORATION
                                   Performance Section (Unaudited)

and increasing ring-necked pheasant and other grassland bird populations across the
nation.

Table 6: Summary of Performance Measure for Riparian and Grass Buffers Acreage

                                                                                 FY 2018
 Performance Measure      FY 2014    FY 2015    FY 2016       FY 2017
                                                                        Target    Actual     Result
 CRP: acres of riparian
 and grass buffers
                            1.82       1.77       1.70         1.60      1.60      1.53       Met*
 (cumulative and in
 million acres)
 *Threshold range: +/- 0.5 million acres

 Rationale for Met Range: Management Determination
 Data Assessment of Performance Measure
 Data source: The data source for this measure is the National CRP Contract Data Files.
 Completeness of Data: The targets and actual data are cumulative (acres under contract at the
 end of a fiscal year). The measure reports national acres under contract with the following buffer
 practices: Grass Filter Strips, Riparian Buffers, Wildlife Habitat Buffers on Marginal Pasturelands,
 and Buffers established under the State Acres for Wildlife Enhancement. There are no known
 data limitations.


 Reliability of Data: USDA considers the data to be reliable.

 Quality of Data: Overall, the quality of the data is good.




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        Table 7: Summary of Performance Measure for Restored Wetland Acreage

                                                                                 FY 2018
 Performance Measure       FY 2014   FY 2015    FY 2016       FY 2017
                                                                        Target   Actual     Result

 CRP: restored wetland
                            2.00       1.93       2.09         2.16      1.90     2.29       Met
 acreage (million acres)
 Threshold range: +/- 0.5 million acres

 Rationale for Met Range: Management Determination
 Data Assessment of Performance Measure
 Data source: The data source for this measure is the National CRP Contract Data Files.

 Completeness of Data: The targets and actual data are cumulative (acres under contract at the
 end of a fiscal year). The measure reports national acres under contract with the following wetland
 practices: Wetland Restoration, Marginal Pastureland Buffers, Bottomland Trees, Shallow Water
 Areas for Wildlife, Duck Nesting Habitat, and Farmable Wetlands Programs. There are no known
 data limitations. Acres reported include associated upland buffers.

 Reliability of Data: USDA considers the data to be reliable.

 Quality of Data: Overall, the quality of the data is good.




Challenges for the Future

The biggest challenges in both the near and long-term are factors largely outside the
control of CCC. One such challenge is the expiration of the current Farm Bill at the end
of fiscal year 2018, and uncertainty about what provisions will be included in a new Farm
Bill. Statutory changes to the maximum acreage enrollment, eligibility, and payments all
have the potential to alter how many acres are enrolled in buffer and wetland restoration
practices. Another challenge is crop prices; an increase in prices typically results in less
enrollment whereas a decrease in prices often leads to increased enrollment. These
market fluctuations have the potential to impact whether CCC meets its buffer and
wetland restoration targets.




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                               Performance Section (Unaudited)

       Income Support and Disaster Assistance
                  Program Area
                            MISSION ELEMENT
            Stabilizing, supporting, and protecting farm income and prices



Program Overview
CCC provides billions of dollars in income support and disaster assistance payments
each year to agricultural commodity producers. These payments stabilize, support, and
protect farm income. CCC payments for these programs are driven by commodity market
prices, payment eligibility rules established in public policy, and natural disasters. CCC
payments are best explained in the context of a commodity crop year which does not
directly correspond to financial statement reporting.

The ARC and PLC programs enable producers to make a one-time election to reallocate
crop bases, update program payment yields and select the type of coverage (price
protection, county revenue protection, and/or individual revenue protection) for crop years
2014-2018. Enrollment in the elected coverage must be done on an annual basis.

MFP was announced August 30, 2018, with signup starting September 4, 2018. This
program authorizes payments to producers with commodities that have been significantly
impacted by tariff actions of foreign governments resulting in the loss of traditional
exports. Eligible producers or owners of the following designated commodities are
eligible for MFP for the 2018 crop or marketing year: corn, cotton, sorghum, soybeans,
wheat, dairy, hogs, fresh sweet cherries and shelled almonds. Enrollment will end
January 15, 2019.

CCC offers additional programs and services to help communities, farmers, ranchers and
businesses mitigate and recover from natural disaster events.

   •   NAP, reauthorized by the 2014 Farm Bill and administered by the CCC, provides
       financial assistance to producers of non-insurable crops to protect against natural
       disasters that result in lower yields or crop losses, or prevents crop planting.

   •   Livestock Forage Disaster Program (LFP) provides compensation to eligible
       livestock producers that have suffered grazing losses due to drought or fire on land


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       that is native or improved pastureland with permanent vegetative cover or that is
       planted specifically for grazing.

   •   Livestock Indemnity Program (LIP) provides benefits to livestock producers for
       livestock deaths in excess of normal mortality caused by adverse weather or by
       attacks by animals reintroduced into the wild by the Federal Government. In
       addition, LIP provides benefits to livestock producers for livestock that are injured
       by an eligible loss condition but not killed, and are sold at a reduced price.

   •   Emergency Assistance for Livestock, Honeybees, and Farm-Raised Fish (ELAP)
       offers emergency assistance to eligible producers of livestock, honeybees and
       farm-raised fish for losses due to disease (including cattle tick fever), adverse
       weather, or other conditions, such as blizzards and wildfires, not covered by LFP
       and LIP.

   •   TAP provides financial assistance to qualifying orchardists and nursery tree
       growers to replant or rehabilitate eligible trees, bushes, and vines damaged by
       natural disasters.

The MPP for Dairy Producers provides dairy producers catastrophic coverage, at no cost
to the producer, other than an annual $100 administrative fee; and various levels of buy-
up coverage. Catastrophic coverage provides payments to participating producers when
the national dairy production margin is less than $4.00 per hundredweight. The national
dairy production margin is the difference between the all-milk price and average feed
costs. Producers may purchase buy-up coverage that provides payments when margins
are between $4.00 and $8.00 per hundredweight. To participate in buy-up coverage, a
producer must pay a premium that varies with the level of protection the producer elects.

Marketing Assistance Loan Program (MAL) provides producers interim financing at
harvest time to meet cash flow needs without having to sell their commodities when
market prices are too low. Market loan repayment provisions specify, under certain
circumstances, that producers may repay loans at less than principal plus accrued
interest and other charges. Alternatively, LDP provisions specify that, in lieu of securing
a loan, producers may be eligible for a LDP. MALs can either be redeemed by repayment,
commodity certificate exchange, or by delivering the pledged collateral to CCC as full
payment for the MAL at maturity.




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Summary of Program Results

In fiscal year 2018:

   •   1.66 million farms were enrolled in ARC/PLC in fiscal year 2016. Of those farms,
       $7.1 billion in payments were triggered in fiscal year 2018.
   •   Total signed MFP payments as of September 30, 2018 were $52 million, with over
       41,000 applications.
   •   Over $183 million in NAP was disbursed, which includes 2017 and 2018 crop
       losses to date.
   •   Over $487 million in LFP was disbursed.
   •   Over $36 million in LIP was disbursed.
   •   Over $47 million in ELAP was disbursed.
   •   Over $11 million in TAP was disbursed.
   •   Over 42,000 MALs have been disbursed for crop year 2017 with an additional
       1,800 disbursed for crop year 2018 totaling over $7.5 billion.
   •   Over $230 million in MPP Dairy payments to dairy producers have been issued so
       far in fiscal year 2018.

In the areas affected by 2017 and 2018 hurricanes and other disasters, NAP, LIP, ELAP
and TAP provide much needed recovery support to affected crop producers, livestock
producers, orchardists, and nursery tree growers. Assistance under NAP requires that
coverage was obtained by the application closing date. However, assistance under LIP,
ELAP and TAP is available to eligible applicants after the disaster occurred.




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             Table 8: Summary of Performance Measure for ARC/PLC program

                                                                                 FY 2018
 Performance Measure      FY 2014    FY 2015    FY 2016       FY 2017
                                                                        Target   Actual    Result

 Number of Farms
 enrolled in ARC/PLC        1.45       1.48       1.66         1.65      1.66     1.67      Met
 (in millions)

 Threshold range: +/- 10,000 Farms

 Rationale for Met Range: Management Determination
 Data Assessment of Performance Measure
 Data source: ARC/PLC contract signup application
 Completeness of Data: Data reported are based on data available as of September 2018.


 Reliability of Data: USDA considers the data to be reliable.

 Quality of Data: Overall, the quality of the data is good.


Challenges for the Future
Government payments to farmers are expected to decline over the next decade, but the
magnitude of the decline is somewhat uncertain. Safety net programs that were new
under the 2014 Farm Bill have substantial outlay potential depending on the extent and
duration of market swings, producer decisions on base reallocation and yield updates,
and their choices to participate in the ARC or PLC programs.




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        Commodity Operations and Food Aid
                 Program Area
                           MISSION ELEMENT
 Maintaining balanced and adequate supplies of agricultural commodities and aiding
                            in their orderly distribution


Program Overview
AMS Warehouse and Commodity Management Division (WCMD) manages the
acquisition, handling, storage, transportation, and disposition of government-owned
agricultural commodities. WCMD performs licensing and examination activities, in
accordance with the USWA and CCC storage agreements, to maintain acceptable
standards for the protection of stored commodities.

WCMD is responsible for administering storage agreements that commercial warehouse
operators establish with CCC. The agreements are for CCC interest commodities,
including commodities owned by CCC or pledged as collateral for MALs. These programs
help achieve domestic farm program price support objectives, ensure the timely provision
of various commodities for international food assistance, and administer a uniform
regulatory system for storing agricultural products. Warehouse operators issue
negotiable warehouse receipts to producers under the provisions of the USWA or state
licensing authority. Producers who use the stored commodity as collateral for a MAL may
deliver the warehouse receipts to CCC as security for a nine-month MAL.

WCMD, on behalf of CCC, also works to provide adequate, secure storage capacity to
maintain quality and improve the purchase and delivery of food aid. Food assistance
purchases support international food aid through USAID, FAS and the United Nations'
World Food Program.




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Summary of Program Results
The more frequently warehouses are examined, the earlier potential compliance issues,
pest infestation, or deterioration of quality for commodities in store are discovered. The
2018 CCC performance estimate of 404 days (average) between warehouse
examinations does not meet the 2018 target. The increasing number of commodity
warehouses and the increasing capacities of licensed warehouses within the USWA, in
conjunction with decreasing staff numbers, are the major factors in influencing the number
of days between examinations. The addition of 19 International Food Aid warehouses
licensed in fiscal year 2013 is also a contributing factor.

     Table 9: Summary of Performance Measure for Commodity Operations Program

                                                                                 FY 2018
 Performance Measure      FY 2014    FY 2015    FY 2016       FY 2017
                                                                        Target   Actual    Result

 Average time between
                                                                                           Did not
 warehouse                   365        365        365         363       365      404
                                                                                            meet
 examinations (in days)
 Threshold range: +/- 25 days

 Rationale for Met Range: Management Determination
                          Data Assessment of Performance Measure

 Data source: The data source for this measure is internal WCMD files.

 Completeness of Data: Data reported are estimated final results for the fiscal year based on data
 available as of September 2018. The targets and actual data are annual.

 Reliability of Data: USDA considers the data to be reliable.

 Quality of Data: Overall, the quality of the data is good.




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Challenges for the Future
A challenge is having examiner resources available to maintain the timeliness of
examinations. The USWA-licensed warehouses represent more than half of all approved
commercial grain, cotton, and peanut warehouse capacity in the United States. The
USWA trend lines are for additional warehouses to be licensed as well as increased
storage capacities of warehouses currently under license. CCC examination demands,
especially in sugar and cotton warehouses, are on the increase. Marketing and
transportation complexities in the commodity industry are also expanding. The
implementation of non-traditional examination procedures and use of electronic mediums
will provide efficiencies in the examination process. Management will need to be
proactive in balancing work force needs with budgetary constraints while meeting the
demand of the commodity industry and CCC.




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          Market Development Program Area
                           MISSION ELEMENT
       Developing new domestic and foreign markets and marketing facilities for
                             agricultural commodities




Program Overview
One-third of all U.S. agricultural cash receipts come from export sales, making the
economic well-being of rural America heavily dependent on international trade. U.S.
farmers and ranchers are among the world’s most productive and efficient. However,
they face complex and unfair obstacles in the global marketplace, where 95 percent of
the world’s consumers live. A cooperative effort with U.S. industry is needed to ensure
U.S. producers have fair market access, a strong understanding of key market trends,
and support in overcoming constraints such as tight credit in international markets.

CCC supports U.S. industry efforts to build, maintain, and expand overseas markets for
U.S. agricultural, fish, and forest products. On behalf of CCC, FAS manages several
export development programs including FMD, Market Access Program (MAP), Technical
Assistance for Specialty Crops Program, Quality Samples Program, and Emerging
Markets Program.        These programs provide matching funds to U.S. non-profit
organizations to conduct a wide range of activities including market research, consumer
promotion, trade servicing, capacity building, and market access support. Working with
the State Regional Trade Groups (SRTG) and other industry organizations, CCC
programs also provide funding to encourage Small to Medium-Sized Enterprises (SME)
to become active in international markets. FAS staff in over 100 countries around the
world support industry efforts by providing market intelligence and introducing U.S.
exporters to potential foreign customers. FAS trade services staff, FAS overseas offices,
and U.S. industry non-profit associations, all provide services that help U.S. companies
successfully access potential buyers in a wide-range of international trade shows.

Summary of Program Results

An “Economic Impact of MAP and FMD” study was conducted by Informa Economics in
fiscal year 2016. The study used an export demand model, a different methodology from
previous studies, to ensure that results are not overly influenced by repeatedly using the




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same analytical approach. The study also incorporated recommendations from GAO to
include additional variables and provide greater sensitivity analysis on results. The
Informa study reported that MAP and FMD programs continue to achieve what Congress
intended, that regardless of whether an export demand or market share model is used,
or what time period is studied, market development funding has a significant positive
impact on exports, the farm economy and the overall U.S. economy.

The study reports overwhelming evidence that export promotion has a positive and
statistically significant impact on increasing demand for U.S. exports, even though other
demand factors such as price and exchange rates have a greater impact.

   •   Return on government and private industry investment (benefit-cost ratio or BCR)
       is consistently high.

   •   Informa’s export demand model determined that return on investment from these
       programs between 1977 and 2014 was $28 for every dollar invested.

   •   The previous MAP and FMD studies showed returns of $25 to $1 (2007 study) and
       $35 to $1 (2010 study).

   •   These results are all well above the average $11 to $1 BCR reported by 27
       previous industry-specific export promotion studies.

   •   Together, the two different approaches (export demand model and market share
       model) better approximate the range of credible outcomes. Programs contributed
       an average of $8.2 billion per year, a total of more than $309 billion, to farm export
       revenue between 1977 and 2014, accounting for 15 percent of all the revenue
       generated by exports for U.S. agriculture over that time.

   •   Increased total average annual U.S. economic output by $39.3 billion, gross
       domestic product by $16.9 billion and labor income by $9.8 billion over the same
       time.

   •   Economic lift created by these programs directly created 239,000 new jobs,
       including 90,000 farm sector jobs.




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There are over 70 non-profit associations that participate in CCC market development
programs. They are promoting U.S. products around the world and have an economic
impact on virtually every state in the union. A few examples of their successes
demonstrate the wide range of participants, activities, and target markets:

   •   U.S. Grains Council used MAP to bring trade team participants from Panama,
       Costa Rica, Colombia and Peru to Mexico in April 2018, to see the use of U.S.
       dried distiller’s grains (DDG) with solubles in feed rations. As a result, the largest
       poultry company in Peru purchased $1.3 million worth of DDGs and other
       participants expect to increase inclusion rates with a purchase potential of $2.5
       million annually.

   •   U.S. Soybean Export Council’s MAP and FMD programs conducted a wide range
       of activities in Turkey and in the Middle East/North Africa region, including poultry,
       dairy, and aquaculture nutrition seminars, a buyers’ conference, and a regional
       aquaculture conference. As a result, Turkey's 2018 U.S. soybean consumption
       has doubled, reaching 485,000 metric tons, valued at about $220 million.

   •   Cotton Council International’s MAP-funded “Cotton Days” are one-day promotional
       and educational events that reach key decision makers throughout the global
       textile supply chain. They showcased the “What’s New in Cotton” collection
       including apparel, home textile products, live fashion shows and seminars. The
       Taiwan and Japan events held in May 2018 are expected to result in over $60
       million in sales.

