oversight

U.S. Department of Agriculture's Consolidated Financial Statements for Fiscal Year 2018

Published by the Department of Agriculture, Office of Inspector General on 2018-11-15.

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

        United States Department of Agriculture




  U.S. Department of Agriculture's
  Consolidated Financial Statements for
  Fiscal Year 2018




Audit Report 50401-0016-11
                                                  OFFICE OF INSPECTOR GENERAL
November 2018
U.S. Department of Agriculture’s Consolidated
Financial Statements for Fiscal Year 2018

Audit Report 50401-0016-11
OIG audited USDA’s consolidated financial statements for fiscal year 2018.




OBJECTIVE                             WHAT OIG FOUND
Our objectives were to determine      The U.S. Department of Agriculture received an
whether (1) the consolidated          unmodified opinion on the Office of Inspector General’s
financial statements present          (OIG) audit of USDA’s financial statements. We
information fairly, in all material
                                      determined that USDA’s consolidated financial
respects, and in accordance with
generally accepted accounting
                                      statements present fairly, in all material respects,
principles; (2) internal control      USDA’s financial position as of September 30, 2018, and
objectives over financial             were prepared in accordance with accounting principles
reporting were met; (3) USDA          generally accepted in the United States of America. This
complies with applicable              includes the USDA’s net cost, changes in net position,
laws and regulations; and (4)         and statement of budgetary resources and related notes
information was materially            to the consolidated financial statements.
consistent with other sources.
                                      Our consideration of USDA’s internal controls
                                      over financial reporting identified three significant
                                      deficiencies, two of which are material weaknesses.
REVIEWED                              Specifically, three of USDA’s component agencies
We conducted our audit at             need to make further improvements to their overall
the financial offices of various      financial management. Also, USDA needs to improve its
USDA agencies and offices in          information technology security and controls, as many
Washington D.C., at USDA’s            long-standing weaknesses remain. Moreover, USDA
National Finance Center in            needs to improve its controls over financial reporting,
New Orleans, Louisiana, and at        as our review again disclosed deficiencies related to
selected agencies’ field offices.     obligations. Additionally, this report includes findings
                                      related to USDA’s lack of substantial compliance with the
                                      Federal Financial Management Improvement Act of 1996
                                      and violations of the Anti-Deficiency Act.
RECOMMENDS
                                      The Department concurred with our findings and
We recommended that the Office
of the Chief Financial Officer        generally agrees with our recommendation.
(OCFO) develop an Unliquidated
Obligations (ULO) Aging Report
in FMMI that reconciles to the
general ledger to help ensure
that the ULO populations that
agencies certify to OCFO are
consistent, accurate, and
complete.
                           United States Department of Agriculture
                                  Office of Inspector General
                                    Washington, D.C. 20250



DATE:          November 15, 2018

AUDIT
NUMBER:        50401-0016-11

TO:            Lynn Moaney
               Deputy Chief Financial Officer
               Office of the Chief Financial Officer

ATTN:          Annie Walker
               Director
               Internal Controls Division

FROM:          Gil H. Harden
               Assistant Inspector General for Audit

SUBJECT:       U.S. Department of Agriculture’s Consolidated Financial Statements for
               Fiscal Year 2018


This report presents the results of our audits of U.S. Department of Agriculture’s (USDA)
consolidated financial statements for the fiscal year ending September 30, 2018. The report
contains an unmodified opinion on the financial statements, as well as the results of our
assessment of USDA’s internal control over financial reporting and compliance with laws and
regulations. Your response is included in its entirety in Exhibit D.

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
recommendation for which management decision has 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.

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

Independent Auditor’s Report ..............................................................................1
        Report on the Financial Statements .............................................................1
        Opinion on the Consolidated Financial Statements ...................................2
        Other Matters.................................................................................................2
        Report on Internal Control Over Financial Reporting .............................3
        Report on Compliance with Laws, Regulations, Contracts, and Grant
        Agreements .....................................................................................................4
Findings and Recommendation .............................................................................7
Section 1: Material Weaknesses in Internal Control Over Financial
Reporting .................................................................................................................7
        Finding 1: Improvements are Needed in Overall Financial
        Management ...................................................................................................7
Section 2: Significant Deficiency in Internal Control Over Financial
Reporting .................................................................................................................9
        Finding 3: Controls Over Unliquidated Obligations Can Be
        Strengthened ..................................................................................................9
              Recommendation 1: ...............................................................................10
Section 3: Noncompliance with Laws and Regulations ...................................11
        Finding 4: Lack of Substantial Compliance with FFMIA Requirements
        .......................................................................................................................11
        Finding 5: Anti-Deficiency Act Violations ...............................................12
Abbreviations ........................................................................................................16
Exhibit A: Summary of Open Recommendation from Prior Year ................17
Exhibit B: Status of Prior Year Material Weaknesses and Significant
Deficiencies ............................................................................................................18
Exhibit C: Status of Prior Year Noncompliance Findings ..............................19
Exhibit D: Agency’s Response ............................................................................21
Exhibit E: Agency’s Financial Report ...............................................................22
Independent Auditor’s Report

Lynn Moaney
Deputy Chief Financial Officer
Office of the Chief Financial Officer

The United States Department of Agriculture’s (USDA) Office of Inspector General (OIG)
audited the consolidated financial statements of the Department for fiscal year 2018. We also
considered USDA’s internal control over financial reporting and tested USDA’s compliance with
certain provisions of applicable laws, regulations, contracts, and grant agreements that could
have a direct effect on the determination of material financial statement amounts and disclosures
on these financial statements.

The “Findings and Recommendation” section presents the material weaknesses and significant
deficiencies in internal control and instances of noncompliance with laws and regulations, as of
and for the year ended September 30, 2018. Exhibit A summarizes the current year status of the
prior year open audit recommendation. Exhibit B shows the status of prior year internal control
weaknesses. Exhibit C provides an update to previously reported instances of noncompliance
with laws and regulations. USDA’s response is presented in its entirety in Exhibit D.

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

Management’s Responsibility for the Consolidated Financial Statements

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

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



                                                                      REPORT 50401-0016-11            1
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
auditor’s judgement, 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 the 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. Our audit also included
performing such other procedures as we considered necessary in the circumstances.

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

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

Other Matters

Required Supplementary Information
Accounting principles generally accepted in the U.S. issued by the Federal Accounting Standards
Advisory Board (FASAB) require that the Management’s Discussion and Analysis (MD&A),
Required Supplementary Information (RSI)1, and Required Supplementary Stewardship
Information be presented to supplement the consolidated financial statements. Although the RSI
is not a part of the consolidated financial statements, FASAB considers this information to be an
essential part of financial reporting for placing the consolidated financial statements in
appropriate operational, economic, or historical context. We have applied certain limited
procedures to the RSI in accordance with auditing standards generally accepted in the U.S.,
which consisted of inquiries of management about the methods of preparing the RSI and
comparing the information for consistency with management’s responses to our inquiries, the
consolidated financial statements, and other knowledge we obtained during our audit of the
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.




1
 The RSI consists of the Deferred Maintenance and Repairs, Statement of Budgetary Resources (by component),
and Risk Assumed Information, which are included with the financial statements.


2     REPORT 50401-0016-11
Other Information
Our audit was conducted for the purpose of forming an opinion on the consolidated financial
statements as a whole. The “Message from the Secretary” and “Other Information” sections are
presented for purposes of additional analysis, and are not a required part of the consolidated
financial statements or the required supplementary information. This information has not been
subjected to the auditing procedures applied in our audit of the consolidated financial statements
and, accordingly, we express no opinion and provide no assurance on it.

Other Reporting Required by Government Auditing Standards
Report on Internal Control Over Financial Reporting

In planning and performing our audit of the consolidated financial statements, we considered
USDA’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 USDA’s internal control. Accordingly, we do not express an opinion on the
effectiveness of USDA’s internal control. We did not test all internal controls relevant to
operating objectives as broadly defined by the Federal Managers’ Financial Integrity Act of 1982
(FMFIA).

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

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

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

OMB Bulletin 19-01 requires us to describe significant deficiencies and material weaknesses
identified during our audit, and in the event that no material weaknesses were identified, to so
report. In our fiscal year 2018 audit, we noted certain matters involving internal control that we
consider to be significant deficiencies. Specifically, we identified weaknesses in USDA’s:

   ·   overall financial management,
   ·   information technology (IT) security program, and
   ·   controls over unliquidated obligations.
We determined that the first two deficiencies are also material weaknesses. These deficiencies
are discussed in this report in the “Findings and Recommendation,” Sections 1 and 2.

                                                                AUDIT REPORT 50401-0016-11           3
Report on Compliance with Laws, Regulations, Contracts, and Grant Agreements

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

We also performed tests of USDA’s compliance with certain provisions referred to in
Section 803(a) of the Federal Financial Management Improvement Act of 1996 (FFMIA).
Providing an opinion on compliance with FFMIA was not an objective of our engagement, and
accordingly, we do not express such an opinion. The results of our tests of FFMIA disclosed
instances, described in more detail in Finding 4 in the “Findings and Recommendation,”
Section 3, of this report, where USDA was not substantially compliant with Federal Financial
Management System Requirements (FFMSR), applicable Federal Accounting Standards, and the
U.S. Standard General Ledger (USSGL) at the transaction level.

As discussed in Finding 5 of the “Findings and Recommendation,” Section 3, of this report, our
tests disclosed instances of noncompliance with the Anti-Deficiency Act (ADA); some of these
ADA violations are still in the process of being reported to Congress and the President.

Additionally, during fiscal year 2018, we identified instances of noncompliance with the
requirements of the Improper Payments Elimination and Recovery Act of 2010 (IPERA),
regarding the design of program internal controls related to reporting improper payments. A
separate report will be issued with further details on the Department’s compliance with improper
payment requirements.2

Management’s Responsibility for Internal Control and Compliance

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




2
 IPERA amended the Improper Payments Information Act of 2002, Public Law 107-300. These two laws address
improper payment requirements.


4     AUDIT REPORT 50401-0016-11
Auditor’s Responsibilities

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

We did not evaluate all internal controls relevant to operating objectives as broadly established
by FMFIA, such as those controls relevant to preparing statistical reports and ensuring efficient
operations. We limited our internal control testing to controls over financial reporting and
compliance. Because of inherent limitations, internal control over financial reporting may not
prevent, or detect and correct misstatements due to fraud or error.

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

Management’s Response
Management’s response to the report is presented in Exhibit D. We did not audit USDA’s
response and, accordingly, we express no opinion on it.

Status of Prior Year’s Findings and Recommendations
We reviewed the status of open recommendations from prior year, prior year internal control
deficiencies, and prior year noncompliance issues. The status of these items is presented in
Exhibits A, B, and C.




                                                               AUDIT REPORT 50401-0016-11           5
Purpose of the Report on Internal Control Over Financial Reporting and the Report on
Compliance with Laws, Regulations, Contracts, and Grant Agreements
The purpose of the “Report on Internal Control Over Financial Reporting” and the “Report on
Compliance with Laws, Regulations, Contracts, and Grant Agreements” sections of this report is
solely to describe the scope of our testing of internal control and compliance and the results of
that testing, and not to provide an opinion on the effectiveness of USDA’s internal control or
compliance. These reports are an integral part of an audit performed in accordance with
government auditing standards in considering USDA’s internal control and compliance.
Accordingly, these reports are not suitable for any other purpose.




Gil H. Harden
Assistant Inspector General for Audit
Washington, D.C.
November 14, 2018




6    AUDIT REPORT 50401-0016-11
Findings and Recommendation

Section 1: Material Weaknesses in Internal Control Over Financial
Reporting

Finding 1: Improvements are Needed in Overall Financial Management
The material weakness for financial management is due to improvements needed in accounting
and internal controls related to the Commodity Credit Corporation (CCC) and the Natural
Resources Conservation Service (NRCS). In addition, improvements are needed in internal
controls over estimating losses on insurance claims related to Federal Crop Insurance
Corporation/Risk Management Agency (FCIC/RMA). In conducting our review, we noted the
following areas where improvements are needed in overall financial management. Specifically:

   ·   One component of USDA’s financial reporting, CCC, disclosed a material weakness
       related to accounting for budgetary transactions.

   ·   One component of USDA’s financial reporting, NRCS, disclosed material weaknesses
       related to controls over obligations and undelivered orders; and accounting and controls
       over expenses.

   ·   One component of USDA’s financial reporting, FCIC/RMA, disclosed a material
       weakness related to review of estimated loss calculations.

In its FMFIA Report on Management Control for fiscal year 2018, the Department reported the
above material weakness for overall financial management with the following corrective action
plans:

   ·   CCC, in fiscal year 2019, plans to continue to evaluate and refine processes for account
       reconciliations and analysis. Some of these actions include updating guidance and
       improving timeliness of analysis, review, and recordation processes.

   ·   NRCS, in fiscal year 2019, plans to enhance processes and NRCS feeder systems to
       improve monitoring of USSGL activity and continue to improve the transparency of
       recording and liquidating obligations.

   ·   FCIC/RMA, in fiscal year 2019, plans to implement change controls over the model used
       to calculate actuarial projections.

Since USDA has actions planned and in progress, we are making no further recommendations
herein.




                                                             AUDIT REPORT 50401-0016-11           7
Finding 2: Improvements are Needed in Overall Information Technology
Security Program
As required by the Federal Information Security Modernization Act of 2014 (FISMA), OIG
reviewed USDA’s ongoing efforts to improve its IT security program and practices during fiscal
year 2018.3

USDA continues to take positive steps to improve its IT security posture, but many longstanding
weaknesses remain. In fiscal years 2009 through 2017, OIG made 67 recommendations for
improving the overall security of USDA’s systems. Forty-seven recommendations are
completed and 20 open recommendations are overdue, an improvement over the 27 open
recommendations in fiscal year 2017. Testing shows weaknesses still exist in six of the closed
recommendations.

Testing also identified weaknesses in eight subject areas as defined for review by FISMA: risk
management, configuration management, identity and access management, data protection and
privacy, security training, information security continuous monitoring, incident response, and
contingency planning.

The report notes the Office of the Chief Information Officer (OCIO) continues to take positive
steps towards improving the Department’s security posture. For instance, for the Continuous
Diagnostic and Mitigation project, the Department should expand its continuous diagnostic
capabilities by increasing network sensor capacity, automating sensor collections, prioritizing
risk alerts, and increasing the coordination with agencies by sharing and reconciling IT technical
information. This is a positive step to attain a higher security capability.

OCIO generally agreed with the findings in the report and stated it has developed corrective
actions and project plans to address prior year recommendations. Eight new recommendations
were issued based on security weaknesses identified in fiscal year 2018.

In addition, OIG conducted an audit of Security Over Select USDA Agencies’ Networks and
Systems.4 We reviewed: (1) relevant laws, regulations, and industry best practices in order to
gain sufficient knowledge to evaluate USDA’s IT security posture and (2) each entity’s
responses to OIG’s IT security survey and follow-up interviews. We found that the Department
did not fully implement these Federally-mandated controls. The Department concurred with our
findings and recommendations. As a result, we are making no further recommendations in this
report.




3
  Audit Report 50501-0018-12, U.S. Department of Agriculture, Office of the Chief Information Officer,
Fiscal Year 2018 Federal Information Security Modernization Act, issued October 2018.
4
  Audit Report 50501-0017-12, Security Over Select USDA Agencies’ Networks and Systems, issued September
2018.


8     AUDIT REPORT 50401-0016-11
Section 2: Significant Deficiency in Internal Control Over Financial
Reporting

Finding 3: Controls Over Unliquidated Obligations Can Be Strengthened
For several years, our report identified deficiencies with controls over inactive unliquidated
obligations (ULO).5 This year, our review disclosed that additional improvements are needed.

We reviewed the completeness of ten obligation certifications submitted to the Department for
the third quarter of fiscal year 2018; and for those agencies, further reviewed a nonstatistical
selection of 137 obligation balances for validity. We found that 17 ULOs were invalid and
should have been deobligated prior to the sample date because no future expenditures were
expected. In addition, we found that 19 intra-departmental ULOs were valid but should have
been liquidated in a prior fiscal year. These ULOs inappropriately remained open in part
because USDA agencies failed to bill, or submit final payments, to other USDA agencies.

We also found that the ULO certification cutoff dates, cutoff amounts, and transaction types
were inconsistent among the agencies tested because each agency developed its own criteria
query to obtain the certification population. In addition, we statistically sampled 32 obligation
balances, which were not included as part of the agency certifications. We found one balance
which was invalid because it was an adjustment that lacked support.

The U.S. Department of the Treasury’s (Treasury) annual closing guidance (Treasury
Bulletin 2018-07, Yearend Closing, dated July 31, 2018), requires an annual review of ULOs.
Departmental Regulation 2230-1, Reviews of Unliquidated Obligations, dated
October 15, 2014, further requires quarterly reviews and certifications as to the validity of ULO
balances from agency Chief Financial Officers (CFO).

Ineffective monitoring and reviewing, as well as inappropriate certifying to the validity of
obligation balances, resulted in invalid obligations remaining open. Invalid obligations
improperly restrict the availability of funding authority. This also increases the risk of misstating
obligations as of yearend.

Management generally agreed with our findings and will continue to implement controls over
unliquidated obligations.




5
 An obligation is a binding agreement that will result in outlays, immediately or in the future. Budgetary resources
must be available before obligations can be incurred legally.

                                                                          AUDIT REPORT 50401-0016-11               9
Recommendation 1:

Develop an ULO Aging Report in FMMI that reconciles to the general ledger to help ensure that
the ULO populations that agencies certify to the Office of Chief Financial Officer (OCFO) are
consistent, accurate and complete.




10     AUDIT REPORT 50401-0016-11
Section 3: Noncompliance with Laws and Regulations
Finding 4: Lack of Substantial Compliance with FFMIA Requirements
FFMIA requires agencies to annually assess whether their financial management systems comply
substantially with (1) FFMSR, (2) applicable Federal accounting standards, and (3) the USSGL
at the transaction level. In addition, FISMA requires each agency to report significant
information security deficiencies, relating to financial management systems, as a lack of
substantial compliance under FFMIA. FFMIA also requires auditors to report in their CFO Act
financial statement audit reports whether financial management systems substantially comply
with FFMIA’s system requirements.

During fiscal year 2018, USDA evaluated its financial management systems to assess
compliance with FFMIA. The Department reported that it was not compliant with FFMSR,
applicable accounting standards, USSGL at the transaction level, and FISMA requirements. As
noted in its MD&A, USDA continues its work to meet FFMIA and FISMA objectives.

Specifically, in its FFMIA and FMFIA reports, the Department reported an ineffective
information security program due to many longstanding weaknesses with outstanding
recommendations. See Finding 2 of this report for more details.

Additionally, in its FFMIA report, the Department noted noncompliance for two of its
component agencies relating to financial management, described below.

   1. CCC was not compliant with Federal accounting standards for weaknesses in the
      accounting for budgetary transactions. The financial management system did not record
      certain accounting events at the transaction level in accordance with the USSGL.
      Significant progress was made in accounting for obligation activity. CCC was able to
      provide detailed populations for both beginning balances and current year obligation
      activity for audit testing purposes.

   2. Deficiencies in NRCS’ applicable Federal accounting standards, including the USSGL at
      the transaction level, were noted for obligations incurred, including accrued expenses and
      undelivered orders; recoveries of prior year unpaid obligations and unexpended
      appropriations as it relates to accrued expenses. NRCS continues working to mitigate
      auditor-identified deficiencies and substantially comply with FFMIA.

See Finding 1 of this report for more details on CCC and NRCS issues.

Due to planned actions, we are making no further recommendations in this report.




                                                           AUDIT REPORT 50401-0016-11        11
Finding 5: Anti-Deficiency Act Violations
In fiscal year 2018, the Department reported several actual and potential ADA violations in its
Agency Financial Report. These violations are discussed in detail below.

In fiscal year 2017, the Office of the Secretary violated the Purpose statute, improperly
augmented several of its appropriations, and violated the ADA when it obligated several of its
appropriations for the expenses of separately funded USDA components. USDA improperly
relied on the Economy Act to enter into interagency agreements, under which the agency
obligated its appropriations for (1) Rural Development Salaries and Expenses, (2) Food and
Nutrition Service, Nutrition Programs Administration, and (3) Office of Civil Rights, for
personnel details that did not actually occur. Instead, these appropriations were used for the
salaries and benefits of employees performing work for separately funded USDA components.
The Economy Act was referenced as the authority to transfer the appropriations. The Purpose
statute was violated when the incorrect appropriation was used for the salaries and benefits in
question and improperly augmented the appropriations of these other USDA components.
USDA incurred obligations in excess of appropriations and therefore violated the ADA. The
ADA violation was reported to Congress and the President on August 27, 2018.

In fiscal year 2016, CCC identified an ADA violation for expenditures for CCC interest to the
Treasury exceeded amounts initially apportioned by OMB. CCC expended approximately $46.1
million in interest to Treasury, more than the apportioned amount of $29.9 million. The ADA
violation is in the process of being reported to Congress and the President.

The Office of Advocacy and Outreach (OAO) identified an ADA violation for fiscal years 2011
and 2012, under the Food, Conservation, and Energy Act of 2008, Public Law 110-234 (Farm
Bill of 2008). OAO awarded more than $19 million for “Outreach and Assistance for Socially
Disadvantaged and Veteran Farmers and Ranchers” (Section 2501) Grants in excess of amounts
permitted by the Farm Bill of 2008. The ADA violation is in the process of being reported to
Congress and the President.

In fiscal year 2017, the National Finance Center (NFC) identified an ADA violation. The NFC
managed Web pages for the New Orleans chapter of the Association of Government Accountants
(AGA), which is a non-governmental organization, on the NFC Web site at no cost to AGA.6 An
investigation into this situation determined in fiscal year 2017 that NFC has been maintaining the
AGA Web pages since 1999. The ADA violation pertaining to the services NFC provided for
maintaining the AGA Web pages is in the process of being reported to Congress and the
President.

In fiscal year 2018, CCC identified an ADA violation. Agriculture Risk Coverage-County
(ARC-CO) (occurred in the prior fiscal year but was identified in the current fiscal year). On
November 10, 2016, OMB approved an ARC-CO apportionment providing a total of
$850,924,690 for crop year 2017 ARC funding. This funding was divided between ARC-CO
($775,924,690) and Agricultural Risk Coverage-Individual County ($75,000,000). As part of
fiscal year-end close for fiscal year 2017, CCC recorded an obligation of $2,319,369,741.34 for
crop year 2017 ARC-CO.

6
    For full disclosure, several members of the engagement team are members of AGA.


12        AUDIT REPORT 50401-0016-11
This exceeded the apportioned amount by $1,543,445,051. The ADA violation is in the process
of being reported to Congress and the President.

In fiscal year 2018, the Farm Service Agency (FSA) identified an ADA violation. FSA issued a
contract for IT investments including the CCC Budget Formulation CCC (BF) system. The CCC
BF was not included in the approved Acquisition Approval Request (AAR). The AAR and the
contract will be amended to include $300,000 for CCC BF. The fiscal year 2018 Consolidated
Appropriation Act, Section 706, states “none of the funds available to the Department of
Agriculture for information technology shall be obligated for projects, contracts, or other
agreements over $25,000 prior to written approval by the Chief Information Officer.” After
review by the Office of the General Counsel (OGC), it was determined that a violation occurred.
The ADA violation is in the process of being reported to Congress and the President.

In fiscal year 2018, FSA identified an ADA violation. Government Collections during
shutdown—Field staff spent time verifying deposit transactions. These deposit verifications
were not part of the orderly shutdown activities. After review by OGC, it was determined that a
violation occurred. The ADA violation is in the process of being reported to Congress and the
President.

In fiscal year 2018, FSA identified an ADA violation with the U.S. Warehouse Act. FSA
business practices dating back to fiscal year 2000, supported Warehouse User Activities with
Administrative S&E funds for direct and indirect costs. The user fee collections were not
adequate to fully fund the costs, and S&E funds were used and not reimbursed; therefore,
improperly augmenting the User Fee program. When FSA adjusted its accounts to correct the
error, the user fee account was deficient, resulting in an ADA violation. After review by OGC, it
was determined that a violation occurred. The ADA violation is in the process of being reported
to Congress and the President.

In fiscal year 2017, NFC identified an ADA violation. The NFC managed web pages for the
Federal Executive Board (FEB), which is a quasi-governmental entity. Working Capital Fund
(WCF) monies may have been used for the web service, and use of the WCF to provide
unreimbursed services to the FEB would be an ADA violation if no other funds are available to
reimburse the WCF. Funds other than those in the WCF may have been available to pay for
services to the FEB. After conducting research, it was determined that the administrative
expenses of the FEB – which include the hosting of web pages – are not charged to the WCF.
Rather, those costs are covered by (1) an interagency agreement between NFC and the
Agricultural Research Service agency in New Orleans that provides direct reimbursement for
some FEB administrative expenses, and (2) the remaining FEB costs are included as overhead
and administrative expenses in reimbursable agreements to NFC’s customers. Therefore, NFC’s
hosting of the FEB web pages is not an ADA violation.

Potential ADA Violations—one prior year and 9 new potential violations were identified during
FY 2018. These occurrences are pending results from research and investigation for a
determination as to whether or not a violation actually occurred.




                                                           AUDIT REPORT 50401-0016-11        13
In fiscal year 2017, CCC identified a potential ADA violation. The prior year accounting
treatment for obligations related to the Conservation Reserve Program-Annual Rental contracts
was determined to be in error. Only the annual portion of the contract values was recorded as an
obligation. OGC determined that the error was not an ADA violation; however, the incident has
been referred to the Government Accountability Office (GAO) for additional investigation and
determination.

In fiscal year 2018, CCC identified a potential ADA violation for Emergency Forestry
Conservation Reserve Program. CCC failed to record the obligation for the full value of the
long‐term contract when the contact was signed. CCC obligated a total of $2,230,309 for long‐
term contracts. OGC determined that the error was not an ADA violation; however, the incident
has been referred to GAO for additional investigation and determination.

In fiscal year 2018, CCC identified a potential ADA violation for Foreign Agricultural
Service/Food for Progress. The Foreign Agricultural Service paid Food for Progress freight
invoices from administrative funds. There was a zero balance in the administrative funds for this
agreement; however, there were funds available as a result of downward adjustments. The
agency is seeking an OGC opinion.

In fiscal year 2018, CCC identified a potential ADA violation for Puerto Rico Tree Assistance
Program (TAP) – Contracts approved from prior fiscal years. TAP contracts from fiscal year
2014 through 2017 were approved but not recorded into the program application timely. An
obligation is triggered when an application is approved via a producer’s and FSA
representative’s signature. CCC received input from the Puerto Rico District Directors that
indicates that there are 1,973 unrecorded TAP contracts representing 2014, 2015 and 2017.
Pending a determination.

In fiscal year 2018, FSA/CCC identified a potential ADA violation for FSA/CCC Non‐Insured
Assistance Program (NAP) Frost Freeze (occurred in the prior fiscal year but identified in the
current fiscal year). During the reclassification process in fiscal year 2018, CCC discovered
NAP payments exceeding apportionments by $888. Documentation of the background, and
Statement of Facts and Analysis was still underway as of September 30, 2018. Pending
determination.

In fiscal year 2018, CCC identified a potential ADA violation for ARC (occurred in the prior
fiscal year but was identified in current fiscal year). In fiscal year 2018, CCC identified crop
year 2017 enrollments for the ARC program that exceeded available funding. Pending a
determination.

In fiscal year 2018, CCC identified a potential ADA violation for the United States Agency for
International Development (USAID) grants (occurred in the prior fiscal year, but identified in the
current fiscal year). Pursuant to the Grants Oversight and New Efficiency Act, CCC is required
to report quarterly, the number of federal grant and cooperative agreement awards and balances
of USAID (CCC child agency) for which closeout has not yet occurred, but for which the period
of performance has elapsed more than 2 years with zero and undisbursed balances. At the end of




14     AUDIT REPORT 50401-0016-11
third quarter fiscal year 2018, USAID reported grants that had not been closed out in the greater
than 5‐years category. As part of the grant closeout in fiscal year 2018, it was determined in
some cases that additional funds were needed to fully execute agreements and perform the
closeout. As a result, fiscal year 2018 funds were used. Pending a determination.
In fiscal year 2018, CCC identified a potential ADA violation for Biomass Crop Assistance
Program (occurred in the prior fiscal year but was identified in the current fiscal year). During
the fiscal year 2017 Quarterly ULO Certification process, the program office identified 12
contracts as invalid and requiring deobligation that were in fact deobligated through a Data
Change Request in the electronic Funds Management System. After further analysis in fiscal
year 2018, the program office determined that such contracts were still valid. However, there
were no funds available in fiscal year 2018 to re‐establish the related obligations. Pending a
determination.

In fiscal year 2018, the National Institute of Food and Agriculture (NIFA) identified a potential
ADA violation. USDA’s OIG office completed a 3‐year audit in August 2018 on NIFA Formula
Grant Program Controls Over Fund Allocations to States. To date, NIFA has not received the
final disposition from the review. An earlier draft of the OIG report indicated there could be
potential reportable ADA violations. NIFA is working with USDA’s OGC to determine if there
will be actual ADA violations based on the final report.

In fiscal year 2018, the Office of Partnerships and Public Engagement (OPPE) identified a
potential ADA violation related to cooperative agreements may exist. OPPE may have exceeded
its authority by charging USDA agencies for cooperative agreements that the agencies lacked
legislative authority to enter into. Pending an OGC determination.




                                                             AUDIT REPORT 50401-0016-11         15
Abbreviations
AAR………………….Acquisition Approval Request
ARC………………….Agriculture Risk Coverage
ARC-CO……………..Agriculture Risk Coverage-County
ADA ............................ Anti-Deficiency Act
AGA ........................... Association of Government Accountants
CCC............................. Commodity Credit Corporation
BF…………………….Budget Formulation
CFO ............................. Chief Financial Officer
DATA Act……………Digital Accountability and Transparency Act of 2014
FASAB……………….Federal Accounting Standards Advisory Board
FCIC………………… Federal Crop Insurance Corporation
FEB ............................ Federal Executive Board
FFMIA ........................ Federal Financial Management Improvement Act of 1996
FFMSR ........................ Federal Financial Management System Requirements
FISMA ........................ Federal Information Security Modernization Act of 2014
FMFIA ........................ Federal Managers’ Financial Integrity Act of 1982
FMMI………………...Financial Management Modernization Initiative
FSA ............................. Farm Service Agency
GAO ........................... Government Accountability Office
IT ................................. information technology
IPERA ........................ Improper Payments Elimination and Recovery Act of 2010
MD&A……………….Management’s Discussion and Analysis
NAP………………….Non‐Insured Assistance Program
NFC ............................ National Finance Center
NIFA…………………National Institute of Food and Agriculture
NRCS .......................... Natural Resources Conservation Service
OAO ............................ Office of Advocacy and Outreach
OCFO .......................... Office of the Chief Financial Officer
OCIO .......................... Office of the Chief Information Officer
OGC………………….Office of the General Counsel
OIG ............................. Office of Inspector General
OMB ........................... Office of Management and Budget
OPPE………………....Office of Partnerships and Public Engagement
RMA…………………Risk Management Agency
RSI .............................. required supplementary information
S&E…………………..salary and expense
TAP…………………..Tree Assistance Program
Treasury ...................... U.S. Department of the Treasury
ULO ............................ unliquidated obligations
U.S. ............................. United States of America
USAID……………….United States Agency for International Development
USSGL ........................ U.S. Standard General Ledger
USDA.......................... United States Department of Agriculture
WCF………………….Working Capital Fund


16     AUDIT REPORT 50401-0016-11
Exhibit A: Summary of Open Recommendation from Prior Year

Report 50401-0013-11, U.S. Department of Agriculture’s Consolidated Balance Sheet for
Fiscal Year 2017, issued November 15, 2017.

Finding 3: Controls Over Unliquidated Obligations Can be Strengthened

Recommendation 1
Provide additional oversight to ensure that financial reporting controls over ULOs are
strengthened and maintained.

Departmental Status
OCFO is working to address the recommendation.

OIG Results
We continue to find similar deficiencies related to ULOs and have issued a repeat Finding 3 and
recommendation.




                                                            AUDIT REPORT 50401-0016-11       17
Exhibit B: Status of Prior Year Material Weaknesses and
Significant Deficiencies
This table reports the fiscal year 2018 status of material weaknesses and significant deficiencies
reported in fiscal year 2017.

     Control Deficiency                    2017 Status                      2018 Status
      Overall Financial
                                        Material Weakness                Material Weakness
         Management
     Overall Information
                                        Material Weakness                Material Weakness
 Technology Security Program
 Financial Reporting Controls         Significant Deficiency           Significant Deficiency




18     AUDIT REPORT 50401-0016-11
Exhibit C: Status of Prior Year Noncompliance Findings

Report 50401-0013-11, U.S. Department of Agriculture’s Consolidated Balance Sheet for
Fiscal Year 2017, issued November 15, 2017.

Finding 4: Lack of Substantial Compliance with FFMIA Requirements

Reported Noncompliance
The Department reported a lack of substantial compliance with the FFMIA requirements. The
Department reported that it was not compliant with FFMSR, applicable accounting standards,
USSGL at the transaction level, and FISMA requirements.

Status
In fiscal year 2018, the Department continued to report substantial noncompliance with FFMSR,
applicable accounting standards, USSGL at the transaction level, and FISMA requirements, as
discussed in Finding 4.

Finding 5: ADA Violations

Reported Noncompliance
In fiscal year 2017, the Department reported seven actual and four potential ADA violations in
its Agency Financial Report. Specifically, FSA reported an ADA exceeding OMB approved
apportionment request by $302,823.57, FS identified an ADA related to the agency’s
employment of non-U.S. citizens, OCFO obligated funds for IT on four occasions prior to an
approved AAR from the CIO, and OAO identified an ADA exceeding the amount available for
“Outreach and Assistance for Socially Disadvantaged and Veteran Farmers and Ranchers”
grants. The first three ADA were reported to Congress and the President and the last is in the
process of being reporting to Congress and the President.

Also, CCC identified a potential ADA with expenditures for interest to Treasury that appear to
have exceeded amounts initially apportioned by OMB; NFC managing Web pages for New
Orleans AGA Chapter on NFC Web Site at no cost since 1999; OSEC violated the Purpose
statute, and improperly augmented several of its appropriations when it obligated several of its
appropriations for the expenses of separately funded USDA components; and CCC prior year
accounting treatment for obligations related to the Conservation Reserve Program annual rental
contracts was determined to be in error. These potential ADAs are in the process of being
researched to make final determinations.

Also in fiscal year 2017, the Department reported a potential ADA by Foreign Agriculture
Service associated the fiscal year 2009 appropriation; however, after further research, it was
determined that it was not an ADA violation.



                                                             AUDIT REPORT 50401-0016-11          19
Status
As discussed in Finding 5, this weakness continues to exist.

Finding 6: DATA Act Non-Compliance

Reported Noncompliance
In Audit Report 11601-0001-22, USDA’s 2017 Compliance with the DATA Act, issued
November 2017, OIG identified USDA’s noncompliance with the Digital Accountability and
Transparency Act of 2014 (DATA Act). Specifically, we found while USDA submitted and
certified second quarter files to Treasury’s broker by the reporting deadline, the files were
incomplete and of insufficient quality.

Status

Closed. Final action for the five recommendations from Audit Report 11601-0001-22,
USDA’s 2017 Compliance with the DATA Act, was achieved during fiscal year 2018.




20     AUDIT REPORT 50401-0016-11
Exhibit D: Agency’s Response




              USDA’S
     RESPONSE TO AUDIT REPORT




                               AUDIT REPORT 50401-0016-11   21
United States
Department of
Agriculture                                                                             November 14, 2018
Office of the Chief
Financial Officer
                      TO:            Phyllis K. Fong
1400 Independence                    Inspector General
Avenue, SW
                                     Office of Inspector General
Washington, DC
20250
                      FROM:          Lynn Moaney /S/
                                     Deputy Chief Financial Officer

                      SUBJECT:       U.S. Department of Agriculture’s Consolidated Financial Statements for
                                     Fiscal Year 2018

                      The Department is pleased to respond to your audit report on the consolidated financial
                      statements for fiscal year 2018.

                      We concur with the findings in the report. We generally agree with the
                      recommendations in the report and will develop corrective action plans with milestones
                      to address the findings within 60 days.

                      I would like to express my appreciation for the cooperation and professionalism
                      displayed by your staff and your contract auditors during the course of your audit.




                                            AN EQUAL OPPORTUNITY EMPLOYER
Exhibit E: Agency’s Financial Report




            AGENCY’S FINANCIAL REPORT

                    FISCAL YEAR 2018
                 FINANCIAL STATEMENTS

                      PREPARED BY USDA




22   AUDIT REPORT 50401-0016-11
                                      1

USDA ANNUAL FINANCIAL REPORT | 2018
ii
     USDA AGENCY FINANCIAL REPORT | 2018




     Non-Discrimination Statement
     The U.S. Department of Agriculture (USDA) prohibits discrimination against its customers,
     employees, and applicants for employment on the basis of race, color, national origin, age,
     disability, sex, gender identity, religion, protected genetic information, reprisals for whistle
     blowing or filing grievances, and, where applicable, political beliefs, marital status, familial
     or parental status, sexual orientation; or whether all or part of an individual’s income is
     derived from any public assistance program or any program or activity conducted or funded
     by the Department. (Not all prohibited discrimination will apply to all programs and/or
     employment activities.)


     TO FILE AN EMPLOYMENT COMPLAINT
     If you wish to file an employment complaint, you must contact the agency’s Equal
     Employment Opportunity (EEO) Counselor within 45 days of the date of the alleged
     discriminatory act, event, or personnel action. Contact the EEO Counselor that serves the
     agency you feel has discriminated against you. Additional information can be found on the
     USDA Office of the Assistant Secretary of Civil Rights Web site.


     TO FILE A PROGRAM COMPLAINT
     To file a program discrimination complaint, please complete the USDA Program
     Discrimination Complaint form. You or your authorized representative must sign the complaint
     form. You are not required to use the complaint form; you may write a letter as an acceptable
     alternative. If you write a letter, it must contain all of the information requested in the form and
     be signed by you or your authorized representative. Incomplete information will delay the
     processing of your complaint.

     Persons with disabilities who require alternative means for communication of program
     information (Braille, large print, audiotape, etc.) should contact USDA’s Technology
     Accessible Resources Give Employment Today (TARGET) Center at (202) 720-2600 (voice
     and Telecommunication Device for the Deaf [TDD]).
                                                                     U.S. Department of Agriculture
     Send your completed USDA Program Discrimination                 Director, Office of Adjudication
     Complaint form or letter to us by mail, fax, or email to the    1400 Independence Avenue, SW,
     address provided on the right. Employment civil rights          Washington, DC 20250-9410
     complaints will not be accepted through the email address. Fax: (202) 690-7442
                                                                     E-mail: program.intake@usda.gov
                                                                                                     iii
                                                         USDA AGENCY FINANCIAL REPORT | 2018




About the Report
The purpose of the U.S. Department of Agriculture (USDA) fiscal year (FY) 2018 Agency
Financial Report (AFR) is to inform Congress, the President, and the American people how
USDA has used Federal resources entrusted to the Department in FY 2018. USDA strives to
provide leadership on food, agriculture, natural resources, rural development, nutrition, and
related issues based on public policy, the best available science, and effective management.
USDA provides economic opportunity through innovation designed to ensure rural America
thrives; promotes agriculture production to better nourish Americans while also helping to feed
others throughout the world; and preserves our Nation’s natural resources through
conservation, restored forests, improved watersheds, and healthy private working lands. USDA
has demonstrated good stewardship of taxpayer resources by putting in place well-controlled
and well-managed business lines and financial management systems and processes. USDA has
chosen to produce both an AFR and an Annual Performance Report (APR) for FY 2018. USDA
will include its FY 2018 APR with its Congressional Budget Justification and will post this
AFR online at www.usda.gov.

This AFR provides high-level financial and highlighted performance results with assessments
of controls, a summary of challenges, and USDA stewardship information. The AFR enables
the President, Congress, and the public to assess USDA accomplishments and understand its
financial position. USDA’s end-of-fiscal-year financial position includes, but is not limited to,
financial statements, notes to the financial statements, and a report of the independent auditors.
The report satisfies the reporting requirements contained in the following laws and regulations:

   •   Chief Financial Officers Act of 1990;
   •   Federal Managers’ Financial Integrity Act of 1982;
   •   Federal Financial Management Improvement Act of 1996;
   •   Government Performance and Results Act (GPRA) of 1993;
   •   GPRA Modernization Act of 2010;
   •   Government Management Reform Act of 1994;
   •   Grants Oversight and New Efficiency (GONE) Act, Public Law (PL) 114-117;
   •   Improper Payments Information Act of 2002;
   •   Improper Payments Elimination and Recovery Act of 2010;
   •   Improper Payments Elimination and Recovery Improvement Act of 2012 (IPERIA);
iv
     USDA AGENCY FINANCIAL REPORT | 2018




        •   Office of Management and Budget Circular A-123, Management’s Responsibility for
            Internal Controls;
        •   Office of Management and Budget Circular A-136, Financial Reporting Requirements;
            and
        •   Reports Consolidation Act of 2000.
     The AFR is a detailed report on USDA’s progress toward achieving the goals and objectives
     described in the Agency’s Strategic Plan and Annual Performance Plan, including progress on
     the strategic objectives, performance goals, and Agency Priority Goals. The report will be
     delivered to Congress with the annual budget submission.

     This report is to be posted on these Web sites: Performance.gov and www.usda.gov.
                                                                                                                                                    v
                                                                                   USDA AGENCY FINANCIAL REPORT | 2018




Table of Contents

MESSAGE FROM SECRETARY PERDUE ..............................................................................................VI

SECTION I: MANAGEMENT’S DISCUSSION AND ANALYSIS .............................................................. 1
    About USDA ................................................................................................................................ 1
    USDA Mission Areas ................................................................................................................... 3
    USDA Program Performance ..................................................................................................... 6
    Future Demands, Risks, Uncertainties, Events, Conditions, and Trends ...............................14
    Financial Statement Highlights ................................................................................................15
    Statement of Assurance ...........................................................................................................19
    Federal Managers’ Financial Integrity Act Report on Management Control ........................20
    Compliance with Laws and Regulations ..................................................................................32
    Improper Payments Elimination and Recovery Act of 2010 as Amended ...........................39
    Federal Financial Management Improvement Act Report on
    Financial Management Systems Background .........................................................................40
    Financial Management Systems Strategy ...............................................................................42
    Other Management Information, Initiatives, and Issues: ......................................................48

SECTION II: FINANCIAL INFORMATION ............................................................................................52
    Message from the Deputy Chief Financial Officer ..................................................................52
    Independent Auditors Report ..................................................................................................54
    Agency Response to Auditors Report ......................................................................................55
    Consolidated Financial Statements .........................................................................................56
    Notes to the Consolidated Financial Statements ...................................................................60
    Required Supplementary Stewardship Information .............................................................115
    Required Supplementary Information ..................................................................................126

SECTION III: OTHER INFORMATION ...............................................................................................132
    Response to Management Challenges ..................................................................................132
    Summary of Financial Statement Audit and Management Assurances ..............................146
    Payment Integrity ...................................................................................................................148
    Fraud Reduction Report .........................................................................................................208
    Inspector General Act Amendments of 1988: Management’s Report on Audit Follow Up..219
    Reduce the Footprint .............................................................................................................235
    Civil Monetary Penalties ........................................................................................................237
    Grant Oversight and New Efficiency (GONE) Act..................................................................254
vi
     USDA AGENCY FINANCIAL REPORT | 2018




     Message from
     Secretary Perdue
     In my time as U.S. Secretary of Agriculture we have accomplished a
     great deal. This would not have been possible without the finest group
     of public servants in the United States who make up the
     U.S. Department of Agriculture (USDA).

     Our policies have been guided by four principles that have informed
     our every decision and action. First, we have helped maximize the
     ability of the men and women of America’s agriculture and
     agribusiness sector to create jobs, to produce and sell the foods and
     fiber that feed and clothe the world, and to reap the earned rewards of
     their labor. It is our aim to remove every obstacle possible and give farmers, ranchers, foresters,
     and producers every opportunity to prosper. Second, we have worked hard to prioritize
     customer service every day for American taxpayers and consumers. They will expect, and have
     every right to demand, that their government conduct the people’s business efficiently,
     effectively, and with the utmost integrity. Third, as Americans expect a safe and secure food
     supply, USDA has continued to serve in the critical role of ensuring that the food we put on the
     table to feed our families meets the strict safety standards we have established. We must never
     forget that we are the fortunate beneficiaries of past generations who put a premium on smart
     stewardship—protecting, preserving, and entrusting us with those valuable resources. And
     finally, we have kept in mind that America’s agricultural bounty comes directly from the land.
     Today, those land resources sustain more than 320 million Americans and countless millions
     more around the globe. My farmer father’s words still ring true: “We’re all stewards of the
     land, owned or rented, and our responsibility is to leave it better than we found it.”

     Today, we are engaged in a global economy in which the United States is a world leader.
     We are blessed with the ability to produce more than our citizens can consume, which implies
     that we should sell the bounty around the world. The relationship between the USDA and its
     trade representatives, as well as with the U.S. Trade Representative and the U.S. Department of
     Commerce, have been vital. The work of promoting American agricultural products to other
     countries began with those relationships and will benefit us domestically, just as it will fulfill
     the moral imperative of helping to feed the world. These ideas must also light the path we walk
     at USDA, and just as we have done during my time as Secretary, we will continue to be
     unapologetic advocates for American agriculture.
                                                                                                 vii
                                                       USDA AGENCY FINANCIAL REPORT | 2018




The USDA I envisioned in my first days as Secretary was one that is fact-based, and which
makes data-driven, customer-focused decisions. We are working each day to make this a reality.
We are opposed to lamenting the difficult challenges we face; instead we focus our efforts on
finding solutions to problems. The public servants who work at USDA know that they work on
behalf of the American people, and those people—our customers—expect results. No doubt,
there is great talent here at this agency—probably more than at any other place in the Federal
Government—both in the Washington Capital Region and in even greater numbers in the world
that stretches out across America and the globe. It truly is a pleasure to learn from them.

As a simple Georgia farm boy, making sure Americans who make their livelihood in the
agriculture industry are thriving is near and dear to my heart. We have continued to champion
the concerns of American agriculture and worked tirelessly to solve the issues facing our farm
families. As shown in this report and mentioned previously, here at USDA, we strive to be the
most efficient, most effective, and most customer-focused department in the entire Federal
Government. The farmers, ranchers, foresters, and producers we serve are the heart of this
country, and we would not be here without them. They deserve the best we have to offer, and
I know that is exactly what they get from the USDA family.

Sincerely,




Sonny Perdue
U.S. Secretary of Agriculture

November 14, 2018
Page intentionally left blank
                                                                                                    1
                                          SECTION I | MANAGEMENT’S DISCUSSION AND ANALYSIS




Section I
Management’s Discussion
and Analysis
About USDA
President Abraham Lincoln founded the U.S. Department of Agriculture (USDA) in 1862 with
the goal of providing effective leadership to the Nation on food, agriculture, natural resources,
and related issues. Since 1862, the dedicated public servants at USDA help millions of
Americans every day. As Americans, you are part of the USDA story that has had a tradition of
excellence in public service for more than 150 years.

We would like you to learn more about USDA and the Agencies and Offices that touch every
American, every day. More information about the Department, our history, and our leaders can
be found at www.usda.gov.


Mission Statement
Provide leadership on agriculture, food, natural resources, rural infrastructure, nutrition, and
related issues through fact-based, data-driven, and customer-focused decisions.


Vision Statement
Do right and feed everyone.
2
                USDA AGENCY FINANCIAL REPORT | 2018



         USDA Organization Chart1:

                                                                                                       Secretary
                                                                                                    Deputy Secretary
                                    Assistant to the Secretary for                                                                               Assistant Secretary         Assistant Secretary        Assistant Secretary
                                         Rural Development                                                                                         for Civil Rights           for Congressional         for Administration
                                                                                                                                                                                  Relations
                                   • Rural Housing Service
                                   • Rural Utilities Service
                                   • Rural Business Cooperative
                                     Service




    Office of the         Office of the            Office of the          Office of the            Office of             Office of                Office of                Office of            Office of              Office of the
     Inspector           General Counsel          Chief Financial        Chief Economist          Budget and          Communications            Partnerships           Tribal Relations       Hearings and                 Chief
      General                                         Officer                                  Program Analysis                                  and Public                                     Appeals                Information
                                                                                                                                                Engagement                                                                Officer




 Under Secretary for Food            Under Secretary for             Under Secretary for Natural      Under Secretary for Food,          Under Secretary for Farm           Under Secretary for Trade           Under Secretary for
         Safety                    Marketing and Regulatory          Resources and Environment        Nutrition, and Consumer                Production and                  and Foreign Agricultural         Research, Education, and
                                          Programs                                                            Services                        Conservation                           Affairs                        Economics


• Food Safety and                • Agricultural Marketing            • Forest Service               • Food and Nutrition Service       • Farm Service Agency              • Foreign Agricultural            • National Institute of Food
  Inspection Service               Service                                                                                             • Risk Management Agency             Service                           and Agriculture
                                 • Animal and Plant Health                                                                             • Natural Resources                • Codex Alimentarius              • Economic Research
                                   Inspection Service                                                                                    Conservation Service               Commission                        Service
                                                                                                                                                                                                            • National Agricultural
                                                                                                                                                                                                              Statistics Service
                                                                                                                                                                                                            • Agricultural Research
     This organization chart displays the names of USDA offices, agencies, and mission areas. Each office, agency, and mission area is placed within a cell connected by lines to show the                    Service
     structure and hierarchy (Under Secretary, Deputy Secretary, or Secretary) for which they fall under. An HTML version that lists USDA Agencies and Offices and USDA Mission Areas is
     also available on usda.gov.
                                                                                                   3
                                         SECTION I | MANAGEMENT’S DISCUSSION AND ANALYSIS




USDA Mission Areas

RURAL DEVELOPMENT
Rural Development (RD) is committed to helping improve the economy and quality of life in
all of rural America by providing financial programs to support essential public facilities and
services such as water and sewer systems, housing, health clinics, emergency service facilities,
and electric and telecommunications service. RD promotes economic development by
providing loans to businesses through banks and community-managed lending pools, while also
assisting communities to participate in community empowerment programs.

   •   Rural Housing Service
   •   Rural Utilities Service
   •   Rural Business Cooperative Service


TRADE AND FOREIGN AGRICULTURAL AFFAIRS
Trade and Foreign Agricultural Affairs (TFAA) is American agriculture’s unapologetic advocate
and chief advocate around the world. With a sharp focus on foreign markets, TFAA ensures that
American producers are well equipped to sell their products and feed the world.

   •   Foreign Agricultural Service
   •   Codex Alimentarius Commission


FOOD, NUTRITION, AND CONSUMER SERVICES
Food, Nutrition, and Consumer Services (FNCS) works to harness the Nation’s agricultural
abundance to end hunger and improve health in the United States. FNCS administers Federal
domestic nutrition assistance programs.

   •   Food and Nutrition Service (including Center for Nutrition Policy and Promotion)
4
    USDA AGENCY FINANCIAL REPORT | 2018




    FARM PRODUCTION AND CONSERVATION
    Farm Production and Conservation (FPAC) is the Department’s focal point for the Nation’s
    farmers and ranchers and other stewards of private agricultural lands and non-industrial private
    forest lands. FPAC agencies implement programs designed to mitigate the significant risks of
    farming through crop insurance services, conservation programs, technical assistance, and
    commodity, lending, and disaster programs.

       •   Farm Service Agency
       •   Risk Management Agency
       •   Natural Resources Conservation Service


    NATURAL RESOURCES AND ENVIRONMENT
    Natural Resources and Environment (NRE) oversees efforts to: get our forests working again
    to make them more productive, as well as create more jobs. The focus of NRE is on ensuring
    we are good neighbors and are managing our forests effectively, efficiently, and responsibly,
    as well as working with states and local governments to ensure the utmost collaboration.

       •   Forest Service


    FOOD SAFETY
    The Office of Food Safety ensures that the Nation’s commercial supply of meat, poultry, and
    processed egg products is safe, wholesome, and properly labeled and packaged. Food Safety
    serves in the critical role of ensuring the food we put on the table to feed our families meets the
    strict safety standards we have established.

       •   Food Safety and Inspection Service


    RESEARCH, EDUCATION, AND ECONOMICS
    Research, Education, and Economics (REE) is dedicated to the creation of a safe, sustainable,
    competitive U.S. food and fiber system, as well as strong communities, families, and youth
    through integrated research, analysis, and education.

       •   Agricultural Research Service
       •   National Institute of Food and Agriculture
                                                                                                 5
                                         SECTION I | MANAGEMENT’S DISCUSSION AND ANALYSIS




   •   Economic Research Service
   •   National Agricultural Statistics Service


MARKETING AND REGULATORY PROGRAMS
Marketing and Regulatory Programs (MRP) facilitates domestic and international marketing of
U.S. agricultural products and ensures the health and care of animals and plants. MRP agencies
are active participants in setting national and international standards.

   •   Agricultural Marketing Service
   •   Animal and Plant Health Inspection Service
6
    USDA AGENCY FINANCIAL REPORT | 2018




    USDA Program Performance

    USDA PERFORMANCE AND RESULTS FOR FY 2018
    The U.S. Department of Agriculture’s (USDA) mission is to provide leadership on food,
    agriculture, natural resources, rural development, nutrition, and related issues based on sound
    public policy, the best available science, and efficient management.

    For purposes of the Agency Financial Report (AFR), a performance summary is provided using
    the Department’s key performance indicators as a mechanism to gauge progress in achieving its
    mission. In fiscal year (FY) 2018, USDA had 35 key performance measures.

    The following tables and discussion provide a high-level description of the Department’s key
    focus areas that are being tracked and managed through USDA’s performance management
    process. The tables provide key performance indicator historical results and include FY 2018
    preliminary results indicating anticipation in meeting/not meeting performance targets.

    Final performance information and a detailed discussion of the Department’s FY 2018
    performance results, assessment methodologies, metrics, external reviews, and documentation
    of performance data will be presented in the FY 2018 USDA Annual Performance Report.
    The report is planned to be released with the President’s 2020 budget in February and will be
    available on the USDA Performance Improvement and Accountability Web site.

    The data used by the Department to measure performance is collected using standardized
    methodology. This methodology has been vetted by Federally employed scientists and
    policymakers, and, ultimately, the leadership and Under Secretaries of each respective mission
    area. All attest to the completeness, reliability, and quality of the data.
                                                                                                        7
                                           SECTION I | MANAGEMENT’S DISCUSSION AND ANALYSIS




STRATEGIC GOAL 1: ENSURE USDA PROGRAMS ARE DELIVERED
EFFICIENTLY, EFFECTIVELY, WITH INTEGRITY, AND A FOCUS ON
CUSTOMER SERVICE
The Department will modernize and consolidate information technology (IT) infrastructure and
services, as well as strengthen management and oversight of procurement, property, and
finances to ensure our resources are deployed as effectively and efficiently as possible. We will
create a safe and modern space within which employees can work and feel empowered to find
innovative solutions to serve our customers’ needs and will promote accountability and
professional development. USDA will leverage the strength and talent of our employees and
reduce regulatory and administrative burdens to allow agencies to focus on our customers.
Improved customer service and employee engagement will create a more effective and
accessible USDA for all our stakeholders.

EXHIBIT 1: Strategic Goal 1 Performance Measures

                                                  FY 2017           FY 2018            FY 2018
          Performance Measures
                                                Baseline Data        Target      Preliminary Results
Reduce the number of data centers across
                                                      39               20                Met
the Department
Maintain ranking of the Top 10 Best
Places to Work in the Federal Government
                                                       7             Top 10            Deferred
for large agencies by the Partnership for
Public Service
Reduce the Department’s overall real
property footprint through effective
                                                     31.9             31.6            Deferred 1
disposal and consolidation efforts
(Million Square Feet)
Reduce the Department’s total number of
                                                     29.4             28.8               Met
light-duty fleet vehicles (Thousand)




1
 The release in the Corporate Property Automated Information System (CPAIS) for tracking Reduce the
Footprint status has been delayed. There are also issues with how the General Services Administration
data is being replicated from Rent on the Web to CPAIS and how this data is being updated in CPAIS.
8
    USDA AGENCY FINANCIAL REPORT | 2018




    STRATEGIC GOAL 2: MAXIMIZE THE ABILITY OF AMERICAN
    AGRICULTURAL PRODUCERS TO PROSPER BY FEEDING AND CLOTHING
    THE WORLD
    A strong and prosperous agricultural sector is essential to the well-being of the U.S. economy.
    America’s farmers and ranchers ensure a reliable food supply, support job growth, and promote
    economic development. To maintain a competitive agricultural sector, USDA will support
    farmers and ranchers’ ability to start and maintain profitable businesses as well as offer
    financial support to producers affected by natural disasters. Furthermore, USDA’s research
    agencies will continue to introduce high-performance plants, animals, and integrated
    management options that increase the efficiency of farming practices. Lastly, USDA will also
    provide tools to producers so they are well-positioned to secure a share of a growing market for
    agricultural products.

    EXHIBIT 2: Strategic Goal 2 Performance Measures

                                                     FY 2017          FY 2018            FY 2018
              Performance Measures
                                                   Baseline Data       Target       Preliminary Result
    The annual normalized value of risk
    protection provided to agricultural
                                                       $74.6            $64.0              Met
    producers through the Federal Crop
    Insurance program ($ Billion)
    Average number of days to process direct
                                                         31              31                Met
    loans (Farm Service Agency)
    New markets established or expanded
                                                        100             104                Met
    through technical assistance
    Percent of high-risk plant pests for which
                                                        92%             93%                Met
    early detection surveys are conducted
    Number of National Animal Health
    Laboratory Network participating labs able
                                                         31              35                Met
    to electronically message animal disease
    testing results to USDA
    Number of hours it takes to mobilize
    resources once it is determined that a
                                                         24              24                Met
    Federal emergency response is needed to
    manage an agricultural outbreak
                                                                                                   9
                                          SECTION I | MANAGEMENT’S DISCUSSION AND ANALYSIS




STRATEGIC GOAL 3: PROMOTE AMERICAN AGRICULTURAL PRODUCTS
AND EXPORTS
Expanding international marketing opportunities for U.S. farmers and exporters is critical to
business and income growth across rural America. It is essential for USDA to continue its
efforts to promote American agricultural products and exports through promotional activities,
development of international standards, removal of trade barriers by monitoring and enforcing
existing trade agreements, and negotiation of new trade agreements that benefit the U.S.
agricultural economy. USDA will also partner with developing countries to move them along
the agricultural market continuum from developing economies to developed economies with
promising demand potential. Ultimately, this work will build the foundations for future markets
and create long-term international relationships that advance U.S. agriculture’s exports.

EXHIBIT 3: Strategic Goal 3 Performance Measures

                                                 FY 2017         FY 2018           FY 2018
             Performance Measures
                                               Baseline Data      Target      Preliminary Result
Value of agricultural exports resulting from
participation in foreign food and                 $1.522          $1.70              Met
agricultural trade shows ($ Billion)
Value of trade preserved through
resolution of foreign market access issues
such as U.S. export detainment, restrictive
                                                  $3.63           $4.0               Met
Secure Payment System (SPS) and
Technical Barriers to Trade (TBT) issues,
and trade regulations ($ Billion)
Percentage of Food for Progress projects
that increase a project participant’s value        33%             35%               Met
of sales by 9% or higher




2
    Baseline Data FY 2015
3
    Baseline Data FY 2015
10
     USDA AGENCY FINANCIAL REPORT | 2018




     STRATEGIC GOAL 4: FACILITATE RURAL PROSPERITY AND ECONOMIC
     DEVELOPMENT
     USDA promotes rural prosperity and economic development by financing investments in rural
     utilities, housing, and businesses. When rural Americans share the same level of infrastructure
     services as the country’s urban areas, rural communities can make even greater economic
     contributions with healthy businesses and families. Just as economic and social science
     research informs decision makers regarding current trends in rural America and gaps in existing
     markets, USDA may then provide benefits to rural American businesses and citizens. USDA
     will leverage funds, stimulate private-public partnerships, and engage in collaboration to build
     rural infrastructure including the following: broadband, community facilities, safe and
     affordable housing, and health services and facilities. The Department will also provide
     capacity building to help underserved communities become thriving communities.

     EXHIBIT 4: Strategic Goal 4 Performance Measures

                                                                      FY 2017           FY 2018      FY 2018
                     Performance Measures
                                                                    Baseline Data        Target Preliminary Result
     Health Facilities: Percent of customers who are
     provided access to new and/or improved essential                    5.0%            6.8%            Not Met4
     community facilities
     Safety Facilities: Percent of customers who are
     provided access to new and/or improved essential                    3.7%5           4.5%               Met
     community facilities
     Number of borrowers’ subscribers receiving new
                                                                          4.66            5.1               Met
     and/or improved electric facilities (Million)
     Number of borrowers’ subscribers receiving new
     and/or improved telecommunication services                          0.158           0.175           Not Met7
     (Million, Noncumulative)
     Amount of targeted Rural Development (RD)
     investments that leverage private sector funding                     $7.0            $7.5              Met
     ($ Billion)

     4
       Most of the obligations occur in the fourth quarter, therefore it is difficult to predict the exact percentage.
     Rural Development may meet the target, although it is being reported as “not met” in this report.
     5
       Baseline Data FY 2014
     6
       Baseline Data FY 2014
     7
       A significant amount of alternative grant funding is available through the Federal Communications
     Commission (FCC) Connect America Fund II Auction (which occurred between July 24, 2018, and August
     21, 2018) and the $600 million in funding from the FY 2018 Omnibus for the Rural Utilities Service (RUS)
     Broadband Pilot Program (GP 779). The availability of these two sources of grants has negatively
     impacted the demand for this program's loan funds.
                                                                                                           11
                                            SECTION I | MANAGEMENT’S DISCUSSION AND ANALYSIS




STRATEGIC GOAL 5: STRENGTHEN THE STEWARDSHIP OF PRIVATE
LANDS THROUGH TECHNOLOGY AND RESEARCH
The world population is expected to reach 9.6 billion by 2050. Feeding this population will
require adoption of new science and technologies and the implementation of science-based
conservation plans to sustainably increase agricultural production. To ensure U.S. private
working lands and public agricultural landscapes are conserved, the Department will provide
technical and financial assistance using the latest technology and research available. New and
improved practices result from fundamental and applied research to understand the complex
interactions between human systems and the environment and transferring the resulting
knowledge into the hands of producers and land managers through information, tools, and
decision support.

EXHIBIT 5: Strategic Goal 5 Performance Measures

                                                           FY 2017        FY 2018          FY 2018
              Performance Measures
                                                         Baseline Data     Target     Preliminary Result
Soil carbon retained on cropland to improve
                                                              140            140              Met
yields and sequester carbon (Thousand Tons)
Cropland with conservation applied to improve
soil quality (Million Acres)—Environmental                    3.0            3.0              Met
Quality Incentive Program (EQIP)
Cropland with conservation applied to improve
soil quality (Million Acres)—Conservation                     5.9            5.9           Not Met8
Technical Assistance (CTA)
Tons of sediment prevented from leaving
                                                              4.6            4.6              Met
cropland and entering waterbodies (Million Tons)
Working land protected by conservation
                                                              60.7          80.0              Met
easements (Thousand Acres)
Acreage enrolled in Conservation Reserve
Program (CRP) riparian and grass buffers                      1.6            1.6              Met
(Cumulative, Million Acres)
CRP restored wetland acreage (Million Acres)                  1.9            1.9              Met


8
 Increasing demand for technical assistance and a potential for delay in implementation of conservation
planned practices may present a challenge in meeting targets. The vacancies of key field staff, such as
soil conservationists in some areas, combined with severe weather is a risk, although the agency does
have an aggressive field hiring plan being implemented. The full impact of these risks will not be clear
until after the fourth quarter reporting period.
12
     USDA AGENCY FINANCIAL REPORT | 2018




     STRATEGIC GOAL 6: FOSTER PRODUCTIVE AND SUSTAINABLE USE OF
     OUR NATIONAL FOREST SYSTEM LANDS
     The Nation’s forests and grasslands are a fundamental part of the American landscape and are a
     legacy that the USDA Forest Service holds in trust for present and future generations. Forests
     provide clean air and water, forest and rangeland products, mineral and energy resources, jobs,
     quality habitat for fish and wildlife, recreational opportunities, and memorable experiences.
     The Forest Service plays a critical role in making America’s forests and grasslands resilient to
     threats and disturbances while mitigating wildfire risk. The Department also manages the
     National Forests and grasslands to ensure that they are healthy and sustainable—while also
     allowing rural communities to access and benefit from economic opportunities that our Nation’s
     forests offer. This work is complemented by USDA’s research in forestry, ecology, and
     economics to ensure that world-class science guides effective policies and management practices.

     EXHIBIT 6: Strategic Goal 6 Performance Measures

                                                        FY 2017        FY 2018           FY 2018
                 Performance Measures
                                                      Baseline Data     Target      Preliminary Result
     Percent of customers satisfied with recreation
     facilities, services, and settings on National       95%            95%               Met
     Forests
     Timber volume sold (Billion Board feet)               2.9            3.4              Met
     Percent of National Forest Systems (NFS)
                                                          53%            53%               Met
     watersheds in a functioning condition
     Annual acreage of NFS lands where final
                                                        741,765       1,100,000            Met
     treatment effectively mitigates wildfire risk
     Annual acreage treated to reduce or maintain
                                                       2,776,486      3,000,000            Met
     fuel conditions on NFS and non-federal lands
                                                                                                    13
                                         SECTION I | MANAGEMENT’S DISCUSSION AND ANALYSIS




STRATEGIC GOAL 7: PROVIDE ALL AMERICANS ACCESS TO A SAFE,
NUTRITIOUS, AND SECURE FOOD SUPPLY
USDA has critical roles in preventing foodborne illness and protecting public health while also
ensuring Americans have access to food, a healthful diet, and nutrition education in a manner
that supports American agriculture and inspires public confidence. The Department will take a
number of actions to achieve this goal. First, to ensure the food supply is safe, the Department
will continue to prevent contamination and limit foodborne illness by expanding its
modernization of food inspection systems, and USDA’s research, education, and extension
programs will continue to provide information, tools, and technologies about the causes of
foodborne illness and its prevention. Second, USDA will continue to develop partnerships that
support best practices in implementing effective programs to ensure that eligible populations
have access to programs that support their food needs. This work includes research on the
nutritional quality of Americans’ food and diets, as well as the continuing of the discovery of
the drivers of poor diets and nutritional choices. Lastly, USDA will collaborate with partners
and stakeholders on strategies to reduce foodborne illness and childhood obesity and to
improve diets. USDA ensures agriculture production incorporates the best available science
into its modernization efforts to produce food that is safer, more nutritious, and secure.

EXHIBIT 7: Strategic Goal 7 Performance Measures

                                                     FY 2017        FY 2018         FY 2018
               Performance Measures
                                                   Baseline Data     Target    Preliminary Result
Percentage of establishments that meet
                                                        75%           78%             Met
pathogen reduction performance standards
Percentage of establishments whose
noncompliance rate decreases 120 days after             70%          71.4%            Met
receiving early warning alert
Percentage of American households with
                                                       87.3%9        87.7%         Deferred
consistent, dependable access to food
Annual percentage of eligible children
participating in the National School Lunch              58%           59%             Met
Program (NSLP)
Percentage of Supplemental Nutrition
Assistance Program (SNAP) Employment and
                                                       33%10          35%          Deferred
Training participants engaged in education and
skills-based training


9
    Baseline Data FY 2015
10
     Baseline Data FY 2016
14
     USDA AGENCY FINANCIAL REPORT | 2018




     Future Demands, Risks, Uncertainties, Events,
     Conditions, and Trends
     Farmers and ranchers operate in highly competitive markets, both domestically and
     internationally. Rapid shifts in consumer demands associated with quality, convenience, taste,
     and nutrition dictate that farming, ranching, and marketing infrastructures become more fluid
     and responsive. National security is a significant, ongoing priority for the U.S. Department of
     Agriculture (USDA). USDA science research, education, and extension services will continue
     to be the foundation for understanding developments and making advances in solving
     agricultural and societal challenges. USDA is working with the U.S. Department of Homeland
     Security to help protect agriculture from intentional and accidental acts that might impact
     America’s food supply or natural resources.