   •   The Southern Forest Products Association used MAP to participate at the 2017
       Mumbai Wood trade show in India. U.S. participating companies reported
       $471,000 in direct on-site sales during the show and expect another $2.6 million
       in future sales. The show fueled increased exports to this emerging market for
       U.S. softwood lumber. Exports to India reached a record $23 million in 2017, more
       than doubling shipments from the previous year.

   •   The American Sweet Potato Marketing Institute used MAP to collaborate on an
       “International Sweet Potato Week” promotional campaign with leading European
       Union sweet potato importers and six large retail chains. The campaign included
       point of sale materials, tastings, print and social media, and reached over 280,000
       consumers. More than $560,000 in sales resulted, contributing to increased U.S.
       exports which reached $134 million in 2017, $10 million more than



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    the previous year; January-June 2018 exports are running 13 percent ahead of the
    previous year.

•   California Prune Board’s MAP-funded recipe development, social media, holiday
    workshops and print media placements helped to highlight the versatility and
    health attributes of prunes, building consumer demand in Poland. Promotional
    materials reached over an estimated one million consumers and U.S. prune
    exports in July-June 2017/18 reached nearly $3 million, about 10 percent above
    the previous year.

•   The Pear Bureau Northwest’s well-rounded MAP program has made Brazil one of
    the U.S. industry’s best markets for Bartlett pears. In-store promotions, retailer
    promotion agreements, consumer outreach activities and consumer advertising,
    created a strong market window from October 2017 to early January 2018,
    resulting in 3.1 metric tons of exports, valued at $4.8 million, almost a 70 percent
    increase in value compared to the previous year.

•   The Organic Trade Association used MAP funding to sponsor 15 U.S. organic
    companies at BIOFACH, the world’s largest organic trade show, in Nuremburg,
    Germany. These companies met with buyers from all over the world, and reported
    $1.35 million in on-site sales and an additional $15.6 million in projected future
    sales.

•   USA Poultry and Egg Export Council (USAPEEC) used MAP to participate in
    ANTAD, one of the largest retail shows in Latin America from March 6-8, 2018, in
    Guadalajara Mexico. The USAPEEC pavilion hosted Mexican meat processors
    that launched new, innovative processed poultry products made with U.S. poultry
    ingredients. The three-day show attracted nearly 45,000 visitors from Mexico and
    30 Latin American countries. As a result, USAPEEC exhibitors projected sales of
    over $5 million.

•   The Alaska Seafood Marketing Institute (ASMI) utilized MAP funds to conduct an
    Alaska Seafood fair with retail giant Aeon Group, Asia’s largest retailer, as part of
    the retail group’s American Fair, held at 380 Aeon stores in Japan, October 4-10,
    2017. Alaska Pacific cod and Alaska salmon roe were featured in the stores’ fresh
    and frozen seafood sections during the week-long event. ASMI Japan sent
    demonstration staff to approximately 225 of the Aeon stores across Japan and
    provided point of sale materials. This campaign resulted in over $223 million in
    sales.

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CCC market development programs are used to broaden the base of U.S. exporters,
which facilitates economic growth and job creation. A central focus of this effort is to
provide additional assistance to SMEs, which are major drivers of new job creation. In
2017 there were about 2,900 SMEs participating in SRTG’s market development
programs, reporting about $1.8 billion in sales. Trade show participation is a key
component of SME program participation and cornerstone of cooperators’ MAP and FMD
investments.

               Table 10: Summary of Performance Measure for Market Development

                                                                                                    FY 2018
Performance Measure              FY 2014     FY 2015      FY 2016       FY 2017
                                                                                      Target        Actual         Result
Value of agricultural
exports resulting from
                                                                   1             2                          3
participation in foreign          $1,500      $1,522      $1,260        $2,326        $1,700       $2,041        Exceeded
food and agricultural
trade shows (million $)
Threshold range: +/-$150 million
Rationale for M et Range: Management Determination
                        Data Assessment of Performance Measure

Data source: Data are collected by surveying U.S. company participants at the end of each
trade show. Voluntary survey responses represent about 60 to 90 percent of total company
participants at a show. In large, multiproduct shows, about a third to a half of the respondents
are companies that are participating with one of the market development organizations. In more
product-specific shows, about two-thirds of the respondents are linked to market development
funded participants. Data reported are 12-month projected sales.
Completeness of Data: Data are through September 30, 2018.
Reliability of Data: Data are considered reliable.

Quality of Data: Data are self-reported but are considered a good indicator of aggregate
company sales, based on independent testing of the data.
1
  FY 2016 Actual Results fell w ell below past performance due to considerably low er sales from the Brussels Seafood
Show , due to the terrorist event that took place in Brussels about a month prior to the show that reduced show participation.

2
  FY 2017 results w ere expected to return to prior year levels but far exceeded expectations. The Brussels Seafood Show
rebounded significantly from the previous year’s event, increasing sales by over $500 million, largely due to the limited
participation in FY 2016. The Gulfood Dubai Show also exceeded expectations w ith increases of nearly $300 million.

3
    FY 2018 remained higher than expected due to the continued strength of the Brussels Seafood Show .




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Challenges for the Future
USDA’s “Outlook for U.S. Agricultural Trade”, August 29, 2018, forecast U.S. agricultural
trade at $144.0 billion for fiscal year 2018, $3.8 billion above the fiscal year 2017 level.
Fiscal year 2019 U.S. agricultural exports are forecast at $144.5 billion, $0.5 billion above
fiscal year 2018. This increase is primarily due to higher exports of wheat and horticultural
products, which offset expected declines in oilseeds, livestock, poultry and dairy product
exports. U.S. agricultural exports to China are expected to decline by $7.0 billion. On
the other hand, U.S. agricultural exports to Japan, Taiwan, South Korea, and Southeast
Asia are projected to increase by $3.4 billion. In addition, exports to the western
hemisphere are projected up by $1.1 billion, Europe by $1.1 billion and Africa by $0.9
billion. USDA’s ERS reported that prospects for the dollar’s value in calendar year 2018
is mixed as weakened values early in the year have been offset by the dollar
strengthening considerably since May. However, the overall average calendar year 2018
value is expected to be slightly lower than calendar year 2017 and to hold its value in
calendar year 2019. Oil prices are expected to rise in the remainder of calendar year
2018 and concerns over geopolitical risks remain high. The next U.S. trade outlook
assessment is released on November 29, 2018.




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                  Export Credit Program Area
                             MISSION ELEMENT
 Creating U.S. agricultural export opportunities and enhancing global food security




Program Overview
The primary objective of the CCC Export Credit Guarantee (GSM-102) Program is to
increase sales of U.S. agricultural commodities to international markets by facilitating the
extension of export credits to countries that have sufficient financial strength to have
foreign exchange available for scheduled payments. This program encourages U.S.
lenders and exporters to extend credit terms on sales of agricultural commodities and
products to overseas customers. The GSM-102 Program supports the involvement of
foreign private sector banks and private sector importers in commercial trade transactions
with the United States. The program statute allows for repayment terms up to two years
but actual repayment terms are currently limited to 18 months or less.

Summary of Program Results
In fiscal year 2018, the value of export sales registered under the program was $2 billion.
The program exceeded its targeted economic return ratio of $100 per dollar invested.
The Economic Return Ratio is calculated using gross default estimates and does not take
into consideration expected recoveries on claims paid.

The GSM-102 Program continues to be critical in supporting sales of U.S. commodities
to many markets. Accomplishments for fiscal year 2018 include:
   •   The GSM-102 program supported $700 million in U.S. yellow corn sales in fiscal
       year 2018. U.S. yellow corn sales under the program to Morocco, Nicaragua, and
       Israel accounted for 28, 24, and 18 percent, respectively, of all U.S. yellow corn
       exports to these countries (based on total U.S. export data through August 31,
       2018). The GSM-102 program helps U.S. exports to compete with other major
       yellow corn suppliers, such as Argentina, in these markets.

   •   Soybeans are the second largest commodity supported by the GSM-102 program,
       with $610 million in sales for fiscal year 2018. U.S. soybean sales under the
       program to Venezuela, Costa Rica and Egypt accounted for 40, 25, and 20 percent
       respectively, of all U.S. soybean exports to these countries (based on total U.S.

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    export data through August 31, 2018). With the help of the GSM-102 program, the
    United States gained market share in Egypt in fiscal year 2018 (October – August)
    against major competitors Ukraine and Argentina.

•   The GSM-102 program supported $215 million in U.S. wheat sales for fiscal year
    2018. U.S. wheat sales under the program to South Korea, Morocco and Nigeria
    accounted for 27, 25, and 10 percent respectively, of all U.S. wheat exports to
    these countries (based on total U.S. export data through August 31, 2018). With
    the help of the GSM-102 program, the United States was able to compete in South
    Korea’s wheat market against major suppliers Australia, Canada, and Ukraine in
    fiscal year 2018 (October – August).

•   The GSM-102 program supported $303 million worth of U.S. soybean meal sales
    in fiscal year 2018. U.S. soybean meal sales to Costa Rica, Ecuador, and the
    Dominican Republic accounted for 32, 30, and 24 percent, respectively, of all U.S.
    soybean meal exports to these countries (based on total U.S. export data through
    August 31, 2018). With the help of the GSM-102 program, the United States
    gained market share in Ecuador in fiscal year 2018 (October – August) against
    major competitor Argentina.

•   The GSM-102 program supported $69 million in U.S. soybean oil sales for fiscal
    year 2018. U.S. soybean oil sales under the program to Guatemala, Peru, and the
    Dominican Republic accounted for nearly 35, 30, and 20 percent, respectively, of
    all U.S. soybean oil exports to these countries (based on total U.S. export data
    through August 31, 2018). With the help of the GSM-102 program, the United
    States gained market share in Peru in fiscal year 2018 (October – August) against
    major competitor Argentina.

•   In fiscal year 2018, the GSM-102 program supported $48 million in U.S. DDG sales
    for fiscal year 2018. U.S. sales of DDGs under the program accounted for 100
    percent of total U.S. exports of DDGs to Tunisia. Sales of rice under the program
    were valued at $40 million, accounting for 40 percent of total U.S. rice exports to
    Honduras (based on total U.S. export data through August 31, 2018).




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                    Table 11: Summary of Performance Measure for GSM

                                                                             FY 2018
Performance Measure      FY 2014    FY 2015    FY 2016   FY 2017
                                                                    Target   Actual     Result
Estimated trade value
resulting from USDA
GSM export credit         $2.09       $1.87     $2.21     $1.62     $1.80    $2.02     Exceeded
guarantee program
(dollars in billions)
Threshold range: +/- 0.25 billion
Rationale for Met Range: Management Determination
                        Data Assessment of Performance Measure

Data source: The data source for this measure is the GSM System. The GSM System records
all export sales registered, guarantees issued and shipments and makes adjustments to these
amounts due to reserves or shipments not completed.
Completeness of Data: Data reported represent results for the fiscal year based on data
available as of September 30, 2018.

Reliability of Data: CCC considers this data to be reliable. The GSM System is updated every
night. The GSM System is included in the annual A-123 review of the GSM-102 program and is
also included in the annual audit by external auditors. The performance measure is simply the
port value derived from reports that are generated from the GSM System.

Quality of Data: The GSM System is a system designed solely to support the GSM export
credit guarantee programs. The GSM System is updated every night and all changes are tested
before being incorporated into the system. Data is reviewed on a daily basis.




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         Table 12: Summary of Performance Measure for Economic Return Ratio

                                                                               FY 2018
Performance Measure     FY 2014    FY 2015    FY 2016    FY 2017
                                                                    Target     Actual      Result

Economic Return Ratio   $(124/1)   $(109/1)   $(106/1)   $(101/1)   $(100/1)   $(103/1)   Exceeded

Thre shold range : +/- $5.00/1
Rationale for M e t Range : Management Determination
                        Data Assessment of Performance Measure
Data source : The data source for this measure is the GSM System. The GSM System
records all export sales registered, guarantees issued and shipments and makes
adjustments to these amounts due to reserves or shipments not completed.


Comple te ne ss of Data:     Data reported based on results for the fiscal year as of
September 30, 2018.

Re liability of Data: CCC considers this data to be reliable. The GSM System is updated
every night. The GSM System is included in the annual A-123 review of the GSM-102
program and is also included in the annual audit by external auditors.
Quality of Data: The GSM System is a system designed solely to support the GSM export
credit guarantee programs. The GSM System is updated every night and all changes are
tested before they are incorporated into the system. Data is reviewed on a daily basis.


Challenges for the Future
Fiscal year 2019 presents both challenges and opportunities for the GSM-102 Program.
Program usage typically runs countercyclical to global financial stability. Uncertainties in
the global economic environment, especially relating to emerging markets (the primary
focus of the GSM program) and changes in local interest rates and bank liquidity will
create program demand shifts as commercial financing availability changes.

To diversify the portfolio of obligor countries, Brazil has been added as a bank eligible
country with credit lines on its eligible banks available for use by importers throughout
Latin America. The addition of Brazil will broaden the sources of available credit in the
region, providing more opportunities for U.S. agricultural sales to all of Latin America.

Operation for the revised Facility Guarantee Program (FGP) began in fiscal year 2017.
The FGP is designed to boost sales of U.S. agricultural products by providing credit
guarantees to improve or establish agriculture-related facilities in emerging markets
where demand may be limited due to inadequate storage, processing, handling, or
distribution capabilities. The FGP is a subset of the GSM-102 program and draws on the
$5.5 billion yearly authorization for the Export Credit Guarantee Programs. No
guarantees were issued under this program in fiscal year 2018 but USDA continues
outreach efforts to increase industry’s awareness of the program.

                                               54
Part III: Financial Section




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           COMMODITY CREDIT CORPORATION
                   Financial Section



Message from the Chief Financial Officer




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                            COMMODITY CREDIT CORPORATION
                                      Financial Section

    Introduction to the Financial Statements,
    Required Supplementary Information, and
               Other Information
The Financial Statements have been prepared to report the financial position and results
of CCC operations. The statements have been prepared from the books and records of
CCC in accordance with U.S. GAAP as promulgated by FASAB. In addition, the
statements and other financial reports prepared by CCC are in accordance with OMB and
Department of the Treasury directives to monitor and control the status and use of
budgetary resources.

CCC has permanent indefinite borrowing authority which operates out of a revolving fund
to enable it to meet mission requirements quickly. CCC incurs obligations and is
authorized to borrow funds from Department of the Treasury to meet its spending
requirements. CCC has, and reports, a parent/child relationship with USAID for two
Department of the Treasury Account Symbols.

Fiscal year 2018 financial statements and related Notes are not shown on a comparative
basis due to a balance sheet only audit for fiscal year 2017.

CCC’s financial statements and related Notes for fiscal year 2018 consist of the following:

The Consolidated Balance Sheet presents those resources owned or managed by CCC
as of September 30, 2018 that are available to provide future economic benefits (assets);
amounts owed by CCC that will require payments from those resources or future
resources (liabilities); and residual amounts retained by CCC, comprising the difference
between future economic benefits and future payments (net position). The net position
consists of $100 million of Capital Stock, Unexpended Appropriations, and Cumulative
Results of Operations.

The Consolidated Statement of Net Cost presents the net cost of CCC operations, which
are comprised of the gross costs incurred by CCC less any exchange revenue earned
from CCC activities for the fiscal year ended September 30, 2018.

The Consolidated Statement of Changes in Net Position presents the change in CCC’s
net position resulting from the net cost of CCC operations, budgetary financing sources
other than exchange revenues, capital stock, and other financing sources for the fiscal
year ended September 30, 2018.


                                             57
                           COMMODITY CREDIT CORPORATION
                                     Financial Section

The Combined Statement of Budgetary Resources presents budgetary resources
available to CCC, the use or status of these resources at year-end, and net outlays of
budgetary resources for the year ended September 30, 2018. Subject to Appropriation
Law, CCC has no authority to pay liabilities not covered by budgetary resources.
Liquidation of such liabilities requires the use of CCC’s borrowing authority or enactment
of an appropriation. The budgetary accounting principles are designed to recognize the
obligation of funds according to legal requirements, which in many cases is prior to the
occurrence of an accrual-based transaction. The recognition of budgetary accounting
transactions is essential for compliance with legal constraints and controls over the use
of Federal funds.

The Notes to the Financial Statements are an integral part of the financial statements.
They provide explanatory information or additional detail to help readers understand,
interpret, and use the data presented.

CCC’s Required Supplementary Information (RSI), and Other Information (OI) for fiscal
year 2018 consist of the following:

RSI contains a Combining Schedule of Budgetary Resources by Major Fund for fiscal
year 2018 that provides additional information on amounts presented in the Combined
Statement of Budgetary Resources.

OI contains the Summary of Financial Statement Audit and Management Assurances,
Payment Integrity, Fraud Reduction Report, and GONE Act Requirements, in accordance
with OMB Circular A-136, Financial Reporting Requirements.