     EXTERNAL FACTORS THAT CHALLENGE USDA’S ABILITY TO ACHIEVE ITS
     GOALS INCLUDE THE FOLLOWING:
        •   Weather-related hardships, including disasters related to the increasing intensity and
            duration of extreme weather and climate change, both domestically and internationally;
        •   The risk of catastrophic fire, depending on weather, drought conditions, and the
            expanding number of communities in the wildland-urban interface;
        •   Non weather-related hardships and other uncontrollable events, both domestically and
            internationally;
        •   Domestic and international macroeconomic factors, including consumer purchasing
            power, the strength of the U.S. dollar, and political changes abroad that could impact
            domestic and global markets greatly at any time;
        •   Sharp fluctuations in farm prices, interest rates, and unemployment that could impact
            the ability of farmers, other rural residents, communities, and businesses to qualify for
            credit and manage debt;
        •   The impact of future economic conditions and actions by a variety of Federal, State, and
            local Governments that could influence the sustainability of rural infrastructure;
        •   The increased movement of people and goods, which provides the opportunity for crop
            and animal pests and diseases to move quickly across domestic and international
            boundaries;
        •   Potential exposure to hazardous substances, which may threaten human health as well
            as the environment; and
        •   The ability of the public and private sectors to collaborate effectively on food safety,
            security, and related emergency preparedness efforts.
                                                                                                15
                                          SECTION I | MANAGEMENT’S DISCUSSION AND ANALYSIS




Financial Statement Highlights

BALANCE SHEET

Total Assets
Total assets for FY 2018 were $238,774 million. The following exhibit presents FY 2018
total assets.

EXHIBIT 8: Total Assets ($ in millions)




Direct Loan and Loan Guarantees, Net, is one of the largest assets on the USDA Balance Sheet.
RD, which comprises 87% of total Departmental loans, offers both direct and guaranteed loan
products for rural housing and rural business infrastructure. Loan programs administered by
FSA to farmers who are temporarily unable to obtain private, commercial credit represent 11%
of the total. The remaining 2% represents commodity loans and credit programs administered
by the Commodity Credit Corporation (CCC). Their loans are used to improve economic
stability and provide an adequate supply of agricultural commodities. CCC credit programs
provide international food assistance, expand international markets, and provide domestic low
cost financing to protect farm income and prices.
16
     USDA AGENCY FINANCIAL REPORT | 2018




     Total Liabilities
     Total liabilities for FY 2018 were $161,116 million. The following exhibit presents FY 2018
     total liabilities.

     EXHIBIT 9: Total Liabilities ($ in millions)




     Debt is the single largest liability on USDA’s balance sheet. It represents amounts owed
     primarily to Treasury by CCC, FSA and RD. For CCC, the debt primarily represents financing
     for price support, export credit guarantees, disaster programs and loans related to farm storage
     facilities. For FSA, the debt primarily represents financing to support direct and guaranteed
     loan programs, with the majority supporting operating, ownership, and emergency loans. For
     RD, the debt primarily represents financing to support electric and housing loan programs.
                                                                                            17
                                         SECTION I | MANAGEMENT’S DISCUSSION AND ANALYSIS




Net Cost of Operations
Net cost of operations for FY 2018 was $134,461 million. The following exhibit presents
FY 2018 net cost of operations by mission area.

EXHIBIT 10: Net Cost of Operations by Mission Area ($ in millions)
18
     USDA AGENCY FINANCIAL REPORT | 2018




     Statement of Budgetary Resources
     The following exhibit presents FY 2018 total budgetary resources, obligations incurred, and net
     outlays by mission area.

     EXHIBIT 11: Budgetary Resources, Obligations Incurred, and Net Outlays by Mission Area
                ($ in millions)
                                                                                                     19
                                          SECTION I | MANAGEMENT’S DISCUSSION AND ANALYSIS




Statement of Assurance
The U.S. Department of Agriculture (USDA) is providing modified assurance that USDA’s
systems of internal control comply with the Federal Managers’ Financial Integrity Act
(FMFIA) objectives. USDA’s systems of internal control meet the objectives of the FMFIA and
the Federal Financial Management Improvement Act (FFMIA), with the exception of two
material weaknesses in internal control, one financial system non-conformance, and three
instances of noncompliance with laws and regulations. Management is providing reasonable
assurance that the internal controls over operations are effective. The details of the exceptions
are provided in the FMFIA, FFMIA, and Summary of Financial Statement Audit and
Management Assurances sections of this report.

USDA assessed its financial management systems and internal controls over the effectiveness
and efficiency of operations and compliance with applicable laws and regulations as of
September 30, 2018, and financial reporting as of June 30, 2018. The assessment included the
safeguarding of assets and compliance with applicable laws and regulations in accordance with
the requirements of Office of Management and Budget (OMB) Circular No. A-123,
Management’s Responsibility for Enterprise Risk Management and Internal Control.

No other material weaknesses were found in the design or operation of the internal control over
(1) the effectiveness and efficiency of operations and compliance with applicable laws and
regulations as of September 30, 2018, and (2) internal control over reporting as of June 30, 2018.




Sonny Perdue
Secretary of Agriculture

November 14, 2018
20
     USDA AGENCY FINANCIAL REPORT | 2018




     Federal Managers’ Financial Integrity Act Report on
     Management Control

     BACKGROUND
     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.

     The U.S. Department of Agriculture (USDA) evaluated its internal controls in accordance with
     Office of Management and Budget (OMB) Circular No. A-123, Management’s Responsibility
     for Enterprise Risk Management and Internal Control.

     The Department operates a comprehensive internal control program. This program ensures
     compliance with the requirements of FMFIA and other laws, and OMB Circular No. A-123,
     Appendices A through D. All USDA managers must ensure their programs operate efficiently
     and effectively, and comply with relevant laws. They must also ensure financial management
     systems conform to applicable laws, standards, principles, and related requirements.
     In conjunction with the Office of Inspector General (OIG) and the Government Accountability
     Office, USDA’s management works decisively to determine the root causes of its material
     weaknesses so that it can direct resources to focus on their remediation.

     USDA 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.
                                                                                                  21
                                         SECTION I | MANAGEMENT’S DISCUSSION AND ANALYSIS




FISCAL YEAR (FY) 2018 RESULTS
The Department has two existing material weaknesses in internal controls over financial
reporting: Information Technology (IT) and financial management. The material weakness for
financial management is due to improvements needed in accounting and internal controls
related to the Natural Resources Conservation Service (NRCS), Commodity Credit Corporation
(CCC) and the Risk Management Agency (RMA). USDA also has one existing system
non-conformance related to Funds Control Management within the CCC, which will be
resolved by the end of fiscal year (FY) 2020.

The Food and Nutrition Service and the Farm Service Agency (FSA) are non-compliant with
laws and regulations related to the Improper Payments Elimination and Recovery Act of 2010,
as amended.

USDA has identified violations or potential violations with the Anti-deficiency Act (ADA).
Eight confirmed violations are in the process of being reported to the President and Congress.
A detailed description and summary of the Department’s ADAs, can be found in the
Compliance with Laws and Regulations section of this report.

The Secretary’s Statement of Assurance provides modified assurance that USDA’s system of
internal control complies with FMFIA objectives. For additional details on the results reported
in USDA’s Consolidated Financial Statements Audit Report, see the Summary of Financial
Statement Audit and Management Assurances section of this report.
22
     USDA AGENCY FINANCIAL REPORT | 2018




     SUMMARY OF OUTSTANDING MATERIAL WEAKNESSES
     The following exhibit provides FY 2018 accomplishments and FY 2019 planned actions toward
     resolving the outstanding material weaknesses.

     EXHIBIT 12: Summary of Outstanding Material Weaknesses

                                     1. USDA Information Technology (IT)
                              The Department lacks an effective information security program.
                              Unimplemented recommendations that address many longstanding
     Material                 weaknesses (related to risk management, configuration management,
     Weaknesses Existing      identity and access management, security training, information
                              security continuous monitoring, incident response, and contingency
                              planning) remain outstanding.
     Overall Estimated
                              FY 2020
     Completion Date
                FY 2018 Accomplishments:                            FY 2019 Planned Actions:
     During FY 2018, the Office of the Chief              For FY 2019, OCIO will:
     Information Officer (OCIO):
                                                          ▪ Perform security assessments on select
     ▪ Tracked outdated Plans of Actions and                agencies;
        Milestones (POA&M) identified as part of
        material weaknesses and reported progress         ▪ Continue to perform penetration tests of
        to USDA leadership on a weekly basis.               all USDA agencies, including DHS’ Risk and
        Leveraged the department’s biweekly                 Vulnerability Assessment (RVA) of select
        scorecard reports and weekly meetings with          agencies with High Value Assets (HVAs);
        our agencies; OCIO worked with specific           ▪ Transition CDM Phase 2 tools to full
        agencies to achieve proper and full                 operations in Q2 FY 2019;
        remediation of weaknesses across USDA;            ▪ Close all outstanding OIG Federal
     ▪ Performed security assessments on select             Information Security Management Act
        agencies;                                           Audit Recommendations from FY 2010
     ▪ Began performing penetration testing of all          through FY 2016;
        USDA agencies;                                    ▪ Assess, plan, design, and implement a
     ▪ OCIO continued to assess the U.S.                    consolidated Cybersecurity Operations
        Department of Homeland Security’s (DHS)             organization at USDA to provide a
        Cyber Hygiene Assessment reports and                centralized and enterprise-level source of
        worked with agencies to remediate findings          cyber security and risk management
        of critical vulnerabilities in 30 days or less;     controls, functions, and capabilities;
        OCIO continued its integration of the             ▪ Develop processes and procedures to
        Continuous Diagnostics Mitigation (CDM);            track, monitor, and enforce security
                                                            configuration baselines for USDA servers;
                                                                                               23
                                        SECTION I | MANAGEMENT’S DISCUSSION AND ANALYSIS




                        1. USDA Information Technology (IT) Continued
           FY 2018 Accomplishments:                         FY 2019 Planned Actions:
▪ Continued integration of the Continuous          ▪ Develop and implement a plan of action
  Centralized configuration management               for deploying interim solutions to
  monitoring by leveraging CDM Phase 1 tools;        address recommendations from OIG
▪ Formalized internal monitoring processes into      Audit Reports on Improper Usage of
  a Standard Operating Procedure (SOP);              USDA’s Information Technology
                                                     Resources and Security Over Select
▪ Continued to mature and evolve the Change
                                                     USDA Agencies’ Networks and Systems;
  Advisory Board roles and responsibilities to
                                                     begin developing and executing
  meet the needs of the organization, including
                                                     solutions requirements and
  evolving to a paperless electronic process
  conducive to seamless customer service;            implementation plans for standing
                                                     centralized, enterprise-wide solutions,
▪ Transitioned CDM Phase 1 tools and CDM             processes, and procedures; and
  dashboard to full operations in Q2 FY 2018.
                                                   ▪ Initiate planning and execution to
  OCIO maintained operations of CDM Phase 1
                                                     deploy CDM Phase 3 tools.
  tools and CDM dashboard through Q4
  FY 2018; and
▪ In collaboration with USDA agencies and
  mission areas, OCIO defined a high-level
  strategy for “further enforcing” Personal
  Identity Verification (PIV) authentication for
  logical system access throughout USDA,
  a high-level milestone for accomplishing that
  strategy, and a process to oversee and
  measure progress.
24
     USDA AGENCY FINANCIAL REPORT | 2018




               2. Financial Management—Natural Resources Conservation Service (NRCS)
     Material Weakness            NRCS needs improved controls over obligations and undelivered
     Existing                     orders (UDO), as well as accounting and controls over expenses.
     Overall Estimated
                                  FY 2019
     Completion Date
              FY 2018 Accomplishments:                          FY 2019 Planned Actions:
     During FY 2018, NRCS:                            NRCS will:
     ▪ Re-engineered the process for reviewing        ▪ Enhance processes and NRCS feeder
       data files to ensure invalid upward and          systems to improve monitoring of activity in
       downward adjustments are identified and          U.S. Standard General Ledger (USSGL) 4871
       negated in a timely manner;                      and 4881;
     ▪ Improved the transparency of recording         ▪ Continue to improve the transparency of
       and liquidating obligations by utilizing new     recording and liquidating obligations by
       systems, such as the use of ezFedGrants;         utilizing new systems, such as the use of
     ▪ Implemented a confirmation process,              ServiceNow; and
       including negative confirmations, for all      ▪ Review all grant UDOS and validate period
       divisions to ensure direct-entry expense         of performance.
       accruals outside the scope of the corporate
       accrual process are recorded; and
     ▪ Implemented a corporate accrual process
       to record accruals for all 41xx and 25xx
       Budget Object Code transactions at the
       macro level to ensure expense accruals for
       the majority of the unliquidated obligation
       population are recorded.
                                                                                                    25
                                           SECTION I | MANAGEMENT’S DISCUSSION AND ANALYSIS




                2. Financial Management—Commodity Credit Corporation (CCC)
                          CCC needs to address material weaknesses related to accounting
Material Weaknesses       estimates (prior year material weakness downgraded to a significant
Existing                  deficiency for FY 2018) and Accounting for Budgetary Transactions
                          (FY 2018).
Overall Estimated
                          FY 2019
Completion Date
         FY 2018 Accomplishments:                            FY 2019 Planned Actions:

During FY 2018, CCC:                             CCC will:
▪ Refined SOPs, policies, checklists, etc., to   ▪ Continue to implement effective UDO
   incorporate the requirements for                monitoring controls at the program level, to
   identifying the need for preparing,             assess the accuracy and validity of open
   supporting, validating, reviewing and           obligations, and the accounting execution, if
   recording, and performing look-backs of         necessary, as a result of the programmatic
   accounting estimates;                           monitoring reside with the CCC accountants;
▪ Designed and implemented processes,            ▪ Provide necessary training to the County field
   procedures, and controls to ensure data         offices’ personnel over the requirements of
   used in its accounting estimates are            OMB A-11 for recording obligations, and,
   complete and accurate. This included            ensure program handbooks are up to date
   procedures to review and validate               regarding execution and related accounting;
   published prices prior to calculating the     ▪ Begin the process to implement effective
   accrual to ensure the latest prices are         automated and/or manual controls to
   considered within the calculation.              evaluate the relationship between a CRP
   In addition, if published prices are            annual rental contract and CRP cost share
   subsequently updated prior to year-end,         contract; and develop and implement data
   evaluate the impact and determine if            analytic routines and management review
   adjustments are necessary. Ensure the           controls related to program UDO populations
   manual calculation of Fruits and                to identify and correct for abnormalities in
   Vegetables (FAV) acres considers the            the data;
   appropriate planted acres;                    ▪ Update documentation and continue to
 ▪ Updated the Agriculture Risk Coverage           strengthen management controls related to
   and Price Loss Coverage (ARC/PLC) SOP           the annual ARC/PLC UDO calculation to
   to indicate that the most reliable data         ensure that it is performed at a level of
   must be used for the estimate which, in         precision to include relevant and accurate
   the absence of contrary evidence, is            data elements, such as enrollments and crop
   presumed to be the latest available data;       prices that reflect the documentation
▪ Conducted meetings with the Farm                 submitted by the producer and approved by
   Programs’ management and staff to               management;
26
     USDA AGENCY FINANCIAL REPORT | 2018




                 2. Financial Management—Commodity Credit Corporation (CCC) Continued
                FY 2018 Accomplishments:                           FY 2019 Planned Actions:
         update procedures to ensure items                ▪ Implement processes, procedures, and
         requiring manual calculation to complete           controls to ensure accurate recognition of
         the ARC/PLC payment process (particularly          adjustments to delivered orders are posted
         FAV) be reviewed with responsible                  into the accounting systems and perform
         state/county personnel prior to the annual         periodic reviews of the accounting events
         stress lab or actual payment runs;                 to validate the results of recorded
     ▪   Updated SOPs to emphasize the                      transactions;
         importance of adequate supervisory review ▪ Implement effective internal controls to
         and approval of the estimates by                   review and reconcile the general ledger
         appropriate levels of management,                  account inter-relationships, between
         including review of the sources of relevant        borrowing authority and other budgetary
         factors, development of assumptions, and           accounts;
         reasonableness of assumptions and                ▪ Record borrowing authority at the
         resulting estimates. These reviews should          appropriate program level to prevent
         be at a sufficient level of precision to detect    abnormal balances, which will assist in
         errors in the estimates that would be              meaningful account review and
         material to the financial statements. In           reconciliation;
         addition, these reviews should also include ▪ Continue to evaluate all budgetary general
         an evaluation of adjusting entries recorded
                                                            and subsidiary ledgers to ensure they reflect
         because of the executed methodology;               the appropriate accounting and reporting
     ▪   Performed a detailed review of the export          guidance provided by OMB and the U.S.
         credit reform loans to include potentially         Department of the Treasury (Treasury);
         writing down the relevant facts and             ▪ Continue to ensure the month-end
         circumstances unique to each loan and              reconciliations for significant accounts are
         documenting procedures performed for               performed in a timely manner and reviewed
         each loan (or obligor) to evidence the             at the appropriate precision levels through
         review;                                            the implementation of dollar materiality
     ▪   Established and documented a process for           thresholds that are monitored by
         reviewing credit reform loan portfolios            management. Reconciled differences
         and established written SOPs to write off          identified should be corrected in a timely
         non-performing loans that ensure manual            manner in the subsidiary or General Ledger
         journal entries are reviewed at the                (GL). Researched and identified existing
         appropriate level of precision. CCC                unknown differences per Account
         conducted training sessions with the               Reconciliation and Analysis Policy;
         subject matter experts responsible for            ▪ Continue with the execution of the existing
         overseeing this process;                            OMB A-123, Appendix A Corrective Action
     ▪   CCC completed an Accrual Review                     Plan over Accounting Estimates by further
         Methodology SOP that enhanced review                improving and enhancing the analysis,
                                                                                                27
                                           SECTION I | MANAGEMENT’S DISCUSSION AND ANALYSIS




            2. Financial Management—Commodity Credit Corporation (CCC) Continued
             FY 2018 Accomplishments:                          FY 2019 Planned Actions:
    controls to validate the completeness and            review, and recordation process; and
    accuracy of the data being used in the grant       ▪ Continue with the execution of the
    calculator (estimate methodology) and related        existing OMB A-123, Appendix A
    look-back analysis. This process was refined to      Corrective Action Plan.
    include a more thorough review and analysis
    using other source documentation and an
    assessment of the data used to complete the
    advances/accruals for the grant portfolio;
▪   Implemented processes, procedures, and
    controls to improve the accuracy and
    timeliness of the Fund Balance with Treasury
    (FBWT) reconciliation, including reconciliations
    of related child agency FBWT accounts;
▪   Ensured the month-end reconciliations for
    significant accounts were performed in a timely
    manner and reviewed at the appropriate
    precision levels through the implementation of
    dollar materiality thresholds that were
    monitored by management. Reconciled
    differences identified should be corrected in a
    timely manner in the subsidiary or GL.
    Researched and identified existing unknown
    differences per Account Reconciliation and
    Analysis Policy;
▪   Developed effective information and
    communication processes to ensure policies
    and procedures related to programs or events
    that may give rise to the recognition of
    accounting transactions are consistently
    communicated and applied throughout the
    agency and that technical accounting issues
    are identified, analyzed, and resolved in a
    timely manner;
▪   Continued to implement processes, procedures,
    and effective controls to enable the timely
    preparation of financial statements and
    sufficient evidential matter to support
    accounting transactions;
28
     USDA AGENCY FINANCIAL REPORT | 2018




                2. Financial Management—Commodity Credit Corporation (CCC) Continued
               FY 2018 Accomplishments:                         FY 2019 Planned Actions:
     ▪ Continued with the execution of the existing
       OMB A-123, Appendix A Corrective Action
       Plan, Maintaining, Controlling, and
       Monitoring the CORE GL by further improving
       and enhancing CCC reconciliations and
       account analysis; and
     ▪ Continued to refine the reconciliation process
       for unexpended appropriations, cumulative
       results of operations, allocation transfers,
       unapportioned authority, allotments, UDOs,
       delivered orders, expended appropriations,
       and operating expenses.


                      2. Financial Management—Risk Management Agency (RMA))
                             RMA needs to develop change controls over the program production
     Material Weaknesses
                             model used to calculate actuarial projections to avoid inadvertent
     Existing
                             modifications to the model.
     Overall Estimated
                             FY 2019
     Completion Date

             FY 2018 Accomplishments:                         FY 2019 Planned Actions:
                                                  RMA will:
                                                   ▪ Create separate libraries of the program code
                                                     for production calculations and sensitivity or
                                                     other analysis;
                                                   ▪ Implement peer reviews of calculation; and
                                                   ▪ Continue process of review of inputs in the
                                                     model.
                                                                                                   29
                                          SECTION I | MANAGEMENT’S DISCUSSION AND ANALYSIS




SUMMARY OF OUTSTANDING SYSTEM NON-CONFORMANCE
Funds Control Management non-conformance is also reported as a system noncompliance and
is included in the FFMIA Report on Financial Management Systems (Exhibit 13).
The weakness involves component agency-specific deficiencies for CCC.

The following exhibit provides FY 2018 accomplishments and FY 2019 planned actions toward
resolving the Department’s outstanding system non-conformance.

EXHIBIT 13: Summary of Outstanding System Non-Conformance

                                 1. Funds Control Management
System Non-conformance         CCC system improvements needed in recording obligations at
Existing                       the transactional level.
Overall Estimated
                               FY 2020
Completion Date

          FY 2018 Accomplishments:                         FY 2019 Planned Actions:

During FY 2018 CCC:                               CCC will:
▪ Developed and implemented necessary             ▪ Continue to evaluate all budgetary
  policies, procedures, and controls at the         general and subsidiary ledgers to ensure
  appropriate level of precision to record,         they reflect the appropriate accounting
  monitor, and validate UDO balances                and reporting guidance provided by OMB
  periodically and, when necessary,                 and the U.S. Treasury;
  deobligate UDOs in a timely manner              ▪ Continue with the execution of the
  (appropriate FY) at the individual producer       existing OMB A-123, Appendix A
  and/or transaction level;                         Corrective Action Plan for Funds Control
▪ Designed and implemented effective                and Budgetary Accounting;
  internal controls to periodically (quarterly)   ▪ Continue to partner with Deputy
  review and validate UDO balances with             Administrator Farm Programs and
  sufficient input from the program offices         Information Technology Services Division
  and financial management to timely                toward completing software modifications
  identify UDOs that should be deobligated;         that will ensure all program applications
▪ Performed a detailed review of the                are in full compliance with the Funds
  individual contracts that make up the             Control/Obligation Requirements
  Conservation Reserve Program UDO                  (i.e., business events, establishments,
  balances to ensure they are appropriately         liquidations, adjustments [downward and
  accounted for and are valid UDOs of CCC;          upward], etc.) related to obligations at the
▪ Developed an overall 48XX UDO Plan,               transaction level in order to prepare for
  documenting at a high level the risks,            Financial Management Modernization
  system issues, and potential manual               Initiative implementation; and
  controls by program. Completed analysis
30
     USDA AGENCY FINANCIAL REPORT | 2018




                                2. 1. Funds Control Management Continued
                 FY 2018 Accomplishments:                         FY 2019 Planned Actions:
         of controls by program. Completed analysis       ▪ Implement the FSA/CCC Financial
         and corrective plan for all known and              Improvement Program that will be a
         unknown differences in 48XX balances;              multi-phased, multi-year project to
     ▪   Provided training sessions to instruct             move all financial management
         individuals processing, reviewing, and             processes from FPAC and its affiliated
         approving UDO balances to review the open          agencies’ accounting and feeder
         obligations at the individual                      systems to FMMI. FSA will need to
         contract/producer level;                           remediate its feeder systems to create
                                                            auditable financial data to integrate
     ▪   Developed a methodology for the “past” and
                                                            with FMMI.
         current crop years for the ARC/PLC program
         at an appropriate level of precision to
         accurately account for the “do not pay” direct
         attributions that may get resolved.
         Management’s methodology should be
         consistent with the historical evidence
         maintained by management;
     ▪   Implemented necessary policies, procedures,
         and/or trainings to instruct individuals
         processing, reviewing, and approving
         ARC/PLC payments in the County Offices to
         de-obligate [at the individual producer level]
         the undelivered orders that will not be paid
         due to payment attributions that cannot be
         resolved and will result in a position where
         the producer will not be paid;
     ▪   Updated and performed ARC/PLC lookback
         analysis in FY 2018 Q1 and Q2;
     ▪   Updated the ARC/PLC Obligation paper, when
         necessary, based on the results of ARC/PLC
         lookback analysis;
     ▪   Completed analysis and corrective plan for all
         known and unknown differences in ARC/PLC
         balances;
                                                                                            31
                                         SECTION I | MANAGEMENT’S DISCUSSION AND ANALYSIS




                          2. 1. Funds Control Management Continued
           FY 2018 Accomplishments:                       FY 2019 Planned Actions:
▪ Continued to partner with Deputy
  Administrator Farm Programs and Information
  Technology Services Division towards
  completing software modifications to ensure
  all program applications are in full compliance
  with the Funds Control/Obligation
  Requirements (i.e., business events,
  establishments, liquidations, adjustments
  [downward and upward], etc.) related to
  obligations at the transaction level; and
▪ Implemented the ARC County Pilot Program
  with the electronic Funds Management
  System/County Operated Facility to achieve
  full funds control at a transaction level.
32
     USDA AGENCY FINANCIAL REPORT | 2018




     Compliance with Laws and Regulations
     In the prior fiscal year (FY), the U.S. Department of Agriculture (USDA) did not publish their
     civil monetary penalty initial catch-up inflation adjustments by December 31, 2016.
     The Department also did not submit complete, accurate, and timely files by April 30, 2017, as
     required by the Digital Accountability and Transparency Act (DATA Act) of 2014. However,
     during FY 2018, to comply with the Federal Civil Penalties Inflation Adjustment Act of 1990,
     as amended, (the IAA), USDA published an initial catch-up inflation adjustment rule in the
     Federal Register. The Department is compliant with the IAA. In addition, USDA is compliant
     with the DATA Act. USDA submitted DATA Act data each quarter in FY 2018.
     USDA continues to improve in its submission of quality, timely, accurate, and complete data.
     USDA remains noncompliant or potentially noncompliant with the Anti-deficiency Act (ADA)
     identified in the following table, as well as in the Improper Payments Elimination and
     Recovery Act of 2010 (IPERA) as Amended and Federal Financial Management Improvement
     Act sections of this report.

     The Department has developed strategies to reduce and/or mitigate these violations during
     FY 2019. The following tables provide further details of each violation.

     ANTI-DEFICIENCY ACT
     EXHIBIT 14: ADA Violations Reported to the President and Congress During FY 2018
     Agency:         Office of the Secretary (USDA/OSEC)                                 Year Identified
     Violation:      (ADA) 31 United States Code 1301, 1342                                 FY 2017
                                      Description                                            Status
     USDA/OSEC, from the prior administration, violated the purpose statute,          ADA violation was
     improperly augmented several of its appropriations, and violated the ADA         reported to Congress
     when it obligated several of its appropriations for the expenses of              and the President on
     separately funded USDA components. USDA improperly relied on the                 August 27, 2018.
     Economy Act to enter into interagency agreements, under which the
     agency obligated its appropriations for (1) Rural Development Salaries and
     Expenses, (2) Food and Nutrition Service, Nutrition Programs
     Administration, and (3) Office of Civil Rights, for personnel details that did
     not actually occur. Instead, these appropriations were used for the salaries
     and benefits of employees performing work for separately funded USDA
     components. The Economy Act was referenced as the authority to transfer
     the appropriations. The purpose statute was violated when the incorrect
     appropriation was used for the salaries and benefits in question and
     improperly augmented the appropriations of these other USDA
     components. USDA incurred obligations in excess of appropriations and
     therefore violated the ADA.
                                                                                                      33
                                         SECTION I | MANAGEMENT’S DISCUSSION AND ANALYSIS




EXHIBIT 15: ADA Violations Pending Submission to the President and Congress.
            The violations include three prior years and four newly identified during FY 2018.

AGENCY            Description of Violation                             Status
Commodity         PRIOR YEAR: FY 2016, expenditures for CCC            After review by OGC and
Credit            interest to the U.S. Department of the Treasury      OMB, it was determined
Corporation       (Treasury) exceeded amounts initially                that a violation occurred.
(CCC)             apportioned by the Office of Management and          The ADA violation is in the
                  Budget (OMB). CCC expended approximately             process of being reported to
                  $46.1 million in interest to Treasury, more than     Congress and the President.
                  the apportioned amount of $29.9 million.
Office of         PRIOR YEAR: The OAO identified an ADA                The ADA violation is in the
Advocacy and      violation for FYs 2011 and 2012 under the Food,      process of being reported to
Outreach          Conservation, and Energy Act of 2008, Public         Congress and the President.
(OAO)             Law 110-234 (Farm Bill of 2008). OAO awarded
                  more than $19 million for “Outreach and
                  Assistance for Socially Disadvantaged and
                  Veteran Farmers and Ranchers” (Section 2501)
                  Grants in excess of amounts permitted by the
                  Farm Bill of 2008.
Office of the     PRIOR YEAR: The NFC managed web pages for the        The ADA violation pertaining
Chief Financial   New Orleans chapter of the Association of            to the services NFC provided
Officer/          Government Accountants (AGA), which is a             for maintaining the AGA
National          non-governmental organization, on the NFC Web        web pages is in the process
Finance Center    site at no cost to AGA. An investigation into this   of being reported to
(OCFO/NFC)        situation determined in FY 2017 that NFC has         Congress and the President.
                  been maintaining the AGA web pages since 1999.
CCC               FY 2018: Agriculture Risk Coverage-County            The ADA violation is in the
                  (ARC-CO) (occurred in the prior fiscal year but      process of being reported to
                  was identified in the current fiscal year):          Congress and the President.
                  On November 10, 2016, the Office of
                  Management and Budget (OMB) approved an
                  ARC-CO apportionment providing a total of
                  $850,924,690 for crop year 2017 ARC funding.
                  This funding was divided between ARC-CO
                  ($775,924,690) and Agricultural Risk Coverage-
                  Individual County ($75,000,000). As part of fiscal
                  year-end close for FY 2017, CCC recorded an
                  obligation of $2,319,369,741.34 for crop year
                  2017 ARC-CO. This exceeded the apportioned
                  amount by $1,543,445,051.
34
     USDA AGENCY FINANCIAL REPORT | 2018




     AGENCY          Description of Violation                              Status
     Farm Service    FY 2018: FSA issued a contract for Information        After review by OGC, it was
     Agency (FSA)    Technology investments including the CCC              determined that a violation
                     Budget Formulation (CCC BF) system. The CCC           occurred. The ADA violation
                     BF was not included in the approved Acquisition       is in the process of being
                     Approval Request (AAR). The AAR and the               reported to Congress and
                     contract will be amended to include $300,000          the President.
                     for CCC BF. The FY 2018 Consolidated
                     Appropriation Act, Section 706, states “none of
                     the funds available to the Department of
                     Agriculture for information technology shall be
                     obligated for projects, contracts, or other
                     agreements over $25,000 prior to written
                     approval by the Chief Information Officer.”
     FSA             FY 2018: Government Collections during                After review by OGC, it was
                     shutdown—Field staff spent time verifying             determined that a violation
                     deposit transactions. These deposit verifications     occurred. The ADA violation
                     were not part of the orderly shutdown activities.     is in the process of being
                                                                           reported to Congress and
                                                                           the President.
     FSA             FY 2018: FSA identified an ADA violation with the     After review by OGC, it
                     U.S. Warehouse Act. FSA business practices            was determined that a
                     dating back to FY 2000 supported Warehouse            violation occurred.
                     User Activities with Administrative S&E funds for     The ADA violation is in
                     direct and indirect costs. The user fee collections   the process of being
                     were not adequate to fully fund the costs, and        reported to Congress and
                     S&E funds were used and not reimbursed;               the President.
                     therefore, improperly augmenting the User Fee
                     program. When FSA adjusted its accounts to
                     correct the error, the user fee account was
                     deficient, resulting in an ADA violation.
                                                                                                    35
                                        SECTION I | MANAGEMENT’S DISCUSSION AND ANALYSIS




EXHIBIT 16: Determined Not to be an ADA Violation.

AGENCY           Description of Violation                       Status
OCFO/NFC         PRIOR YEAR: The NFC managed web pages          After conducting research, it was
                 for the Federal Executive Board (FEB), which   determined that the
                 is a quasi-governmental entity. Working        administrative expenses of the
                 Capital Fund (WCF) monies may have been        FEB—which include the hosting
                 used for the web service, and use of the       of web pages—are not charged
                 WCF to provide unreimbursed services to        to the WCF. Rather, those costs
                 the FEB would be an ADA violation if no        are covered by (1) an
                 other funds are available to reimburse the     interagency agreement between
                 WCF. Funds other than those in the WCF         NFC and the Agricultural
                 may have been available to pay for services    Research Services agency in New
                 to the FEB.                                    Orleans that provides direct
                                                                reimbursement for some FEB
                                                                administrative expenses, and
                                                                (2) the remaining FEB costs are
                                                                included as overhead and
                                                                administrative expenses in
                                                                reimbursable agreements to
                                                                NFC’s customers. Therefore,
                                                                NFC’s hosting of the FEB web
                                                                pages is not an ADA violation.
36
     USDA AGENCY FINANCIAL REPORT | 2018




     Potential ADA Violations—one prior year and 9 new potential violations were identified
     during FY 2018. These occurrences are pending results from research and investigation for a
     determination as to whether or not a violation actually occurred. This table provides a
     description and status.

     EXHIBIT 17: Potential ADA Violations Identified During FY 2018

     AGENCY                          Description of Violation                       Status
     CCC                  FY 2017: The prior year accounting               The Office of the General
                          treatment for obligations related to the         Counsel (OGC)
                          Conservation Reserve Program—Annual              determined that the error
                          Rental contracts was determined to be in         was not an ADA violation;
                          error. Only the annual portion of the            however, the incident has
                          contract values was recorded as an               been referred to GAO for
                          obligation.                                      additional investigation
                                                                           and determination.
     CCC                  FY 2018: Emergency Forestry Conservation         The Office of the General
                          Reserve Program—CCC failed to record the         Counsel (OGC)
                          obligation for the full value of the long-term   determined that the error
                          contract when the contact was signed. CCC        was not an ADA violation;
                          obligated a total of $2,230,309 for long-term    however, the incident has
                          contracts.                                       been referred to GAO for
                                                                           additional investigation
                                                                           and determination.
     CCC                  FY 2018: FAS/Food for Progress—                  Agency is seeking an OGC
                          The Foreign Agriculture Service paid Food for    opinion.
                          Progress freight invoices from administrative
                          funds. There was a zero balance in the
                          administrative funds for this agreement;
                          however, there were funds available as a
                          result of downward adjustments.
     CCC                  FY 2018: Puerto Rico Tree Assistance Program Pending a determination.
                          (TAP)— Contracts approved from prior fiscal
                          years. TAP contracts from FY 2014 through
                          FY 2017 were approved but not recorded into
                          the program application timely. An obligation
                          is triggered when an application is approved
                          via a producer’s and FSA representative’s
                          signature. CCC received input from the Puerto
                          Rico District Directors that indicates that
                          there are 1,973 unrecorded TAP contracts
                          representing 2014, 2015 and 2017.
                                                                                     37
                             SECTION I | MANAGEMENT’S DISCUSSION AND ANALYSIS




AGENCY              Description of Violation                       Status
CCC      FY 2018: FSA/CCC: Non-Insured Assistance         Pending determination.
         Program (NAP) Frost Freeze (FFN) (occurred
         in the prior fiscal year but identified in the
         current fiscal year)—During the
         reclassification process in FY 2018, CCC
         discovered NAP payments exceeding
         apportionments by $888. Documentation of
         the background, and Statement of Facts and
         Analysis was still underway as of
         September 30, 2018.
CCC      FY 2018: Agriculture Risk Coverage (ARC)         Pending a determination.
         (occurred in the prior fiscal year but was
         identified in current fiscal year)—In FY 2018,
         CCC identified crop year 2017 enrollments
         for the ARC program that exceeded available
         funding.
CCC      FY 2018: United States Agency for             Pending a determination.
         International Development (USAID) grants
         (occurred in the prior fiscal year, but
         identified in the current fiscal year)—
         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 (CCC child agency) 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 3rd
         quarter FY 2018, USAID reported grants that
         had not been closed out in the greater than
         5-years category. As part of the grant
         closeout in FY 2018, it was determined in
         some cases that additional funds were
         needed to fully execute agreements and
         perform the closeout. As a result, FY 2018
         funds were used.
38
     USDA AGENCY FINANCIAL REPORT | 2018




     AGENCY                          Description of Violation                       Status
     CCC                  FY 2018: Biomass Crop Assistance Program         Pending a determination.
                          (BCAP) (occurred in the prior fiscal year but
                          was identified in the current fiscal year)—
                          During the FY 2017 Quarterly Unliquidated
                          Obligations (ULO) Certification process, the
                          program office identified 12 contracts as
                          invalid and requiring deobligation that were
                          in fact deobligated through a Data Change
                          Request (DCR) in the electronic Funds
                          Management System (eFMS). After further
                          analysis in FY 2018, the program office
                          determined that such contracts were still
                          valid. However, there were no funds
                          available in FY 2018 to re-establish the
                          related obligations.
     National Institute   FY 2018: USDA’s OIG office completed a 3-     NIFA is waiting on the
     of Food and          year audit in August 2018 on NIFA Formula     final letter from OIG
     Agriculture (NIFA)   Grant Program Controls Over Fund              regarding the review.
                          Allocations to States. To date, NIFA has not
                          received the final disposition from the
                          review. An earlier draft of the OIG report
                          indicated there could be potential reportable
                          ADA violations. NIFA is working with USDA’s
                          OGC to determine if there will be actual ADA
                          violations based on the final report.
     Office of            FY 2018: A potential ADA related to              OPPE is waiting an OGC
     Partnerships and     cooperative agreements may exist. OPPE           determination.
     Public Engagement    may have exceeded its authority by charging
     (OPPE)               USDA agencies for cooperative agreements
                          that the agencies lacked legislative authority
                          to enter into.
                                                                                                                                                                      39
                                                                                                               SECTION I | MANAGEMENT’S DISCUSSION AND ANALYSIS




Improper Payments Elimination and
Recovery Act of 2010 as Amended
The following exhibit provides a summary of agency programs not compliant with the
Improper Payment Elimination and Recovery Act of 2010 as Amended (IPERA). The Office of
Inspector General’s FY 2017 Compliance with IPERA Requirements (Audit Report 50024-
0013-11, dated May 2018) found that two USDA agencies were noncompliant. The following
exhibit identifies the noncompliance related to IPERA and target dates by which the
deficiencies will be mitigated. The summary of corrective actions can be found in the Payment
Integrity Management Section III of this report.

EXHIBIT 18: Outstanding Initiative to Achieve Compliance

                                                                                                                                                       Target
Initiative Section of Noncompliance                                                                                Agency/Program
                                                                                                                                                    Completion Date
  Improper Payments Elimination and Recovery Act of 2010, as amended by the




                                                                                                                   Food and Nutrition Service
    Improper Payments Elimination and Recovery Improvement Act of 2012




                                                                              Publish improper payment             (FNS) Supplemental Nutrition       11/15/2018
                                                                              estimates for all high-risk          Assistance Program
                                                                              programs and activities              FNS Child and Adult Care Food
                                                                                                                                                      11/15/2020
                                                                                                                   Program
                                                                                                                   FNS National School Lunch
                                                                                                                                                      11/15/2018
                                                                                                                   Program (NSLP)

                                                                              Publish and meet annual              FNS School Breakfast Program
                                                                                                                                                      11/15/2018
                                                                              reduction targets for each           (SBP)
                                                                              program assessed to be at risk       FNS Special Supplemental
                                                                              and measured for improper            Nutrition Program for Women,       11/15/2018
                                                                              payments                             Infants, and Children (WIC)
                                                                                                                   Farm Service Agency
                                                                                                                                                      11/15/2018
                                                                                                                   Noninsured Assistance Program
                                                                              Report a gross improper
                                                                              payment rate of less than
                                                                              10 percent for each program and      FNS NSLP                           11/15/2020
                                                                              activity for which an improper
                                                                              payment estimate was obtained
                                                                              and published in the
                                                                              Performance and Accountability       FNS SBP                            11/15/2020
                                                                              Report (PAR) or Agency Financial
                                                                              Report (AFR)
40
     USDA AGENCY FINANCIAL REPORT | 2018




     Federal Financial Management Improvement Act
     Report on Financial Management Systems
     Background
     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 generally accepted accounting principles and standards. These systems
     must also comply with (1) Federal Financial Management System (FFMS) requirements;
     (2) applicable Federal accounting standards; and (3) the U.S. Standard General Ledger
     (USSGL) at the transaction level.

     Additionally, the Federal Information Security Management Act (FISMA) requires that there
     be no significant weaknesses in information security policies, procedures, or practices to be
     substantially compliant with FFMIA. The information technology (IT) noncompliance is also
     reported as a material weakness and is included in the Federal Managers’ Financial Integrity
     Act Report on Management Control. Failure to resolve prior-year recommendations identified
     by USDA’s Office of Inspector General (OIG) has prevented the Department from mitigating
     repeated deficiencies and from receiving a quality rating on the five Cybersecurity Framework
     security functions. More detailed information on the status of corrective actions planned and to
     be completed to comply with FISMA is also provided in the Response to Management
     Challenges section of this report.

     The following exhibit contains the outstanding initiatives to achieve compliance.

     EXHIBIT 19: Initiatives to be Completed
     Outstanding Initiatives to Achieve FFMIA Compliance

                                                                                       Target
     Initiative        Section of Noncompliance                     Agency
                                                                                    Completion Date
     Information       FFMS requirements and
     Technology        information security policies,              Multiple              12/31/2020
                       procedures, and/or practices.
     Financial                                                Natural Resources
                       Federal accounting standards and
     Management                                                 Conservation             9/30/2019
                       USSGL at the transaction level.
                                                                   Service
                       Federal accounting standards and       Commodity Credit
                                                                                         9/30/2019
                       USSGL at the transaction level.          Corporation
                                                                                                 41
                                        SECTION I | MANAGEMENT’S DISCUSSION AND ANALYSIS




FISCAL YEAR 2018 RESULTS
During fiscal year (FY) 2018, the U.S. Department of Agriculture (USDA) evaluated its
financial management systems to assess compliance with FFMIA. In assessing FFMIA
compliance, USDA considered auditors’ opinions on component agencies’ financial statements,
and progress made in addressing the material weaknesses identified in the FY 2017 Agency
Financial Report. USDA is not compliant with Federal accounting standards and the USSGL at
the transaction level due to deficiencies identified for the CCC and NRCS. Additionally, as
reported in the FFMIA section of this report, USDA continues to have weaknesses in IT
controls and FFMS requirements that result in noncompliance with the FISMA requirement.
As part of its financial systems strategy, USDA agencies continue working to meet FFMIA and
FISMA objectives.

COMMODITY CREDIT CORPORATION (CCC)
Noncompliance with Federal accounting standards was noted for weaknesses in the accounting
for budgetary transactions. The financial management systems did not record certain
accounting events at the transaction level in accordance with the USSGL. Significant progress
was made in accounting for obligation activity. CCC was able to provide detailed populations
for both beginning balance and current year obligation activity for audit testing purposes.


NATURAL RESOURCES CONSERVATION SERVICE (NRCS)
Deficiencies in applicable Federal accounting standards, including the USSGL at the
transaction level, were noted for obligations incurred, including accrued expenses and
undelivered orders; recoveries of prior-year unpaid obligations; and unexpended appropriations
as it relates to accrued expenses.

NRCS continues working to mitigate auditor-identified deficiencies and substantially comply
with FFMIA.
42
     USDA AGENCY FINANCIAL REPORT | 2018




     Financial Management Systems Strategy
     The Financial Management Systems (FMS) component of the Office of the Chief Financial
     Officer (OCFO) is responsible for providing timely, accurate, and complete financial
     information to U.S. Department of Agriculture (USDA) agencies to enable them to execute the
     mission of USDA. Specifically, FMS provides cloud-based, Commercial Off-the-Shelf (COTS)
     Enterprise Resource Planning (ERP) software that provides USDA Agencies with the
     functionality they need to distribute, obligate, expend, and report on the funds entrusted to them
     by Congress.

     FMS Operates as an Internal Shared Services Provider to USDA agencies, pooling resources to
     offer cost-effective systems and support through the consolidation of functions, standard
     processing, and repeatable processes.


     FINANCIAL MANAGEMENT LINES OF BUSINESS
     FMS’ mission as an internal Financial Shared Service Provider is to provide reliable,
     cost-effective, employee-centric systems and services to USDA organizations, thus allowing
     customers to focus on serving this great Nation through their mission delivery. FMS’ goal is to
     provide the necessary activities for executing the Financial Management Lines of Business
     vision. The three key components of this vision are communication, governance, and operations.
     By executing these components, USDA will deliver a successful shared service offering.

     FMS’ activities are focused on financial management services. The list of financial
     management services includes:

        •   Budget execution;
        •   General ledger accounting;
        •   Financial reporting;
        •   Audit support;
        •   Payroll accounting;
        •   Investment accounting;
        •   Commercial vendor payments;
        •   Temporary duty travel payments;
        •   Permanent change of station employee relocation payments;
        •   Grant payments;
                                                                                                   43
                                         SECTION I | MANAGEMENT’S DISCUSSION AND ANALYSIS




   •   Purchase card payments;
   •   Lease accounting;
   •   Intragovernmental payments;
   •   Intragovernmental collections;
   •   Receivable management;
   •   Property accounting;
   •   Child care; and
   •   Grants management.

By offering a solution that is proven and operating, and which meets all compliance
requirements, a customer is jump-started in coming online with a state-of-the-art, fully
configured ERP solution built for financials. FMS’ primary objectives for this shared services
effort are to provide the following:

   •   An enterprise financial management service that allows customers to reap the benefits
       of faster, less expensive, and less risky services as compared to starting with a new ERP
       or financial management implementation;
   •   Integration with the National Finance Center (NFC) payroll processing services;
   •   Budget status forecasting;
   •   An enterprise grants management service that allows customers to utilize a full
       life-cycle management tool for grants administration that provides visibility to both the
       government and the grant recipient;
   •   A complete audit-compliant financial solution with full documentation meeting
       financial requirements;
   •   Continuous process, operational, and organizational improvements for those shared
       services retained in the future state portfolio;
   •   More powerful and flexible financial management and reporting;
   •   Administrative payments, collections, and certifications;
   •   Editing/auditing capabilities that are 100-percent computerized; and
   •   The best possible customer-focused service and support.
44
     USDA AGENCY FINANCIAL REPORT | 2018




     RECENT ACCOMPLISHMENTS AND SHORT TERM PLANS
     The COTS ERP Systems, Applications, and Products (SAP) offering is housed in the FMS
     Division. Under the Financial Management Modernization Initiative (FMMI), this system has
     become the USDA financial management solution that covers almost all USDA accounting
     activity. Over $70 billion per year in grants activity has been added over the past 3 years, which
     means that the USDA core accounting system supports the majority of USDA financial
     transaction processing. Over the next few years, Forest Service Grants will come on board.


     FUTURE PLANS
     As part of the Farm Production and Conservation (FPAC) consolidation effort, the Commodity
     Credit Corporation’s (CCC) grants will also become part of the core accounting solution. At that
     point, almost all USDA grants activity will be in FMMI. The final major type of program
     activity in USDA relates to loans. The first release of the new CCC accounting structure in
     FMMI will go live in October 2019. It will put loan activity in FMMI for the first time.

     FMS will roll the remaining CCC accounting transactions into FMMI over the next 2 years.
     Forest Service and CCC grants are complex and are estimated to take 2 years for full
     implementation.

     By the end of the 2-year development period, the SAP infrastructure used by the FMMI will be
     nearing the end of its useful life. SAP has notified USDA of its plans for major systems
     upgrades, and FMS has begun to analyze the impact of the changes. The guiding principles of
     FMS are:

        •   Eliminate custom-built products when possible, due to the cost of maintaining them;
        •   Increase the amount of automation when feasible, such as with automated testing tools
            and process robotics; and
        •   Change outdated processes where appropriate.

     With these principles in mind, and with careful planning for IT upgrades, USDA will keep pace
     with the constant advancements in technology.


     SUCCESSES DURING FISCAL YEAR (FY) 2018
        •   Implemented a new Automated Cash Reconciliation Worksheet System (ACRWS) that
            replaced obsolete technology and provided an enhanced automated cash reconciliation
            process for USDA;
                                                                                                  45
                                      SECTION I | MANAGEMENT’S DISCUSSION AND ANALYSIS




•   Implemented improvements to the Digital Accountability and Transparency Act
    (DATA) processing that streamlined the error correction process and significantly
    reduced the number of errors contained in File C (transaction-level financial
    information on agency procurements and awards). This reduced the time required for
    agencies to research File C errors and allowed USDA to report a better representation of
    USDA’s data to Treasury;
•   Conducted an in-depth analysis of the existing FMMI infrastructure and identified areas
    for consolidation of data or decommissioning of obsolete servers. This resulted in
    17 servers being decommissioned and a savings in excess of $350,000 per year;
•   Successfully migrated the following to the cloud: the Financial Statements Data
    Warehouse (FSDW), Reconciliation of Intra-Governmental Payment and Collection
    (IPAC) Transactions for Agriculture (RITA), and Automated Cash Reconciliation
    Worksheet System (ACRWS). Due to the age of the previous infrastructure, this
    migration provided a technical refresh of the hardware, software, and network
    components that will enable USDA to improve the stability, security, and efficiency of
    the systems. In addition, this migration is in alignment with USDA Departmental
    Regulation (DR) on cloud computing (DR 3650-001) and will serve to consolidate all
    FMS applications into a single Cloud Hosting environment;
•   Successfully migrated the FMMI lower-level environments to a new data center in the
    cloud. The new data center has a top-tier data center certification with greater fault
    tolerance and redundancy, which will serve to improve the stability and availability of
    USDA systems;
•   Implemented Attunity’s Gold Client software, which will result in a significant
    reduction in the amount of time and manual effort required to perform data refreshes to
    mirror production in the lower FMMI test environments. Gold Client will allow the
    testers to execute test scenarios with production-like data, which will result in increased
    accuracy of test results and reliability of software deployed to production;
•   Upgraded Solution Manager, a configuration management tool, to version 7.2, which
    focused on the risk of identified vulnerabilities not being addressed by the vendor, as the
    product was reaching end-of-life at the end of 2017. In addition, this implementation
    resulted in more robust SAP early watch reports that issued notifications to the Basis team
    of possible areas of concern or improvement to the system configuration for action prior
    to problems occurring;
•   Provided functional, technical, and testing support for the implementation of
    approximately 200 software changes that either enhanced the functionality of FMMI or
    corrected issues with the software. These changes impacted all functional areas of FMMI
    to improve usability and accuracy, and to reduce the number of errors encountered;
46
     USDA AGENCY FINANCIAL REPORT | 2018




        •   Corrected issues with the Work in Progress (WIP) process in the Corporate Property
            Automated Information System (CPAIS) Personal Property. This resolved an audit
            finding identified by the Office of Inspector General (OIG);
        •   Corrected issues with the FMMI outbound interface to CPAIS Personal Property, which
            was responsible for a multitude of receipts missing from CPAIS Personal Property.
            This issue was identified by the Office of Contracting and Procurement (OCP) as the
            highest priority issue. These corrections improve the accuracy of the property data
            stored and reported in CPAIS Personal Property;
        •   Completed the fiscal year (FY) 2017 Federal Real Property Profile (FRPP)
            reporting/data submission to the General Services Administration (GSA) for USDA.
            The data submission to GSA complied with the FY 2017 FRPP changes and satisfied
            the mandatory reporting requirement;
        •   Successfully exported data from the Management Information Tracking System (MITS)
            into Microsoft Access and developed reports in the required format to be used for data
            conversion in the new Governance, Risk, and Compliance (GRC) Archer system.
            The data conversion is necessary in order to have historical audit tracking information
            in the GRC Archer system;
        •   Executed an orderly transition from the U.S. Department of Veterans Affairs involving
            personnel and contracts;
        •   Deployed 2,500 new grant agreements through the Natural Resources Conservation
            Service (NRCS) ezFedGrants, the Department’s grants management solution;
        •   Provided training to a few hundred new users on EzFedGrants;
        •   Performed planning requirements and design prototyping for Interagency Agreement
            (IAA) implementation into the ezFedGrants Enterprise;
        •   Began design and implementation of Forest Service ezFedGrants pilot;
        •   Provided approximately 500 interactions per month through Grants Helpdesk Support;
        •   Completed ezFedGrants Pega assessment and began design and implementation of
            enhancements;
        •   Began implementation of ezFedGrants enhancements for the Animal and Plant Health
            Inspection Service (APHIS);
        •   Implemented formula grants and other functionality for the National Institute of Food
            and Agriculture (NIFA); and
                                                                                                    47
                                         SECTION I | MANAGEMENT’S DISCUSSION AND ANALYSIS




   •   Conducted Marketing and Customer Outreach through:
           o Association of Government Accountants (AGA);
           o National Extension and Research Administrative Officers Conference
             (NERAOC);
           o USDA’s Financial Management Training (FMT); and
           o PegaWorld (ezFedGrants external portal).

In summary, USDA has re-focused its efforts on internal development, taken steps to stay
technically relevant, and worked to reduce costs by taking advantage of automation opportunities.
48
     USDA AGENCY FINANCIAL REPORT | 2018




     Other Management Information, Initiatives,
     and Issues:

     DIGITAL ACCOUNTABILITY AND TRANSPARENCY ACT (DATA ACT)
     In May 2014, the Digital Accountability and Transparency (DATA) Act was enacted. This Act
     extends Federal Funding Accountability and Transparency Act (FFATA) reporting by adding
     additional data elements to the previous FFATA reporting on financial assistance and
     procurements. The U.S. Department of Treasury (Treasury) and the Office of Management and
     Budget (OMB) are responsible for implementing the Act. Federal agencies are required to
     produce seven files as listed below and report them to the Treasury Broker (Broker) quarterly:

     EXHIBIT 20: Government-Wide Requirements

     File                       Description               Submission                   Frequency
     File A—Appropriations      Summary financial         Agency submits to Data       Quarterly
     Account data               data                      Broker
     File B—Object Class/       Summary financial         Agency submits to Data       Quarterly
     Program Activity data      data                      Broker
     File C—Award Financial     Detailed financial/       Agency submits to Data       Quarterly
     data                       award data                Broker
     File D1—Procurement        Detailed procurement      External—                    Daily/Pulled
     data                       award data                (FPDS to Data Broker)        Quarterly11
     File D2—Financial          Detailed assistance       External—                    Semi-Monthly/
     Assistance data            award data                (FABS to Data Broker)        Pulled Quarterly12
     File E—Additional          Awardee/                  External—                    Quarterly
     Awardee Attributes         recipient data            (SAM.gov to Data Broker)
     File F—Sub-award           Sub-award data            External—                    Quarterly
     Attributes                                           (FSRS to Data Broker)




     11 USDA’s file D1 data is reported daily to FPDS-NG. It is pulled into the Treasury Broker
     quarterly as part of USDA’s quarterly DATA Act submission.
     12 USDA’s file D2 data is reported semi-monthly to USAspending.gov. It is pulled into the

     Treasury Broker quarterly as part of USDA’s quarterly DATA Act submission.
                                                                                                49
                                        SECTION I | MANAGEMENT’S DISCUSSION AND ANALYSIS




Government-wide Implementation
OMB and Treasury issue guidance for implementation of the DATA Act. The latest OMB
guidance is OMB Memorandum 18-16. This guidance instructs Federal Agencies to develop a
DATA Act Data Quality Plan for implementation in fiscal year (FY) 2019. In the last two
quarters of FY 2018, USDA staff worked on several Chief Financial Officers Council
committees to develop a DATA Act Playbook and a Data Quality Plan template that USDA
will leverage to comply with the OMB Memorandum.

Treasury maintains data elements and guidelines for reporting in the DATA Act Information
Model Schema (DAIMS). Version 1.2 of DAIMS is being used for FY 2018. DAIMS 1.3 will
be implemented in FY 2019. USDA is fully compliant with DAIMS 1.2 and is set to be
compliant with DAIMS 1.3 in FY 2019.


USDA Implementation
The Office of the Chief Financial Officer (OCFO) oversees the DATA Act implementation for
USDA. OCFO’s Financial Management Services (FMS) manages a data repository for the
Department to collect and report all DATA Act elements to the Treasury Broker for publication
on the USAspending.gov Web site. This data repository contains the data necessary to create
Files A-C.

USDA reports the following information in compliance with the DATA Act:

   •   Files A-C: The data for Files A-C come from three sources:
          o Data is pulled from the Financial Management Modernization Initiative (FMMI)
            General Ledger (GL).
          o The Rural Development (RD) and Farm Service Agencies (FSA) use separate
            GLs (RD and FSA also have FMMI activity) and submit file A-C data to the
            repository.
          o USDA is also a Financial Shared Service Provider, servicing 23 small
            government agency clients. All USDA and customer data are held in the FMMI
            repository.
        USDA submitted third-quarter 2018 data to the USAspending.gov Beta Web site in
        August 2018. USDA reported all Treasury symbols in File A as being error-free.
        The Department was 99.9 percent accurate in reporting on Budget Object
        Classification Codes and Program Activity codes in File B. The awards financial
        attributes data in File C was 77 percent accurate, a significant improvement over the
        prior quarters.
50
     USDA AGENCY FINANCIAL REPORT | 2018




        •   File D1: Data is submitted as frequently as daily to Federal Procurement Data System
            (FPDS). The Treasury Broker pulls in all data submitted to FPDS at quarter end for
            reconciliation purposes.

        •   File D2: Data is submitted from Agencies and components to USAspending.gov for
            posting. Error records are sent back to the Agencies for correction and resubmission.
            For third-quarter 2018, Files D1 and D2 reported contracts and Federal financial
            assistance data, respectively. As of June 30, 2018, USDA reported 45,982 procurement
            award transactions with a dollar value of $3.5 billion and 452,406 Federal financial
            assistance award transactions with a dollar value of $74.6 billion.

        •   Files E and F: Data is pulled by the Treasury broker quarterly; this data is not
            maintained in Agency systems.
     Fourth-quarter data will be reported in November 2018. USDA is focused on improving data
     quality. In the fourth quarter, USDA implemented warnings to assist USDA Agencies and Staff
     Offices to report financial assistance and procurement award identification numbers (IDs) to its
     GLs. These warnings are designed to prompt users to ensure Award IDs are captured. Missing
     Award IDs represent a significant error problem in File C. As Agencies address transactions and
     associate the correct Award ID or mark the transaction as not DATA Act reportable, matching
     transactions in the GLs to the Awards reported in files D1 and D2 will improve. OCFO began
     training agencies in August 2017 and will conduct several such trainings to assist the agencies
     with this task. The level of effort and research required to address transactions without Award
     IDs, or marked as not reportable, will take several reporting quarters to complete.

     At least four USDA agencies are using the Department’s grants system, which will improve
     reporting capabilities and will provide standardization for many grants programs. More
     agencies are exploring migration to the Department’s grants solution, which may potentially
     yield even more efficiencies and standardization.

     OCFO also works with the Office of Contracting and Procurement (OCP) to ensure that
     procurement reporting will adhere to DATA Act requirements. Together, OCFO and OCP are
     reviewing procurement reporting policies and procedures to ensure that data is reported and
     certified by the agencies to be both timely and accurate in the Department’s Integrated
     Acquisition System (IAS), as well as other procurement systems used by the Forest Service
     and FSA.
                                                                                                     51
                                          SECTION I | MANAGEMENT’S DISCUSSION AND ANALYSIS




LIMITATIONS OF FINANCIAL STATEMENT
The principal financial statements are prepared to report the financial position and results of
operations of the reporting entity, pursuant to the requirements of 31 United States Code (U.S.C.)
3515(b). The statements are prepared from the books and records of the entity in accordance with
Federal Generally Accepted Accounting Principles (GAAP) and the formats prescribed by the
Office of Management and Budget (OMB). Reports used to monitor and control budgetary
resources are prepared from the same books and records. The financial statements should be read
with the realization that they are for a component of the U.S. Government.
52
     USDA AGENCY FINANCIAL REPORT | 2018




     Section II:
     Financial Information
                          Message from the Deputy Chief
                          Financial Officer
                           As Deputy Chief Financial Officer for the U.S. Department of Agriculture
                           (USDA), I am pleased to present our Agency Financial Report (AFR) for
                           fiscal year (FY) 2018. This report shows the progress we’ve made to
                           provide fiscally sound, cost-effective program delivery. We are
     accountable to the American taxpayer and strive for peak performance in all facets of our work.
     Through the collaborative efforts of USDA managers, employees, business partners, and
     stakeholders, we have made significant strides in advancing the Department’s goal of ensuring
     USDA programs are delivered efficiently, effectively, with integrity and a focus on customer
     service. The mission of the Office of the Chief Financial Officer (OCFO), is to provide
     world-class financial management policy, systems and services so our customers can focus on
     their core mission.

     USDA made significant progress in FY 2018. Some of our accomplishments include:

        •   After two years of presenting a Balance Sheet only opinion; USDA achieved a full
            scope unmodified audit opinion on all principal statements.
        •   Made significant improvement in audit recommendation closures. USDA agencies
            closed 44 audits, representing 321 recommendations during FY 2018. These
            recommendations represent a 28% increase over the number closed in FY 2017.
        •   Despite challenges in the early part of FY 2017, USDA has been compliant with the
            DATA Act since the third quarter of FY 2017 and each quarter thereafter including the
            quarter ending September 30, 2018.
        •   USDA is compliant with the GONE Act and achieved a 50% reduction of aged grants
            and cooperative agreements against the FY 2017 GONE Act baseline.
        •   USDA agencies implemented innovative processes such as Robotics Process Automation
            and PayPal payments to improve operational efficiency and customer experience.
                                                                                                  53
                                                           SECTION II | FINANCIAL INFORMATION




   •   USDA was awarded $15 million from the Technology Modernization Fund at GSA for
       Information Technology (IT) modernization. This was the result of the enacted
       Modernizing Government Technology (MGT) Act which has provided an exceptional
       opportunity to update the Department’s legacy IT infrastructure. OCFO's Working
       Capital fund will be tracking these expenditures as we work in collaboration with the
       Chief Information Officer to modernize IT.
   •   The Food Nutrition Service moved USDA into the top five Federal entities utilizing the
       Treasury Offset Program; recovering an unprecedented $207 million in delinquent
       Supplemental Nutrition Assistance Program (SNAP) recipient debt in FY 2018 and
       more than $2.2 billion since the inception of the program.

FY 2018 at USDA can best be described as the “Year of Renewed Focus.” Throughout this year,
we have taken a hard look at our operations and have made rigorous efforts to drive enterprise
solutions, eliminate redundancies, modernize information technology and centralize
administrative functions under Business Center models. Through these efforts, we are making
USDA the most efficient, effective, and customer-focused department in the federal government.

We are proud of our hard-working employees’ accomplishments at USDA. We remain
steadfast and committed to making greater financial management improvements in FY 2019.
At every level, we are committed to be a proactive, cost-effective organization that is
transparent and accountable for the programs we deliver. Ultimately, our efforts will result in
setting the highest achievable standard of excellence in managing taxpayers’ dollars.




Lynn M. Moaney
Deputy Chief Financial Officer

November 15, 2018
54
     USDA AGENCY FINANCIAL REPORT | 2018




     Independent Auditors Report




                                  Awaiting Content
                                                                  55
                             SECTION II | FINANCIAL INFORMATION




Agency Response to Auditors Report




                Awaiting Content
56
     USDA AGENCY FINANCIAL REPORT | 2018




     Consolidated Financial Statements

     CONSOLIDATED BALANCE SHEET
     As of September 30, 2018 ($ in millions)
                                                                                         2018
     Assets (Note 2):
     Intragovernmental:
         Fund Balance with Treasury (Note 3)                                         $   132,350
         Investments (Note 5)                                                                228
         Accounts Receivable, Net (Note 6)                                                    78
         Other (Note 11)                                                                       9
       Total Intragovernmental                                                           132,665

       Cash and Other Monetary Assets (Note 4)                                               236
       Investments (Note 5)                                                                    3
       Accounts Receivable, Net (Note 6)                                                   1,114
       Direct Loan and Loan Guarantees, Net (Note 7)                                     101,947
       Inventory and Related Property, Net (Note 8)                                           46
       General Property, Plant, and Equipment, Net (Note 9)                                2,224
       Other (Note 11)                                                                       539

     Total Assets                                                                        238,774

       Stewardship PP&E (Note 10)

     Liabilities (Note 12):
       Intragovernmental:
         Accounts Payable                                                                      3
         Debt (Note 13)                                                                  119,423
         Other (Note 15)                                                                   9,910
       Total Intragovernmental                                                           129,336

       Accounts Payable                                                                    1,854
       Loan Guarantee Liability (Note 7)                                                     502
       Federal Employee and Veteran Benefits                                                 892
       Environmental and Disposal Liabilities (Note 14)                                      200
       Benefits Due and Payable                                                            5,074
       Other (Notes 15 & 16)                                                              23,258
       Total Liabilities                                                                 161,116

       Commitments and Contingencies (Note 17)

     Net Position:
      Unexpended Appropriations - Funds From Dedicated Collections (Note 18)                 168
      Unexpended Appropriations - All Other Funds                                         65,238
      Cumulative Results of Operations - Funds From Dedicated Collections(Note 18)         2,243
      Cumulative Results of Operations - All Other Funds                                  10,009

       Total Net Position - Funds From Dedicated Collections                               2,411
       Total Net Position - All Other Funds                                               75,247

       Total Net Position                                                                 77,658

       Total Liabilities and Net Position                                                238,774



     The accompanying notes are an integral part of these statements.
                                                                                               57
                                                          SECTION II | FINANCIAL INFORMATION




CONSOLIDATED STATEMENT OF NET COST
For the Year Ended September 30, 2018 ($ in millions)
                                                                           2018



  Rural Development:
   Gross Costs                                                       $             6,987
   Less: Earned Revenue                                                            3,831
    Net Costs                                                                      3,156

  Food Safety:
   Gross Costs                                                                     1,342
   Less: Earned Revenue                                                              242
    Net Costs                                                                      1,100

  Marketing and Regulatory Programs:
   Gross Costs                                                                     2,660
   Less: Earned Revenue                                                            1,204
    Net Costs                                                                      1,456

  Natural Resources and Environment:
   Gross Costs                                                                     7,871
   Less: Earned Revenue                                                              852
    Net Costs                                                                      7,019

  Food, Nutrition, and Consumer Services:
   Gross Costs                                                                    98,033
   Less: Earned Revenue                                                               57
    Net Costs                                                                     97,976

  Farm Production and Conservation:
   Gross Costs                                                                    20,512
   Less: Earned Revenue                                                            1,080
    Net Costs                                                                     19,432

  Trade and Foreign Agricultural Affairs:
   Gross Costs                                                                      470
   Less: Earned Revenue                                                              59
    Net Costs                                                                       411

  Research, Education, and Economics:
   Gross Costs                                                                     3,000
   Less: Earned Revenue                                                              146
    Net Costs                                                                      2,854

  Departmental Management:
   Gross Costs                                                                     1,333
   Less: Earned Revenue                                                              276
    Net Costs                                                                      1,057

  Total Gross Costs                                                           142,208
  Less: Total Earned Revenue                                                    7,747

  Net Cost of Operations (Note 19)                                   $        134,461


The accompanying notes are an integral part of these statements.
58
     USDA AGENCY FINANCIAL REPORT | 2018




     CONSOLIDATED STATEMENT OF CHANGES IN NET POSITION
     For the Year Ended September 30, 2018 ($ in millions)
                                                              Funds From
                                                               Dedicated
                                                              Collections         All Other                         Consolidated
                                                               (Note 18)           Funds         Eliminations          Total
     Unexpended Appropriations:
      Beginning Balances                                      $       156     $        55,947    $              -   $     56,103

      Budgetary Financing Sources:
        Appropriations Received                                         12            148,936                   -        148,948
        Appropriations Transferred In (Out)                              -                  1                   -              1
        Other Adjustments                                                -             (8,764)                  -         (8,764)
        Appropriations Used                                              -           (130,882)                  -       (130,882)
      Total Budgetary Financing Sources                                 12              9,291                   -          9,303

        Total Unexpended Appropriations                               168              65,238                   -         65,406

     Cumulative Results of Operations:
       Beginning Balances                                            2,270              2,989                   -          5,259

     Budgetary Financing Sources:
          Other Adjustments                                             -               (285)               -               (285)
          Appropriations Used                                           -            130,882                -            130,882
          Non-exchange Revenue                                          -                  8                -                  8
          Donations and Forfeitures of Cash and Equivalents             1                  1                -                  2
          Transfers In (Out) without Reimbursement                    513             10,345            1,220             12,078

     Other Financing Sources (Non-Exchange):
          Transfers In (Out) without Reimbursement                       -              1,219           (1,220)                (1)
          Imputed Financing                                             54              3,288           (2,355)               987
          Other                                                         33             (2,250)               -             (2,217)

      Total Financing Sources                                          601            143,208           (2,355)          141,454
      Net Cost of Operations                                          (628)          (136,188)           2,355          (134,461)
      Net Change                                                       (27)             7,020                -             6,993

      Cumulative Results of Operations                               2,243             10,009                   -         12,252

      Net Position                                            $      2,411    $        75,247    $              -   $     77,658




     The accompanying notes are an integral part of these statements.
                                                                                                                          59
                                                                               SECTION II | FINANCIAL INFORMATION




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                                      60,455           3,470
Appropriations (discretionary and mandatory)                                                  143,914               -
Borrowing authority (discretionary and mandatory)                                               9,888          17,208
Spending authority from offsetting collections (discretionary and mandatory)                    9,838           5,567
Total budgetary resources                                                                     224,095          26,245


Status of Budgetary Resources:
New obligations and upward adjustments (total) (Note 23)                                      157,385          18,759
Unobligated balance, end of year:
Apportioned, unexpired accounts                                                                20,869           6,547
Exempt from apportionment, unexpired accounts                                                       1               -
Unapportioned, unexpired accounts                                                              12,845             939
Unexpired unobligated balance, end of year                                                     33,715           7,486
Expired unobligated balance, end of year                                                       32,995               -
Total unobligated balance, end of year                                                         66,710           7,486
Total budgetary resources                                                                     224,095          26,245

Outlays, Net:
Outlays, net (discretionary and mandatory)                                                    139,567            3,705
Distributed offsetting receipts (-)                                                              (962)          (1,892)
Agency outlays, net (discretionary and mandatory)                                      $      138,605    $       1,813




The accompanying notes are an integral part of these statements.
60
     USDA AGENCY FINANCIAL REPORT | 2018




     Notes to the Consolidated Financial Statements
     As of September 30, 2018 ($ in millions)


     NOTE 1: SIGNIFICANT ACCOUNTING POLICIES

     Organization
     USDA provides a wide variety of services in the United States and around the world. USDA is
     organized into eight distinct mission areas and their agencies that execute these missions. See
     MD&A for listing of the missions and the agencies within each mission.