                                            58
                                     COMMODITY CREDIT CORPORATION
                                                     Financial Section
                                               Financial Statements

                                              Commodity Credit Corporation
                                         CONSOLIDATED BALANCE SHEET
                                                 As of September 30, 2018
                                                        (In Millions)

Assets:
 Intragovernmental:
   Fund Balance with Treasury (Note 2)                                       $    2,897
   Accounts Receivable (Note 4)                                                       3
 Total Intragovernmental Assets                                              $    2,900
 Cash and Other Monetary Assets (Note 3)                                             71
 Accounts Receivable, Net (Note 4)                                                   61
 Commodity Loans, Net (Note 5)                                                      476
 Direct Loans and Loans Guarantees, Net (Note 6)                                  2,189
 Commodity Inventory and Related Property (Note 7)                                   46
 Advances to Others (Note 9)                                                         90
Total Assets                                                                 $    5,833

General Property and Equipment (Note 8)

Liabilities (Note 10):
  Intragovernmental:
    Accounts Payable                                                         $        3
    Debt to the Treasury (Note 11)                                               10,647
    Other Intragovernmental Liabilities (Note 13):
      Resources Payable to Treasury                                                 827
      Excess Subsidy Payable to Treasury                                             30
      Other                                                                           4
    Subtotal Other Intragovernmental Liabilities                             $      861
  Total Intragovernmental Liabilities                                        $   11,511
  Accounts Payable                                                                  118
  Grants Payable (Note 12)                                                          208
  Loan Guarantee Liability (Note 6)                                                   4
  Environmental and Disposal Liabilities (Note 14)                                   21
  Accrued Liabilities (Note 15)                                                   4,829
  Other Liabilities (Note 13):
    Deposit and Trust Liabilities                                                    14
    Other                                                                            18
  Subtotal Other Liabilities                                                 $       32
Total Liabilities                                                            $   16,723
Commitments and Contingencies (Note 16)
Net Position:
 Capital Stock                                                               $       100
 Unexpended Appropriations                                                         1,761
 Cumulative Results of Operations                                                (12,751)
Total Net Position                                                           $   (10,890)
Total Liabilities and Net Position                                           $     5,833

The accompanying notes are an integral part of the financial statements.



                                                            59
                                    COMMODITY CREDIT CORPORATION
                                                 Financial Section

                                          Commodity Credit Corporation
                             CONSOLIDATED STATEMENT OF NET COST
                                     For the Year Ended September 30, 2018
                                                   (In Millions)

Strategic Goals (Note 17):

Provide a Financial Safety Net for Farmers and Ranchers
     Direct Program Gross Cost                                                $   4,497
     Imputed Gross Cost                                                             693
     Total Gross Cost                                                             5,190
     Less: Earned Revenue                                                           124
     Net Goal Cost                                                            $   5,066

Increase Stewardship of Natural Resources While Enhancing the Environment
     Direct Program Gross Cost                                                $   2,043
     Imputed Gross Cost                                                             499
     Total Gross Cost                                                             2,542
     Less: Earned Revenue                                                            10
     Net Goal Cost                                                            $   2,532

Ensure Commodities are Procured and Distributed Effectively and Efficiently
    Direct Program Gross Cost                                                 $    183
    Imputed Gross Cost                                                              93
    Total Gross Cost                                                               276
    Less: Earned Revenue                                                            26
    Net Goal Cost                                                             $    250

Increase U.S. Food and Agricultural Exports
     Direct Program Gross Cost                                                $   1,830
     Imputed Gross Cost                                                               6
     Total Gross Cost                                                             1,836
     Less: Earned Revenue                                                            75
     Net Goal Cost                                                            $   1,761

Total Direct Program Gross Cost                                               $   8,553
Total Imputed Gross Cost                                                          1,291
Total Gross Cost                                                                  9,844
Less: Total Earned Revenue                                                          235
Net Cost of Operations                                                        $   9,609


The accompanying notes are an integral part of the financial statements.




                                                         60
                                COMMODITY CREDIT CORPORATION
                                               Financial Section

                                        Commodity Credit Corporation
                 CONSOLIDATED STATEMENT OF CHANGES IN NET POSITION
                                    For the Year Ended September 30, 2018
                                                  (In Millions)


Capital Stock                                                               $      100

Unexpended Appropriations:
 Beginning Balance                                                          $    1,756

Budgetary Financing Sources:
 Appropriations Received                                                         16,097
 Other Adjustments                                                                   (1)
 Appropriations Used                                                            (16,091)
Total Budgetary Financing Sources                                           $         5
Total Unexpended Appropriations                                             $     1,761

Cumulative Results of Operations:
 Beginning Balance                                                          $   (16,130)

Budgetary Financing Sources:
 Appropriations Used                                                            16,091
 Non-exchange Revenue                                                                5
 Transfers in/out without Reimbursement, Net                                    (4,164)

Other Financing Sources (Non-Exchange):
 Imputed Financing                                                                1,291
 Other                                                                             (235)
Total Financing Sources                                                     $    12,988
Net Cost of Operations                                                           (9,609)
Net Change                                                                  $     3,379
Cumulative Results of Operations                                            $   (12,751)

Net Position                                                                $   (10,890)


The accompanying notes are an integral part of the financial statements.




                                                      61
                                       COMMODITY CREDIT CORPORATION
                                                      Financial Section


                                            Commodity Credit Corporation
                                 COMBINED STATEMENT OF BUDGETARY RESOURCES
                                       For the Year Ended September 30, 2018
                                                     (In Millions)

                                                                                                        Non-Budgetary
                                                                                                        Credit Reform
                                                                                                          Financing
                                                                                    Budgetary             Accounts
Budgetary Resources:
 Unobligated balance from prior year budget authority, net                      $          3,277    $              75
 Appropriations (discretionary and mandatory)                                              1,815                    -
 Borrowing Authority (discretionary and mandatory)                                         9,888                  340
 Spending authority from offsetting collections (discretionary and mandatory)                 46                   87
 Total Budgetary Resources                                                      $         15,026    $             502

Status of Budgetary Resources:
  New obligations and updward adjustments (total) (Note 18)                     $         14,385    $             345
  Unobligated balance, end of year:
     Apportioned, unexpired account                                                          341                   74
     Unapportioned, unexpired accounts                                                       299                   83
     Unexpired unobligated balance, end of year                                              640                  157
     Expired unobligated balance, end of year                                                  1                    -
   Total unobligated balance, end of year                                                    641                  157
  Total Budgetary Resources                                                     $         15,026    $             502

Outlays, Net:
 Outlays, net (discretionary and mandatory)                                     $         12,442    $              (90)
 Distributed offsetting receipts                                                              (2)                  (30)
 Agency Outlays, net (discretionary and mandatory)                              $         12,440    $             (120)

The accompanying notes are an integral part of the financial statements.




                                                               62
                            COMMODITY CREDIT CORPORATION
                                      Financial Section

            Notes to the Financial Statements
Note 1 - Significant Accounting Policies

Reporting Entity
Commodity Credit Corporation (CCC) is a federal corporation operating within and
through USDA. CCC’s statutory authority for its operations is found in the CCC Charter
Act, 15 U.S.C. 714, and et seq.
Basis of Presentation
The Corporation’s financial statements report the financial position and results of
operations of CCC. These statements have been prepared from the accounting records
of CCC as of September 30, 2018 in accordance with U.S. GAAP promulgated by
Financial Accounting Standards Advisory Board (FASAB). These statements have been
prepared for the Corporation which is a component of the U.S. Government, a sovereign
entity.

The statements are in addition to the external financial reports used to monitor and control
budgetary resources, which are also prepared from CCC’s general ledger. All dollar
amounts in this section are presented in millions unless otherwise noted.

Basis of Accounting
The accounting structure of Federal agencies is designed to reflect both accrual and
budgetary accounting transactions. Under the accrual basis of accounting, revenues are
recognized when earned, and expenses are recognized when a liability is incurred without
regard to receipt or payment of cash. The budgetary accounting principles, on the other
hand, are designed to recognize the obligation of funds according to legal requirements,
which in many cases is prior to the occurrence of an accrual-based transaction. The
recognition of budgetary accounting transactions is essential for compliance with legal
constraints and controls over the use of Federal funds. The financial statements include
all Department of the Treasury funds of CCC, which encompass its domestic and foreign
activities, including its child account Treasury funds. In consolidation, intra-agency
activities and balances have been eliminated except for the Statement of Budgetary
Resources (SBR), which is presented on a combined basis.

Allocation Transfers
CCC is a party to allocation transfers with another Federal agency as a transferring
(parent) entity. Allocation transfers are legal delegations of one department’s (parent
entity) authority to obligate budget authority and outlay funds to another department (child
entity). A separate fund account (allocation account) is created in the Department of the
Treasury as a subset of the parent fund account for tracking and reporting purposes.


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                            COMMODITY CREDIT CORPORATION
                                      Financial Section


Note 1 - Significant Accounting Policies, Continued

All allocation transfers of balances are credited to this account, and subsequent
obligations and outlays incurred by the child entity are charged to this allocation account
as they execute the delegated activity on behalf of the parent entity.

CCC, as the parent, allocates funds to USAID to fund P.L. 480 Title II and Bill Emerson
Humanitarian Trust transportation and other administrative costs in connection with
foreign donations of commodities. In accordance with U.S. GAAP, CCC reports USAID’s
financial activity for which it is the parent.

Fund Balance with Treasury
CCC disbursements are made by checks or electronic funds transfers that are deducted
from CCC’s account at the Department of the Treasury.

The Department of the Treasury requires that the Fund Balance with Treasury amounts
reported via Governmentwide Treasury Account Symbol Adjusted Trial Balance System
be reconciled to the Department of the Treasury’s records. To comply with these
requirements, cash timing differences due to deposits in-transit or outstanding checks are
reported as “in-transit”. The cash balance includes such timing differences as a result of
varying processing times and cut-off dates between CCC, Department of the Treasury,
and other USDA entities. Refer to Note 2 – Fund Balance with Treasury for additional
information.

Cash and Other Monetary Assets
CCC does not maintain cash in commercial bank accounts or at any FSA location. Cash
received but not yet reflected in the Department of the Treasury balances is considered
as undeposited collections. Refer to Note 3 – Cash and Other Monetary Assets.

Accounts Receivable
Accounts receivable arise from claims to cash or other assets against other entities, either
based on legal provisions, such as program overpayments, or for goods or services
provided.

Accounts receivable are adjusted by a valuation allowance based on historical collection,
write-off information, and other analysis which reduces the receivables to their estimated
net realizable value. Refer to Note 4 – Accounts Receivable, Net for additional
information.



                                             64
                            COMMODITY CREDIT CORPORATION
                                      Financial Section


Note 1 - Significant Accounting Policies, Continued

Commodity Loans
CCC makes both recourse and nonrecourse loans to producers of designated agricultural
commodities. Commodity loans are statutorily exempt from the accounting and reporting
requirements of the Federal Credit Reform Act of 1990 (FCRA).

Interest is accrued on the unpaid principal balance of commodity loans and is included in
the reported net commodity loans receivable balances.

Commodity loans are reported net of an allowance for doubtful accounts, which reduces
the loans to their estimated net realizable value. The allowance is based on the estimated
loss on ultimate disposition when it is more likely than not that the loans will not be fully
collected. When CCC disposes of forfeited commodities, depending on the type of
disposition, any loss on the disposition is realized as either a cost of sales or a donation.
Refer to Note 5 – Commodity Loans, Net for additional information.

Direct Loans and Loan Guarantees
FCRA applies to direct loans and loan guarantees made on or after October 1, 1991
(Post-1991). CCC programs subject to credit reform requirements consist of:

   •   Direct loans extended under P.L. 480 Title I, Economic Assistance and Food
       Security;
   •   Receivables in the Debt Reduction Fund (this fund is specifically for restructure of
       foreign loans);
   •   Receivables for the Export Credit Guarantee program in the form of rescheduled
       agreements;
   •   Loans, including microloans, made to producers to build or upgrade farm, sugar
       storage and handling facilities, and for other purposes;
   •   Loans made to apple producers who incurred losses due to low market prices;
   •   Loans made to the Texas Boll Weevil Eradication Foundation; and
   •   Export Credit Guarantees extending credit to encourage financing of commercial
       exports of U.S. agricultural commodities.




                                             65
                             COMMODITY CREDIT CORPORATION
                                       Financial Section

Note 1 - Significant Accounting Policies, Continued

Definitions:
   • Direct loans are a disbursement of funds by the Government to non-federal
        borrowers under contracts that require the repayment of such funds within a certain
        time with or without interest. It includes the purchase of, or participation in, a loan
        made by another lender and financing arrangements that defer payment for more
        than 90 days.
   • Loan guarantees represent assurance that the payment of all or part of the
        principal or interest on any debt obligation of a non-federal borrower to a non-
        federal lender will be received by the non-federal lender. A defaulted loan
        guarantee occurs if the borrower fails to make a payment pursuant to the terms of
        the obligation.
   • FCRA established credit program and financing accounts for loan guarantees and
        direct loans obligated after September 30, 1991 (Post-1991). It also established
        liquidating accounts for activity relating to any loan guarantees committed or direct
        loans obligated before October 1, 1991 (Pre-1992).
   • The credit program account is the budget account into which an appropriation to
        cover the cost of a direct loan or loan guarantee program is made and from which
        such cost is disbursed to the financing account.
   • The financing account is the non-budget account or accounts associated with each
        credit program account that holds balances, receives the subsidy cost payment
        from the credit program account, and also includes all other cash flows to and from
        CCC resulting from direct loan obligations or loan guarantee commitments made
        on or after October 1, 1991.
   • The liquidating account is the budget account that includes all cash flows to and
        from CCC resulting from direct loan obligations or loan guarantee commitments
        made prior to October 1, 1991. The liquidating accounts are shown in the federal
        budget on a cash basis.

Accounting and Presentation
CCC records and reports direct loans and loan guarantees initiated after September 30,
1991 on a present value basis in accordance with FCRA and SFFAS No. 2, Accounting
for Direct Loans and Loan Guarantees, SFFAS No. 18, Amendments to Accounting for
Direct Loans and Loan Guarantees, and SFFAS No. 19, Technical Amendments to
Accounting for Direct Loans and Loan Guarantees. The difference between the
outstanding principal of these receivables and the present value of their net cash inflows
is recognized as a subsidy cost allowance; the present value of estimated net cash
outflows of the loan guarantees is recognized as a liability for loan guarantees. CCC has

                                              66
                            COMMODITY CREDIT CORPORATION
                                      Financial Section

Note 1 - Significant Accounting Policies, Continued
elected to value its loans initiated before October 1, 1991 (Pre-1992) using the present
value method. The net present value of Direct Loans and Loan Guarantees, Net, as
shown in the Balance Sheet, is not necessarily representative of the proceeds that might
be expected if these loans were sold on the open market.

In estimating net present values, the discount rate is the average interest rate on
marketable Department of the Treasury securities of similar maturity cash flows of the
direct loan or loan guarantee for which the estimate is being made. When funds are
obligated for a direct loan or loan guarantee, the estimated cost is based on the current
economic assumptions and the terms of the loan contract for the program.

Interest is accrued monthly on both performing and non-performing direct loans and loan
guarantee receivables as it is earned using simple interest calculations based upon a
365-day year. A non-performing direct loan or loan guarantee receivable is defined as a
repayment scheduled under a credit agreement with an installment payment in arrears
more than 90 days. For those non-performing receivables, accrued interest is not
recognized as income; rather, it is deferred until the interest is received or the receivable
is returned to performing status. Refer to Note 6 – Direct Loans and Loan Guarantees:
Non-Federal Borrowers for additional information.

Commodity Inventory
Commodity inventory, referred to as goods held under price support and stabilization
programs in SFFAS No. 3, Accounting for Inventory and Related Property, issued by the
FASAB, represent commodities acquired by the Corporation for donation or price support
purposes. Commodities are eventually sold or otherwise disposed of to help satisfy
economic goals. Acquisition is generally made through commodity loan forfeitures, use
of CCE, or by purchase of commodities on the open market.

Commodity inventory is initially recorded at the cost or forfeiture value, and the commodity
is revalued in the balance sheet at year-end at the lower of cost or the net realizable value
in accordance with SFFAS No. 3. Refer to Note 7 – Commodity Inventory and Related
Property, Net.

General Property and Equipment
General property and equipment purchases are recorded at the acquisition cost plus
expenditures related to placing the asset into service such as freight, installation, and
testing. Purchases of property valued at $25,000 or more and a useful life of two years
or greater are capitalized. Property and equipment is depreciated on a straight-line basis.