     Consolidation
     The financial statements consolidate all of the agencies’ results. The effects of intradepartmental
     activity and balances are eliminated, except for the Statement of Budgetary Resources (SBR)
     which is presented on a combined basis. The financial statements are prepared in accordance
     with generally accepted accounting principles for the Federal Government, except for the
     presentation of comparative data.


     Use of Estimates
     The preparation of financial statements requires management to make estimates and assumptions
     that affect the amounts reported in the financial statements and accompanying notes. Actual
     results could differ from those estimates.


     Revenue and Other Financing Sources
     Revenue from exchange transactions is recognized when persuasive evidence of an arrangement
     exists, delivery has occurred or services have been rendered, sales price is fixed or determinable,
     and collection is reasonably assured. In certain cases, the prices charged by the Department are
     set by law or regulation, which for program and other reasons may not represent full cost. Prices
     set for products and services offered through the Department’s working capital funds are
     intended to recover the full costs incurred by these activities. Revenue from non-exchange
     transactions is recognized when a specifically identifiable, legally enforceable claim to resources
     arises, to the extent that collection is probable and the amount is reasonably estimable.
     Appropriations are recognized as a financing source when used. An imputed financing source is
     recognized for costs subsidized by other Government entities.
                                                                                                        61
                                                             SECTION II | FINANCIAL INFORMATION




Investments
The Department is authorized to invest certain funds in excess of its immediate needs in
Treasury securities. Investments in non-marketable par value Treasury securities are classified as
held to maturity and are carried at cost. Investments in market-based Treasury securities are
classified as held to maturity and are carried at amortized cost. The amortized cost of securities is
based on the purchase price adjusted for amortization of premiums and accretion of discounts
using the straight-line method over the term of the securities.


Accounts Receivable
Accounts receivable are reduced to net realizable value by an allowance for uncollectible
accounts. The adequacy of the allowance is determined based on past experience and age of
outstanding balances.


Direct Loans and Loan Guarantees
Direct loans obligated and loan guarantees committed after FY 1991 are reported based on the
present value of the net cash-flows estimated over the life of the loan or guarantee.
The difference between the outstanding principal of the loans 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. The subsidy
expense for direct or guaranteed loans disbursed during the year is the present value of estimated
net cash outflows for those loans or guarantees. A subsidy expense also is recognized for
modifications made during the year to loans and guarantees outstanding and for reestimates
made as of the end of the year to the subsidy allowances or loan guarantee liability for loans and
guarantees outstanding.

Direct loans obligated and loan guarantees committed before FY 1992 are valued using either the
present-value or net realizable methods. Under the present-value method, the outstanding
principal of direct loans is reduced by an allowance equal to the difference between the
outstanding principal and the present value of the expected net cash flows. The liability for loan
guarantees is the present value of expected net cash outflows due to the loan guarantees. Under
the net realizable value method, the average rate of the last five years of write-offs is used.


Inventories and Related Property
Inventories to be consumed in the production of goods for sale or in the provision of services for
a fee are valued on the basis of historical cost using a first-in, first-out method. Commodities are
valued at the lower of cost or net realizable value using a weighted average method.
62
     USDA AGENCY FINANCIAL REPORT | 2018




     Property, Plant and Equipment
     Property, Plant and Equipment (PP&E) are stated at cost less accumulated depreciation.

     Depreciation is determined using the straight-line method over the estimated useful lives of the
     assets. Useful lives for PP&E are disclosed in Note 9. Capitalization thresholds for personal
     property and real property are $25,000 and $100,000, respectively, for internal use software.
     There are no restrictions on the use or convertibility of PP&E.


     Pension and Other Retirement Benefits
     Pension and other retirement benefits (primarily retirement health care benefits) expense is
     recognized at the time the employees’ services are rendered. The expense is equal to the actuarial
     present value of benefits attributed by the pension plan’s benefit formula, less the amount
     contributed by the employees. An imputed cost is recognized for the difference between the
     expense and contributions made by and for employees.


     Other Post-Employment Benefits
     Other post-employment benefits expense for former or inactive (but not retired) employees is
     recognized when a future outflow or other sacrifice of resources is probable and measurable on
     the basis of events occurring on or before the reporting date. The liability for long-term other
     post-employment benefits is the present value of future payments.


     Funds from Dedicated Collections
     In accordance with Statement of Federal Financial Accounting Standards (SFFAS) 43, Funds
     from Dedicated Collections, USDA has reported the funds from dedicated collections for which
     it has program management responsibility when the following three criteria are met: 1) a statute
     committing the Federal Government to use specifically identified revenues and/or other
     financing sources that are originally provided to the Federal Government by a non-Federal
     source only for designated activities, benefits or purposes; 2) explicit authority for the fund to
     retain revenues and/or other financing sources not used in the current period for future use to
     finance the designated activities, benefits, or purposes; and 3) a requirement to account for and
     report on the receipt, use, and retention of the revenues and/or other financing sources that
     distinguishes the fund from the Federal Government’s general revenues.


     Contingencies
     Contingent liabilities are recognized 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.
                                                                                                         63
                                                              SECTION II | FINANCIAL INFORMATION



Allocation Transfers
USDA is a party to allocation transfers with other Federal agencies as both a transferring (parent)
entity and/or a receiving (child) entity. Allocation transfers are legal delegations by one department
of its authority to obligate budget authority and outlay funds to another department. A separate
fund account (allocation account) is created in the U.S. Treasury as a subset of the parent fund
account for tracking and reporting purposes. 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.

USDA allocates funds, as the parent, to a number of U.S. Government agencies, including:
Department of the Interior, Department of Defense, Department of Housing and Urban
Development, Agency for International Development and the Small Business Administration.
USDA receives allocation transfers, as the child, from the Department of Labor, Department of
Transportation, Department of the Interior, Agency for International Development, Economic
Development Administration, Appalachian Regional Commission and the Delta Regional
Authority.


Inter-Entity Costs
Each entity’s full cost should incorporate the full cost of goods and services that it receives from
other entities. The entity providing the goods or services has the responsibility to provide the
receiving entity with information on the full cost of such goods or services either through billing
or other advice.

Recognition of inter-entity costs that are not fully reimbursed is limited to material items that:
1) are significant to the receiving entity, 2) form an integral or necessary part of the receiving
entity’s output, and 3) can be identified or matched to the receiving entity with reasonable
precision. Broad and general support services provided by an entity to all or most other entities
should not be recognized unless such services form a vital and integral part of the operations or
output of the receiving entity.


Fiduciary Activities
Fiduciary activities are the collection or receipt, and the management, protection, accounting,
investment, and disposition by the Federal Government of cash or other assets in which
non-Federal individuals or entities have an ownership interest that the Federal Government must
uphold. Fiduciary assets are not assets of the Federal Government and are not recognized on the
balance sheet.


Asbestos-Related Cleanup Costs
Effective October 1, 2012, Technical Bulletin (TB) 2006-1, Recognition and Measurement of
Asbestos-Related Cleanup Costs, as amended, requires an estimate of both friable and
64
     USDA AGENCY FINANCIAL REPORT | 2018



     non-friable asbestos-related cleanup costs; recognition of a liability and related expense for those
     costs that are both probable and reasonably estimable; and disclosure of information related to
     friable and non-friable asbestos-related cleanup costs that are probable but not reasonably
     estimable in a note to the financial statements.


     Deferred Maintenance and Repairs
     Deferred maintenance and repairs are such that were not performed when they should have been
     or were scheduled to be and which are put off or delayed for a future period. Maintenance and
     repairs are activities directed toward keeping fixed assets in an acceptable condition. Activities
     include preventive maintenance; replacement of parts, systems, or components; and other
     activities needed to preserve or maintain the asset. Maintenance and repairs, as distinguished
     from capital improvements, exclude activities directed towards expanding the capacity of an
     asset or otherwise upgrading it to serve needs different from, or significantly greater than, its
     current use. SFFAS 42, Deferred Maintenance and Repairs: Amending Statements of Federal
     Financial Accounting Standards 6, 14, 29 and 32, became effective October 1, 2014. Estimates
     for deferred maintenance and repairs are disclosed in required supplementary information.


     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 FY 2019, but early implementation is permitted. USDA chose to adopt the new format for
     FY 2018 presented in Note 30.
                                                                                                             65
                                                                        SECTION II | FINANCIAL INFORMATION




NOTE 2: NON-ENTITY ASSETS
Non-entity assets include proceeds from the sale of timber payable to the U.S. Treasury, timber
contract performance bonds, employer contributions and payroll taxes withheld for agencies
serviced by the National Finance Center, rural housing escrow, interest, fines, and penalties.

                                                                                 FY 2018
Intragovernmental:
  Fund balance with Treasury                                                $              277
  Accounts Receivable                                                                      186
Subtotal Intragovernmental                                                                 463

With the Public:
  Cash and other monetary assets                                                           46
  Accounts receivable                                                                      149
Subtotal With the Public                                                                   195

Total non-entity assets                                                                    658

Total entity assets                                                                  238,116

Total Assets                                                                $        238,774




NOTE 3: FUND BALANCE WITH TREASURY
Borrowing Authority not yet Converted to Fund Balance represents unobligated and obligated
amounts recorded at year-end that will be funded by future borrowings. Non-Budgetary Fund
Balance with Treasury includes special fund receipt accounts, and clearing and suspense account
balances awaiting disposition or reclassification.

                                                                                            FY 2018
Status of Fund Balance with Treasury:
Unobligated Balance:
  Available                                                                                       27,417
  Unavailable                                                                                     46,823
Obligated Balance not yet Disbursed                                                               78,722
Borrowing Authority not yet Converted to Fund Balance                                            (44,123)
Authority Granted Prior to Credit Reform for Rental Assistance Grants                                 (33)
Non-Budgetary Fund Balance with Treasury                                                          23,544
Total                                                                                  $         132,350
66
     USDA AGENCY FINANCIAL REPORT | 2018




     NOTE 4: CASH AND OTHER MONETARY ASSETS
     For FY 2018, cash mostly consists of Federal crop insurance escrow of $119 million, deposits in
     transit of $71 million and single family housing escrow of $46 million

                                                                                                                                 FY 2018


     Cash                                                                                                                $                   236




     NOTE 5: INVESTMENTS
     FY 2018                                                                  Amortized                                                            Market
                              Amortization                                    (Premium)                  Interest            Investments,           Value
                                Method                   Cost                 Discount                  Receivable               Net              Disclosure
     Intragovernmental:
        Non-marketable
         Par value                               $                -       $               -         $                -       $           -   $                -
         Market-based            Straight Line                  227                       -                          1                 228                  228
     Total                                       $              227       $               -         $                1       $         228    $             228


     With the Public:
       AARC                                      $               3        $               -         $                -       $          3    $                 3
     Total                                       $               3        $               -         $                -       $          3    $                 3




     NOTE 6: ACCOUNTS RECEIVABLE, NET
      FY 2018
                                     Accounts                          Allowance for                            Accounts
                                    Receivable,                         Uncollectible                          Receivable,
                                      Gross                               Accounts                                Net
     Intragovernmental             $         78                       $               -                       $         78
     With the Public                      1,170                                    (56)                              1,114
     Total                         $      1,248                       $            (56)                       $      1,192

     Criminal Restitution          $                 4                $                       (4)             $                   -
                                                                                                      67
                                                            SECTION II | FINANCIAL INFORMATION




NOTE 7: DIRECT LOANS AND GUARANTEES, NON-FEDERAL BORROWERS

Direct Loans
Direct loan obligations or loan guarantee commitments made pre-1992 and the resulting direct
loans or loan guarantees are reported at either net present-value or net realizable value.

Direct loan obligations or loan guarantee commitments made post-1991 and the Federal Credit
Reform Act of 1990 as amended, govern the resulting direct loan or loan guarantees. The Act
requires agencies to estimate the cost of direct loans and loan guarantees at present value for the
budget. Additionally, 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 loans and loan guarantees are recognized as a cost in the year the loan or loan guarantee is
disbursed. The net present value of loans or defaulted guaranteed loans receivable at any point in
time is the amount of the gross loan or defaulted guaranteed loans receivable less the present
value of the subsidy at that time.

The net present value of Direct Loan and Loan Guarantees, Net is not necessarily representative of
the proceeds that might be expected if these loans were sold on the open market.

Direct Loan and Loan Guarantees, Net at the end of FY 2018 was $101,947 million. Loans
exempt from the Federal Credit Reform Act of 1990 represent $475 million of the total. Table 1
illustrates the overall composition of the Department’s credit program balance sheet portfolio by
mission area and credit program for FY 2018.

Beginning in FY 2012, advance payments surpassed the loans receivable balance in the Rural
Utilities Liquidating Fund. This was due to an increased volume in advance payments and a
normal reduction to the Liquidating Portfolio. The Omnibus Budget Act of 1987, section 313,
authorized the accumulation of Cushion of Credit (CoC) in the Revolving Fund. Borrowers may
make advance payments up to their liquidating and financing total Rural Utilities Service debt.
To accurately represent the value of Electric and Telecommunication assets, RD reports the CoC
amounts as a separate line item in Table 1.

During the fiscal year, the gross outstanding balance of the direct loans obligated post-1991 is
adjusted by the value of the subsidy cost allowance held against those loans. Current year
subsidy expense, modifications and reestimates all contribute to the change of the subsidy cost
allowance throughout the year. The subsidy cost allowance was $4,102 million during FY 2018.
Table 2 shows the subsidy cost allowance balances for FY 2018.

Total direct loan subsidy expense is a combination of subsidy expense for new direct loans
disbursed in the current year, modifications to existing loans, and interest rate and technical
reestimates to existing loans. Total direct loan subsidy expense in FY 2018 was $112 million.
Table 3 illustrates the breakdown of total subsidy expense for FY 2018 by program.
68
     USDA AGENCY FINANCIAL REPORT | 2018



     Direct loan volume was $9,221 million in FY 2018. Volume distribution between mission area
     and program is shown in Table 4.


     Guaranteed Loans
     Guaranteed loans are administered in coordination with conventional agricultural lenders for up
     to 95 percent of the principal loan amount. Under the guaranteed loan programs, the lender is
     responsible for servicing the borrower’s account for the life of the loan. The Department,
     however, is responsible for ensuring borrowers meet certain qualifying criteria to be eligible and
     monitoring the lender’s servicing activities. Borrowers interested in guaranteed loans must apply
     to a conventional lender, which then arranges for the guarantee with a Department agency.
     Estimated losses on loan and foreign credit guarantees are reported at net present value as Loan
     Guarantee Liability. Defaulted guaranteed loans are reported at net present value as Loans
     Receivable and Related Foreclosed Property, Net.

     Guaranteed loans outstanding at the end of FY 2018 were $150,891 million in outstanding
     principal and $134,691 million in outstanding principal guaranteed. Table 5 shows the
     outstanding balances by credit program.

     During the fiscal year, the value of the guaranteed loans is adjusted by the value of the loan
     guarantee liability held against those loans. Current year subsidy expense, modification, and
     reestimates all contribute to the change of the loan guarantee liability through the year. The loan
     guarantee liability is a combination of the liability for losses on pre-1992 guarantees and
     post-1991 guarantees. Table 6 shows that total liability was $502 million during FY 2018.
     Table 7 shows the total loan guarantee liability.

     Total guaranteed loan subsidy expense is a combination of subsidy expense for new guaranteed
     loans disbursed in the current year, modifications to existing loans, and interest rate and technical
     reestimates to existing loans. Total guaranteed loan subsidy expense in FY 2018 was negative
     $160 million. Table 8 illustrates the breakdown of total subsidy expense for FY 2018 by program.

     Guaranteed loan volume was $24,758 million in FY 2018. Volume distribution between mission
     area and program is shown in Table 9.


     Administrative Expenses
     Consistent with the Federal Credit Reform Act of 1990, as amended, subsidy cash flows exclude
     direct Federal administrative expenses. Administrative expenses for FY 2018 are shown in
     Table 10.


     Subsidy Rates
     Subsidy rates are used to compute each year’s subsidy expenses. The subsidy rates disclosed in
     Table 11 and Table 12 pertain only to the FY 2018 cohorts. These rates cannot be applied to the
                                                                                                      69
                                                            SECTION II | FINANCIAL INFORMATION



direct and guaranteed loans disbursed during the current reporting year to yield the subsidy
expense. The subsidy expense for new loans reported in the current year could result from
disbursements of loans from both current year cohorts and prior-year cohorts. The subsidy
expense reported in the current year also includes reestimates.


Credit Program Discussion and Descriptions
The Department offers direct and guaranteed loans through credit programs in the FPAC mission
area through the FSA and the CCC, and in the RD mission area.


Farm Production and Conservation (FPAC) Mission Area
The FPAC mission area helps keep America’s farmers and ranchers in business as they face the
uncertainties of weather and markets. FPAC delivers commodity, credit, conservation, disaster,
and emergency assistance programs that help strengthen and stabilize the agricultural economy.
FPAC contributes to the vitality of the farm sector with programs that encourage the expansion
of export markets for U.S. agriculture.

FSA offers direct and guaranteed loans to farmers who are temporarily unable to obtain private,
commercial credit, and nonprofit entities that are engaged in the improvement of the nation’s
agricultural community. Often, FSA borrowers are beginning farmers who cannot qualify for
conventional loans due to insufficient financial resources. Additionally, the agency helps
established farmers who have suffered financial setbacks from natural disasters or have limited
resources to maintain profitable farming operations. FSA officials also provide borrowers with
supervision and credit counseling.

FSA’s mission is to provide supervised credit. FSA works with each borrower to identify specific
strengths and weaknesses in farm production and management, and provides alternatives to address
weaknesses. FSA is able to provide certain loan servicing options to assist borrowers whose
accounts are distressed or delinquent. These options include reamortization, restructuring, loan
deferral, lowering interest rates, acceptance of easements, and debt write-downs. The eventual goal
of FSA’s farm credit programs is to graduate its borrowers to commercial credit.

CCC’s foreign programs provide economic stimulus to both the U.S. and foreign markets, while
giving humanitarian assistance to the most disadvantaged people throughout the world. CCC
offers both credit guarantee and direct credit programs for buyers of U.S. exports, suppliers, and
sovereign countries in need of food assistance.

CCC permits debtor nations to reschedule debt under the aegis of the Paris Club. The Paris Club
is an informal group of official creditors whose role is to facilitate debt treatments based on an
internationally recognized set of rules and principles, facilitated by the senior officials of the
French Treasury. Its sole purpose is to assess, on a case-by-case basis, liquidity problems faced
by economically disadvantaged countries. The general premise of Paris Club is to provide
70
     USDA AGENCY FINANCIAL REPORT | 2018



     disadvantaged nations short-term liquidity relief to enable them to reestablish their credit
     worthiness. The U.S. Departments of State and Treasury lead the U.S. Delegation and
     negotiations for all U.S. Agencies.

     CCC also provides loans for Farm and Sugar Storage Facilities (FSFL). FSFL provides low
     interest financing for producers to build or upgrade farm storage and handling facilities. FSFL
     program regulations were amended during FY 2017 to add eligibility for portable storage
     structures, portable equipment, and storage and handling trucks, and to reduce the down payment
     and documentation requirements for a new “microloan” category of FSFLs up to $50,000.

     EXHIBIT 21: Farm Production and Conservation List of Programs

     Farm Service Agency                                  Commodity Credit Corporation
     Direct Farm Ownership                                General Sales Manager Export Credit Guarantee
     Direct Farm Operating                                Program
     Direct Emergency Loans                               Facility Program Guarantee
     Direct Indian Land Acquisition                       P.L. 480 Title 1 Program
     Direct Boll Weevil Eradication                       Direct Farm Storage Facility
     Direct Seed Loans to Producers                       Direct Sugar Storage Facilities
     Direct Conservation
     Guaranteed Farm Operating
     Subsidized/Unsubsidized
     Guaranteed Farm Ownership Unsubsidized
     Guaranteed Conservation
     American Recovery and Reinvestment Fund



     Rural Development (RD) Mission Area
     RD offers both direct and guaranteed loans administered through three agencies with unique
     missions to bring prosperity and opportunity to rural areas. Each year, RD programs create or
     preserve tens of thousands of rural jobs and provide or improve the quality of rural housing,
     business, and utilities. To leverage the impact of its programs, RD is working with state, local,
     and Indian tribal governments, as well as private and nonprofit organizations and user-owned
     cooperatives. RD is able to provide certain loan servicing options to borrowers whose accounts
     are distressed or delinquent. These options include reamortization, restructuring, loan deferral,
     lowering interest rate, acceptance of easements, and debt write-downs. The choice of servicing
     options depends on the loan program and the individual borrower.

     Rural Housing programs provide affordable, safe, and sanitary housing and essential community
     facilities to rural communities. They also help finance new or improved housing for moderate,
                                                                                                     71
                                                            SECTION II | FINANCIAL INFORMATION



low, and very low-income families each year. Other programs help rural communities to finance,
construct, enlarge or improve fire stations, libraries, hospitals and medical clinics, industrial
parks, and other community facilities.

Rural Business programs promote a dynamic business environment in rural America. These
programs work in partnership with the private sector and community-based organizations to
provide financial assistance and business planning. They also provide technical assistance to
rural businesses and cooperatives, conduct research into rural economic issues, and provide
cooperative educational materials to the public.

Rural Utilities programs help to improve the quality of life in rural America through a variety of
loan programs for electric energy, telecommunications, and water and environmental projects.
These programs leverage scarce Federal funds with private capital for investing in rural
infrastructure, technology, and development of water resources.

EXHIBIT 22: Rural Development List of Programs

Rural Housing Program            Rural Business Program           Rural Utilities Program
Single Family Housing Direct     Business and Industry Loan       Water and Waste Disposal
Loans (including Self-Help       Guarantees                       Direct Loans, Loan
Loans)                                                            Guarantees
                                 Intermediary Relending
Single Family Housing Loan       Program Loans                    Water and Waste Disposal
Guarantees                                                        Technical Assistance
                                 Rural Microentrepreneur
Single Family Housing Repair     Assistance Program               Rural Broadband Direct Loans
Loans                                                             and Loan Guarantees
                                 Rural Economic Development
Rural Rental Housing Direct      Loans                            Electric and
Loan                                                              Telecommunications Direct
                                 Rural Energy for America
                                                                  Loans and Loan Guarantees
Rural Rental Housing Loan        Program Loan Guarantees
Guarantees                                                        Distance Learning and
                                 Biorefinery Renewable
                                                                  Telemedicine Loans
Farm Labor Housing Loans         Chemical, and Bio-based
                                 Product Manufacturing
Community Facilities Direct
                                 Assistance Program Loan
Loans and Loan Guarantees
                                 Guarantees
72
     USDA AGENCY FINANCIAL REPORT | 2018



     Events and Changes Having a Significant and Measurable Effect on Subsidy Rates,
     Subsidy Expense, and Subsidy Reestimates

     The Federal Credit Reform Act of 1990, as amended, governs the proprietary and budgetary
     accounting treatment of direct and guaranteed loans. The long-term cost to the Government for
     direct loans or loan guarantees is referred to as “subsidy cost.” Under the Act, subsidy costs for
     loans obligated beginning in FY 1992 are recognized at the net present value of projected
     lifetime costs in the year the loan is disbursed. Subsidy costs are revalued annually. Components
     of subsidy include interest subsidies, defaults, fee offsets, and other cash flows.

     The annual reestimate process updates the budget assumptions with actual portfolio performance,
     interest rates, and updated estimates for future loan performance. The FY 2018 reestimate
     process resulted in a $227 million increase in the post-1991 estimated cost of the direct loan
     portfolio and a $180 million decrease in the post-1991 estimated cost of the guaranteed loan
     portfolio, primarily comprised of the following programs.

     Direct Loans
     The Direct Community Facility Program had a net upward reestimate of $134 million. Cohorts
     2015 through 2017 had an upward reestimate of $161 million due primarily to projected
     borrowing rates from Treasury rising higher than initially budgeted. Treasury rates on older
     cohorts do not change as Treasury sets fixed borrowing rates on each cohort after 90% of the
     loans have been disbursed.

     The Direct Water and Environmental Program had an upward reestimate of $72 million,
     representing less than one percent of the outstanding principal. The majority of the reestimate
     was caused by projected borrowing rates from Treasury rising higher than initially budgeted for
     the 2015 through 2017 cohorts.

     Guaranteed Loans
     The Guaranteed Single Family Housing Section 502 program is the largest of RD’s guaranteed
     housing program and is a portion of the ($112 million) downward reestimate for the overall
     Housing Guaranteed Loan Programs. The Guaranteed Single Family Housing Section 502
     Program had an overall downward reestimate of ($100 million). The downward reestimate of
     ($100 million) is the result of a downward reestimate of ($93 million) in the Blended component
     of the program and a downward reestimate of ($7 million) in the Purchase component of the
     program. The Blended component’s change is attributed to the upward reestimates for cohorts
     2011 through 2017, along with a larger offsetting downward reestimate for cohort 2018 of
     $111 million, or less than one percent of the outstanding principal, due to projected losses lower
     than originally budgeted. In the Blended component of the program, the upward reestimate for
                                                                                                      73
                                                             SECTION II | FINANCIAL INFORMATION



cohorts 2011 through 2017 is due to the increase in projected loss claims and a decrease in
projected annual fees, reducing the future cash flows and increasing the subsidy cost.
The Purchase component’s change is mainly attributed to cohorts 2008 through 2010.

The downward reestimate change in the Guaranteed Business and Industry Program is a portion
of the overall downward reestimate in the Business and Industry Loans of ($69 million).
The Guaranteed Business and Industry Program had an overall downward reestimate of
($90 million), which was the result of higher projected recoveries and lower than foreclosed
claims paid through FY 2018.

Loan Modifications
A modification is any Government action different from the baseline assumptions that affect 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.

Multi-Family Housing direct loan modifications related to the revitalization program, which
began in FY 2006, continued through FY 2018. In this program, Rural Development provides
restructured loans and grants to development owners to revitalize multi-family housing
development projects in order to extend the affordable use without displacing tenants due to the
increased rent.

The Debt Reduction Fund is used to account for CCC’s “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. With one exception, all outstanding CCC modified debt
is carried in the Debt Reduction Fund and is governed by the Federal Credit Reform Act of 1990,
as amended.

Foreclosed Property
Property is acquired largely through foreclosure and voluntary conveyance. Acquired properties
associated with loans are reported at their market value at the time of acquisition. The projected
future cash flows associated with acquired properties are used in determining the related
allowance (at present value).

As of September 30, 2018, foreclosed property consisted of 1,238 rural single family housing
dwellings, with an average holding period of 16 months. As of September 30, 2018, FSA-Farm
Loan Program properties consist primarily of 107 farms. The average holding period for these
properties in inventory for FY 2018 was 67 months. Certain properties can be leased to eligible
individuals.
74
     USDA AGENCY FINANCIAL REPORT | 2018



     Other Information
     Non-performing loans are defined as receivables that are in arrears by 90 or more days or are on
     rescheduling agreements until such time two consecutive payments have been made following
     the rescheduling. When RD, FSA and CCC calculate loan interest income, however, the
     recognition of revenue is deferred. Late interest is accrued on arrears.

     Approximately $14,954 million of Rural Housing Service unpaid loan principal as of
     September 30, 2018 were receiving interest credit. If those loans receiving interest credit had
     accrued interest at the full-unreduced rate, interest income would have been approximately
     $709 million higher for FY 2018.