                                             67
                            COMMODITY CREDIT CORPORATION
                                       Financial Section

Note 1 - Significant Accounting Policies, Continued

Computer equipment has a service life of five years. There is no salvage value associated
with general property and equipment.

In accordance with SFFAS No. 10, Accounting for Internal Use Software, capitalized
software development costs include contractor developed software, purchased software,
and internally developed software. Capitalized internal use software costs are amortized
over a period of five years beginning with the first year the software is fully operational.
Once the software is put into operation, amortization begins. Internal use software valued
at $100,000 or more and a useful life of two years or greater is capitalized. Internal use
software development costs are accumulated and capitalized upon completion.

As of September 30, 2018, CCC’s property and equipment was fully depreciated and
software costs were fully amortized. Refer to Note 8 – General Property and Equipment,
Net for additional information.

Liabilities
Depending on the type of transaction, CCC recognizes a liability in one of two ways. If
an exchange transaction occurs (i.e., receipt of goods or services in return for a promise
to provide money or other resources in the future), a liability is recognized in the period in
which the exchange occurred. If a non-exchange transaction occurs (i.e., government
programs where there is a one-way flow of resources or promises), a liability is recognized
for any unpaid amounts due as of the reporting date.

Liabilities not covered by budgetary resources include liabilities incurred for which
revenues or other sources of funds necessary to pay the liabilities have not been made
available through congressional appropriations, apportionments or current earnings of
CCC. Liabilities not requiring budgetary resources are liabilities that have not in the past
required and will not in the future require the use of budgetary resources. Refer to Note
10 – Liabilities Not Covered by Budgetary Resources for additional information.

Tax Status
CCC, as a Federal entity, is not subject to Federal, State, or local income taxes, and
accordingly, no provision for income tax is necessary.

Use of Estimates
The preparation of financial statements requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities, the disclosure of
contingent liabilities at the date of the financial statements, and the reported amounts of
revenues, expenses, and budgetary accounts during the reporting period. For example,

                                              68
                              COMMODITY CREDIT CORPORATION
                                        Financial Section

Note 1 - Significant Accounting Policies, Continued

under U.S. GAAP, accrued liabilities must be estimated and recorded if the event creating
the liability has occurred, even if an invoice or payment request has not been received
and the precise amount is unknown, as long as the amount can reasonably be estimated.
In addition, certain programs require management to make estimates and assumptions
that affect the reported amounts of UDOs at the date of the financial statements, and the
reported amounts of budgetary accounts during the reporting period. Actual results could
differ from those estimates.

Imputed Financing (also known as Imputed Costs)
Imputed financing represent costs incurred by other USDA agencies for the benefit of
CCC. In accordance with SFFAS No. 4, Managerial Cost Accounting Concepts and
Standards for the Federal Government 5, CCC’s full cost incorporates the full cost of goods
and services that it receives from other entities. As previously stated, CCC has no
employees or facilities. Thus, CCC executes its various programs using the manpower
and facilities of other agencies, primarily FSA. The imputed financing consists of the
costs of hired labor, opportunity costs of unpaid labor, capital recovery of machinery and
equipment, opportunity costs of land, general overhead, payroll taxes, and insurance
expended by FSA for work on CCC programs.

Custodial Collections
As a normal part of its business practices, CCC collects FSA farm loans and forwards
them to FSA. In addition, penalties, fines, fees, and other funds are collected and
forwarded to the Department of the Treasury. Refer to Note 19 – Custodial Activity for
additional information.

Borrowing Authority Sequestration
Office of Management and Budget (OMB) Circular A-11, Preparation, Submission, and
Execution of Budget, provides an exception for budgetary resources sequestered in
revolving accounts to remain as an unavailable balance in the original funding account
rather than being returned to the General Fund of the Treasury. In accordance with this
guidance, CCC retains the temporary reductions for programs, unavailable for
obligations, within CCC’s permanent indefinite borrowing authority. Amounts temporarily
sequestered are then made available in the subsequent year if OMB specifically
authorizes the availability in an apportionment.


5
 As amended by SFFAS No. 30, Inter-Entity Cost Implementation, and SFFAS No. 55, Amending Inter-
Entity Cost Provisions

                                               69
                               COMMODITY CREDIT CORPORATION
                                          Financial Section
Note 2 – Fund Balance with Treasury

Fund Balance with Treasury as of September 30, 2018, was as follows:

                             Table 13: Fund Balance with Treasury

                                                                          (In Millions)
Status of Fund Balance with Treasury:
 Unobligated Balance:
   Available                                                          $           415
   Unavailable                                                                    383
 Obligated Balance not yet Disbursed                                           20,448
 Subtotal                                                             $        21,246
Borrowing Authority not yet Converted to Fund Balance                          (18,349)
Total Fund Balance with Treasury                                      $          2,897


The Unavailable balance represents unobligated resources not yet apportioned by OMB
and unobligated appropriations from prior years that are no longer available for new
obligations. Borrowing Authority not yet Converted to Fund Balance represents
unobligated and obligated amounts recorded as of September 30, 2018, which will be
funded by future borrowings.

CCC has a permanent indefinite borrowing authority, as defined by OMB Circular A-11.
Borrowing authority permits the Corporation to incur obligations and authorizes it to
borrow funds to liquidate the obligations. Refer to Note 18 – Disclosures Related to the
Statement of Budgetary Resources for additional information on permanent indefinite
borrowing authority.


Note 3 – Cash and Other Monetary Assets

As of September 30, 2018, CCC had $71 million in undeposited collections.




                                                 70
                           COMMODITY CREDIT CORPORATION
                                        Financial Section


Note 4 – Accounts Receivable, Net

Accounts Receivable as of September 30, 2018, were as follows:
                           Table 14: Accounts Receivable, Net

                                                                     (In Millions)

Intragovernmental:
  Due from Other Federal Agencies                                $                   3
Total Intragovernmental Accounts Receivable                      $                   3

Public:
 Notes Receivable                                                $               5
 Interest Receivable                                                             2
 Other                                                                          63
Subtotal                                                         $              70
Allowance for Doubtful Accounts                                                  (9)
Total Public Accounts Receivable, Net                            $              61



Other Public Receivables consist primarily of amounts due as a result of program
overpayments or dishonored checks.




                                               71
                             COMMODITY CREDIT CORPORATION
                                       Financial Section


Note 5 – Commodity Loans, Net
Commodity Loans Receivable, by commodity, net, as of September 30, 2018, were as
follows:

               Table 15: Commodity Loans Receivable by Commodity, Net

                                                                    (In Millions)

            Cotton                                              $              70
            Pulses                                                              5
            Feed Grains:
             Barley                                                             3
             Corn                                                             153
             Grain Sorghum                                                      1
            Honey                                                               3
            Oilseeds                                                            6
            Peanuts                                                            96
            Rice                                                               13
            Soybeans                                                           36
            Wheat                                                              86
            Subtotal Commodity Loans                            $             472

            Commodity Loans in Collection                                       1
            Accrued Interest Receivable                                         5
            Loans Receivable - Unapplied Receipts                              (1)
            Total Commodity Loans, Gross                                      477

            Less: Allowance for Losses                                         (1)
            Total Commodity Loans, Net                          $             476


Commodity loans (MALs) are of two types, recourse or non-recourse. Recourse loans
must be repaid at principal plus interest by the maturity date. The recourse loan
commodity cannot be delivered or forfeited in satisfaction of the outstanding loan. For
nonrecourse loans, producers have the option to: (a) repay the principal plus interest; (b)
repay the loan (for certain designated commodities) at the market rate if the market rate
is less than the loan rate; (c) repay the loan (for certain designated commodities) with a
CCE if the market rate is less than the loan rate; or (d) forfeit the commodity in satisfaction
of the loan at maturity.

Commodity Loans in Collection consist primarily of defaulted loans which have been
turned over to the Receivables Management Office for collection action, including offset
against future program payments.


                                              72
                            COMMODITY CREDIT CORPORATION
                                      Financial Section


Note 6 – Direct Loans and Loan Guarantees: Non-Federal Borrowers

CCC values both pre and post credit reform loans and loan guarantees on a net present
value basis.

For credit reform programs, the present value of the subsidy costs (i.e., interest rate
differentials, interest subsidies, delinquencies and defaults, fee offsets and other cash
flows) associated with direct credits and loans and credit guarantees are recognized as
a cost in the year the direct credit and loan or credit guarantee is disbursed. CCC utilizes
the Credit Subsidy Calculator (CSC) to compute the subsidy reestimates annually. The
CSC is an OMB tool for performing credit calculations, incorporating both financing
account interest and cash flow amounts.

CCC uses an estimation model to calculate the allowance for loan losses for its pre-credit
reform program.

Based on management analysis and judgment, certain loans with significant periods of
non-performance are written off only for financial statement purposes, since CCC must
follow the requirements of 22 U.S.C. 2430c for any actual write-offs. 22 U.S.C. 2430c
states that only the President of the United States has the authority to approve the write-
off of foreign loans. When loans are written off for financial statement purposes, the
unpaid principal and interest of the loans, along with the associated amount for the
allowance, are removed from the general ledger but remain in the subsidiary loan system.

Credit Program Discussion and Descriptions
Credit Guarantee Programs – Export
CCC Export Credit Guarantee Program, Guaranteed Loans, provides guarantees to
buyers in countries where credit is necessary to maintain or increase U.S. sales of
agricultural products. The financing to buyers may not be otherwise available without the
U.S. credit guarantees. CCC underwrites credit extended by the private banking sector
under GSM-102 and FGP. CCC records a liability and an allowance expense to the extent
that CCC will be unable to recover claim payments under the Credit Reform Export Credit
Guarantee programs.




                                             73
                            COMMODITY CREDIT CORPORATION
                                      Financial Section

Note 6 – Direct Loans and Loan Guarantees: Non-Federal Borrowers,
Continued

Under GSM-102, CCC underwrites credit extended by the private banking sector in the
U.S. (or, less commonly, by the exporter) for terms of up to twenty-four months. CCC
does not provide financing, but guarantees payments due from foreign banks and
obligors. Typically, 98 percent of principal and a portion of interest at an adjustable rate
are covered. All guarantees under this program are in U.S. dollar denominations. In the
event CCC pays a claim under the guarantee programs, CCC assumes the debt and
treats it as a direct credit loan receivable for accounting and collection purposes.

The FGP provides payment guarantees to finance commercial exports of U.S.
manufactured goods and services that will be used to improve agriculture-related
facilities. Payment terms may range from 1 to 10 years, with semi-annual installments on
principal and interest. An initial payment representing at least 15 percent of the value of
the sales transaction must be provided by the importer to the exporter. CCC may offer
coverage of up to 100 percent of the net contract value, less the initial payment.

Direct Credit Programs – Export
Under the CCC Export Credit Guarantees program, several cohorts have had defaults
and claims that resulted in rescheduled loans which are now direct loans owed to CCC.
The programmatic purpose does not differ from the original guaranteed loans.

Direct Credit Programs – Food Aid
Under the P.L. 480 Title I Program, CCC finances the sales of U.S. agricultural
commodities to countries in need of food assistance on favorable credit terms (at low
rates of interest for up to 30 years with grace periods of up to 7 years). P.L. 480 Title I
provides for government-to-government (and some government-to-private entity) sales of
U.S. agricultural commodities to developing countries on credit terms or for local
currencies. Priority is given to countries with the greatest need for food that are
undertaking economic development to improve food security and agricultural
development, alleviate poverty, and promote broad based, equitable and sustainable
development. All credits under this program are in U.S. dollar denominations. The aid
provided under this program is in the form of agricultural commodities instead of actual
loans; hence the term direct credit rather than direct loans. Although legislative authority
for the P.L. 480 Title I Program still exists, there have been no new loans extended under
the program since fiscal year 2006.




                                             74
                            COMMODITY CREDIT CORPORATION
                                       Financial Section

Note 6 – Direct Loans and Loan Guarantees: Non-Federal Borrowers,
Continued

Direct Credit Programs – Debt Reduction
The Debt Reduction Fund is used to account for modified foreign debt. Debt is considered
to have been modified if the original debt has been reduced or the interest rate of the
agreement is changed. The Debt Reduction Fund is the financing fund for modification
of defaulted foreign loans, both direct and guaranteed. Modifications moved to this fund
must be approved by OMB and State Department.

Direct Credit Programs – Domestic
The FSFL Program was implemented to provide low cost financing for producers to build
or upgrade on-farm commodity storage and handling facilities. The loans have a term of
3, 5, 7, 10, or 12 years with a requirement of annual repayment installments. Interest on
these loans is accrued monthly from the date of disbursement. The borrower’s rate is
established to be equivalent to the rate of interest charged on the Department of the
Treasury securities of comparable maturity.

FSA developed the Farm Storage Microloan program designed to help producers,
including new, small and mid-sized producers, grow their businesses and markets. Loans
are now available for portable handling and storage equipment in addition to more
traditional on-farm storage methods. The program will offer more flexible access to credit
and will serve as an attractive loan alternative for smaller farming operations like specialty
crop producers and operators of community supported agriculture. These smaller farms,
including non-traditional farm operations, often face limited financing options. The loans
have a term of 3, 5 or 7 years with a requirement of annual repayment installments.

Sugar Storage Facility Loans (SSFL) were authorized by the 2008 Farm Bill specifically
for processors of domestically produced sugarcane and sugar beets for the construction
or upgrading of storage and handling facilities for raw sugars and refined sugars. The
loan term is 15 years. Only one loan has been approved and disbursed for $3.9 million
in the 2013 cohort.

The Boll Weevil Program was made available to the Texas Boll Weevil Eradication
Foundation in fiscal year 2001, as an interest-free $10 million loan to be repaid over 10
years. The loans had not been repaid at the end of the 10-year timeframe, and new
promissory notes were signed in May 2011, extending the repayment period to October
2020.




                                              75
                                   COMMODITY CREDIT CORPORATION
                                             Financial Section

Note 6 – Direct Loans and Loan Guarantees: Non-Federal Borrowers,
Continued
In fiscal year 2001, the Apple Loan Program provided loans to apple producers who
suffered hardships due to low prices following the 1998-1999 growing season when apple
prices fell to their lowest levels in nearly 10 years. Eligible applicants obtained loans up
to $300 per acre of apple trees in production in 1999 or 2000, up to a maximum
indebtedness of $500,000. The original loan term was established as three years, but
CCC is still receiving repayments.

Obligated Loans
P.L. 480 Title I direct credits outstanding that were obligated prior to October 1, 1991
(Pre-1992), and P.L. 480 direct credits, and direct loans for FSFL, Boll Weevil, and SSFL
loans that were obligated on or after October 1, 1991 (Post-1991), and related interest
receivable outstanding as of September 30, 2018, are shown in Table 16. Defaulted
credit guarantees, and related interest receivable are also presented in Table 16.
                 Table 16: Direct Loans and Defaulted Guaranteed Loans, Net
                                                                     (In Millions)
                                                                                                  Value Of
                                               Loans                            Present           Assets
                                             Receivable,         Interest         Value          Related to
                                               Gross            Receivable     Allow ance          Loans

Direct Loans:

Obligated Pre-1992
   P.L. 480 Title 1                      $            843   $            11    $     (178)   $          676
Pre-1992 Total                           $            843   $            11    $     (178)   $          676

Obligated Post-1991
  P.L. 480 Title 1                       $            508   $             8    $      (84)   $           432
  Debt Reduction Fund                                 104                 1           (18)                87
  Farm Storage Facility                               749                10           (41)               718
  Farm Storage Microloans                              40                 -             -                 40
  Boll Weevil Program                                   4                 -            (1)                 3
  Sugar Storage Facility                                3                 -             -                  3
Post-1991 Total                          $          1,408   $            19    $     (144)   $         1,283
Total Direct Loan Program Receivables    $          2,251   $            30    $     (322)   $         1,959

Defaulted Guaranteed Loans:
Post-1991
  Export Credit Guarantee Programs       $            439   $            10    $     (219)   $          230
Post-1991 Total                          $            439   $            10    $     (219)   $          230
Total Defaulted Guaranteed Loans         $            439   $            10    $     (219)   $          230

Total Direct Loans and Defaulted
Guaranteed Loans, Net                    $          2,690   $            40    $     (541)   $         2,189




                                                    76
                                 COMMODITY CREDIT CORPORATION
                                         Financial Section

Note 6 – Direct Loans and Loan Guarantees: Non-Federal Borrowers,
Continued

Disbursements
Table 17 shows new direct loans disbursed by CCC for the fiscal year ended September
30, 2018:

               Table 17: Total Amount of Direct Loans Disbursed (Post-1991)

                                                                        (In Millions)
  Direct Loan Programs
     Farm Storage Facility                                             $                178
     Farm Storage Microloans                                                             24
  Total Direct Loans Disbursed                                         $                202


Table 18: Guaranteed Loans Disbursed shows new guaranteed loans disbursed by the
lender at face value. Guaranteed Loans which have not defaulted are not included in the
amounts for Direct Loans and Loans Guarantees, Net, on the Consolidated Balance
Sheet.

For the fiscal year ended September 30, 2018, credit guaranteed disbursements were as
follows:

                              Table 18: Guaranteed Loans Disbursed
                                                                        (In Millions)
                                                                Principal,          Principal,
                                                               Face Value          Guaranteed
  Loan Guarantee Programs                                      Disbursed           Disbursed
    Export Credit Guarantee Programs                         $        1,961      $         1,918
  Total Guaranteed Loans Disbursed                           $       1,961       $        1,918




                                                77
                             COMMODITY CREDIT CORPORATION
                                       Financial Section

Note 6 – Direct Loans and Loan Guarantees: Non-Federal Borrowers,
Continued

Guaranteed Loans Outstanding
Table 19 contains the outstanding principal guaranteed as of September 30, 2018. This
represents the outstanding principal, at face value and guaranteed amounts owed by
foreign financial institutions to exporters or assignee U.S. financial institutions
participating in the program.

                         Table 19: Guaranteed Loans Outstanding

                                                             (In Millions)

                                                 Outstanding                   Outstanding
     Loan Guarantee Programs                Principal, Face Value         Principal, Guaranteed
       Export Credit Guarantee Program      $               1,877         $               1,840
     Total Guaranteed Loans Outstanding     $               1,877         $               1,840


Loan Guarantee Liability
The liability for loan guarantees is the present value of expected net cash outflows due to
the loan guarantees in the GSM program which includes the estimated cash flows of
payments by CCC to cover defaults and delinquencies, interest subsidies, payments to
CCC including origination and other fees, penalties, and recoveries, including the effects
of any expected actions by CCC.

As of September 30, 2018, Loan Guarantee Liability (Present Value Method) was as
follows:

  Table 20: Loan Guarantee Liability (Present Value Method for Post-1991 Guarantees)

                                                                          (In Millions)
                                                                        Loan Guarantee
                                                                        Liability, Present
       Loan Guarantee Programs                                                Value
         Export Credit Guarantee Programs                           $                        4
       Total Loan Guarantee Liability                               $                        4




                                              78
                                    COMMODITY CREDIT CORPORATION
                                               Financial Section

Note 6 – Direct Loans and Loan Guarantees: Non-Federal Borrowers,
Continued

Subsidy Expense
Total direct loan subsidy expense is a combination of subsidy expense for new direct
loans disbursed in the current fiscal year, modifications to existing loans, and technical
and interest rate reestimates to existing loans. Subsidy reestimates are calculated on
cumulative disbursements for all budget fiscal years and the respective cohorts (direct
loan origination year) that comprise them. There were no additional direct food aid credit
agreements made after fiscal year 2006. Subsidy expenses related to direct loans, net
of fees and other collections, and subsidy reestimates for the fiscal year ended
September 30, 2018, are shown below.

         Table 21: Subsidy Expense for Direct Loans by Program and Component
                                                                         (In Millions)

                                           Interest      Interest Rate     Technical        Total       Total Subsidy
    Direct Loan Programs                 Differential    Reestimates     Reestimates     Reestimates      Expense
    P.L. 480 Title 1                    $            -   $           -   $        (2)    $        (2)   $          (2)

    Defaulted Export Credit Guarantee                -              -             (17)           (17)            (17)

    Farm Storage Facility                          (2)              2              23             25              23

    Boll Weevil Program                              -              1                -             1               1

    Total Direct Loan Subsidy Expense   $          (2)   $          3    $          4    $         7    $          5


Subsidy expenses related to credit guarantees, net of fees and other collections, and
subsidy reestimates for the fiscal year ended September 30, 2018, are shown in Table
22: Subsidy Expense for Loan Guarantees by Program and Component below. Subsidy
reestimates are calculated on cumulative disbursements for each cohort.




                                                         79
                                    COMMODITY CREDIT CORPORATION
                                                 Financial Section

Note 6 – Direct Loans and Loan Guarantees: Non-Federal Borrowers,
Continued

        Table 22: Subsidy Expense for Loan Guarantees by Program and Component
                                                                        (In Millions)
                                           Fees and                                                        Total
                                            Other                              Technical     Total       Subsidy
  Loan Guarantee Programs                 Collections  Other   Subtotal Reestimates Reestimates          Expense
   Export Credit Guarantee Programs     $           10 $ (3) $         7 $             (7) $       (7) $         -
  Total Loan Guarantees Subsidy Expense $           10 $ (3) $         7 $             (7) $       (7) $         -

Subsidy Rates
Subsidy rates are used to compute each year’s subsidy expenses as disclosed below.
The subsidy rates disclosed in Table 23: Subsidy Rates for Direct Loans by Program and
Component and Table 24: Subsidy Rates for Loan Guarantees by Program and
Component pertain only to fiscal year 2018. These rates cannot be applied to the direct
credits and loans and guaranteed loans disbursed during the current reporting year to
yield the subsidy expense. The subsidy expense for new loans reported in fiscal year
2018 could result from disbursements of loans from both the current year and prior year
cohorts. The subsidy expense reported in fiscal year 2018 also includes reestimates. For
the fiscal year ended September 30, 2018, there were no new loans for P.L. 480, and
thus, no subsidy rate was provided. The Apple and Boll Weevil Loan Programs were
one-year programs, both in cohort 2001. Both of these loan programs continue to receive
repayments.

Subsidy rates (percentage) for direct loans were as follows:

            Table 23: Subsidy Rates for Direct Loans by Program and Component

                                                                    Fees and
                                 Interest                            Other
 Direct Loan Programs          Differential        Defaults        Collections          Other             Total
   Farm Storage Facility            (0.97%)            0.02%            (0.27%)          (0.05%)           (1.27%)
   Farm Storage Microloans          (0.97%)            0.02%            (0.27%)          (0.05%)           (1.27%)
   Sugar Storage Facility           (2.37%)            0.03%                 -                -            (2.35%)




                                                         80
                           COMMODITY CREDIT CORPORATION
                                       Financial Section

Note 6 – Direct Loans and Loan Guarantees: Non-Federal Borrowers,
Continued
Subsidy rates (percentage) for credit guarantee programs were as follows:

       Table 24: Subsidy Rates for Loan Guarantees by Program and Component

                                                             Fees and
                                                              Other
   Guaranteed Loan Programs                  Defaults       Collections          Total
    GSM-102                                      0.32%           (0.51%)          (0.19%)
    Export Credit Guarantee Programs             0.71%           (3.57%)          (2.86%)

Schedule for Reconciliation
Subsidy Allowance in Table 25: Subsidy Cost Allowance Balances Direct Loans includes
subsidy for both direct loans and loans receivable derived from those defaulted
guaranteed loans as of September 30, 2018.

                Table 25: Subsidy Cost Allowance Balances Direct Loans
                                                                     (In Millions)
         Beginning Balance of the Subsidy Cost Allowance            $          383
         Add: Subsidy expense for direct loans disbursed during the
               year by component
          Interest Rate Differential Costs                                       (2)
         Total Subsidy Expense prior to Adjustments and Reestimates              (2)

         Adjustments:
          Loans Written Off                                            $        (2)
          Subsidy Allowance Amortization                                       (14)
          Accruals - Default Reestimates                                       (12)
          Other                                                                  3
         Total Subsidy Cost Allowance before Reestimates               $       356

         Add or Subtract Reestimates by Component:
          Interest Rate Reestimate                                     $         3
          Technical/Default Reestimate                                           4
         Total Reestimates                                             $         7
         Ending Balance of the Subsidy Cost Allowance                  $       363




                                              81
                               COMMODITY CREDIT CORPORATION
                                           Financial Section

Note 6 – Direct Loans and Loan Guarantees: Non-Federal Borrowers,
Continued

The change in the liability for credit guarantees as of September 30, 2018 was as follows:

               Table 26: Schedule for Reconciling Loan Guarantee Liability

                                                                            (In Millions)
        Beginning balance of the loan guarantee liability                   $          13
        Add: Subsidy expense for guaranteed loans disbursed during the
                year by component
         Fees and other collections                                                   10
         Other subsidy costs                                                          (3)
        Total of the above subsidy expense components                       $          7

        Adjustments:
         Other                                                              $         (9)
        Ending balance of the Loan Guarantee Liability before reestimates   $         11

        Add or Subtract reestimates by component:
         Technical/default reestimate                                       $         (7)
        Total of the above reestimate components                            $         (7)
        Ending balance of the loan guarantee liability                      $          4




                                                   82
                            COMMODITY CREDIT CORPORATION
                                      Financial Section

Note 6 – Direct Loans and Loan Guarantees: Non-Federal Borrowers,
Continued
Loan Modifications and Rescheduling
A modification is any Government action different from the baseline assumptions that
affects the subsidy cost such as a change in the terms of the loan contract. The cost of
a modification is the difference between the present value of the cash flows before and
after the modification. The Debt Reduction Fund is used to account for CCC’s foreign
modified debt. Debt is considered to be modified if the original debt has been reduced or
the interest rate of the agreement changed.

In contrast, when debt is "rescheduled," only the date of payment is changed.
Rescheduled debt is carried in the original fund until paid. Rescheduling agreements,
whereby loan terms are changed, allow CCC to add uncollected interest to the principal
balance of foreign credit and other receivables (capitalized interest). CCC records an
allowance to reduce the receivable, including the capitalized interest, to the present value
of future cash flows. Interest income is recognized only when, in management's
judgment, debtors have demonstrated the ability to repay the debt in the normal course
of business.

Events and Changes Having a Significant and Measurable Effect upon Subsidy Rates,
Subsidy Expense, and Reestimates
In fiscal year 2018, CCC received guidance from OMB to not perform reestimates on the
Debt Reduction Fund. The reestimates completed in fiscal year 2017 were reversed in
fiscal year 2018. CCC developed an alternate method to calculate the estimated net
present value for the outstanding Debt Reduction Fund portfolio by repurposing the P.L.
480 cash flow model due to portfolio similarities as majority of the debt reduction loans
were once P.L. 480 loans.

The Farm Storage model was modified during fiscal year 2018 to allow for an econometric
update. The GSM and P.L. 480 models were not updated.

Other than as stated above, CCC is unaware of any measurable events or pending
legislation at this time that may affect subsidy rates and reestimates in the future.
Reestimate Trend Analysis
Agencies are required to reestimate the subsidy cost throughout the life of each cohort of
direct loans or loan guarantees to account for differences between the original
assumptions of cash flow and actual cash flow or revised assumptions about future cash
flow. These reestimates represent additional costs or savings to the government and are
recorded in the budget. Upward reestimates which indicate an increase in the subsidy
cost are financed by permanent indefinite authority.


                                             83
                            COMMODITY CREDIT CORPORATION
                                      Financial Section

Note 6 – Direct Loans and Loan Guarantees: Non-Federal Borrowers,
Continued

P.L. 480 Title I Direct Credit
The total reestimate for P.L. 480 program is a net downward of $2.1 million, consisting of
$2.5 million upward and $4.6 million downward. Interest on the reestimate had a large
impact on the reestimate, comprising $2.1 million of the upward reestimate and $3.3
million of the downward reestimate. Changes in defaults and recoveries drove the biggest
changes in all cohorts, as well as changes in macroeconomic factors. Refer to Table 21:
Subsidy Expense for Direct Loans by Program and Component for a summary on the
direct loan reestimates.

Farm Storage Facility Loans
The total reestimate for FSFL program is a net upward of $25.5 million, consisting of $26.3
million upward and $0.8 million downward. There were upward reestimates of $1.7 million
to $5.8 million in each of the cohorts between 2010 and 2015, and $2.3 million in cohort
2017. There was a downward reestimate of $0.8 million in the most recent 2018 cohort.
Refer to Table 21: Subsidy Expense for Direct Loans by Program and Component for a
summary on the direct loan reestimates.

Fiscal year 2018, when compared to previous fiscal years, had a historically high rate of
prepayments. Principal prepayments accounted for 33 percent of total principal payments
in fiscal year 2018 compared to a historical average of 16 percent over the previous three
fiscal years.

Export Credit Guarantees
The total reestimate for GSM-102 program is a net downward of $7.6 million, consisting
of $0.5 million upward and $8.1 million downward. The two most recent cohorts, 2017
and 2018, account for 87 percent of the total downward reestimate. The downward
reestimate for the 2017 and 2018 cohorts are primarily caused by the differences between
prior year projections and actual fiscal year 2018 loan performance. Because there were
no fiscal year 2018 defaults or recoveries in the 2017 cohort, default claims paid net of
recoveries in fiscal year 2018 were $0, compared to the $2.7 million forecasted in the
fiscal year 2017 reestimate. Actual commitments in the 2018 cohort were $3.1 billion (62
percent) lower than the commitment assumptions used for 2018 budget execution. As a
result, forecasted default claims decreased by $30.8 million (84.6 percent), forecasted
recoveries decreased by $23.0 million (93.1 percent), and upfront fees received
decreased by $15.9 million (62.8 percent).




                                             84
                           COMMODITY CREDIT CORPORATION
                                     Financial Section

Note 6 – Direct Loans and Loan Guarantees: Non-Federal Borrowers,
Continued

The total reestimate for Supplier Credit is a net downward of $16.1 million. A rescheduled
agreement was added for Indonesia in fiscal year 2018. This led to an increase in
forecasted rescheduled recoveries of $16.7 million. The increase in forecasted
rescheduled recoveries led to the large downward reestimate in the 2004 cohort. Refer
to Table 21: Subsidy Expense for Direct Loans by Program and Component and Table
22: Subsidy Expense for Loan Guarantees by Program and Component for a summary
on the loan guarantee reestimates for defaulted and active guarantee loans, respectively.




                                            85
                                                                                COMMODITY CREDIT CORPORATION
                                                                                                       Financial Section
Note 7 – Commodity Inventory and Related Property
Commodity inventory and related property as of September 30, 2018 (Values in Thousands) was as follows:


                                                               Table 27: Commodity Inventory and Related Property

                                                  Beginning Inventory                                                                    Other Disposition,                                         Ending Inventory
                                                    October 1, 2017                 Acquisitions            Collateral Acquired         Addition, & Deduction                Donations             September 30, 2018
                                        Unit of
                                       Measure     Quantity        Value        Quantity       Value        Quantity       Value        Quantity        Value          Quantity       Value        Quantity        Value

    Dry Edible Beans                   Cwt.                -   $            -       32     $       897            -    $            -           -   $             -         (32) $        (897)            -   $            -
                         Beans Total                    XXX    $            -      XXX     $       897         XXX     $            -        XXX    $             -        XXX $          (897)         XXX    $            -

    Corn Soya Blend              Pounds                4,444   $     1,736      114,216    $    38,656            -    $            -         28    $           263    (106,569) $     (36,489)       12,119   $      4,166
             Blended Foods Total                        XXX    $     1,736         XXX     $    38,656         XXX     $            -        XXX    $           263        XXX $       (36,489)         XXX    $      4,166

    Miscellaneous                      Cwt                 -   $            -         -    $     4,463            -    $            -           -   $             -           -   $      (3,992)           -   $       471
                          CCC Total                     XXX    $            -      XXX     $     4,463         XXX     $            -        XXX    $             -        XXX    $      (3,992)        XXX    $       471

    Dry Whole Peas                 Cwt.                  241   $     6,748        2,918    $    64,335            -    $            -           -   $       (182)        (2,911) $     (65,425)          248   $      5,476
    Lentils Dry                    Cwt.                   11           356          395         10,415            -                 -           -            (54)          (406)       (10,717)            -              -
              Dry Whole Peas Total                      XXX    $     7,104         XXX     $    74,750         XXX     $            -        XXX    $       (236)          XXX $       (76,142)         XXX    $      5,476

    Corn Meal                     Pounds               2,998   $       871       32,706    $     6,872            -    $            -          5    $       (288)       (33,537) $      (6,913)        2,172   $        542
    Grain Sorghum                 Bushels                221         2,015       12,014         60,934            -                 -           -              3        (11,839)       (60,075)          396          2,877
                Feed Grains Total                       XXX    $     2,886         XXX     $    67,806         XXX     $            -        XXX    $       (285)          XXX $       (66,988)         XXX    $      3,419

    Peanut Butter                      Pounds              -   $         -            -    $            -         -    $         -         12,150 $       12,985        (12,150) $     (12,985)            -   $         -
    Peanuts                            Pounds         55,593         9,678            -                 -   155,852         27,970        (78,493)       (13,610)             -              -       132,952        24,038
                        Peanut Total                    XXX    $     9,678         XXX     $            -      XXX     $    27,970           XXX $          (625)          XXX $       (12,985)         XXX    $    24,038

    Milled Head Rice                   Cwt.              11    $       248          448    $     9,934            -    $            -           -   $           (42)       (459) $     (10,140)            -   $            -
                          Rice Total                    XXX    $       248         XXX     $     9,934         XXX     $            -        XXX    $           (42)       XXX $       (10,140)         XXX    $            -

    Soybean Meal                       Pounds              -   $            -    67,682    $    14,464            -    $            -           -   $             -     (67,682) $     (14,464)            -   $            -
    Soybeans                           Bushels             -                -       132          2,322            -                 -           -                 -        (132)        (2,322)            -                -
                       Soybean Total                    XXX    $            -      XXX     $    16,786         XXX     $            -        XXX    $             -        XXX $       (16,786)         XXX    $            -

    Vegetable Oil                 Pounds              20,683   $    13,152      259,162    $   126,721            -    $            -           -   $       (980)      (265,017) $    (130,430)       14,828   $      8,463
     Vegetable Oil Products Total                       XXX    $    13,152         XXX     $   126,721         XXX     $            -        XXX    $       (980)          XXX $      (130,430)         XXX    $      8,463
    Flour                              Pounds              -   $            -    13,291    $     3,020            -    $            -           2 $            -        (13,293) $      (3,020)            -   $            -
    Wheat                              Bushels           17                50    22,264        172,150          28                 70         (40)          (106)       (22,264)      (172,150)           5                14
                         Wheat Total                    XXX    $           50      XXX     $   175,170         XXX     $           70        XXX $          (106)          XXX $      (175,170)         XXX    $           14

    Total Commodities                                   XXX    $    34,854         XXX     $   515,183         XXX     $    28,040           XXX    $     (2,011)          XXX    $   (530,019)         XXX    $    46,047

    Commodity Inventory and Related Property                                                                                                                                                                   $    46,047

    Note: Due to distinct units of measure, Quantity totals are not tabulated, and are denoted as xxx.