     At the end of FY 2018, the RD portfolio contained approximately 55,938 restructured loans with
     an outstanding unpaid principal balance of $2,869 million. At the end of FY 2018, the farm loan
     portfolio contained approximately 17,739 restructured loans with an outstanding unpaid principal
     balance of $1,315 million. Direct credit and credit guarantee principal receivables in the food aid
     and export programs under rescheduling agreements as of September 30, 2018 were
     $1,005 million.
                                                                                                                            75
                                                                         SECTION II | FINANCIAL INFORMATION



TABLE 1: Direct Loan and Loan Guarantees, Net
FY 2018                                        Loans                                     Present      Value of Assets
Direct Loans                                 Receivable,     Interest      Foreclosed      Value        Related to
                                               Gross        Receivable      Property    Allowance         Loans
Obligated Pre-1992
  Farm                                       $       227    $      13      $       5    $      (14)   $           231
  Export                                               -            -              -             -                  -
  Food Aid                                           844           11              -          (179)               676
  Housing                                          6,375           66             15           (25)             6,431
  Community Facility                                  13            -              -             -                 13
  Electric                                         2,284            9              -        (1,593)               700
  Telecommunications                                  82            -              -             -                 82
  Water and Environmental                            274            2              -             -                276
  Intermediary Relending                               6            -              -             -                  6
  Business and Industry                                -            -              -             -                  -
  Economic Development                                 -            -              -             -                  -
Pre-1992 Total                                    10,105          101             20        (1,811)             8,415
Obligated Post-1991
  Farm                                            11,663          186             12          (420)            11,441
  Export                                               -            -              -             -                  -
  Food Aid                                           612            9              -          (102)               519
  Housing                                         17,930          126             75        (2,085)            16,046
  Community Facility                               8,562           65              -          (168)             8,459
  Electric                                        47,037          296              -          (560)            46,773
  Telecommunications                               3,510            5              -           121              3,636
  Water and Environmental                         12,506           95              -          (265)            12,336
  Intermediary Relending                             363            2              -           (85)               280
  Business and Industry                               43            -              -            (1)                42
  Economic Development                               183            -              -           (13)               170
Post-1991 Total                                  102,409          784             87        (3,578)            99,702
Cushion of Credit                                 (7,115)            -              -            -             (7,115)
Total Direct Loan Program Receivables            105,399          885            107        (5,389)          101,002
Defaulted Guarantee Loans
  Pre-1992
    Farm                                               -             -              -            -                      -
    Export                                             -             -              -            -                      -
    Food Aid                                           -             -              -            -                      -
    Housing                                            -             -              -            -                      -
    Community Facility                                 -             -              -            -                      -
    Electric                                           -             -              -            -                      -
    Telecommunications                                 -             -              -            -                      -
    Water and Environmental                            -             -              -            -                      -
    Intermediary Relending                             -             -              -            -                      -
    Business and Industry                              -             -              -            -                      -
    Economic Development                               -             -              -            -                      -
  Pre-1992 Total                                       -             -              -            -                      -
  Post-1991
    Farm                                            186             1               -        (185)                  2
    Export                                          439            10               -        (220)                229
    Food Aid                                          -             -               -           -                   -
    Housing                                          89             1               -         (57)                 33
    Community Facility                                5             -               -           -                   5
    Electric                                          -             -               -           -                   -
    Telecommunications                                -             -               -           -                   -
    Water and Environmental                           -             -               -           -                   -
    Intermediary Relending                            -             -               -           -                   -
    Business and Industry                           260             3               -         (62)                201
    Economic Development                              -             -               -           -                   -
  Post-1991 Total                                   979            15               -        (524)                470
Total Defaulted Guarantee Loans                     979            15               -        (524)                470
Loans Exempt from Credit Reform Act:
  Commodity Loans                                   471             5               -           (1)               475
  Other Foreign Receivables                           -             -               -            -                  -
Total Loans Exempt                                  471             5               -           (1)               475

Total Direct Loan and Loan Guarantees, Net                                                            $      101,947
76
     USDA AGENCY FINANCIAL REPORT | 2018



     TABLE 2: Schedule for Reconciling Subsidy Cost Allowance Balances (Post-1991) Direct Loans
                                                                                        FY 2018

     Beginning balance of the subsidy cost allowance                                $    4,384
     Add: Subsidy expense for direct loans disbursed during the year by component
       Interest rate differential costs                                                   (240)
       Default costs (net of recoveries)                                                   176
       Fees and other collections                                                          (11)
       Other subsidy costs                                                                 (40)
     Total subsidy expense prior to adjustments and reestimates                           (115)

     Adjustments
       Loan modifications                                                                    -
       Fees received                                                                        75
       Loans written off                                                                  (412)
       Subsidy allowance amortization                                                      (99)
       Other                                                                                42
     Total subsidy cost allowance before reestimates                                     3,875

     Add or subtract subsidy reestimates by component
       Interest rate reestimate                                                            499
       Technical/default reestimate                                                       (272)
     Total reestimates                                                                     227

     Ending balance of the subsidy cost allowance                                   $    4,102
                                                                                                                                                                                     77
                                                                                                                                          SECTION II | FINANCIAL INFORMATION


TABLE 3: Subsidy Expense for Direct Loans by Program and Component
FY 2018
                                     Interest                 Fees and Other               Subtotal      Total        Interest Rate    Technical         Total      Total Subsidy
                                    Differential   Defaults     Collections       Other    Subsidy    Modifications    Reestimates    Reestimates     Reestimates     Expense
Direct Loan Programs
 Farm                               $      (35)    $    74    $           (1)     $   3    $   41     $           -   $       (108)   $        116    $        8    $          49
 Export                                      -           -                 -          -         -                 -              -             (17)          (17)             (17)
 Food Aid                                    -           -                 -          -         -                 -              -              (2)           (2)              (2)
 Housing                                    22          50                 -          9        81                 -             16              30            46              127
 Community Facility                       (154)         43                 -          5      (106)                -             42              91           133               27
 Electric                                 (126)          4               (10)       (30)     (162)                -            538            (489)           49             (113)
 Telecommunications                          1           4                 -         (4)        1                 -            (36)            (25)          (61)             (60)
 Water and Environmental                    43           1                 -        (23)       21                 -             50              23            73               94
 Intermediary Relending                      5           -                 -          -         5                 -             (2)              1            (1)               4
 Business and Industry                       -           -                 -          -         -                 -              -               -             -                -
 Economic Development                        4           -                 -          -         4                 -             (1)              -            (1)               3
Total Direct Loan Subsidy Expense   $     (240)    $   176    $          (11)     $ (40)   $ (115)    $           -   $        499    $       (272)   $      227    $         112




TABLE 4: Total Amount of Direct Loans Disbursed (Post-1991)
                                                                               FY 2018
Direct Loan Programs
  Farm                                                                   $      2,390
  Export                                                                            -
  Food Aid                                                                          -
  Housing                                                                       1,185
  Community Facility                                                            1,354
  Electric                                                                      3,236
  Telecommunications                                                              232
  Water and Environmental                                                         766
  Intermediary Relending                                                           19
  Business and Industry                                                             7
  Economic Development                                                             32
Total Direct Loans Disbursed                                             $      9,221
78
          USDA AGENCY FINANCIAL REPORT | 2018


     TABLE 5: Guaranteed Loans Outstanding
                                                        Pre-1992           Post-1991             Total            Pre-1992      Post-1991        Total
                                                      Outstanding         Outstanding        Outstanding         Outstanding   Outstanding    Outstanding
         FY 2018
                                                        Principal,          Principal,         Principal,         Principal,    Principal,     Principal,
                                                       Face Value          Face Value         Face Value         Guaranteed    Guaranteed     Guaranteed
     Loan Guarantee Programs
       Farm                                          $           1       $      17,168       $    17,169        $          1   $    15,473    $    15,474
       Export                                                    -               1,877             1,877                   -         1,840          1,840
       Food Aid                                                  -                    -                 -                  -              -              -
       Housing                                                   1             122,965           122,966                   1       110,632        110,633
       Community Facility                                        -               1,142             1,142                   -         1,017          1,017
       Electric                                                  -                 161               161                   -           161            161
       Telecommunications                                        -                    -                 -                  -              -              -
       Water and Environmental                                   -                  91                91                   -            80             80
       Intermediary Relending                                    -                    -                 -                  -              -              -
       Business and Industry                                     3               7,482             7,485                   3         5,483          5,486
       Economic Development                                      -                    -                 -                  -              -              -
     Total Guarantees Outstanding                    $           5       $     150,886       $   150,891        $          5   $   134,686    $   134,691




     TABLE 6: Liability for Loan Guarantees (Present Value Method For Pre-1992 Guarantees)
                                            Liabilities for
                                           Losses on Pre-             Liabilities for Loan
         FY 2018                                1992                 Guarantees on Post-
                                             Guarantees                1991 Guarantees           Total Liabilities for
                                           Present Value                Present Value             Loan Guarantees
     Loan Guarantee Programs
       Farm                                $              -          $               215         $                215
       Export                                             -                            4                            4
       Food Aid                                           -                            -                            -
       Housing                                            -                         (212)                        (212)
       Community Facility                                 -                           52                           52
       Electric                                           -                            -                            -
       Telecommunications                                 -                            -                            -
       Water and Environmental                            -                            1                            1
       Intermediary Relending                             -                            -                            -
       Business and Industry                              -                          442                          442
       Economic Development                               -                            -                            -
     Total Liability for Loan Guarantees   $              -          $               502         $                502
                                                                                                                                       79
                                                                                                  SECTION II | FINANCIAL INFORMATION


TABLE 7: Schedule for Reconciling Loan Guarantee Liability
                                                                                      FY 2018
Beginning balance of the loan guarantee liability                                 $         794
Add:Subsidy expense for guaranteed loans disbursed during the year by component
  Interest supplement costs                                                                  -
  Default costs (net of recoveries)                                                        845
  Fees and other collections                                                              (824)
  Other subsidy costs                                                                       (1)
Total of the above subsidy expense components                                               20

Adjustments
  Loan guarantee modifications                                                               -
  Fees received                                                                            643
  Interest supplements paid                                                                 (8)
  Foreclosed property and loans acquired                                                    63
  Claim payments to lenders                                                               (680)
  Interest accumulation on the liability balance                                            10
  Other                                                                                   (160)
Ending balance of the loan guarantee liability before reestimates                          682

Add or subtract subsidy reestimates by component:
  Interest rate reestimate                                                                 (82)
  Technical/default reestimate                                                             (98)
Total of the above reestimate components                                                  (180)
Ending balance of the loan guarantee liability                                    $        502
80
          USDA AGENCY FINANCIAL REPORT | 2018


     TABLE 8: Subsidy Expense for Loan Guarantees by Program and Component
     FY 2018
                                                                                                                                                                            Total
                                               Interest                Fees and Other                             Total      Interest Rate    Technical       Total        Subsidy
     Loan Guarantee Programs                Supplement      Defaults      Collections        Other    Subtotal Modifications Reestimates     Reestimates   Reestimates     Expense
       Farm                                  $          -    $   25     $           (13)     $ -       $ 12     $         -   $         1     $       3     $        4    $     16
       Export                                           -          -                 10         (2)        8              -            (1)           (7)            (8)           -
       Food Aid                                         -          -                  -          -          -             -             -             -              -            -
       Housing                                          -       623               (753)          -      (130)             -           (88)          (25)          (113)       (243)
       Community Facility                               -         5                  (1)         -         4              -             -             5              5            9
       Electric                                         -          -                  -          -          -             -             -             -              -            -
       Telecommunications                               -          -                  -          -          -             -             -             -              -            -
       Water and Environmental                          -          -                  -          -          -             -             -             -              -            -
       Intermediary Relending                           -          -                  -          -          -             -             -             -              -            -
       Business and Industry                            -       192                 (67)         1       126              -             6           (74)           (68)         58
       Economic Development                             -          -                  -          -          -             -             -             -              -            -
     Total Loan Guarantee Subsidy Expense    $         -    $ 845      $          (824)      $ (1)     $ 20    $          -   $       (82)   $      (98)   $     (180)    $ (160)



     TABLE 9: Guaranteed Loans Disbursed


                                                                       FY 2018
                                                                                   Principal,
                                                        Principal, Face
                                                                                  Guaranteed
                                                       Value Disbursed
                                                                                   Disbursed
     Loan Guarantee Programs
         Farm                                           $         3,150       $             2,839
         Export                                                   1,961                     1,918
         Food Aid                                                     -                         -
         Housing                                                 17,526                    15,773
         Community Facility                                         105                        93
         Electric                                                     -                         -
         Telecommunications                                           -                         -
         Water and Environmental                                      2                         1
         Intermediary Relending                                       -                         -
         Business and Industry                                    2,014                     1,553
         Economic Development                                         -                         -
     Total Guaranteed Loans Disbursed                   $        24,758       $            22,177
                                                                                                               81
                                                                          SECTION II | FINANCIAL INFORMATION




TABLE 10: Administrative Expenses
                                                         FY 2018
  Direct Loan Programs                                 $        509
  Guaranteed Loan Programs                                      432
Total Administrative Expenses                          $        941




TABLE 11: Subsidy Rates For Direct Loans (percentage)
                                                                              Fees and
  FY 2018                                         Interest                      Other
                                                Differential   Defaults      Collections    Other    Total
Direct Loan Programs
  Farm Ownership                                     (3.60)       0.17               -      (0.38)    (3.81)
  Farm Operating                                     (3.10)       6.84               -       0.31      4.05
  Emergency Disaster                                 (4.06)       8.72               -       0.26      4.92
  Indian Tribe Land Acquisition                     (26.34)        -                 -        -      (26.34)
  Boll Weevil Eradication                            (0.54)        -                 -      (0.15)    (0.69)
  Indian Highly Fractionated Land                    24.15        0.05               -      (1.48)    22.72
  Farm Storage Facility Loan                         (0.97)       0.02             (0.27)   (0.05)    (1.27)
  Sugar Storage Facility Loan Program                (2.37)       0.03               -        -       (2.34)
  Multi-Family Housing Relending Demo                29.50         -                 -      (0.01)    29.49
  Multi-Family Housing Revitalization Seconds        54.28        0.46               -      (0.06)    54.68
  Multi-Family Housing Revitalization Zero           48.75        0.37               -      (0.20)    48.92
  Community Facility Loans                          (12.99)       3.48               -       1.42     (8.09)
  Section 502 Single-Family Housing                  (2.37)       5.13               -       1.09      3.85
  Section 515 Multi-Family Housing                   26.57        0.73               -      (0.98)    26.32
  Section 504 Housing Repair                         15.65       (0.02)              -      (3.30)    12.33
  Section 514 Farm Labor Housing                     27.11        0.28               -      (0.67)    26.72
  Section 524 Site Development                        0.45         -                 -       0.71      1.16
  Section 523 Self-Help Housing                       2.55        4.74               -       0.06      7.35
  Single-Family Housing Credit Sales                (11.90)       2.39               -       4.06     (5.45)
  Rural Microenterprise Direct Loans                  7.28        2.70               -        -        9.98
  Intermediary Relending Program                     23.03        1.53               -      (1.47)    23.09
  Rural Economic Development Loans                   13.09        0.02               -      (0.18)    12.93
  Water and Waste Disposal Loans                      4.01        0.08               -      (3.92)     0.17
  FFB Electric Loans                                 (4.39)       0.02               -      (0.79)    (5.16)
  Treasury Telecommunication Loans                    0.14        0.37               -      (0.27)     0.24
  FFB Telecommunications Loans                       (0.10)       0.24               -      (2.63)    (2.49)
  FFB Guaranteed Underwriting                          -          1.39             (5.25)     -       (3.86)
  Rural Energy Savings Program                       12.48        1.29               -      (0.43)    13.34
  Broadband Treasury Loans                            0.14       16.74               -      (0.13)    16.75
82
     USDA AGENCY FINANCIAL REPORT | 2018



     TABLE 12: Subsidy Rates for Loan Guarantees (percentage)
                                                                          Fees and
       FY 2018                                  Interest                   Other
                                               Differential   Defaults   Collections    Other   Total
     Guaranteed Loan Programs
       Farm Ownership—Unsubsidized                     -         0.99          (1.17)     -      (0.18)
       Farm Operating—Unsubsidized                     -         2.35          (1.24)     -       1.11
       Conservation—Guaranteed                         -         0.78          (1.13)     -      (0.35)
       GSM 102                                         -         0.32          (0.51)     -      (0.19)
       Export Guarantee Program—Facilities             -         0.71          (3.57)     -      (2.86)
       Community Facility Loan Guarantees              -         4.16          (0.88)     -       3.28
       Guaranteed 538 Multi-Family Housing             -         4.05          (7.67)     -      (3.62)
       Guaranteed 502 Single-Family Housing            -         3.54          (4.26)     -      (0.72)
       Business and Industry Loan Guarantees           -         8.02          (3.96)     -       4.06
       Renewable Energy Loan Guarantees                -         5.27          (1.40)     -       3.87
       Section 9003 Loan Guarantees                    -        25.88          (4.72)    0.08    21.24
       Water and Waste Disposal Loans                  -         1.33          (0.87)     -       0.46
                                                                                                                                                                                                                                              83
                                                                                                                                                                             SECTION III | OTHER INFORMATION




NOTE 8: INVENTORY AND RELATED PROPERTY, NET
Commodity inventory is restricted for the purpose of alleviating distress caused by natural disasters, providing emergency food assistance in
developing countries, and providing price support and stabilization.

(Quantities In Millions)
                                                          FY 2018                                                                                                                                                         FY 2018
                                                   Beginning Inventory              Acquisitions                  Collateral Acquired                Donations                             Other                     Ending Inventory
Commodities:                   Unit of Measure   Quantity         Value      Quantity            Value         Quantity           Value      Quantity          Value           Quantity            Value         Quantity          Value
Corn Meal                    Pounds                         2 $          1            33 $                 7              - $            -            (34) $           (7)                  - $             -               1 $           1
Blended Foods                Pounds                         4            2           114                  39              -              -          (107)             (37)                  -               -              11             4
Dry Edible Beans             Cwt.                           -            -             -                   1              -              -              -              (1)                  -               -               -             -
Dry Whole Peas               Cwt.                           -            6             3                  64              -              -             (3)            (64)                  -               -               -             6
Emergency Food Ration Bars   Pounds                         -            -             -                   -              -              -              -               -                   -               -               -             -
Grain Sorghum                Bushels                        -            2            12                  61              -              -            (12)            (60)                  -               -               -             3
Lentils Dry                  Cwt.                           -            -             -                  10              -              -              -             (10)                  -               -               -             -
Nonfat Dry Milk              Pounds                         -            -             -                   -              -              -              -               -                   -               -               -             -
Rice Products                Cwt., Pounds                   -            1             -                  10              -              -              -             (11)                  -               -               -             -
Meat                         Pounds                         -            -             -                   -              -              -              -               -                   -               -               -             -
Vegetable Oil                Pounds                        21           13           259                 127              -              -          (265)            (131)                  -              (1)             15             8
Wheat Products               Bushels, Pounds                -            -            36                 175              -              -            (36)           (175)                  -               -               -             -
Peanuts                      Pounds                        56           10             -                   -           156              28            (12)            (13)                (66)             (1)           134             24
Soybeans                     Bushels, Pounds                -            -            68                  17              -              -            (68)            (17)                  -               -               -             -
Other                        Various              XXXX                   -    XXXX                         4    XXXX                     -    XXXX                     (4)      XXXX                        -     XXXX                    -
Total Commodities                                 XXXX        $         35    XXXX         $             515    XXXX         $          28    XXXX         $         (530)      XXXX          $            (2)    XXXX        $          46
84
     USDA AGENCY FINANCIAL REPORT | 2018




     NOTE 9: GENERAL PROPERTY, PLANT, AND EQUIPMENT (PP&E), NET
     FY 2018                                        Useful                                             Net
                                                      Life                       Accumulated          Book
        Category                                    (Years)          Cost        Depreciation         Value

     Land and Land Rights                                        $         70   $            -    $          70
     Improvements to Land                           10 - 50               757             (740)              17
     Construction-in-Progress                                              72                -               72
     Buildings, Improvements and Renovations        15 - 30             3,109           (1,986)           1,123
     Other Structures and Facilities                15 - 50             1,850           (1,634)             216
     Equipment                                      5 - 20              1,770           (1,275)             495
     Assets Under Capital Lease                     3 - 20                 34              (29)               5
     Leasehold Improvements                           10                   86              (78)               8
     Internal-Use Software                           5-8                1,167             (991)             176
     Internal-Use Software in Development                                  42                -               42
         Total                                                   $      8,957   $       (6,733)   $       2,224




     NOTE 10: STEWARDSHIP PP&E
     Stewardship PP&E consist of assets whose physical properties resemble those of general PP&E
     that are traditionally capitalized in the financial statements. Due to the nature of these assets,
     valuation would be difficult and matching costs with specific periods would not be meaningful.
     Stewardship PP&E include heritage assets and stewardship land.


     Heritage Assets
     Heritage assets are unique and are generally expected to be preserved indefinitely. Heritage
     assets may be unique because they have historical or natural significance, are of cultural,
     educational or artistic importance, or have significant architectural characteristics. The assets are
     reported in terms of physical units rather than cost, fair value, or other monetary values.
     No amounts are shown on the Balance Sheet for heritage assets, except for multi-use heritage
     assets in which the predominant use of the asset is in general government operations. The costs
     of acquisition, betterment, or reconstruction of multi-use heritage assets is capitalized as general
     PP&E and depreciated. The costs of acquiring, constructing, improving, reconstructing, or
     renovating heritage assets, other than multi-use, is considered an expense in the period incurred
     when determining the net cost of operations. Heritage assets consist of collection type, such as
     objects gathered and maintained for exhibition, such as library collections, and non-collection
     type, such as memorials, monuments and buildings.

     National Forests, National Grasslands and Other Sites
     FS manages its heritage assets by site. Sites include national forests, national grasslands, other
     FS-managed sites, and non-FS-managed sites such as museums and university laboratories.
     The mission of the FS is to sustain the health, diversity, and productivity of the Nation’s forests
                                                                                                      85
                                                             SECTION II | FINANCIAL INFORMATION



and grasslands to meet the needs of present and future generations. The FS strives to achieve
quality land management under the sustainable multiple-use management concept, to deliver the
necessary products and services that are essential for enhancing natural resource stewardship,
and to meet the diverse needs of people.

Heritage Asset categories can include the following:

Priority Heritage Assets (PHA): Heritage assets of distinct public value that are, or should be,
actively maintained, and meet one or more of the following criteria:

   •   The property is recognized through an official designation, such as a listing on the
       National Register of Historic Places, State register, etc.
   •   The property is recognized through prior investment in preservation, interpretation, and
       use. Any improvement to a PHA that meets real property designation criteria is
       considered real property.
   •   The property is recognized in an Agency-approved management plan.
   •   The property exhibits critical deferred maintenance needs, and those needs have been
       documented.
Other Heritage Assets: Assets that may have potential important historical or cultural
significance but lack formal listing and the demonstrated need for active maintenance.

Assemblage Assets: Any grouping of artifacts or archival materials aggregated through donation,
agency events, site-specific or other field collection, other acquisition method, or combination
therein.

Research Centers
The Agricultural Research Service (ARS) was established on November 2, 1953. Congress first
authorized federally supported agricultural research in the Organic Act of 1862. The statute
directed the Commissioner of Agriculture “to acquire and preserve in his department all
information he can obtain by means of books and correspondence, and by practical and scientific
experiments.” The scope of USDA’s agricultural research has been expanded and extended more
than 60 times since the Department was created.

NRCS owns one heritage asset, the Tucson Plant Materials Center (TPMC), which is included in
general PP&E as a multi-use asset. It was listed in the National Register of Historic Places
(NRHP) on July 2, 1997. The TPMC develops and evaluates native plants and addresses an array
of resource issues in the areas of rangeland, mined land, urban lands, cropland riparian areas, and
desert lands. The TPMC provides technical assistance to NRCS field offices; Resource
Conservation and Development (RC&D) groups; conservation districts; Federal, State, and
Tribal agencies; and private landowners through the Southwest. Research centers are considered
86
     USDA AGENCY FINANCIAL REPORT | 2018



     heritage assets because one or more buildings or structures at these centers is on (or eligible for
     inclusion on) the NRHP.

     Library Collections
     The National Agricultural Library (NAL) supports agricultural research through the acquisition,
     curation, and dissemination of information needed to solve today’s agricultural challenges.
     The Library holds more than 3.5 million items. NAL’s content ranges from special collections
     materials dating from the early 16th century to near-real time observational research data. NAL
     was created as the departmental library for USDA in 1862 and became a national library in 1990.
     One of five national libraries of the U.S., it is also a key member of the Agriculture Network
     Information Collaborative (AgNIC) partnership. In its international role, NAL participates, as
     appropriate, in international agricultural information initiatives.

     Acquisition and Withdrawal of Heritage Assets
     The FS generally does not construct heritage assets, although in some circumstances important
     site-structural components may be rehabilitated or reconstructed into viable historic properties to
     provide forest visitors with use and interpretation. Heritage assets may be acquired through the
     procurement process, but this rarely occurs. Normally, heritage assets are part of the land
     acquisition and inventory process. Withdrawal occurs through land exchange or natural disasters.
     Most additions occur through inventory activities where previously undocumented sites are
     discovered and added to the total.


     Stewardship Land
     Stewardship land is land and land rights not acquired for or in connection with items of general
     PP&E. Land is defined as the solid surface of the earth, excluding natural resources. Stewardship
     land is valued for its environmental resources, recreational and scenic value, cultural and
     paleontological resources, vast open spaces, and resource commodities and revenue provided to
     the Federal Government, States, and counties. These assets are reported in terms of physical
     units rather than cost, fair value, or other monetary values. No asset amount is shown on the
     balance sheet for stewardship land. The acquisition cost of stewardship land is considered an
     expense in the period acquired when determining the net cost of operations. Stewardship land
     consists primarily of the national forests and grasslands owned by the FS and conservation
     easements purchased by NRCS.

     National Forests
     National forests are formally established and permanently set aside and reserved for national
     forest purposes, including National Wilderness, National Primitive, National Wild and Scenic
     River, National Recreation, National Scenic Research, National Game Refuges and Wildlife
     Preserve, and National Monument areas.
                                                                                                       87
                                                             SECTION II | FINANCIAL INFORMATION



National Grasslands
National grasslands are designated by the Secretary of Agriculture and permanently held by the
USDA under Title III of the Bankhead-Jones Farm Tenant Act.

Research and Experimental Areas
Research and experimental areas are reserved and dedicated by the Secretary of Agriculture for
forest and range research experimentation. Areas reported are located outside the exterior
boundaries of a national forest or national grassland.

National Preserves and Other Areas
National preserves are established to protect and preserve scientific, scenic, geologic, watershed,
fish, wildlife, historic, cultural and recreational values; and provide for multiple use and
sustained yield of renewable resources. Other areas include areas administered by the FS that are
not included in one of the above groups.

Conservation Easements
NRCS’ mission objectives in administering the conservation easement programs are to provide
landowners with financial and technical assistance in return for maintaining and improving high
quality productive soils, clean and abundant water, healthy plant and animal communities, clean
air, an adequate energy supply, and working farm and ranch land.

NRCS’ objectives in managing, monitoring and enforcing the terms and conditions of easement
deeds are to ensure that: 1) taxpayer investments are properly used in accordance with the intent of
the program; 2) the agency is a good steward of the land; and 3) the land is properly maintained.

Stewardship resources involve substantial investment in order to gain long-term benefits for the
American public and help the agency satisfy its mission. The purpose of purchasing easements is
to restore or enhance wetlands, farmland, grasslands, forest ecosystems, and restore, protect,
maintain, and enhance the functions of floodplains.

NRCS, on behalf of USDA, administers and owns conservation easements on private lands
through a variety of programs. The specific uses for the land are identified under each program.
Landowners are not allowed to withdraw from the program. However, termination or expiration
may occur. For the purpose of reporting, all easements where NRCS is listed as a grantee of the
easement are included in the agency’s stewardship land count. Also included are easements that
are administered by NRCS on behalf of other USDA agencies.

Acquisition and Withdrawal of Stewardship Lands
The Land and Water Conservation Fund (L&WCF) Land Acquisition Program acquires land for
the FS National Forest System (NFS). The program coordinates with a variety of partners,
88
     USDA AGENCY FINANCIAL REPORT | 2018



     including State, local, and Tribal governments, and private landowners through statewide
     planning for development of a land-adjustment strategy.

     The Land Acquisition Program preserves, develops, and maintains access to NFS lands and
     waters for the public and provides permanent access to public lands for recreation, commodity
     production, resource management, public safety, and community economic viability.

     The L&WCF statutory authority specifically defines the purpose to also include protecting the
     quality of scientific, scenic, historical, ecological, environmental, air and atmospheric, water
     resource, archeological values, as well as food and habitat for fish and wildlife, and managing
     the public lands for minerals, food, timber, and fiber.

     From these several allowable uses of program funding, the program concentrates on protecting
     habitat for priority species identified in the national forest and grassland’s Land Management
     Plans and enhancing recreational opportunities for areas with high demand for recreation.
     The program focuses acquisitions on inholdings and areas adjacent to existing NFS lands.

      FY 2018 (In Units)
                                                                                             Beginning
                                             Ending Balance   Additions       Withdrawals     Balance
      Heritage Assets
        National Forests                                154               -             -           154
        National Grasslands                              20               -             -            20
        Other Sites                                     173               7            (9)          175
        Research Centers                                 34               -             -            34
        Library Collections                               1               -             -             1
      Total                                             382               7            (9)           384

      Stewardship Land
        National Forests                                154            -                -           154
        National Grasslands                              20            -                -            20
        Research and Experimental Areas                   3            -                -             3
        National Preserves and Other Areas                2            -                -             2
        Conservation Easements                       18,344          390                -        17,954
      Total                                          18,523          390                -         18,133
                                                                                                      89
                                                             SECTION II | FINANCIAL INFORMATION




NOTE 11: OTHER ASSETS
In FY 2018, other assets included investments in trust for loan asset sales of $35 million and cost
of loans sold of $2 million.
                                               FY 2018
Intragovernmental:
   Advances to Others                      $             9
Subtotal Intragovernmental                               9

With the Public:
  Advances to Others                                   502
  Other Assets                                          37
Total Other Assets                         $           548




NOTE 12: LIABILITIES NOT COVERED BY BUDGETARY RESOURCES
In FY 2018, other intragovernmental liabilities not covered by budgetary resources included
accruals for Federal Employee Compensation Act (FECA) of $143 million, contract disputes
claims payable to Treasury’s Judgment Fund of $26 million, and unemployment compensation
of $15 million.

In FY 2018, other liabilities with the public not covered by budgetary resources included
estimated losses on insurance claims of $5,972 million, underwriting gain of $1,638 million,
contingent liabilities of $923 million, unfunded leave of $602 million, Payments to States of
$272 million, single family housing escrow of $46 million, loans paid in advance for
multi-family housing of $24 million, and stewardship contracting product sales of $21 million.

                                                                          FY 2018
Intragovernmental:
  Other                                                              $              184
Subtotal Intragovernmental                                                          184
With the Public:
  Federal employee and veterans' benefits                                           892
  Environmental and disposal liabilities                                            200
  Other                                                                         9,498
Subtotal With the Public                                                       10,590

Total liabilities not covered by budgetary resources                          10,774
Total liabilities covered by budgetary resources                             149,101
Total liabilities not requiring budgetary resources                            1,241

Total Liabilities                                                     $      161,116
90
     USDA AGENCY FINANCIAL REPORT | 2018




     NOTE 13: DEBT
                                                     Beginning
     FY 2018                                                                          Ending Balance
                                                      Balance        Net Borrowing
     Intragovernmental
        Debt to the Treasury                     $        72,598     $         177   $       72,775
        Debt to the Federal Financing Bank                45,433             1,215           46,648
     Total Intragovernmental                             118,031             1,392          119,423

     Agency Debt:
       Held by the Public                                        -               -                 -

     Total Debt                                  $       118,031     $       1,392   $      119,423




     NOTE 14: ENVIRONMENTAL AND DISPOSAL LIABILITIES
     USDA is subject to the Comprehensive Environmental Response, Compensation, and Liability
     Act, the Clean Water Act, and the Resource Conservation and Recovery Act for cleanup of
     hazardous waste. In FY 2018, FS estimates the liability for total cleanup costs for sites known to
     contain hazardous waste to be $2 million, based on actual cleanup costs at similar sites.
     In FY 2018, CCC estimates the liability for total cleanup costs for sites known to contain
     hazardous waste to be $21 million, based on actual cleanup costs at similar sites. CCC estimates
     the range of potential future losses due to remedial actions to be between $21 million and
     $145 million. These estimates will change as new sites are discovered, remedy standards change,
     and new technology is introduced.

     In FY 2018, ARS estimated the liability for cleanup of the Beltsville Agricultural Research
     Center (BARC) to be $21 million. ARS is evaluating and remediating areas of concern on BARC
     that are contaminated or threaten to contaminate ground and surface water with pesticides,
     solvents, metals, and other hazardous substances.

     USDA is also subject to Asbestos National Emissions Standards for Hazardous Air Pollutants.
     In FY 2018, the Department estimated its liability for asbestos-related cleanup of real property to
     be $156 million. The liability is calculated using total square footage of real property expected to
     contain asbestos times a cost factor based on historical actual cleanup costs, adjusted for
     inflation, including any other identifiable costs, e.g., survey cost. As additional information
     becomes available, key assumptions will be reevaluated, cost estimates will be revised, and
     necessary adjustments will be made to the liability recognition.
                                                                                                                                             91
                                                                                           SECTION II | FINANCIAL INFORMATION




NOTE 15: OTHER LIABILITIES
In FY 2018, other liabilities with related budgetary obligations with the public included
Agricultural Risk Coverage of $1,063 million; Price Loss Coverage of $1,893 million; Grants,
Subsidies, and Contributions of $3,770 million; Conservation Reserve Program of
$1,845 million; and other accrued liabilities of $866 million.

In FY 2018, other liabilities without related budgetary obligations with the public included
Payments to States of $272 million, single family housing escrow of $46 million, loans paid in
advance for multi-family housing of $24 million, and other accrued liabilities of $21 million.




FY 2018                                                                                            Non-Current       Current         Total
Intragovernmental:
   Other Liabilities With Related Budgetary Obligations                                        $            -    $       72    $       72
   Employer Contributions and Payroll Taxes                                                                 -            84            84
   Unfunded FECA Liability                                                                                 77            66           143
   Other Unfunded Employment Related Liability                                                              -            15            15
   Liability for Advances and Prepayments                                                                   -             1             1
   Liability for Clearing Accounts                                                                          -           (73)          (73)
   Custodial Liability                                                                                      -            60            60
   Liability for Non-entity Assets Not Reported on the Statement of Custodial Activities                    -         9,582         9,582
  Other Liabilities Without Related Budgetary Obligations                                                  26             -            26
Subtotal Intragovernmental                                                                                103         9,807         9,910

With the Public:
  Other Liabilities With Related Budgetary Obligations                                                      -         9,437         9,437
  Accrued Funded Payroll and Leave                                                                          -           343           343
  Unfunded Leave                                                                                            -           601           601
  Liability for Advances and Prepayments                                                                    -           155           155
  Other Deferred Credits                                                                                    -           690           690
  Liability for Nonfiduciary Deposit Funds and Undeposited Collections                                      -           448           448
  Liability for Clearing Accounts                                                                           -           (41)          (41)
  Actuarial Liability for Federal Insurance and Guarantee Programs                                      1,638         8,688        10,326
  Contingent Liabilities                                                                                    -           931           931
  Capital Lease Liability                                                                                   3             2             5
  Other Liabilities Without Related Budgetary Obligations                                                  24           339           363
Subtotal With the Public                                                                                1,665        21,593        23,258

Total Other Liabilities                                                                        $        1,768    $   31,400    $   33,168
92
     USDA AGENCY FINANCIAL REPORT | 2018




     NOTE 16: LEASES

     Capital Leases
     USDA enters into leasing agreements through leasing authority delegated by the General Services
     Administration (GSA). USDA acquires use of various general facilities (buildings and plant
     material centers), equipment, and land with renewal options that range from 0 to 10 years and
     which are located mainly in urban areas. The portfolio includes leases with escalation clauses
     based on the Consumer Price Index (CPI), and amortization periods with a range of 8 to 25 years.


     Operating Leases
     USDA enters into leasing agreements through leasing authority delegated by GSA. USDA leases
     various land, buildings and equipment.

     Major non-cancelable operating leases consists primarily of office space, most with renewal
     options that range from 1 to 25 years with escalation clauses based on the CPI, and lease periods
     with a range of 1 to 30 years.

     The USDA Headquarters complex (Whitten Building and South Building) is a government owned
     facility, which is part of the GSA Federal Buildings Inventory. As the result of a 1998 agreement
     between GSA and USDA, a moratorium was placed on the rental billings for the Headquarters
     complex beginning in FY 1999. At current market rate, the estimated yearly rental payment for the
     above mentioned space would be $64 million. This agreement is still in effect and as a result,
     USDA activities located in the Headquarters complex are not billed for rental costs.
                                                                                                                                                               93
                                                                                                 SECTION II | FINANCIAL INFORMATION



FY 2018
Capital Leases:
  Summary of Assets Under Capital Leases                            Federal           Non Federal          Total
    Land and Building                                           $             -                  34                34
    Machinery and Equipment                                                   -
    Accumulated Amortization                                                  -                 (29)           (29)
    Total                                                                     -                   5              5

  Future Payments Due:
                                                                      Land & Buildings                 Machinery & Equipment                Totals
     Fiscal Year                                                Federal    Non Federal                 Federal    Non Federal   Federal        Non Federal
     2019                                                               -               4                      -            -               -              4
     2020                                                               -               3                      -            -               -              3
     2021                                                               -               3                      -            -               -              3
     2022                                                               -               2                      -            -               -              2
     2023                                                               -               2                      -            -               -              2
     After 5 Years                                                      -               2                      -            -               -              2
Total Future Lease Payments                                             -              16                      -            -               -            16
Less: Imputed Interest                                                  -               8                      -            -               -              8
Less: Executory Costs                                                   -               3                      -            -               -              3
Net Capital Lease Liability                                                   -                  5                  -       -               -             5


Capital lease liabilities covered by budgetary resources                      -                  5                  -       -               -             5

Operating Leases:

    Future Payments Due for Non-Cancellable Operating Leases:
    Fiscal Year                                                         Land & Buildings               Machinery & Equipment                Totals
                                                                    Federal     Non Federal             Federal   Non Federal       Federal     Non Federal
    2019                                                                 29                86                   -          1              29             87
    2020                                                                 22                70                   -           -             22             70
    2021                                                                 18                60                   -           -             18             60
    2022                                                                 15                48                   -           -             15             48
    2023                                                                 13                36                   -           -             13             36
    After 5 Years                                                        49              106                    -           -             49            106
    Total Future Lease Payments                                 $       146       $            406     $       -        $   1   $         146   $       407




NOTE 17: COMMITMENTS AND CONTINGENCIES
The Department is subject to various claims and contingencies related to lawsuits as well as
commitments under contractual and other commercial obligations.