                                                                                                                 86
                           COMMODITY CREDIT CORPORATION
                                     Financial Section

Note 7 – Commodity Inventory and Related Property, Continued
Inventory purchases are initially recorded at acquisition cost, including transportation,
plus processing and packaging costs incurred after acquisition. Acquisition cost for loan
forfeitures is the amount of the loan settlement, excluding interest. The commodity is
revalued in the balance sheet at year-end at the lower of cost or the net realizable value
in accordance with SFFAS No. 3.

Commodity inventory is not held in reserve for future sale. All commodity inventory on
hand at year-end is anticipated to be donated or transferred during the next fiscal year.
CCC has no excess, obsolete or unserviceable inventory.

Generally, disposition costs are based on the average cost of the commodity in inventory
at the end of the previous month. In certain other cases, the cost is computed on the
basis of actual (historical) cost of the commodity. Actual cost is used with: (a)
simultaneous acquisition and disposition for commodity export programs; and (b)
dispositions of commodities previously pledged as price support loan collateral, which are
acquired and simultaneously disposed of by CCC during the exchange of commodity
certificates. Commodity certificates are issued by CCC and must be immediately
exchanged for a commodity owned by the Corporation.




                                            87
                             COMMODITY CREDIT CORPORATION
                                        Financial Section


Note 8 – General Property and Equipment, Net
General Property and Equipment as of September 30, 2018, were as follows:

                        Table 28: General Property and Equipment

                                                              (In Millions)

                                               Acquisition    Accumulated              Net Book
                                                 Value        Depreciation              Value

 Equipment                                    $           9   $          (9)       $           -
 Capitalized Software Costs                              97             (97)                   -
 Total General Property and Equipment         $         106   $        (106)       $           -

CCC disposed of $46 million of fully depreciated equipment and capitalized software
during fiscal year 2018. As of September 30, 2018, CCC’s property and equipment was
fully depreciated and software costs were fully amortized.

Note 9 – Advances to Others

Advances to Others as of September 30, 2018, were as follows:

                               Table 29: Advances to Others
                                                                              (In Millions)

     Public:
      The Peanut Designated Marketing Association Advance                     $           68
      Biofuel Infrastructure Grantees                                                     15
      Various Grantees, via USAID                                                          7
     Total Advances to Others                                             $               90


The programs contributing to the majority of the Advances to Others (Public) include:

The Peanut Designated Marketing Association (DMA) Advance
CCC advances funds to the DMA for each peanut marketing season for the purpose of
providing peanut MALs and LDPs. During the marketing season, as the need for
drawdown funds diminish, excess funds are reimbursed to CCC. At the end of the
marketing season, the DMA reimburses CCC for any remaining fund advances.




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Note 9 – Advances to Others, continued
Biofuel Infrastructure Grantees
To create new markets for U.S. farmers and ranchers, help Americans save money on
their energy bills, support America's clean energy economy, cut carbon pollution, and
reduce dependence on foreign oil and costly fossil fuels, USDA continues to aggressively
pursue investments in American-grown renewable energy. As part of that commitment,
USDA partnered with 21 states by providing one-to-one matching funds, through the
Biofuel Infrastructure Partnership (BIP), to install nearly 5,000 pumps offering higher
blends of ethanol nationwide. Through BIP, USDA is testing innovative ways to distribute
higher blends of renewable fuel. As of September 30, 2018, CCC’s advance related to
the BIP program was $15 million.

Various Grantees, via USAID
The USAID program covers transportation-related costs in accordance with P.L. 480
under the authority of the Secretary of Agriculture. The FFP Title II program provides
emergency and non-emergency food assistance to other countries. Advances occur
when funds are disbursed to a grantee providing transportation services for commodities
being delivered prior to the submittal of the expenses. As of September 30, 2018, CCC’s
advance related to the FFP Title II program was $7 million.
Note 10 – Liabilities Not Covered by Budgetary Resources
Liabilities not Covered by Budgetary Resources (Current) as of September 30, 2018 were
as follows:

                                    Table 30: Total Liabilities


                                                                      (In Millions)
Public:
 Environmental and Disposal Liabilities (Note 14)                     $        21
Total Liabilities not covered by budgetary resources                  $        21
Total Liabilities covered by budgetary resources                           16,665
Total Liabilities not requiring budgetary resources                            37
Total Liabilities                                                     $    16,723




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                            COMMODITY CREDIT CORPORATION
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Note 10 – Liabilities Not Covered by Budgetary Resources, continued

Liabilities not Covered by Budgetary Resources
Unfunded liabilities are not covered by budgetary resources or offsetting collections. An
OMB apportionment and/or collection of cash is needed to provide budgetary resources
and allow payment of the liability in a future period.

Liabilities Covered by Budgetary Resources
Funded liabilities are payables and accruals for which CCC has not yet paid as of the end
of the fiscal year. As of September 30, 2018, the majority of the open liability for CCC
was $10.7 billion in payables for principal due to the Bureau of Fiscal Service, $5.0 billion
in program liabilities, and $827 million in pre-credit reform liabilities payable to Treasury.

Liabilities not Requiring Budgetary Resources
Liabilities not requiring budgetary resources are liabilities that have not in the past
required and will not in the future require the use of budgetary resources, e.g., liabilities
for clearing accounts, non-fiduciary deposit funds, custodial collections, and unearned
revenue.




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Note 11 – Debt to the Treasury
Debt to the Treasury, categorized as interest bearing as of September 30, 2018 was as
follows:

              Table 31: Debt to the Treasury, Categorized as Interest Bearing

                                                                           (In Millions)
                                                        Non-Credit
                                                         Reform        Credit Reform             Total
Debt, beginning of Fiscal Year
 Principal                                          $         8,150    $           1,800    $       9,950
 Accrued Interest Payable                                       -                    -                -

Total Debt Outstanding, Beginning of Fiscal Year    $         8,150    $           1,800    $       9,950
New Debt
  Principal                                         $     2,882,164    $             372    $   2,882,536
  Accrued Interest Payable                                      164                   70              234
Total New Debt                                      $     2,882,328    $             442    $   2,882,770

Repayments
  Principal                                         $    (2,881,387)   $            (453)   $   (2,881,840)
  Accrued Interest Payable                                     (163)                 (70)             (233)
Total Repayments                                    $    (2,881,550)   $            (523)   $   (2,882,073)
Debt, as of September 30
 Principal                                          $         8,927    $           1,719    $      10,646
  Accrued Interest Payable                                        1                    -                1
Total Debt Outstanding as of September 30           $         8,928    $           1,719    $      10,647



Non-Credit Reform
CCC has permanent indefinite borrowing authority up to $30 billion that is used by a
revolving fund to finance most of its programs. CCC borrows and repays on a daily basis,
and may borrow, interest-free, up to the amount of the prior year unreimbursed realized
losses until reimbursed. Monthly interest rates on borrowing authority fluctuated between
1.250% and 2.375% during fiscal year 2018.

Non-credit reform borrowing is tied to the one-year Department of the Treasury borrowing
rate which is in effect on the date that a borrowing occurs. The Department of the
Treasury’s one-year rate, which is subject to change from month to month, is certified
monthly by the Department of the Treasury in their notification to CCC. The Department
of the Treasury’s one-year loan rate is based upon the average market yields of the
preceding 30 days at the time the Department of the Treasury issues certification of the
subsequent monthly rate.

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Note 11 – Debt to the Treasury, continued

Credit Reform
CCC also has permanent indefinite borrowing authority that is used by credit reform
programs to finance disbursements on post-1991 credit reform direct credit and loan
obligations and credit guarantees. CCC borrows from the Department of the Treasury for
the entire fiscal year based on annual estimates of the difference between the amount
appropriated (subsidy) and the amount to be disbursed to the borrower. The effective
date for borrowings is October 1 using a mid-year convention. CCC may repay the loan
agreement, in whole or in part, prior to maturity by paying the principal amount of the
borrowings plus accrued interest up to the date of repayment. Interest is paid annually
on these borrowings based on weighted average interest rates for the cohort to which the
borrowings are associated.

The fiscal year 2018 interest rates on long-term borrowings under the permanent
indefinite borrowing authority for CCC’s credit reform programs are calculated using the
OMB CSC. For 2001 and subsequent cohorts, the single effective interest rate produced
from the calculator, along with budget assumptions, is used to calculate interest expenses
for CCC’s credit reform programs.

Interest on borrowings from the Department of the Treasury is paid at a rate based upon
the average interest rate of all outstanding marketable obligations (of comparable maturity
date) of the U.S. Government as of the preceding month.

CCC incurred approximately $2 million in interest expense on capital stock for fiscal year
2018, which is separate from the interest expense on the Department of the Treasury
borrowings.

Note 12 – Grants Payable

Essentially all CCC grants are funded through the parent/child relationship with USAID.
In most instances, grantees incur expenditures before drawing down funds on a
reimbursement basis. An accrued grant liability occurs when the grant expenses exceed
outstanding payments to grantees.

At year-end, CCC reports both actual payments made through September 30, 2018, and
an unreported grant expenditure estimate (accrual) based on historical spending patterns
of the grantees. As of September 30, 2018, CCC had $208 million in grants payable.



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Note 13 – Other Liabilities
Other Liabilities (Current) as of September 30, 2018, were as follows:

                                       Table 32: Other Liabilities
                                                                           (In Millions)

      Intragovernmental:
      Resources Payable to Treasury: P.L. 480                             $         827
      Excess Subsidy Payable to Treasury                                             30
      Other                                                                           4
      Total Intragovernmental Other Liabilities                           $         861

      Public:
       Deposit and Trust Liabilities                                      $          14
       Other                                                                         18
      Total Public Other Liabilities                                      $          32

Resources Payable to the Department of the Treasury represents CCC’s liquidating fund
and debt reduction fund assets (cash and loans receivable, net of an allowance) less any
liabilities that may be held as working capital. These funds collect loan payments and
pay any related expenses. At the end of each fiscal year, any unobligated cash balance
is transferred to the Department of the Treasury.

The Excess Subsidy Payable to the Department of the Treasury is the downward
reestimate owed to the Department of the Treasury from the financing fund. When direct
and guaranteed loan financing funds collect more subsidy than necessary to fund future
net cash outflows, the applicable financing account transfers the excess subsidy, with
interest, to a Department of the Treasury General Fund Receipt Account.

Deposit and Trust Liabilities are amounts advanced to or deposited with CCC on behalf
of other entities. The balance, all categorized as public, consists of unapplied collections
for warehouse user fees, claims for disaster programs, and other miscellaneous
collections that are temporarily held in suspense until appropriately identified and applied.




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Note 14 – Environmental and Disposal Liabilities
From the late 1930’s until the mid-1970’s, the Corporation operated approximately 4,500
grain storage facilities in the U.S. as part of USDA’s price support program for American
farmers. The facilities were privately owned and leased by CCC primarily in Midwestern
States where the majority of the grain production was high and access to commercial
storage facilities was limited. Because much of the grain was stored for extended periods
of time, it was periodically necessary to fumigate the grain in order to control destructive
insects. The fumigant mixture most commonly used contained the chlorinated solvent
carbon tetrachloride. The fumigant was the accepted industry standard at that time for
stored grain. Carbon tetrachloride was used as a pesticide for the stored grain until it was
banned by the Environmental Protection Agency (EPA) in 1985 as a potential human
carcinogen.

In 1988 the first discovery of ground water contaminated with carbon tetrachloride in the
vicinity of a CCC grain storage facility was made. Since then, CCC, in coordination with
the EPA and the respective states, have been engaged in an active program to identify
affected sites and respond with appropriate action to safeguard public health and protect
the environment. In addition to addressing the contaminated sites initially identified, CCC
funded and conducted a private well-sampling program at more than 600 former CCC
grain storage facilities in Missouri, Kansas, and Nebraska. This sampling program
identified numerous sites where some level of carbon tetrachloride contamination was
present. The total number of CCC sites where some level of contamination was present
is 83 known locations, of which 36 have been either remediated, are undergoing active
remediation, or require no further action.

Addressing these formerly leased grain storage facility sites, most of which are located
on private property, has been the focus of CCC’s hazardous waste cleanup program to
date. Many of these former CCC sites have ground water contamination above the
federal drinking water standard. EPA and state regulators continue to conduct soil and
water sampling to identify any additional contaminated CCC sites that may pose a
potential threat to public health or have contaminant levels that exceed natural resource
degradation standards. Based on the due diligence procedures performed to date, in
partnership with EPA and State Agencies, CCC determined that there are few, if any,
sites which are not reported by CCC as of September 30, 2018.




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Note 14 – Environmental and Disposal Liabilities, Continued

Site investigations are conducted to determine CCC’s level of liability related to the
contamination. Site investigation programs involve the review of existing documentation,
development and implementation of sampling plans, installation of monitoring wells and
sample points, contaminant distribution modeling, dynamic risk assessment, and
remedial alternatives analysis. Additional costs are often incurred during negotiations
with regulatory agencies regarding a selected remedy. Remedial activities can range
from the design and implementation of a monitoring system to the engineering design,
construction, and operation and maintenance of a groundwater extraction and treatment
system. CCC makes every effort to develop rational and defensible remedial options and
alternatives that are cost effective while protecting public health and the environment.

Funding requests and expected liabilities tied to these activities are based on anticipated
site investigation and/or potential remedial action including construction of treatment
systems. A portion of the requested funding is also required to support ongoing
operations and maintenance activity at existing sites where remedial actions are ongoing
and any additional sites identified where remedial activity is in the planning stages. CCC
uses operations and maintenance funding, to support groundwater monitoring programs
already in place or being developed in support of anticipated remedial actions. The
funding is used for an intragovernmental agreement with the Department of Energy to
establish reimbursable agreements to do analysis, implementation and operations and
maintenance of existing systems. There are currently several sites where CCC is
conducting active monitoring programs where investigations have been completed or
remedial action is ongoing or likely. These monitoring programs are being conducted as
directed by State regulatory agencies or the U.S. EPA.

Liability estimates are derived using a system that categorizes the existing sites. The
funding requests and expected associated liabilities are based on the specific categories
described below, with site counts as of September 30, 2018:

      • Category I represents 8 CCC sites where there is least uncertainty regarding the
pending action and associated costs. The upper bound estimates reflect the highest
estimated cost that could be incurred to remediate the site to acceptable standards.

       • Category II are 23 sites where CCC has conducted at least a limited site
investigation and the liability associated with these sites has been evaluated assuming
remedial action will be required. A range of values has been determined and is used to



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                             COMMODITY CREDIT CORPORATION
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Note 14 – Environmental and Disposal Liabilities, Continued

reflect a range of potential costs. Cost figures are based on program experience and
typical treatment system designs. The costs identified as “low” are assumed to employ a
natural migration/monitoring design. The costs identified as “high” represent a treatment
system designed to actively remove or attenuate the contaminant.

       • Category III represents 25 sites where contamination levels above the maximum
allowable levels have been found. CCC has not conducted a site characterization at
these sites. The costs are estimated using a range of values. The "low" value represents
the cost of a limited data evaluation. The “high” values represent a thorough site
characterization to include a feasibility study and some degree of remedial action.

CCC recorded a total liability for remediation of affected sites of $20.9 million in fiscal year
2018, of which $20.7 million was not covered by budgetary resources. CCC estimates
the range of potential future losses due to remedial actions to be between $20.9 million
and $144.8 million.
Note 15 – Accrued Liabilities

Accrued Liabilities (Public) as of September 30, 2018, were as follows:

                                Table 33: Accrued Liabilities
                                                                      (In Millions)
           Conservation Reserve Program                               $       1,845
           Income Support Programs:
             Agriculture Risk Coverage Program                               1,063
             Price Loss Coverage Program                                     1,893
             Other Income Support Programs                                      20
           Other Programs                                                        8
           Total Accrued Liabilities                                  $      4,829

The CRP accrued liability consists of annual rental payments estimated on approved
contracts, expected to be paid in fiscal year 2019. The ARC and PLC accruals consist of
crop year 2017 program payments which began in October 2018 and continue throughout
fiscal year 2019, as price and yield data are finalized.




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Note 16 – Commitments and Contingencies

A loss contingency is an existing condition, situation, or set of circumstances involving
uncertainty as to possible loss to an entity. The uncertainty will ultimately be resolved
when one or more future events occur or fail to occur. A loss contingency is a liability
when a past event or exchange transaction has occurred, a future outflow or other
sacrifice of resources is probable, and the future outflow or sacrifice of resources is
measurable.

Legal Disputes and Claims
In the normal course of business, CCC becomes involved in various legal disputes and
claims. CCC vigorously defends its position in such actions through USDA OGC and
Department of Justice.

As of September 30, 2018, no pending legal matters exist that were considered probable
or reasonably possible, which require recognition (accrual) in the financial statements or
require further disclosure.

Note 17 – Disclosures Related to the Statement of Net Cost
The Statement of Net Cost presents costs and associated earned revenues in alignment
with CCC’s strategic goals, stated below:

Provide a Financial Safety Net for Farmers and Ranchers
Under this strategic goal, program areas include Income Support and Disaster
Assistance. CCC provides financial assistance to protect farmers and ranchers from
fluctuations in market conditions and unexpected natural or man-made disasters.
Assistance is provided through income support programs, DAP, and NAP. FSA
administers CCC income support and DAP, the largest of which are ARC and PLC, with
nearly 1.7 million farms enrolled, and are USDA’s primary farm safety net programs.

Increase Stewardship of Natural Resources While Enhancing the Environment
The program under this strategic goal is Conservation. Supported by the Food,
Conservation, and Energy Act of 2008 (2008 Farm Bill), and extended by the 2014 Farm
Bill, conservation programs offer farmers and ranchers a variety of financial and economic
incentives to conserve natural resources on the nation’s privately owned farmlands.
These programs focus on reducing erosion, protecting streams and rivers, restoring and
establishing fish and wildlife habitats, and improving air quality through several


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Note 17 – Disclosures Related to the Statement of Net Cost, Continued

conservation incentive payments, technical assistance, and cost-share programs. FSA
and NRCS administer CCC conservation programs.

Ensure Commodities are Procured and Distributed Effectively and Efficiently
Under this strategic goal, program areas include Commodity Operations and Food Aid.
AMS oversees the procurement, acquisition, storage, disposition, and distribution of
commodities, and the administration of USWA. These programs help achieve domestic
farm program price support objectives, produce a uniform regulatory system for storing
agricultural products, and ensure the timely provision of food products for domestic and
international food assistance programs and market development programs. FAS
administers the Food for Progress Program, which provides food aid to countries that are
emerging democracies and are committed to introducing and expanding free enterprise
in the agricultural sector. Food aid addresses participating countries’ hunger and helps
to build longer term economic development that boosts trade opportunities for the United
States and other countries.

Increase U.S. Food and Agricultural Exports
Under this strategic goal, program areas include Market Development and Export Credit.

Expanding markets for agricultural products are critical to the long-term health and
prosperity of the U.S. agricultural sector. With 95 percent of the world’s population living
outside the United States, future growth in demand for food and agricultural products will
occur primarily in overseas markets. CCC funds used in the market development
programs play a critical role in helping to open new markets and in facilitating U.S.
competitiveness, helping to secure a more prosperous future for American agriculture.
Support for economic development and trade capacity building reinforces these efforts by
helping developing countries to become economically stable and improve their prospects
to participate in and benefit from expanding global trade in agricultural products. FAS
administers CCC FMD programs.

CCC export credit guarantee and direct loan programs, administered by FAS in
conjunction with FSA, provide payment guarantees for third-party commercial financing
and direct financing of U.S. agricultural exports. These programs facilitate exports to
buyers in countries where credit is necessary to maintain or increase U.S. sales, but
where financing may not be available without CCC credit facilities.




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Note 17 – Disclosures Related to the Statement of Net Cost, Continued

Earned Revenue
Revenue and expense are recognized based on SFFAS No. 7, Accounting for Revenue
and Other Financing Sources. CCC follows SFFAS No. 7 for classifying, recognizing,
and measuring inflows of resources. Earned revenues are exchange revenues, which
arise when a Federal entity provides goods and services to the public or to another
government entity for a price.




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                                                            COMMODITY CREDIT CORPORATION
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Note 17 – Disclosures Related to the Statement of Net Cost, Continued
                                   Table 34: Costs and Earned Revenue by Strategic Goal and Program
                                                               Income Support                            Commodity                Market
                                                                 and Disaster        Conservation       Operations and       Development and
                                     (Values in Millions)         Assistance          Programs            Food Aid            Export Credit        Total

 Provide a Financial Safety Net for Farmers and Ranchers
    Total Cost                                                 $        4,989    $                  -   $          201       $             -   $           5,190

    Total Earned Revenue                                                  124                       -                    -                 -                124

 Increase Stewardship of Natural Resources While Enhancing
 the Environment
     Total Cost                                                             -                2,542                       -                 -               2,542

    Total Earned Revenue                                                    -                   10                       -                 -                 10

 Ensure Commodities are Procured and Distributed Effectively
 and Efficiently
    Total Cost                                                             46                       -               95                  135                 276
    Total Earned Revenue                                                   23                       -                3                     -                 26
 Increase U.S. Food and Agricultural Exports
     Total Cost                                                             -                       -                    -             1,836               1,836
    Total Earned Revenue                                                    -                       -                    -               75                  75
 Total Gross Cost                                              $        5,035    $           2,542      $          296       $         1,971   $           9,844
 Less: Total Earned Revenue                                               147                   10                   3                    75                 235
 Net Cost of Operations                                        $        4,888    $           2,532      $          293       $         1,896   $           9,609




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Note 18 – Disclosures Related to the Statement of Budgetary Resources
The SBR is a combined statement that provides information about how budgetary
resources were made available, as well as their status at the end of the year.

Terms of Borrowing Authority Used
Per the CCC Charter Act, 15 U.S.C. 714, the Corporation’s borrowing authority is made
up of both interest and non-interest-bearing notes. These notes are drawn upon on a
daily basis when disbursements exceed deposits, as reported by the FRB, their branches,
Department of the Treasury, and CCC’s financing office. CCC is authorized to issue, and
have outstanding at any one time, bonds, notes, debentures, and other similar financing
instruments in an aggregate amount not to exceed $30 billion. CCC’s indefinite borrowing
authority has a term of one year. Refer to Note 11: Debt to the Treasury for additional
information related to CCC’s terms of borrowing and repayment.

Available Borrowing Authority
As of September 30, 2018, CCC had available borrowing authority of $18.3 billion.

Apportionment Categories of New Obligations and Upward Adjustments
Obligations can either be categorized as direct or reimbursable. Direct obligations are
not financed from reimbursements while reimbursable obligations are financed by
offsetting collections that are payments to the performing account for goods and services
provided to the ordering entity. For the fiscal year ended September 30, 2018, there were
obligations incurred under apportionment category B, which is funded annually, and
apportionment category E, which is exempt from apportionment. They were as follows:

     Table 35: Direct and Reimbursable New Obligations and Upward Adjustments

                                                     (In Millions)
                                      Category B     Category E      Total Obligations
      Direct                        $        7,148 $           7,581 $         14,729
      Reimbursable                                -                 1                1
   Total Obligations                $            7,148 $        7,582 $         14,730




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Note 18 – Disclosures Related to the Statement of Budgetary Resources,
Continued

Undelivered Orders
UDOs, either unpaid or paid, are purchase orders or contracts awarded for which goods
or services have not yet been received. For the fiscal year ended September 30, 2018
ending UDO balances were as follows:

                  Table 36: Undelivered Orders at the End of the Period

                                                             (In Millions)
                                                                             Total Undelivered
                                     Intragovernmental   Public                    Orders
        Paid                         $               - $        90           $              90
        Unpaid                                          91        15,311               15,402
    Total Undelivered Orders         $                  91   $    15,401     $         15,492

Permanent Indefinite Appropriations
CCC has a permanent indefinite borrowing authority, as defined by OMB Circular A-11.
A permanent indefinite borrowing authority becomes available pursuant to standing
provisions of law without further actions by Congress after the transmittal of the budget
for the year involved. CCC's authority is established annually to record the obligations of
CCC; apportionment documents received for some of CCC's specific programs provide
spending limitations within the borrowing authority and are subject to the ADA. The
borrowing authority provides that all obligations are reported, even though subsequent
appropriations or offsetting collections will ultimately be used to liquidate the obligations
of the Corporation. OMB Circular A-11 permits the Corporation to incur obligations which
can exceed its $30 billion borrowing authority ceiling and to borrow funds to liquidate the
obligations. CCC borrowing cannot exceed the lesser of the amount required to liquidate
the obligations incurred or $30 billion.

Legal Arrangements Affecting the Use of Unobligated Balances
Any information about legal arrangements affecting the use of the unobligated balance of
budget authority is specifically stated by program and fiscal year in the appropriation
language or in the alternative provisions section at the end of the appropriations act.




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Note 19 – Custodial Activity

CCC’s custodial activities involve the collection and transfer of funds received from the
public on behalf of the Department of the Treasury, FSA, and other USDA agencies.
These collections include amounts related to FSA’s Farm Loan Program, as well as other
interest, fees, and penalties due to the Department of the Treasury and other USDA
agencies. These are not part of CCC budget authority.

Custodial Activities for the fiscal year ended September 30, 2018, were as follows:

                                  Table 37: Custodial Activities
                                                                       (In Millions)

      Revenue Activity:
       Sources of Cash Collections:
         Administrative and Other Service Fees                         $           2
       Total Cash Collections                                          $           2

      Total Custodial Revenue                                          $           2

      Disposition of Collections:
        Transfers to Others:
          Department of Treasury                                                  (4)
      Total Disposition of Collections                                 $          (4)

      (Increase)/Decrease in Amounts Yet to be Transferred (+/-)       $           2

      Net Custodial Activity                                           $               -




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Note 20 – Budget and Accrual Reconciliation

SFFAS 53, Budget and Accrual Reconciliation (BAR), 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 explains the relationship
between the entity’s net outlays on a budgetary basis and the net cost of operations during
the reporting period. SFFAS 53 is effective for fiscal year 2019, but early implementation
is permitted. USDA and CCC chose to adopt the new format for fiscal year 2018.

Budgetary and financial accounting information are complementary, but both the types of
information and the timing of their recognition are different. 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 so 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 analysis below illustrates this reconciliation by listing the key differences between net
cost and net outlays:

   •   The activity in accrued liabilities is primarily attributed to ARC and PLC programs.
       ARC program experienced a decrease in participation due to higher crop yields
       resulting from favorable weather conditions. PLC payments decreased because
       of higher prices for wheat and peanuts due to strong global demand. See Note
       15: Accrued Liabilities for more details.

   •   Imputed financing consists of the costs of labor and facilities usage incurred by
       other USDA agencies for work on CCC programs. See Note 1: Significant
       Accounting Policies for further details.




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Note 20 – Budget and Accrual Reconciliation, Continued

The BAR for the fiscal year ended September 30, 2018 was as follows:

                                  Table 38: Budget and Accrual Reconciliation
                                                                                                  (In Millions)
                                                                          Intragovernmental          With the public            Total

NET COST                                                                 $            1,588         $         8,021         $     9,609

Components of Net Cost That Are Not Part of Net Outlays:
Year end credit reform subsidy reestimates                               $             159          $              -        $       159
Increase/(decrease) in assets:
Accounts receivable                                                                     (31)                       (30)             (61)
Commodity loans and direct loans and loan guarantees                                    -                         (146)            (146)
Other assets                                                                            -                           13               13
(Increase)/decrease in liabilities:
Accounts payable                                                                            (3)                 (47)                (50)
Loan guarantee liabilities                                                              -                         9                   9
Accrued liabilities                                                                         3                 4,062               4,065
Other liabilities                                                                       -                        11                  11
Other financing sources:
Imputed financing                                                                    (1,291)                    -                 (1,291)
Total Components of Net Cost That Are Not Part of Net Outlays            $           (1,163)        $         3,872         $      2,709

Components of Net Outlays That Are Not Part of Net Cost:
Acquisition of inventory                                                 $              -           $                  11   $           11
Transfers out (in) without reimbursement                                                    (9)                    -                    (9)
Total Components of Net Outlays That Are Not Part of Net Cost            $                  (9)     $                  11   $            2

NET OUTLAYS                                                              $             416          $        11,904         $    12,320

RELATED AMOUNTS ON THE STATEMENT OF BUDGETARY RESOURCES:
Outlays, net                                                             $             448          $        11,904         $    12,352
Distributed Offsetting Receipts                                                        (32)                     -                   (32)
NET OUTLAYS                                                              $             416          $        11,904         $    12,320




                                                                105
    Part IV: Required
Supplementary Information
       (Unaudited)




           106
                                                                        COMMODITY CREDIT CORPORATION
                                                                 Required Supplementary Information (Unaudited)

Combining Statement of Budgetary Resources by Major Fund: Budgetary Accounts (Unaudited)
                      For the Fiscal Year Ended September 30, 2018
                                       (In Millions)
                                                                                                                                                P.L. 480 Direct
                                                                                                              P.L. 480        USAID - P.L.
                                                                                                                                                     Credit
                                                                                            CCC Fund           Title II       480 Title II                               Other            Total
                                                                                                                                                  Liquidating
                                                                                                              Grants            Grants
                                                                                                                                                     Fund
Budgetary Resources:                                                               Line #    (12X4336)     (12X2278)      ((72)12X2278)            (12X2274)
 Unobligated balance from prior year budget authority, net                          1051    $     2,827   $      326      $           87        $           -        $           37   $     3,277
 Appropriations (discretionary and mandatory)                                       1290             15          266              1,450                     -                    84         1,815
 Borrowing Authority (discretionary and mandatory)                                  1490          9,888           -                 -                       -                -              9,888
 Spending authority from offsetting collections (discretionary and mandatory)       1890             15           -                 -                         31             -                 46
 Total Budgetary Resources                                                          1910    $ 12,745      $      592      $       1,537         $             31     $       121      $    15,026
Status of Budgetary Resources:
 New obligations and upward adjustments (total) (Note 18)                           2190    $   12,403    $         446   $          1,448      $               1    $           87   $    14,385
 Unobligated balance, end of year:
    Apportioned, unexpired account                                                  2204             61             144                    89                   23            24              341
    Unapportioned, unexpired accounts                                               2404           281                2                -                         7             9              299
    Unexpired unobligated balance, end of year                                      2412           342              146                    89                   30            33              640
    Expired unobligated balance, end of year                                        2413           -                -                  -                    -                  1                1
 Total Unobligated balance, end of year                                             2490           342              146                 89                      30            34              641
 Total Budgetary Resources                                                          2500    $   12,745    $         592   $          1,537      $               31   $       121      $    15,026


Outlays, net:
 Outlays, net (discretionary and mandatory)                                         4190    $   10,853    $         451   $          1,289      $          (233) $               82 $      12,442
 Distributed offsetting receipts                                                    4200           -                -                  -                    -                    (2)           (2)
 Agency Outlays, net (discretionary and mandatory)                                  4210    $   10,853    $         451   $          1,289      $          (233) $               80 $      12,440




                                                                                     107
                                                               COMMODITY CREDIT CORPORATION
                                                          Required Supplementary Information (Unaudited)

  Combining Statement of Budgetary Resources by Major Fund: Non-Budgetary Credit Program
        Financing Accounts (Unaudited) For the Fiscal Year Ended September 30, 2018
                                       (In Millions)


                                                                                                            EAI             CCC         Farm Storage
                                                                                             P.L. 480    Financing        Export        Facility Direct
 Page 2                                                                                   Direct Loans     Fund         Guarantees          Loan              Total
                                                                                 Line #    (12X4049)     (12X4143)       (12X4337)        (12X4158)
Budgetary Resources:
 Unobligated balance from prior year budget authority, net                       1051     $         2    $         51   $          10   $          12     $       75
 Borrowing Authority (discretionary and mandatory)                               1490              59          -               -                  281            340
 Spending authority from offsetting collections (discretionary and mandatory)    1890              11          -                   33              43             87
 Total Budgetary Resources                                                       1910     $        72    $         51   $          43   $         336     $      502

Status of Budgetary Resources:
 New obligations and upward adjustments (total) (Note 18)                        2190     $        48    $         2    $          22   $         273     $      345
 Unobligated balance, end of year:
    Apportioned, unexpired account                                               2204              21              10              10              33             74
    Unapportioned, unexpired accounts                                            2404               3              39              11              30             83
    Unexpired unobligated balance, end of year                                   2412     $        24    $         49   $          21   $          63     $      157
 Total Unobligated balance, end of year                                          2490              24              49              21              63            157
 Total Budgetary Resources                                                       2500     $        72    $         51   $          43   $         336     $      502


Outlays, Net:
 Outlays, net (discretionary and mandatory)                                      4190     $       (75)   $     (13)     $      (36)     $          34     $      (90)
 Distributed offsetting receipts                                                 4200             (16)         -                (8)                (5)           (30)
 Agency Outlays, net (discretionary and mandatory)                               4210     $       (91)   $     (13)     $      (44)     $          29     $     (120)




                                                                                108
Part V: Other Information
       (Unaudited)




           109
                             COMMODITY CREDIT CORPORATION
                                        Other Information (Unaudited)


Summary of Financial Statement Audit6
The table below is a summary of the results of the fiscal year 2018 independent audit of
CCC’s Financial Statement.