For cases in which payment has been deemed probable and for which the amount of potential
liability has been estimated, $931 million has been accrued in the financial statements as of
September 30, 2018.

No amounts have been accrued in the financial statements for claims where the amount is
uncertain or where the probability of judgment against USDA is remote. The Department’s
potential liability for claims where a judgment against the Department is reasonably possible
ranges from $18 million to $82 million as of September 30, 2018.

Commitments to extend loan guarantees are estimated to be $3,857 million in FY 2018.
94
     USDA AGENCY FINANCIAL REPORT | 2018




     NOTE 18: FUNDS FROM DEDICATED COLLECTIONS
     Funds from dedicated collections are financed by specifically identified revenues, often
     supplemented by other financing sources, which remain available over time. These specifically
     identified revenues and other financing sources are required by statute to be used for designated
     activities or purposes and must be accounted for separately from the Government’s general
     revenues.

     Financial information for all significant funds from dedicated collections follows the descriptions
     of each fund’s purpose shown below.


     Agricultural Marketing Service (AMS)
     Funds for Strengthening Markets, Income, and Supply
     This fund is used to purchase commodities for schools and elderly feeding programs, to provide
     goods and other necessities in emergencies and disasters, and to purchase agricultural
     commodities to stabilize markets. The fund is permanently financed by statutory transfer of an
     amount equal to 30 percent of customs receipts collected during each calendar year and is
     automatically appropriated for expanding outlets for perishable, non-price supported
     commodities. An amount equal to 30 percent of receipts collected on fishery products is
     transferred to the Food and Nutrition Service and is used to purchase commodities under section
     6 of the National School Lunch Act and other authorities specified in the child nutrition
     appropriation. Funds are available under section 32 of the Act of August 24, 1935, as amended
     (7 U.S.C. 612c).

     Expenses and Refunds, Inspection and Grading of Farm Products
     The commodity grading programs provide grading, examination, and certification services for a
     wide variety of fresh and processed food commodities using federally approved grade standards
     and purchase specifications. This fund is financed by the collection of fees charged to producers
     of various food commodities who request, on a voluntary basis, inspection and grading of
     agricultural food commodities. This program is authorized by the Agricultural Marketing Act of
     1946 (7 U.S.C. 1621–1627).


     Animal Plant Health Inspection Service (APHIS)
     Agricultural Quarantine Inspection User Fee Account
     This fund is used to record and report expenditures and revenue associated with operating
     Agricultural Quarantine Inspection (AQI) activities at ports of entry. The Farm Bill of 1990, as
     amended by the Federal Agriculture Improvement and Reform Act of 1996, gave the Animal and
     Plant Health Inspection Service (APHIS) the authority to charge user fees for AQI services and
                                                                                                     95
                                                            SECTION II | FINANCIAL INFORMATION



to use the revenue to fund AQI activities. In March of 2003, a portion of the AQI program was
transferred to the Department of Homeland Security (DHS); however, APHIS retained the
authority to collect AQI revenue. APHIS transfers a portion of the revenue to DHS periodically
throughout the year to fund its expenditures. The revenue in the fund is collected from airlines,
air passengers, vessels, trucks, and railroad cars that are subject to AQI inspection at ports of
entry. These user fees are an inflow of revenue from the public that is used to fund AQI
inspections that are required by APHIS and DHS. The authority is codified in 21 U.S.C. 136(a).


Forest Service (FS)
Cooperative Work
Cooperative contributions are deposited for disbursement in compliance with the terms and
provisions of the agreement between the cooperator and the FS. Cooperators include timber
purchasers, not-for-profit organizations, and local hunting and fishing clubs. The governing
authorities are the Cooperative Funds Act of July 31, 1914 (16 U.S.C. 498) and the Knutson
Vandenberg Act.

Land Acquisition
Each fiscal year this fund receives a transfer of recreation user fees from the Department of the
Interior’s Land and Water Conservation Fund, to be used for the acquisition of land or waters, or
interest therein, including administrative expenses, to carry out the provisions of the Land and
Water Conservation Fund Act of 1965, as amended (16 U.S.C. 460l-4-11), pertaining to the
preservation of watersheds. The Land Acquisition program is authorized by the Interior and
Related Agencies Appropriations Act of December 30, 1982 (96 Stat. 1983, Public Law 97-394).

Payments to States, National Forest Fund
The Act of May 23, 1908, as amended (16 U.S.C. 500), commonly known as Payments to States,
requires with a few exceptions, that 25 percent of all monies received from the national forests
and deposited into the National Forest Fund during a fiscal year from timber, grazing, special-use
permits, power and mineral leases, and admission and user fees be paid to the States in which the
national forests are located, for public schools and public roads in the county or counties in
which the national forests are situated.

State, Private and International Forestry, Land and Water Conservation Fund
The FY 2004 Department of the Interior and Related Agencies Appropriation Act (Public Law
108-108) authorizes the Forest Service to receive a transfer of receipts from the Department of
the Interior’s Land and Water Conservation Fund to finance the existing Forest Legacy Program,
funded previously by State and Private Forestry general appropriation. To accommodate the new
financing arrangement and at OMB’s request, the U.S. Department of the Treasury established a
new special fund, “State, Private and International Forestry, Land and Water Conservation
96
     USDA AGENCY FINANCIAL REPORT | 2018



     Fund.” The program expenditures include grants and an occasional land purchase, but no real
     property will be procured or constructed.

     Recreation Fee Demonstration Program
     The Recreation Fee Demonstration Program fund receives deposits of recreation fees collected
     from projects that are part of the Recreation Fee Demonstration Program. These monies are
     retained and used for backlog repair and maintenance of recreation areas, sites or projects.
     These funds are also used for interpretation, signage, habitat or facility enhancement, resource
     preservation, annual operation, maintenance, and law enforcement related to public use of
     recreation areas and sites. The Recreation Fee Demonstration Program is authorized by
     16 U.S.C. 4601-6(a).

     National Forest Fund Receipts
     The Act of May 23, 1908, as amended (16 U.S.C. 500), requires (with a few exceptions) that all
     receipts from national forest activities be aggregated each fiscal year in order to calculate the
     portion which is paid to the States in which the national forests are located. The payments must
     be used for public schools and roads in the county or counties in which the national forests are
     situated. Originally, the States’ portion of receipts was 25 percent, but past statutory amendments
     have changed the calculation factors from time to time. Receipts include revenues from the sale
     of timber and other forest products; fees for grazing, special-use permits, power and mineral
     leases; and recreation user fees.

     Restoration of Forest Lands and Improvements
     The Restoration of Forest Lands and Improvements Acts (16 U.S.C. 579(c)) states any monies
     received by the United States with respect to lands under the administration of the Forest Service
     (a) as a result of the forfeiture of a bond or deposit by a permittee or timber purchaser for failure
     to complete performance of improvement, protection, or rehabilitation work required under the
     permit or timber sale contract or (b) as a result of a judgment, compromise, or settlement of any
     claim, involving present or potential damage to lands or improvements, shall be deposited into
     the United States Treasury and are appropriated and made available until expended to cover the
     cost to the United States of any improvement, protection, or rehabilitation work on lands under
     the administration of the Forest Service rendered necessary by the action which led to the
     forfeiture, judgment, compromise, or settlement: Provided, that any portion of the monies
     received in excess of the amount expended in performing the work necessitated by the action
     which led to their receipt shall be transferred to miscellaneous receipts.

     Payments to Counties, National Grasslands
     Payments to Counties, Title III, Bankhead-Jones Farm Tenant Act (Act) authorizes national
     grassland or land utilization project receipts to be shared through grants with local governments
     for the purposes stated in the Act. At the end of each calendar year, 25 percent of the net
                                                                                                          97
                                                               SECTION II | FINANCIAL INFORMATION



revenues from each national grassland or land utilization project are paid to the counties in which
such lands are located. These payments are not in lieu of taxes. Receipts from the Act designated
as either national grasslands or land utilization projects are to be credited to a special account.

Acquisition of Lands to Complete Land Exchanges
As authorized by seven statutes, this program is funded annually by congressional appropriation
action, with forest revenues generated by the occupancy of public land or from the sale of natural
resources other than minerals. All funds appropriated that remain unobligated at the end of the
fiscal year are returned to the receipts of the affected national forests. These funds are used to
purchase land and for related expenditures such as title search, escrow, recording, and personnel
costs when the purchase is considered necessary to minimize soil erosion and flood damage. This
appropriation is available for land acquisition within the exterior boundaries of the national forests.

Stewardship Contracting Product Sales
Stewardship End Result Contracting Projects (16 U.S.C. 6591c), amends the Healthy Forests
Restoration Act of 2003, and states the Forest Service, via agreement or contract as appropriate,
may enter into stewardship contracting projects with private persons or other public or private
entities to perform services to achieve land management goals for the national forests and the
public lands that meet local and rural community needs. The value of timber or other forest
products removed may be applied as an offset against the cost of services received under the
agreements or contracts. Monies earned from such agreements or contracts may be retained by
the Forest Service and shall be available for expenditure without further appropriation at the
project site from which the monies are collected or at another project site. In addition, if the
offset value of the forest products exceeds the value of the resource improvement treatments, the
Forest Service may collect any residual receipts under the Act of June 9, 1930 (commonly
known as the Knutson-Vandenberg Act, 16 U.S.C. 576); and apply the excess to other authorized
stewardship projects. Finally, the Forest Service is required to annually report to the Committee
of Agriculture, Nutrition, and Forestry of the Senate and the Committee on Agriculture of the
House of Representatives on the status and accomplishments of these agreements and contracts.


National Institute of Food and Agriculture (NIFA)
Native American Institutions Endowment Fund
The Native American Institutions Endowment Fund was authorized by Public Law 103-382 and
provided an initial installment to establish an endowment to benefit the 1994 land-grant
institutions. The public law states that “This program will enhance educational opportunities for
Native Americans by building educational capacity at these institutions in the areas of student
recruitment and retention, curricula development, faculty preparation, instruction delivery
systems, and scientific instrumentation for teaching.” While the principal (corpus) of the fund
cannot be used, the interest that is earned on the endowment fund investments in Treasury
98
     USDA AGENCY FINANCIAL REPORT | 2018



     instruments can be used for the purposes described above. After the close of a fiscal year, the
     income is distributed after making adjustments for the cost of administering the fund.


     Other
     Financial information is summarized for all other funds from dedicated collections with total
     assets less than $50 million listed below.

     Agricultural Marketing Service
        •    Perishable Agricultural Commodities Act
        •    Wool Research, Development and Promotion Trust Fund
        •    Inspection and Weighing Services

     Animal Plant Health Inspection Service
        •    Miscellaneous Contributed Funds

     Forest Service
        •    Roads and Trails for States, National Forest Fund
        •    Reforestation Trust Fund
        •    Timber Sales Pipeline Restoration Fund
        •    Operation and Maintenance of Forest Service Quarters
        •    Timber Roads, Purchaser Elections
        •    Range Betterment Fund
        •    Acquisition of Lands for National Forests, Special Acts
        •    Receipts for Construction of Administrative Improvements- Taos, New Mexico, Land
             Conveyance
        •    Payment to Minnesota (Cook, Lake and Saint Louis Counties)
        •    Licensee Program
        •    Resource Management Timber Receipts
        •    Quinault Special Management Area
        •    MNP Rental Fee Account
        •    Land Between the Lakes Management Fund
        •    Administration of Rights-of-Way and Other Land Uses Fund
                                                                                              99
                                                         SECTION II | FINANCIAL INFORMATION



   •   Hardwood Technology Transfer and Applied Research Fund
   •   Gifts, Donations and Bequests for Forest and Rangeland Research
   •   Land Between the Lakes Trust Fund
   •   Timber Salvage Sales
   •   Expenses, Brush Disposal
   •   Midewin National Tallgrass Prairie Restoration Fund
   •   Gifts and Bequests

Natural Resources Conservation Service
   •   Damage Assessment and Restoration Revolving Fund
   •   Miscellaneous Contributed Funds

Agricultural Research Service
   •   Concessions Fees and Volunteer Services
   •   Gifts and Bequests
   •   Miscellaneous Contributed Funds

Rural Development
   •   Alternative Agricultural Research and Commercialization Revolving Fund

Foreign Agricultural Service
   •   Miscellaneous Contributed Funds
   •   Gifts and Bequests
   •   Foreign Service National Separation Liability Trust Fund

Food Safety and Inspection Service
   •   Expenses and Refunds, Inspection of Farm Products

National Agricultural Statistics Service
   •   Miscellaneous Contributed Funds

Economic Research Service
   •   Miscellaneous Contributed Funds
100
      USDA AGENCY FINANCIAL REPORT | 2018



      Office of the Secretary
         •   Gifts and Bequests

      Office of Communications
         •   Gifts and Bequests

      Office of General Counsel
         •   Gifts and Bequests

      Office of the Inspector General
         •   Inspector General Assets Forfeiture, Department of Justice
         •   Inspector General Assets Forfeiture, Department of Treasury
                                                                                                                                                                                                                          101
                                                                                                                                                            SECTION II | FINANCIAL INFORMATION




                                                 AMS                  AMS                 APHIS                  FS                  FS                      FS                    FS                      FS

                                                                  Expenses and                                                                                             State, Private, and
                                               Funds for            Refunds,            Agricultural                                                                          International
                                             Strengthening       Inspection and         Quarantine                                                   Payments to States,   Forestry, Land and        Recreation Fee
                                          Markets, Income, and   Grading of Farm    Inspection User Fee                                               National Forests            Water              Demonstration
                                                 Supply             Products             Account          Cooperative Work    Land Acquisition             Fund            Conservation Fund            Program
Balance Sheet As of September 30, 2018          12X5209             12X8015              12X5161              12X8028            12X5004                 12X5201                12X5367                 12X5268

Fund Balance with Treasury                $               804    $            71    $             257     $           132     $             53       $               59    $             144     $               113
Investments                                                 -                  -                    -                   -                    -                        -                    -                       -
Other Assets                                                1                 20                  152                  11                   41                        1                   11                       4
Total Assets                                              805                 91                  409                 143                   94                       60                  155                     117

Other Liabilities                                          37                 60                    66                  79                       -                  249                     -                         3
Total Liabilities                                          37                 60                    66                  79                       -                  249                     -                         3

Unexpended Appropriations                                   -                  -                    -                    -                   -                        -                    -                       -
Cumulative Results of Operations                          768                 31                  343                   64                  94                     (189)                 155                     114

Total Liabilities and Net Position                        805                 91                  409                 143                   94                       60                  155                     117




Statement of Net Cost For the Period
Ended September 30, 2018
Gross program costs                                       724                223                   228                115                   47                      327                   46                      91
Less Earned Revenue                                         5                169                   717                105                    -                       82                    -                     100
Net Cost of Operations                                    719                 54                  (489)                10                   47                      245                   46                      (9)




Statement of Changes in Net Position
For the period Ended September 30, 2018
Net Position Beginning of Period                          519                 44                  296                 169                   92                       57                  143                      94

Non-Exchange Revenue                                        -                  -                     -                   -                   -                        -                     -                      -
Other Financing Sources                                   968                 41                  (442)                (95)                 49                        -                    58                     11
Net Cost of Operations                                   (719)               (54)                  489                 (10)                (47)                    (246)                  (46)                     9

Change in Net Position                                    249                (13)                   47                (105)                  2                     (246)                  12                      20

Net Position End of Period                $               768    $            31    $             343     $             64    $             94       $             (189)   $             155     $               114
102
             USDA AGENCY FINANCIAL REPORT | 2018


                                                      FS                  FS                  FS                   FS                  FS                  NIFA




                                                                    Restoration of       Payments to          Acquisition of      Stewardship         Native American
                                                National Forest    Forest Lands and    Counties, National   Lands to Complete      Contracting           Institutions
                                                Fund Receipts       Improvements          Grasslands         Land Exchanges       Product Sales       Endowment Fund         Other              Total
      Balance Sheet As of September 30, 2018        125008             12X5215             125896               12X5216         12X5540                    12X5205

      Fund Balance with Treasury                $          176     $            128    $            128     $             27    $            41       $            15    $       286        $           2,434
      Investments                                            -                    -                   -                    -                  -                   222              8                      230
      Other Assets                                           5                    2                   -                   51                 36                     -             13                      348
      Total Assets                                         181                  130                 128                   78                 77                   237            307                    3,012

      Other Liabilities                                       -                   2                   18                   -                 22                     -                65                  601
      Total Liabilities                                       -                   2                   18                   -                 22                     -                65                  601

      Unexpended Appropriations                              -                    -                   -                    -                  -                   167              1                      168
      Cumulative Results of Operations                     181                  128                 110                   78                 55                    70            241                    2,243

      Total Liabilities and Net Position                   181                  130                 128                   78                 77                   237            307                    3,012




      Statement of Net Cost For the Period
      Ended September 30, 2018
      Gross program costs                                     -                  44                   24                   4                  54                    6            238                    2,171
      Less Earned Revenue                                    67                   2                   25                   -                  68                    5            198                    1,543
      Net Cost of Operations                                (67)                 42                   (1)                  4                 (14)                   1             40                      628




      Statement of Changes in Net Position
      For the period Ended September 30, 2018
      Net Position Beginning of Period                     116                  193                   75                  81                 52                   226            269                    2,426

      Non-Exchange Revenue                                    -                   -                    -                   -                   -                    -                  -                    -
      Other Financing Sources                                (2)                (23)                  34                   -                 (11)                  12                 13                  613
      Net Cost of Operations                                 67                 (42)                   1                  (3)                 14                   (1)               (40)                (628)

      Change in Net Position                                 65                 (65)                  35                  (3)                     3                11                (27)                 (15)

      Net Position End of Period                $          181     $            128    $            110     $             78    $            55       $           237    $       242        $           2,411
                                                                                                                                                                103
                                                                                                                       SECTION II | FINANCIAL INFORMATION


NOTE 19: SUB-ORGANIZATION PROGRAM COSTS/PROGRAM COSTS BY SEGMENT

                                                                                                                            FPAC
FY 2018                                       FSA               CCC               NRCS               RMA               Business Center           FNS




Rural Development:
Gross Costs                               $             -   $             -   $              -   $             -   $                     -   $              -
Less: Earned Revenue                                    -                 -                  -                 -                         -                  -
Net Costs                                               -                 -                  -                 -                         -                  -

Food Safety:
Gross Costs                                             -                 -                  -                 -                         -                  -
Less: Earned Revenue                                    -                 -                  -                 -                         -                  -
Net Costs                                               -                 -                  -                 -                         -                  -

Marketing and Regulatory Programs:
Gross Costs                                             -                 -                  -                 -                         -                  -
Less: Earned Revenue                                    -                 -                  -                 -                         -                  -
Net Costs                                               -                 -                  -                 -                         -                  -

Natural Resources and Environment:
Gross Costs                                             -                 -                  -                 -                         -                  -
Less: Earned Revenue                                    -                 -                  -                 -                         -                  -
Net Costs                                               -                 -                  -                 -                         -                  -

Food, Nutrition, and Consumer Services:
Gross Costs                                             -                 -                  -                 -                         -             98,793
Less: Earned Revenue                                    -                 -                  -                 -                         -                 57
Net Costs                                               -                 -                  -                 -                         -             98,736

Farm Production and Conservation:
Gross Costs                                         2,292             9,844              4,302             5,917                         1                  -
Less: Earned Revenue                                  414               235                 40               453                         -                  -
Net Costs                                           1,878             9,609              4,262             5,464                         1                  -

Trade and Foreign Agricultural Affairs:
Gross Costs                                             -                 -                  -                 -                         -                  -
Less: Earned Revenue                                    -                 -                  -                 -                         -                  -
Net Costs                                               -                 -                  -                 -                         -                  -

Research, Education, and Economics:
Gross Costs                                             -                 -                  -                 -                         -                  -
Less: Earned Revenue                                    -                 -                  -                 -                         -                  -
Net Costs                                               -                 -                  -                 -                         -                  -

Departmental Management:
Gross Costs                                             -                 -                  -                 -                         -                  -
Less: Earned Revenue                                    -                 -                  -                 -                         -                  -
Net Costs                                               -                 -                  -                 -                         -                  -

Total Gross Costs                                   2,292             9,844              4,302             5,917                         1             98,793
Less: Total Earned Revenue                            414               235                 40               453                         -                 57
Net Cost of Operations                    $         1,878   $         9,609   $          4,262   $         5,464   $                     1   $         98,736
104
                USDA AGENCY FINANCIAL REPORT | 2018


      FY 2018                                             FSIS               AMS               APHIS               FS               FAS             ARS




      Rural Development:
      Gross Costs                                     $              -   $             -   $               -   $            -   $           -   $             -
      Less: Earned Revenue                                           -                 -                   -                -               -                 -
      Net Costs                                                      -                 -                   -                -               -                 -

      Food Safety:
      Gross Costs                                                1,413                 -                   -                -               -                 -
      Less: Earned Revenue                                         244                 -                   -                -               -                 -
      Net Costs                                                  1,169                 -                   -                -               -                 -

      Marketing and Regulatory Programs:
      Gross Costs                                                    -             1,272               1,546                -               -                 -
      Less: Earned Revenue                                           -               296                 939                -               -                 -
      Net Costs                                                      -               976                 607                -               -                 -

      Natural Resources and Environment:
      Gross Costs                                                    -                 -                   -            8,105               -                 -
      Less: Earned Revenue                                           -                 -                   -              868               -                 -
      Net Costs                                                      -                 -                   -            7,237               -                 -

      Food, Nutrition, and Consumer Services:
      Gross Costs                                                    -                 -                   -                -               -                 -
      Less: Earned Revenue                                           -                 -                   -                -               -                 -
      Net Costs                                                      -                 -                   -                -               -                 -

      Farm Production and Conservation:
      Gross Costs                                                    -                 -                   -                -               -                 -
      Less: Earned Revenue                                           -                 -                   -                -               -                 -
      Net Costs                                                      -                 -                   -                -               -                 -

      Trade and Foreign Agricultural Affairs:
      Gross Costs                                                    -                 -                   -                -             510                 -
      Less: Earned Revenue                                           -                 -                   -                -             118                 -
      Net Costs                                                      -                 -                   -                -             392                 -

      Research, Education, and Economics:
      Gross Costs                                                    -                 -                   -                -               -             1,415
      Less: Earned Revenue                                           -                 -                   -                -               -               189
      Net Costs                                                      -                 -                   -                -               -             1,226

      Departmental Management:
      Gross Costs                                                    -                 -                   -                -               -                 -
      Less: Earned Revenue                                           -                 -                   -                -               -                 -
      Net Costs                                                      -                 -                   -                -               -                 -

      Total Gross Costs                                          1,413             1,272               1,546            8,105             510             1,415
      Less: Total Earned Revenue                                   244               296                 939              868             118               189
      Net Cost of Operations                          $          1,169   $           976   $             607   $        7,237   $         392   $         1,226
                                                                                                                                                     105
                                                                                                              SECTION II | FINANCIAL INFORMATION




FY 2018                                       NIFA               ERS            NASS             RD                 DM               TOTAL




Rural Development:
Gross Costs                               $              -   $          -   $            -   $        7,106    $             -   $           7,106
Less: Earned Revenue                                     -              -                -            3,842                  -               3,842
Net Costs                                                -              -                -            3,264                  -               3,264

Food Safety:
Gross Costs                                              -              -                -                -                  -               1,413
Less: Earned Revenue                                     -              -                -                -                  -                 244
Net Costs                                                -              -                -                -                  -               1,169

Marketing and Regulatory Programs:
Gross Costs                                              -              -                -                -                  -               2,818
Less: Earned Revenue                                     -              -                -                -                  -               1,235
Net Costs                                                -              -                -                -                  -               1,583

Natural Resources and Environment:
Gross Costs                                              -              -                -                -                  -               8,105
Less: Earned Revenue                                     -              -                -                -                  -                 868
Net Costs                                                -              -                -                -                  -               7,237

Food, Nutrition, and Consumer Services:
Gross Costs                                              -              -                -                -                  -           98,793
Less: Earned Revenue                                     -              -                -                -                  -               57
Net Costs                                                -              -                -                -                  -           98,736

Farm Production and Conservation:
Gross Costs                                              -              -                -                -                  -           22,356
Less: Earned Revenue                                     -              -                -                -                  -            1,142
Net Costs                                                -              -                -                -                  -           21,214

Trade and Foreign Agricultural Affairs:
Gross Costs                                              -              -                -                -                  -                510
Less: Earned Revenue                                     -              -                -                -                  -                118
Net Costs                                                -              -                -                -                  -                392

Research, Education, and Economics:
Gross Costs                                          1,390             97              223                -                  -               3,125
Less: Earned Revenue                                    43              5               24                -                  -                 261
Net Costs                                            1,347             92              199                -                  -               2,864

Departmental Management:
Gross Costs                                              -              -                -                -              1,417               1,417
Less: Earned Revenue                                     -              -                -                -              1,060               1,060
Net Costs                                                -              -                -                -                357                 357

Total Gross Costs                                    1,390             97              223            7,106              1,417          145,643
Less: Total Earned Revenue                              43              5               24            3,842              1,060            8,827
Net Cost of Operations                    $          1,347   $         92   $          199   $        3,264    $           357   $      136,816
106
                USDA AGENCY FINANCIAL REPORT | 2018

                                                          Intradepartmental
      FY 2018                                                Eliminations           GRAND TOTAL




      Rural Development:
      Gross Costs                                     $                 (119)   $          6,987
      Less: Earned Revenue                                               (11)              3,831
      Net Costs                                                         (108)              3,156

      Food Safety:
      Gross Costs                                                        (71)              1,342
      Less: Earned Revenue                                                (2)                242
      Net Costs                                                          (69)              1,100

      Marketing and Regulatory Programs:
      Gross Costs                                                       (158)              2,660
      Less: Earned Revenue                                               (31)              1,204
      Net Costs                                                         (127)              1,456

      Natural Resources and Environment:
      Gross Costs                                                       (234)              7,871
      Less: Earned Revenue                                               (16)                852
      Net Costs                                                         (218)              7,019

      Food, Nutrition, and Consumer Services:
      Gross Costs                                                       (760)             98,033
      Less: Earned Revenue                                                 -                  57
      Net Costs                                                         (760)             97,976

      Farm Production and Conservation:
      Gross Costs                                                     (1,844)             20,512
      Less: Earned Revenue                                               (62)              1,080
      Net Costs                                                       (1,782)             19,432

      Trade and Foreign Agricultural Affairs:
      Gross Costs                                                        (40)                470
      Less: Earned Revenue                                               (59)                 59
      Net Costs                                                           19                 411

      Research, Education, and Economics:
      Gross Costs                                                       (125)              3,000
      Less: Earned Revenue                                              (115)                146
      Net Costs                                                          (10)              2,854

      Departmental Management:
      Gross Costs                                                        (84)              1,333
      Less: Earned Revenue                                              (784)                276
      Net Costs                                                          700               1,057

      Total Gross Costs                                               (3,435)            142,208
      Less: Total Earned Revenue                                      (1,080)              7,747
      Net Cost of Operations                          $               (2,355)   $        134,461
                                                                                                      107
                                                            SECTION II | FINANCIAL INFORMATION




NOTE 20: COST OF STEWARDSHIP PP&E
The acquisition cost of stewardship land in FY 2018 was $266 million.


NOTE 21: TERMS OF BORROWING AUTHORITY USED
The Secretary of Agriculture has the authority to make and issue notes to the Secretary of the
Treasury for the purpose of discharging obligations for RD’s insurance funds and CCC’s
nonreimbursed realized losses and debt related to foreign assistance programs. The permanent
indefinite borrowing authority includes both interest bearing and non-interest bearing notes.
These notes are drawn upon daily when disbursements exceed deposits. Notes payable under the
permanent indefinite borrowing authority have a term of one year. On January 1 of each year,
USDA refinances its outstanding borrowings, including accrued interest, at the January
borrowing rate.

In addition, USDA has permanent indefinite borrowing authority for the foreign assistance and
export credit programs to finance disbursements on post-credit reform, direct credit obligations,
and credit guarantees. In accordance with the Federal Credit Reform Act of 1990, as amended,
USDA borrows from Treasury on October 1, 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. Repayment under this agreement may be, in whole or in part, prior to maturity by
paying the principal amount of the borrowings plus accrued interest to the date of repayment.
Interest is paid on these borrowings based on weighted average interest rates for the cohort, to
which the borrowings are associated. Interest is earned on the daily balance of uninvested funds
in the credit reform financing funds maintained at Treasury. The interest income is used to
reduce interest expense on the underlying borrowings.

USDA has authority to borrow from the Federal Financing Bank (FFB) in the form of
Certificates of Beneficial Ownership (CBOs) or loans executed directly between the borrower
and FFB with an unconditional USDA repayment guarantee. CBOs outstanding with FFB are
generally secured by unpaid loan principal balances. CBOs outstanding are related to pre-credit
reform loans and no longer used for program financing.

FFB CBOs are repaid as they mature and are not related to any particular group of loans.
Borrowings made to finance loans directly between the borrower and FFB mature and are repaid
as the related group of loans become due. Interest rates on the related group of loans are equal to
interest rates on FFB borrowings, except in those situations where an FFB funded loan is
restructured and the terms of the loan are modified. Prepayments can be made on Treasury
borrowings without a penalty; however, they cannot be made on FFB CBOs, without a penalty.
108
      USDA AGENCY FINANCIAL REPORT | 2018



      Funds may also be borrowed from private lending agencies and others. USDA reserves a sufficient
      amount of its borrowing authority to purchase, at any time, all notes and other obligations
      evidencing loans made by agencies and others. All bonds, notes, debentures, and similar
      obligations issued by the Department are subject to approval by the Secretary of the Treasury.
      Reservation of borrowing authority for these purposes has not been required for many years.


      NOTE 22: AVAILABLE BORROWING AUTHORITY, END OF PERIOD
      Available borrowing authority at September 30, 2018 was $44,123 million.


      NOTE 23: APPORTIONMENT CATEGORIES OF OBLIGATIONS INCURRED:
      DIRECT VS. REIMBURSABLE OBLIGATIONS

      FY 2018
                                                                 Direct          Reimbursable         Total
      Apportionment by Fiscal Quarter                        $      44,690   $            2,001   $     46,691
      Apportionment for Special Activities                         119,616                1,410        121,026
      Exempt from Apportionment                                     8,418                    9           8,427
      Total Obligations Incurred                             $    172,724    $            3,420   $    176,144




      NOTE 24: UNDELIVERED ORDERS AT THE END OF THE PERIOD
      FY 2018

                              Federal          Non Federal
      Paid           $             2         $        513
      Unpaid                   2,722               58,258
      Total          $         2,724         $     58,771




      NOTE 25: PERMANENT INDEFINITE APPROPRIATIONS
      USDA has permanent indefinite appropriations available to fund (1) subsidy costs incurred under
      credit reform programs, (2) certain costs of the crop insurance program, (3) certain commodity
      program costs, and (4) certain costs associated with FS programs.

      The permanent indefinite appropriations for credit reform are mainly available to finance any
      disbursements incurred under the liquidating accounts. These appropriations become available
      pursuant to standing provisions of law without further action by Congress after transmittal of the
      budget for the year involved. They are treated as permanent the first year they become available,
      as well as in succeeding years. However, they are not stated as specific amounts but are
                                                                                                        109
                                                             SECTION II | FINANCIAL INFORMATION



determined by specified variable factors, such as cash needs for liquidating accounts, and
information about the actual performance of a cohort or estimated changes in future cash flows
of the cohort in the program accounts.

The permanent indefinite appropriation for the crop insurance program is used to cover premium
subsidy, delivery expenses, losses in excess of premiums, and research and delivery costs.

The permanent indefinite appropriation for commodity program costs is used to encourage the
exportation of agricultural commodities and products, to encourage domestic consumption of
agricultural products by diverting them, and to reestablish farmers’ purchasing power by making
payments in connection with the normal production of any agricultural commodity for domestic
consumption.

The permanent indefinite appropriation for FS programs is used to fund Recreation Fee
Collection Costs, Brush Disposal, License programs, Smokey Bear and Woodsy Owl,
Restoration of Forest Lands and Improvements, Roads and Trails for States, National Forest
Fund, Timber Roads, Purchaser Elections, Timber Salvage Sales and Operations, and
Maintenance of Quarters. Each of these permanent indefinite appropriations is funded by receipts
made available by law and is available until expended.


NOTE 26: LEGAL ARRANGEMENTS AFFECTING USE OF UNOBLIGATED
BALANCES
Unobligated budget authority is the difference between the obligated balance and the total
unexpended balance. It represents that portion of the unexpended balance unencumbered by
recorded obligations. Appropriations are provided on an annual, multi-year, and no-year basis.
An appropriation expires on the last day of its period of availability and is no longer available for
new obligations. Unobligated balances retain their fiscal-year identity in an expired account for
an additional five fiscal years. The unobligated balance remains available to make legitimate
obligation adjustments, i.e., to record previously unrecorded obligations and to make upward
adjustments in previously underestimated obligations for five years. At the end of the fifth year,
the authority is canceled. Thereafter, the authority is not available for any purpose.

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.
110
      USDA AGENCY FINANCIAL REPORT | 2018



      NOTE 27: EXPLANATION OF DIFFERENCES BETWEEN THE SBR AND THE
      BUDGET OF THE U.S. GOVERNMENT
      A comparison between the FY 2018 SBR and the FY 2018 actual numbers presented in the
      FY 2020 Budget cannot be performed as the FY 2020 Budget is not yet available. The FY 2020
      Budget is expected to be published in February 2019 and will be available from the U.S.
      Government Publishing Office.


      NOTE 28: INCIDENTAL CUSTODIAL COLLECTIONS
      Custodial collections represent collections on land leases for resource extraction, National Forest
      Fund receipts from the sale of timber and other forest products, miscellaneous general fund
      receipts such as collections on accounts receivable related to canceled year appropriations, civil
      monetary penalties and interest, and commercial fines and penalties. Custodial collection
      activities are considered immaterial and incidental to the mission of the Department.