         Audit Opinion
         Unmodified
                                           Beginning
         Material Weaknesses                             New      Resolved    Consolidated     Ending
                                            Balance
         Budgetary Transactions                1             0       0              0             1
         Accounting Estimates                  1             0       1*             0             0
         Total Material Weakness               2             0        0             0             1

         *Accounting Estimates weakness was downgraded to a significant deficiency in fiscal year 2018




6
    The Summary of Financial Statement Audit is as of completion of the Annual Management Report.

                                                       110
                                        COMMODITY CREDIT CORPORATION
                                                   Other Information (Unaudited)


Summary of Management Assurances7
The table below is a summary of management assurances related to the effectiveness of
internal control over CCC’s financial reporting and operations, and its conformance with
financial management system requirements under Sections 2 and 4 of FMFIA. The last
portion of the table is a summary of CCC’s compliance with FFMIA.

                                            Federal Managers' Financial Integrity Act (FMFIA § 2)
Statement of Assurance                                Reasonable Assurance, except for Material Weaknesses noted below

                                                         Beginning                                                                       Ending
Material Weaknesses                                                        New          Resolved      Consolidated     Reassessed
                                                          Balance                                                                        Balance
Fund Control Management                                      1                                              1                               0
Financial Reporting                                          1                              1                                               0
Accounting for Budgetary Transactions                        1                                                                              1
Accounting Estimates                                         1                                                               1              0
Maintenance of Accounting Record                             1                              1                                               0
Total Material Weaknesss                                     5                 0            2               1                1              1

                                         Effectiveness of Internal Control over Operations (FMFIA §2)
Statement of Assurance                                  Reasonable Assurance

                                                         Beginning                                                                       Ending
Material Weaknesses                                                        New          Resolved      Consolidated     Reassessed
                                                          Balance                                                                        Balance
                                                             0                                                                              0
Total Material Weaknesss                                     0                 0            0               0                0              0

                            Compliance with Federal Financial Management System Requirements (FMFIA §4)
                                                        Federal Systems comply, except for instances of non-compliance, to financial management
Statement of Assurance                                  system requirements

                                                         Beginning                                                                       Ending
Material Weaknesses                                                        New          Resolved      Consolidated     Reassessed
                                                          Balance                                                                        Balance
System Non-compliance Funds Control Management               1                                                                              1
Total non-compliances                                        1                 0            0               0                0              1

    Compliance with Section 803(a) of the Federal Financial Management Improvement Act (FFMIA)
                                                  Agency                         Auditor
1. Federal Financial Management
                                       No lack of compliance noted    No lack of compliance noted
System Requirements
2. Applicable Federal Accounting
                                        Lack of compliance noted        Lack of compliance noted
Standards
3. USSGL at Transaction level           Lack of compliance noted        Lack of compliance noted



7
    The Summary of Management Assurances is as of completion of the Annual Management Report.
                                                                     111
                                COMMODITY CREDIT CORPORATION
                                               Other Information (Unaudited)


Payment Integrity
The Improper Payments Information Act of 2002 (IPIA), as amended by the Improper
Payments Elimination and Recovery Act of 2010 and the Improper Payments Elimination
and Recovery Improvement Act of 2012, requires agencies to review programs
susceptible to significant improper payments, report estimated improper payments and
establish corrective actions to reduce improper payments. OMB provides guidance on
measuring, reducing, recovering, and reporting improper payments through OMB Circular
A-123, Appendix C, Requirements for Payment Integrity Improvement and OMB Circular
A-136.


Additional information can be found in Section III of the USDA fiscal year 2018 Agency
Financial Report. The following link contains more detailed information on improper
payments and other information regarding improper payments not included in this report:
https://paymentaccuracy.gov/.

Fiscal year 2018 operational guidance for all improper payment initiatives is anticipated
to be received in late October or early November.

                            Table 39: Summary of Improper Payment Results

                                              Improper Payments    Improper Payments   Overpayments Underpayments
               Total Outlays (Millions)
    Programs                                      (Millions)          (Percentage)       (Millions)   (Millions)

                  2017       2018              2017      2018       2017       2018        2018          2018
ARC/PLC        $ 5,314.00 $ 7,944.96      $      38.60 $ 214.46       0.73%      2.73% $      214.46 $          -
LDP1           $ 171.72       NA          $       2.92    NA          1.70%     NA          NA           NA
LFP            $ 457.31 $ 353.35          $      14.34 $   42.11      3.14%     11.92% $       41.65 $          0.46
LIP1           $    43.19     NA          $       2.35    NA          5.44%     NA          NA           NA
NAP            $ 139.60 $ 162.98          $      11.85 $   26.64      8.49%     16.35% $       26.05 $          0.59
1
 LIP and LDP are no longer considered high risk programs effective with the fiscal year 2018 IPIA reporting cycle,
per approval by OMB.




                                                            112
                       COMMODITY CREDIT CORPORATION
                                Other Information (Unaudited)


Fraud Reduction Report
Overview
As required by OMB Circular A-123, USDA is in the process of implementing a
Departmental-Level Enterprise Risk Management (ERM) program that effectively
identifies risks; assesses, analyzes, and prioritizes those risks; and formulates and
documents the risks. As a component agency of USDA, CCC is participating in that effort.
The implementation of ERM has helped agencies to better identify risk and vulnerabilities
and take appropriate action to reduce and prevent fraud. As the Department and CCC
continue to implement the requirements of OMB Circular A-123, CCC will use agency
best practices to identify and minimize risks and vulnerabilities to prevent fraud. Outlined
below are specific actions CCC is taking to integrate fraud risk prevention and monitoring
into the management of internal controls.
Risk Assessment
The OMB Circular A-123, Appendix A, Management Reporting and Data Integrity Risk,
annual risk assessment incorporates specific internal and external fraud risk questions in
the “Inherent Risk Considerations” section. The questions allow the respondent to rate
the risk of the agency’s process as either highly susceptible, susceptible, or not
susceptible to fraud. The overall risk rating is dependent on the agency’s responses,
tallied along with other risk responses to determine the level and frequency of testing.
Additionally, as a requirement of the Statement on Auditing Standards No. 122,
Clarification and Recodification, specifically Audit Section 240, Consideration of Fraud in
a Financial Statement Audit, CCC reports responses to a fraud questionnaire to the
Department.
Entity Level Controls
CCC completes an annual Entity Level Control (ELC) assessment. The ELC assessment
was recently updated to comply with the most current GAO — Standards for Internal
Control in the Federal Government (“Green Book”).
The assessment includes GAO Principle 8, which assesses fraud risk. Attributes include:
types of fraud, fraud risk factors, and responses to fraud risks. Objectives include:
identifying fraud risks based on fraud risk factors; assessing Identified fraud risks for
significance; and properly responding to identified fraud risks.




                                            113
                      COMMODITY CREDIT CORPORATION
                               Other Information (Unaudited)

Fraud Reduction Report, Continued
Access Controls
Access controls are configured such that conflicting accounting roles are prohibited,
unless there is an immediate need that is fully documented, mitigated, and supported by
compensating controls. There is a standard process for the review and approval of
mitigating controls to ensure that control strategies are properly documented and carried
out by the requesting agency.

Segregation of Duties (SOD)
Various CCC financial systems are configured such that conflicting roles are prohibited,
which ensures proper SOD. Those who initiate a transaction in the financial systems are
not allowed to also approve that same transaction. There are also financially significant,
agency specific SOD controls that are documented and tested annually during the OMB
Circular A-123, Appendix A assessment. The strict prohibition of conflicting roles reduces
the risk of fraud.

          Table 40: Agency Transactional Control Objectives to Reduce Fraud:

         Process                     Objective                              Risk
 Collections               Cash receipts are protected         Cash receipts are not
                           before they are deposited.          protected before they are
                                                               deposited, which may result
                                                               in fraudulent activity.
 Credit Extension          Direct loan obligations             Direct loan obligations
                           recorded in the general ledger      recorded in the general
                           are valid, pertain to the           ledger are not valid, do not
                           purpose of the appropriation,       pertain to the purpose of the
                           and are supported by                appropriation, and are not
                           documentation.                      supported by
                                                               documentation.
 Disbursements             Disbursements are valid and         Disbursements are not valid
                           supported by sufficient and         and supported by sufficient
                           relevant documentation.             and relevant
                                                               documentation.
 Grant Awards and          Grants are awarded to eligible      Grants are awarded to
 Modifications             recipients (includes Do Not         ineligible recipients
                           Pay verification).                  (includes Do Not Pay
                                                               verification).
 Loss Claims               Loss Claims are for valid           Unauthorized or incomplete
                           policy reinsurance year.            Loss Claims may be paid.


                                           114
                  COMMODITY CREDIT CORPORATION
                         Other Information (Unaudited)

      Process                  Objective                            Risk
Payments — Farm      Recorded obligations and            Recorded obligations and
Support              payments for CCC farm               payments for CCC farm
                     support programs are valid          support programs are not
                     (made to only eligible              valid (made to ineligible
                     farms/producers) and are            farms/producers) and/or are
                     approved/authorized by              not approved/authorized by
                     management.                         management.




                                     115
                        COMMODITY CREDIT CORPORATION
                                 Other Information (Unaudited)

Summary of Federal Grant and Cooperative Agreement Awards

Pursuant to the GONE Act, the table below is a summary of CCC’s total number of federal
grant and cooperative agreement awards and balances for which closeout has not yet
occurred but for which the period of performance has elapsed more than two years with
zero balances and undisbursed balances.

 Table 41: Summary of Federal Grant and Cooperative Agreement Awards and Balances

                                     2-3 Years        >3-5 Years          >5 Years
                Category
       Number of
       Grants/Cooperative
                                         3                 14                 35
       Agreements with Zero
       Dollar Balances
       Number of
       Grants/Cooperative
                                         0                  6                 10
       Agreements with
       Undisbursed Balances
       Total Amount of
       Undisbursed Balances             $0             $444,768           $900,822
       (In Dollars)


The grants reflected in the table above are related to USAID’s administration of P.L. 480,
Title II, funds provided by CCC under the parent/child relationship with USAID. USAID
reports that they are taking aggressive action to finalize, deobligate and close-out these
old grants. During the fourth quarter of fiscal year 2018, a total of $3.9 million has been
deobligated from expired awards.

Several grants are awaiting finalization of rates and final vouchers. USAID continues to
work with their recipients in an effort to resolve any remaining issues, with a goal of closing
these awards with undisbursed balances during fiscal year 2019. USAID anticipates
closing all grants with zero balances as of September 30, 2018, during the 2019 fiscal
year.

Challenges faced by USAID in the closeout of these old grants are related to receipt of
final vouchers from recipients, administrative challenges related to finalizing rates, budget
line item adjustment, and pending audits for the period of the award.

In fiscal year 2018, CCC has closed out all non-USAID grants that met the GONE Act
criteria at the end of fiscal year 2017.

                                             116
Appendix: Glossary of
     Acronyms




         117
                    COMMODITY CREDIT CORPORATION
                                     Glossary of Acronyms


ACRONYM               TITLE                        ACRONYM                 TITLE

ADA       Anti-Deficiency Act                      ERS       Economic Research Service


AMS       Agricultural Marketing Service           FASAB     Federal Accounting Standards
                                                             Advisory Board

ARC       Agriculture Risk Coverage                FAS       Foreign Agricultural Service


ARC-CO    Agriculture Risk Coverage -              FCIC      Federal Crop Insurance
          County                                             Corporation

ASMI      Alaska Seafood Marketing                 FCRA      Federal Credit Reform Act of
          Institute                                          1990

BAR       Budget and Accrual                       FFP       Food for Peace
          Reconciliation

BCR       Benefit-Cost Ratio                       FFMIA     Federal Financial Management
                                                             Improvement Act

BIP       Biofuel Infrastructure                   FGP       Facility Guarantee Program
          Partnership

CCC       Commodity Credit Corporation             FMD       Foreign Market Development
                                                             Program

CFO       Chief Financial Officer                  FMFIA     Federal Managers’ Financial
                                                             Integrity Act

CRP       Conservation Reserve Program             FMMI      Financial Management
                                                             Modernization Initiative

CSC       Credit Subsidy Calculator                FRB       Federal Reserve Bank


DAP       Disaster Assistance Programs             FSA       Farm Service Agency


DDG       Distiller’s Dried Grains                 FSFL      Farm Storage Facility Loan
                                                             Program

DMA       Designated Marketing                     FY        Fiscal Year
          Association

ELAP      Assistance for Livestock,                GAAP      Generally Accepted
          Honeybees, and Farm-Raised                         Accounting Principles
          Fish
                                                   GAO       Government Accountability
ELC       Entity Level Control
                                                             Office

                                                   GONE      Grants Oversight and New
EPA       Environmental Protection
                                                             Efficiency Act
          Agency
                                                   GSM       General Sales Manager
ERM       Enterprise Risk Management




                                            118
                     COMMODITY CREDIT CORPORATION
                                     Glossary of Acronyms

ACRONYM               TITLE                        ACRONYM              TITLE

IPIA       Improper Payments                       PLC       Price Loss Coverage
           Information Act of 2002

LDP        Loan Deficiency Payment                 RSI       Required Supplementary
                                                             Information

LFP        Livestock Forage Disaster               SBR       Statement of Budgetary
           Program                                           Resources

LIP        Livestock Indemnity Program             SFFAS     Statement of Federal Financial
                                                             Accounting Standards

MAL        Marketing Assistance Loan               SME       Small to Medium-Sized
           Program                                           Enterprise

MAP        Market Access Program                   SOD       Segregation of Duties


MPP        Margin Protection Program               SRTG      State Regional Trade Groups


MFP        Market Facilitation Program             SSFL      Sugar Storage Facility Loan


NAP        Non-insured Crop Disaster               TAP       Tree Assistance Program
           Assistance Program

NRCS       Natural Resources                       UDO       Undelivered Order
           Conservation Service

OGC        Office of the General Counsel           ULO       Unliquidated Obligations


OI         Other Information                       USAID     United States Agency for
                                                             International Development

OIG        Office of the Inspector General         USDA      United States Department of
                                                             Agriculture

OMB        Office of Management and                USSGL     United States Standard General
           Budget                                            Ledger

P&F        Program and Financing                   USWA      United States Warehouse Act
Schedule   Schedule

P.L. 480   Agricultural Trade                      WCMD      Warehouse and Commodity
           Development and Assistance                        Management Division
           Act of 1954




                                             119
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