        Revenue Activity:                                                       FY 2018
             Sources of Collections:
             Miscellaneous                                                  $         136
        Total Cash Collections                                                        136
        Accrual Adjustments                                                            (1)
        Total Custodial Revenue                                                       135
        Disposition of Collections:
        Transferred to Others:
             Treasury                                                                (119)
        ( Increase )/Decrease in Amounts Yet to be Transferred                        (16)
        Net Custodial Activity                                              $           -
                                                                                                   111
                                                              SECTION II | FINANCIAL INFORMATION




NOTE 29: FIDUCIARY ACTIVITIES
Rural Housing Insurance Fund (RHIF) was established by Public Law 89-117 pursuant to section
517 of title V of the Housing Act of 1949, which authorized RD to collect escrow payments on
behalf of new and existing Single Family Housing borrowers. Other fiduciary activities by RD
include but are not limited to collections from borrowers, interest paid on escrow accounts, and
payments to insurance agencies and taxing authorities.

                                 Schedule of Fiduciary Activity
                           For the period Ended September 30, 2018

                                                                      Rural Housing
                                                                        Insurance
                                                                          Fund
                                                                         FY 2018
  Fiduciary net assets, beginning of year                            $          116
   Fiduciary revenues                                                              -
   Contributions                                                                445
   Investment earnings                                                             -
   Gain (Loss) on disposition of investments, net                                  -
   Administrative and other expenses                                               -
   Disbursements to and on behalf of beneficiaries                             (437)
  Increases/(Decrease) in fiduciary net assets                                    8
  Fiduciary net assets, end of year                                  $          124


                                      Fiduciary Net Assets
                                   As of September 30, 2018

                                                                        Rural Housing
                                                                          Insurance
                                                                            Fund
                                                                           FY 2018
  Fiduciary Assets
   Cash and cash equivalents                                             $        124
   Investments                                                                      -
   Other assets                                                                     -
  Fiduciary Liabilities                                                             -
   Less: Liabilities                                                                -
  Total Fiduciary Net Assets                                             $        124
112
      USDA AGENCY FINANCIAL REPORT | 2018




      NOTE 30: BUDGET AND ACCRUAL RECONCILIATION
      Budgetary and financial accounting information differ. Budgetary accounting is used for
      planning and control purposes and relates to both the receipt and use of cash, as well as reporting
      the federal deficit. Financial accounting is intended to provide a picture of the government’s
      financial operations and financial position 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 reconciliation explains the relationship between the net cost of operations and net outlays by
      presenting (1) components of net cost that are not part of net outlays (e.g. depreciation and
      amortization expenses of assets previously capitalized, change in asset/liabilities);
      (2) components of net outlays that are not part of net cost (e.g. acquisition of capital assets); and
      (3) other temporary timing difference (e.g. prior period adjustments due to correction of errors).
      The analysis below illustrates this reconciliation by listing the key differences between net cost
      and net outlays.

      Other components of net operating cost not part of the budgetary outlays includes primarily cost
      capitalization offset, advances and prepayments, contingent liabilities, principal payable to
      Bureau of the Fiscal Service/Federal Financing Bank, other liabilities with/without related
      budgetary obligations, and subsidy payable to the financing account.

      Other components of the budget outlays that are not part of net operating cost includes primarily
      net borrowing authority and collections for others.
                                                                                                                                              113
                                                                                 SECTION II | FINANCIAL INFORMATION




FY2018
                                                                                     Intragovernmental       With The Public          Total
 Net Cost of Operations                                                          $              7,497    $          126,964    $   134,461
 Components of Net Operating Cost Not Part of the Budgetary Outlays:
  Property, plant, and equipment depreciation                                                       -                  (344)          (344)
  Property, plant, and equipment disposal & reevaluation                                            -                    15            15
  Year-end credit reform subsidy re-estimates                                                  (1,307)                    -         (1,307)
  Other                                                                                             1                    95            96
 Increase/(decrease) in assets:
  Accounts receivable                                                                              57                   671           728
  Loans receivable                                                                                  -                 2,115          2,115
  Other assets                                                                                      6                   360           366
 (Increase)/decrease in liabilities not affecting Budget Outlays:
  Accounts payable                                                                                 29                  (608)          (579)
  Salaries and benefits                                                                            (1)                    5              4
  Insurance and guarantee program liabilities                                                       -                (2,285)        (2,285)
  Environmental and disposal liabilities                                                            -                     -              -
  Other liabilities (Unfunded leave, unfunded FECA, actuarial FECA)                               (62)                6,823          6,761
 Other financing sources:
  Imputed financing                                                                              (987)                    -           (987)
 Total Components of Net Operating Cost Not Part of the Budget Outlays                         (2,263)                6,847          4,584
 Components of the Budget Outlays That Are Not Part of Net Operating Cost
  Acquisition of capital assets                                                                     -                   108           108
  Acquisition of inventory                                                                          -                    29            29
  Transfers out (in) without reimbursement                                                          6                     -              6
  Other                                                                                            (9)                1,239          1,230
 Total Components of Budgetary Outlays That Are Not Part of Net Operating Cost                     (3)                1,376          1,373
 Net Outlays                                                                                    5,231               135,187        140,418
 Related Amounts on the Statement of Budgetary Resources
   Outlays, Net                                                                                                                    143,272
   Distributed offsetting receipts                                                                                                  (2,854)
 Agency Outlays, Net                                                                                                           $   140,418
114
      USDA AGENCY FINANCIAL REPORT | 2018




      NOTE 31: DISCLOSURE ENTITIES AND RELATED PARTIES
      The Department exercises significant influence over the policy decisions of the Milk Market
      Orders Assessment Fund.

      The Secretary of Agriculture is authorized by the Agricultural Marketing Agreement Act of
      1937, as amended under certain conditions to issue Federal milk marketing orders establishing
      minimum prices which handlers are required to pay for milk purchased from producers. There
      are currently 10 Federally-sanctioned milk market orders in operation. Market administrators are
      appointed by the Secretary and are responsible for carrying out the terms of specific marketing
      orders. Their operating expenses are financed by assessments on regulated handlers and partly by
      deductions from producers, which are reported to the Agricultural Marketing Service (AMS).
      Most of these funds are collected and deposited in checking and savings accounts in local banks
      and disbursed directly for direct disbursement by the market administrator. A portion of the
      funds collected may be invested in securities such as certificates of deposit. Expenses of local
      offices are met from an administrative fund and a marketing service fund, which are prescribed
      in each order. The administrative fund is derived from prorated handler assessments.
      The marketing service fund of the individual order disseminates market information to producers
      who are not members of a qualified cooperative. It also provides for the verification of the
      weights, sampling, and testing of milk from these producers. The cost of these services is borne
      by such producers. The maximum rates for administrative assessment and for marketing services
      are set forth in each order and adjustments below these rates are made from time to time upon
      recommendations by the market administrator and upon approval of the AMS to provide reserves
      at about a six-month operating level. Upon termination of any order, the statute provides for
      distributing the proceeds from net assets pro rata to contributing handlers or producers.

      The AMS reports this account in the President’s Budget because milk marketing administration
      staff are excepted service. Salaries, health insurance, TSP contributions and all other federal
      benefits are paid by the marketing order funds and as a result there are no costs to the Federal
      government. As a result, corresponding dollars are reported for presentation purposes only.
      In FY 2018, the non-Federal costs of administrating Federal milk marketing orders, including
      salaries and expenses, travel, and rent for office space was estimated to be $57 million.
      The AMS Funds for Strengthening Markets, Income and Supply (Section 32) account is used to
      fund the Secretary’s oversight responsibilities of Marketing Orders.
                                                                                      115
                                                 SECTION II | FINANCIAL INFORMATION




Required Supplementary Stewardship Information

STEWARDSHIP INVESTMENTS (UNAUDITED)
                                                                     FY 2018
                                                                     Expense
Non-Federal Physical Property:
Food and Nutrition Service
     Supplemental Nutrition Assistance Program                       $      15
     Special Supplemental Nutrition Program                                  6
National Institute of Foods and Agriculture
     Extension 1890 Facilities Program                                      20
Total Non-Federal Property                                           $      41

Human Capital:
National Institute of Foods and Agriculture
     Higher Education and Extension Programs                         $    572
Food and Nutrition Service
     Supplemental Nutrition Assistance Program                              85
Agricultural Research Service
     National Agricultural Library                                          26
Risk Management Agency
     Risk Management Education                                              11
Natural Resources Conservation Service
     National Volunteer Program                                             8
Total Human Capital                                                  $    702
116
      USDA AGENCY FINANCIAL REPORT | 2018



                                                    FY 2018
                                                    Expense
      Research and Development:

      Basic Research:
      Agricultural Research Service
           Human Nutrition                          $     44
           Product Quality/Value Added                    51
           Livestock Production                           47
           Crop Production                               121
           Food Safety                                    56
           Livestock Protection                           47
           Crop Protection                               101
           Environmental Stewardship                     110
      National Institute of Foods and Agriculture
           Land-grant University System                  846
      Forest Service                                       59
      Total Basic Research                          $   1,482

      Applied Research:
      Agricultural Research Service
           Human Nutrition                          $     35
           Product Quality/Value Added                    41
           Livestock Production                           38
           Crop Production                                97
           Food Safety                                    45
           Livestock Protection                           38
           Crop Protection                                81
           Environmental Stewardship                      87
      National Institute of Foods and Agriculture
           Land-grant University System                  314
      Forest Service                                     244
      Economic Research Service
           Economic and Social Science                    86
      National Agricultural Statistics Service
           Statistical                                     5
      Natural Resources Conservation Service
           Plant Materials Centers                        12
           Soil Survey Research                             1
      Total Applied Research                        $   1,124

      Development:
      Agricultural Research Service
           Human Nutrition                          $      9
           Product Quality/Value Added                    10
           Livestock Production                            9
           Crop Production                                24
           Food Safety                                    11
           Livestock Protection                           10
           Crop Protection                                20
           Environmental Stewardship                      22
      National Institute of Foods and Agriculture
           Land-grant University System                  532
      Forest Service                                       6
      National Agricultural Statistics Service
           Statistical                                     4
      Total Development                             $    657


      Total Research and Development                $   3,263
                                                                                                     117
                                                            SECTION II | FINANCIAL INFORMATION




NON-FEDERAL PHYSICAL PROPERTY

Food and Nutrition Service (FNS)
FNS’ non-Federal physical property consists of computer systems and other equipment obtained
by State and local governments for the purpose of administering the SNAP. The total SNAP
expense for ADP Equipment & Systems has been reported as of the date of FNS’ financial
statements. FNS’ non-Federal physical property also consists of computer systems and other
equipment obtained by the State and local governments for the purpose of administering the
Special Supplemental Nutrition Program for Women, Infants, and Children.


National Institute of Food and Agriculture (NIFA)
The Extension 1890 facilities program supports the renovation of existing buildings and the
construction of new facilities as well as computers and equipment purchases that permit faculty,
students, and communities to benefit fully from the partnership between USDA and the 1890
Land-Grant Universities.


HUMAN CAPITAL

National Institute of Food and Agriculture
The higher education programs include graduate fellowship grants, competitive challenge grants,
secondary/2-year postsecondary grants, Hispanic serving institutions education grants, a
multicultural scholars program, a Native American institutions program, a Native American
institutions endowment fund, an Alaska Native serving and a Native Hawaiian serving
institutions program, resident instruction grants and distance education grants for insular areas,
and a capacity building program at the 1890 institutions. These programs enable universities to
broaden their curricula, increase faculty development and student research projects, and increase
the number of new scholars recruited in the food and agriculture sciences. NIFA also supports
extension-related work at 1862 and 1890 land-grant institutions throughout the country through
formula and competitive programs.


Food and Nutrition Service
FNS’ human capital consists of employment and training (E&T) for SNAP. The E&T program
requires recipients of SNAP benefits to participate in an employment and training program as a
condition to SNAP eligibility.

Outcome data for the E&T program is only available through the third quarter. As of this period,
FNS’ E&T program has placed 241,898 work registrants subject to the 3 month SNAP
participant limit and 906,410 work registrants not subject to the limit in either job-search, job
training, job-workfare, education, or work experience.
118
      USDA AGENCY FINANCIAL REPORT | 2018



      Agricultural Research Service (ARS)
      The National Agricultural Library (NAL) provides services directly to the staff of USDA and to
      the public, primarily via its Web site, https://www.nal.usda.gov. As the world’s leading
      agricultural library, NAL has expertise in information and knowledge management, and a wide
      variety of subject areas related to agriculture and food, including nutrition and food safety,
      animal welfare, natural resources, invasive species, lifecycle assessment, and long-term
      agroecosystem research.


      Risk Management Agency (RMA)
      Federal Crop Insurance Corporation (FCIC) has formed partnerships with NIFA, the Commodity
      Futures Trading Commission, the USDA National Office of Outreach, the Economic Research
      Service (ERS), and private industry to leverage the Federal Government’s funding of its Risk
      Management Education (RME) program by using both public and private organizations to help
      educate their members in agricultural risk management. RME expanded State and Regional
      education partnerships; encouraged the development of information and technology-based
      decision aids; facilitated local crop insurance education and risk management training workshops
      throughout the Nation through cooperative agreements with educational institutions and
      community-based outreach organizations.

      During FY 2018, the RME program worked toward its goals by funding risk management
      sessions, most of which directly target producers. The number of producers reached through
      these sessions is approximately 120,000 in FY 2018. In addition to reaching producers, some
      training sessions helped those who work with producers (such as lenders, agricultural educators,
      and other agricultural professionals) to better understand those areas of risk management with
      which they may be unfamiliar. Total RME obligations incurred by FCIC were approximately
      $11 million in FY 2018.


      Natural Resources Conservation Service (NRCS)
      NRCS’s investment in human capital is primarily for education and training programs that are
      intended to increase or maintain national economic productive capacity. Human capital
      investment also seeks to produce outputs and outcomes that provide evidence of maintaining or
      increasing national productive capacity.


      RESEARCH AND DEVELOPMENT

      Agricultural Research Service (ARS)
      ARS’ mission is to conduct research to develop and transfer solutions to agricultural problems of
      high national priority and provide information access and dissemination to: ensure high quality,
      safe food, and other agricultural products; assess the nutritional needs of Americans; sustain a
                                                                                                     119
                                                           SECTION II | FINANCIAL INFORMATION



competitive agricultural economy; enhance the natural resource base and the environment; and
provide economic opportunities for rural citizens, communities, and society as a whole.

New Products/Product Quality/Value Added
ARS has active research programs directed toward: improving the efficiency and reducing the
cost for the conversion of agricultural products into biobased products and biofuels; developing
new and improved products for domestic and foreign markets; and providing higher quality,
healthy foods that satisfy consumer needs in the United States and abroad.

Livestock Production
ARS’ research program is directed toward fostering an abundant, safe, nutritionally wholesome,
and competitively priced supply of animal products produced in a viable, competitive, and
sustainable animal agriculture sector of the U.S. economy by: safeguarding and utilizing animal
genetic resources, associated genetic and genomic databases, and bioinformatic tools; developing
a basic understanding of food animal physiology to address priority issues related to animal
production, animal well-being, and product quality and healthfulness; and developing
information, best management practices, novel and innovative tools, and technologies that
improve animal production systems, enhance human health, and ensure domestic food security.
The research is heavily focused on the development and application of genomics technologies to
increase the efficiency and product quality of beef, dairy, swine, poultry, aquaculture, and sheep
systems. Areas of emphasis include increasing the efficiency of nutrient utilization, increasing
animal well-being and reducing stress in production systems, increasing reproductive rates and
breeding animal longevity, developing and evaluating non-traditional production systems
(e.g., organic and natural), and evaluating and conserving animal genetic resources.

Crop Production
ARS’ program focuses on developing and improving ways to reduce crop losses while protecting
and ensuring a safe and affordable food supply. The program concentrates on production
strategies that are environmentally friendly, safe to consumers, and compatible with sustainable
and profitable crop production systems. Research activities are directed at safeguarding and
utilizing plant genetic resources and their associated genetic, genomic, and bioinformatic
databases that facilitate selection of varieties and/or germplasm with significantly improved
traits. Research activities attempt to minimize the impacts of crop pests while maintaining
healthy crops and safe commodities that can be sold in markets throughout the world.
The agency is conducting research to discover and exploit naturally occurring and engineered
genetic mechanisms for plant pest control, develop agronomic germplasm with durable defensive
traits, and transfer genetic resources for commercial use. ARS is also providing taxonomic
information on invasive species that strengthens prevention techniques, aids in
detection/identification of invasive pests, and increases control through management tactics that
restore habitats and biological diversity.
120
      USDA AGENCY FINANCIAL REPORT | 2018



      Food Safety
      ARS’ research program is designed to yield science-based knowledge on the safe production,
      storage, processing, and handling of plant and animal products, and on the detection and control
      of pathogenic bacteria and fungi, parasites, chemical contaminants, and plant toxins. All of ARS’
      research activities involve a high degree of cooperation and collaboration with USDA’s
      Research, Education, and Economics agencies, as well as with the Food Safety and Inspection
      Service (FSIS), Animal and Plant Health Inspection Service (APHIS), the Food and Drug
      Administration (FDA), the Centers for Disease Control and Prevention (CDC), the Department
      of Homeland Security (DHS), and the Environmental Protection Agency (EPA). The agency also
      collaborates in international research programs to address and resolve global food safety issues.
      Specific research efforts are directed toward developing new technologies that assist ARS
      stakeholders and customers, including regulatory agencies, industry, and commodity and
      consumer organizations in detecting, identifying, and controlling foodborne diseases that affect
      human health.

      Livestock Protection
      ARS’ program is directed at protecting and ensuring the safety of the Nation’s agriculture and
      food supply through improved disease detection, prevention, control, and treatment. Basic and
      applied research approaches are used to solve animal health problems of high national priority.
      Emphasis is given to methods and procedures to control animal diseases through the discovery
      and development of diagnostics, vaccines, biotherapeutics, animal genomics applications,
      disease management systems, animal disease models, and farm biosecurity measures.
      The research program has the following strategic objectives: establish ARS laboratories into a
      fluid, highly effective research network to maximize use of core competencies and resources; use
      specialized high containment facilities to study zoonotic and emerging diseases; develop an
      integrated animal and microbial genomics research program; establish core competencies in
      bovine, swine, ovine, and avian immunology; launch a biotherapeutic discovery program
      providing alternatives to animal drugs; build a technology driven vaccine and diagnostic
      discovery research program; develop core competencies in field epidemiology and predictive
      biology; establish a best-in-class training center for our Nation’s veterinarians and scientists; and
      develop a model technology transfer program to achieve the full impact of ARS research
      discoveries. The ARS animal research program includes the following core components:
      biodefense research, animal genomics and immunology, zoonotic diseases, respiratory diseases,
      reproductive and neonatal diseases, enteric diseases, parasitic diseases, and transmissible
      spongiform encephalopathies.

      Crop Protection
      ARS’ Crop Protection research program is directed to protect crops from insect and disease loss
      through research to understand pest and disease transmission mechanisms, and to identify and
      apply new technologies that increase our understanding of virulence factors and host defense
                                                                                                      121
                                                            SECTION II | FINANCIAL INFORMATION



mechanisms. The program’s research priorities include: identification of genes that convey
virulence traits in pathogens and pests; factors that modulate infectivity, gene functions, and
mechanisms; genetic profiles that provide specified levels of disease and insect resistance under
field conditions; and mechanisms that reduce the spread of pests and infectious diseases. ARS is
developing new knowledge and integrated pest management approaches to control pest and
disease outbreaks as they occur. Its research will improve the knowledge and understanding of
the ecology, physiology, epidemiology, and molecular biology of emerging diseases and pests.
This knowledge will be incorporated into pest risk assessments and management strategies to
minimize chemical inputs and increase production. Strategies and approaches will be available to
producers to control emerging crop diseases and pest outbreaks and to address quarantine issues.

Human Nutrition
Maintenance of health throughout the lifespan along with prevention of obesity and chronic
diseases via food-based recommendations are the major emphases of ARS’ Human Nutrition
Research Program. These health-related goals are based on the knowledge that deficiency diseases
are no longer the primary public health concerns in the United States; excessive consumption has
become the primary nutrition problem in the American population. This is reflected by increased
emphasis on prevention of obesity, from basic science through intervention studies to assessments
of large populations. The agency’s research program also studies essential nutrients and
nonessential, health promoting components in foods. To better define the role of nutrition in
pregnancy and growth of children, and for healthier aging, four specific areas of research are
emphasized: nutrition monitoring; the scientific basis for dietary recommendations; prevention of
obesity and related diseases; and life stage nutrition and metabolism.

Environmental Stewardship
ARS’ research program emphasis is in developing technologies and systems that support
sustainable production and enhance the Nation’s vast renewable natural resource base.
The agency is currently developing the scientific knowledge and technologies needed to meet the
challenges and opportunities facing U.S. agriculture in managing water resource quality and
quantity under different climatic regimes, production systems, and environmental conditions.

ARS’ research also focuses on developing measurement, prediction, and control technologies for
emissions of greenhouse gases, particulate matter, ammonia, hydrogen sulfide, and volatile
organic compounds affecting air quality and land-surface climate interactions. The agency is a
leader in developing measurement and modeling techniques for characterizing gaseous and
particulate matter emissions from agriculture. In addition, ARS is evaluating strategies for
enhancing the health and productivity of soils, including developing predictive tools to assess the
sustainability of alternative land management practices. Finding mechanisms to aid agriculture in
adapting to changes in atmospheric composition and climatic variations is also an important
component of this program.
122
      USDA AGENCY FINANCIAL REPORT | 2018



      ARS’ range and grazing land research objectives include the conservation and restoration of the
      Nation’s range land and pasture ecosystems and agroecosystems through improved management
      of fire, invasive weeds, grazing, global change, and other agents of ecological change.
      The agency is currently developing improved grass and forage legume germplasm for livestock,
      conservation, bioenergy, and bioproduct systems as well as grazing-based livestock systems that
      reduce risk and increase profitability. In addition, ARS is developing whole system management
      strategies to reduce production costs and risks.

      National Agricultural Library
      The library provides services directly to the staff of USDA and to the public, primarily via the
      NAL Web site. NAL is the premier library for collecting, managing, and disseminating
      agriculture information. It delivered about 38 million page views to over 5 million customers in
      FY 2018.

      Buildings and Facilities
      As the principal intramural scientific research agency of the Department of Agriculture, ARS
      operates an extensive network of more than 100 federally owned research facilities. These
      facilities are strategically located throughout the U.S., reflective of the wide geographic diversity
      and site specificity of agricultural production; distinct climatic and agroecosystem zones; and the
      numerous research partners, cooperators, and customers/users with which ARS works. These
      specialized laboratories and facilities are essential for ARS’ scientists and support personnel to
      carry out the agency’s mission.


      National Institute of Food and Agriculture (NIFA)
      NIFA participates in a nationwide land-grant university system of agriculture related research
      and program planning and coordination between State institutions and USDA. It assists in
      maintaining cooperation among the State institutions, and between the State institutions and their
      Federal research partners. NIFA administers competitive grants and capacity/formula payments
      to State institutions to leverage State and local funding for agriculture research.


      Forest Service (FS)
      Forest Service Research & Development (R&D) has an integrated portfolio that supports
      achievement of the agency’s strategic goals. The FS R&D structure has two components: Priority
      Research Areas and Strategic Program Areas (SPAs).

      The Priority Research Areas address urgent needs in seven areas: Forest Disturbances, Forest
      Inventory and Analysis, Watershed Management and Restoration, Bioenergy and Biobased
      Products, Urban Natural Resources Stewardship, Nanotechnology, and Localized Needs Research.
                                                                                                      123
                                                            SECTION II | FINANCIAL INFORMATION



The SPAs are the long-term programs from which Priority Research Areas are funded; the SPAs
are summarized here.

Wildland Fire and Fuels
R&D provides managers with the knowledge and tools to reduce negative impacts, while
enhancing the beneficial effects of wildland fire, as a natural process. This knowledge and these
tools are critical to understanding the human process of fire and fuels management on society
and the environment.

Research focuses on understanding and modeling fundamental fire processes; interactions of fire
with ecosystems; and the environmental, social, and economic aspects of fire, as well as
evaluating the integrated management strategies and disturbance interactions at multiple scales
and the application of fire research to address management problems.

Invasive Species
R&D provides the scientific information, methods, and technology to reduce or eliminate the
introduction, spread, and impact of invasive species and to restore or improve the functionality of
ecosystems affected by invasive species.

Research focuses on non-native plants, animals, fish, insects, diseases, invertebrates, and other
species whose introduction is likely to cause economic or environmental harm to an ecosystem.

Water, Air, and Soil
R&D enables the sustainable management of these essential resources by providing clear air and
safe drinking water, by protecting lives and property from wildfire and smoke, and by adapting
to climate variability and change.

The program features ecosystem services with a high level of integration between water, air, and
soil research, such as the effects of climate variability and change on water budgets or carbon
sequestration metrics from an ecosystem perspective.

Wildlife and Fish
R&D relies upon interdisciplinary research to inform policy initiatives affecting wildlife and fish
habitat on private and public lands, and the recovery of threatened or endangered species.

Scientists investigate the complex interactions among species, ecosystem dynamics and
processes, land use and management, and any emerging broadscale threats, including global
climate change, loss of open space, invasive species, and disease.
124
      USDA AGENCY FINANCIAL REPORT | 2018



      Resource Management and Use
      R&D provides the scientific and technology base to sustainably manage and use forest resources
      and forest fiber-based products.

      Research focuses on the plant sciences, soil sciences, social sciences, silviculture, productivity,
      forest and range ecology management, harvesting and operations, forest and biomass products
      and utilization, economics, urban forestry, and climate change.

      Outdoor Recreation
      R&D promotes human and ecological sustainability by researching environmental management,
      activities, and experiences that connect people with the natural world.

      Research in outdoor recreation is interdisciplinary, focusing on nature-based recreation and the
      changing trends in American society; connections between recreation visitors, communities, and
      the environment; human benefits and consequences of recreation and nature contact; the
      effectiveness of recreation management and decision-making; and sustaining ecosystems
      affected by recreational use.

      Inventory and Monitoring
      R&D provides the resource data, analysis, and tools needed to monitor forest ecosystems
      vulnerable to rapid change due to threats from fire, insects, disease, natural processes, or
      management actions. From their research, scientists determine the status and trend of the health
      of the Nation’s forests and grasslands, and the potential impact from climate change.

      Their research integrates the development and use of science, technology, and remotely sensed
      data to better understand the incidences of forest fragmentation over time from changes in land
      use or from insects, disease, fire, and extreme weather events.

      A representative summary of FY 2018 accomplishments include the following:

         •   41 new interagency agreements and contracts
         •   25 interagency agreements and contracts continued
         •   1,794 articles published in journals
         •   146 articles published in all other publications
         •   2 patents granted
         •   3 patent licenses executed
                                                                                                       125
                                                             SECTION II | FINANCIAL INFORMATION



Economic Research Service (ERS)
ERS provides economic and other social science research and analysis for public and private
decisions on agriculture, food, natural resources, and rural America. Research results and economic
indicators on these important issues are fully disseminated through published and electronic reports
and articles, special staff analyses, briefings, presentations and papers, databases, and individual
contacts. ERS’ objective information and analysis helps public and private decision makers attain
the goals that promote agricultural competitiveness, food safety and security, a well-nourished
population, environmental quality, and a sustainable rural economy.


National Agricultural Statistics Service (NASS)
NASS conducts research to improve the statistical methods and related technologies used to
produce U.S. agriculture statistics. The research agenda has two primary areas of emphasis: the
National Agriculture Statistics Service estimation program and the Census of Agriculture
program. For each, the goal is the development of improved estimates at lower cost, with
reduced respondent burden, and with valid measures of uncertainty. All facets of the estimation
process are considered, from increasing efficiencies in sampling and data collection to enhancing
the statistical methodology used to analyze the data. Two high priority items within the research
effort are exploring approaches to reducing respondent burden and model-based estimates.
The use of previously reported, remotely sensed, and administrative data have the potential to
substantially reduce respondent burden, but can also introduce bias. Assessing the best ways to
use these data and continue to produce precise statistics is a major effort. Models are used to
combine data from disparate sources, from sample surveys to remote sensing, resulting in
improved estimates with valid measures of uncertainty. Going forward, users of NASS services
and products will be increasingly dependent upon methodological and technological efficiencies.


Natural Resources Conservation Service (NRCS)
NRCS Plant Materials Centers (PMC) are research farms engaging in applied research and
development as defined in SFFAS No. 8. Overall efforts of PMCs include the selection of plants
and the development of plant technology used by NRCS and conservation partners for the
application of vegetation to solve natural resource issues on private and public lands.

The NRCS Soil Science Division (SSD) conducts soil survey research and provides leadership
for the National Cooperative Soil Survey (NCSS), which is responsible for the soils inventory of
the United States and interpreting this information to “help people help the land” through natural
resource conservation.
126
      USDA AGENCY FINANCIAL REPORT | 2018




      Required Supplementary Information

      DEFERRED MAINTENANCE AND REPAIRS (UNAUDITED)
      The Forest Service is steward to nearly 193 million acres of national forests and grasslands
      within the NFS. On these NFS lands, the agency manages major assets that are categorized as
      general PP&E, including nearly 40,000 administrative, recreation, and research buildings and
      approximately 27,000 recreational sites, such as campgrounds, picnic areas, trailheads, and
      interpretive sites.

      Across the NFS, the agency also manages over 370,000 miles of roads, of which 65,000 miles
      are for passenger vehicles; over 159,000 miles of trails for motorized and non-motorized use;
      nearly 13,400 road and trail bridges; and over 1,700 Forest Service-owned and Special Use
      Permitted dam structures.

      ARS owns/manages approximately 15 million gross square feet of facility space in
      3,000 buildings on 379,000 acres of land. APHIS operates approximately 28 facilities, which
      includes 378 buildings, in the United States and 14 facilities/buildings internationally.
      The NRCS portfolio of owned assets encompasses 29 sites, including 13 parcels of owned land,
      224 buildings, and about 221 other structures.

      Deferred Maintenance & Repairs (DM&R) estimates include capitalized PP&E, non capitalized
      heritage assets, and non capitalized or fully depreciated PP&E.

      No DM&R is reported for stewardship land because land is considered to be in acceptable
      condition unless an environmental contamination or liability is identified and the land cannot be
      used for its intended purpose. Stewardship land easements are excluded from DM&R since
      ownership is retained by the landowner.


      Defining and Implementing Maintenance and Repairs Policies in Practice
      Policies for ranking and prioritizing DM&R activities for most assets, except bridges, are based
      on condition surveys performed on a 5-year revolving schedule. Bridge class assessments occur
      on a 2-year revolving schedule. To-date, surveys of all administrative buildings, dams, bridges,
      roads open to passenger cars, and recreation sites have been accomplished. The agency’s DM&R
      for NFS passenger car roads is determined annually from random sample surveys providing a
      moderate level of confidence in the accuracy of the data reported. DM&R is not reported for
      roads that are not part of the passenger-car system.

      ARS, APHIS, and NRCS use similar condition surveys to estimate DM&R on all major classes
      of its PP&E and heritage assets.
                                                                                                     127
                                                             SECTION II | FINANCIAL INFORMATION



Ranking and Prioritizing Maintenance and Repairs Activities
Maintenance and repair activities are prioritized based on condition surveys and ranked based on
PP&E and heritage assets that pose serious threats to public health or safety, a natural resource,
or the ability of the agency to implement its mission.


Factors Considered in Setting Acceptable Condition
The standards for acceptable operating condition for various classes of PP&E and heritage assets
are as follows:

Conditions of roads and bridges within the NFS road system are measured by various standards:

   •   Federal Highway Administration regulations for the Federal Highway Safety Act.
   •   Best management practices for the nonpoint source provisions of the Clean Water Act
       from U.S. Environmental Protection Agency and States.
   •   Road management objectives developed through the National Forest Management Act
       forest planning process.
   •   Forest Service directives—Forest Service Manual (FSM) 7730, Operation and
       Maintenance; Forest Service Handbook (FSH) 7709.56a, Road Preconstruction, and
       FSH 7709.56b, Transportation Structures Handbook.

Dams in the NFS are managed according to FSM 7500, Water Storage and Transmission, and
FSH 7509.11, Dams Management Handbook. The condition of a dam is acceptable when the
dam meets current design standards and does not have any deficiencies that threaten the safety
of the structure or public. For dams to be rated in acceptable condition, the agency needs to
restore the dams to the original functional purpose, correct unsightly conditions, or prevent
more costly repairs.

Buildings in the NFS shall comply with the International Family of Building and Related Codes,
the National Fire Protection Association Life Safety Code, the Forest Service Health and Safety
Handbook, and the Occupational Safety Health Administration as determined by condition
surveys and safety inspections. These requirements are found in FSM 7310, Buildings and
Related Facilities, revised November 19, 2004.

Recreation facilities in the NFS are located within recreation sites that range from highly
developed sites to general forest areas such as campgrounds, trailheads, trails, water and
wastewater systems, interpretive facilities, and visitor centers. Recreation sites are managed in
accordance with Federal laws and regulations (Code of Federal Regulations [CFR] 36).

Detailed management guidelines are contained in FSM 2330, Publicly Managed Recreation
Opportunities, and forest- and regional-level user guides. Quality standards for developed
128
      USDA AGENCY FINANCIAL REPORT | 2018



      recreation sites in the NFS were established as Meaningful Measures for health and cleanliness,
      settings, safety and security, responsiveness, and the condition of the facility.

      Trails and trail bridges in the NFS are managed according to Federal law and regulations
      (CFR 36). More specific direction is contained in FSM 2350, Trail, River, and Similar
      Recreation Opportunities, and the FSH 2309.18, Trails Management Handbook.

      ARS, APHIS, and NRCS define acceptable condition in accordance with standards comparable
      to those used in private industry for buildings and other structures.


      Deferred Maintenance and Repair Costs
                                                    FY 2018                        FY 2018
                                                 Ending Balance               Beginning Balance

      Asset Category

      General PP&E                          $                     5,648   $                  5,342
      Heritage Assets                                               180                        149
      Total                                 $                     5,828   $                  5,491
                                                                                                                                                                                                                                                  129
                                                                                                                                                                                                    SECTION II | FINANCIAL INFORMATION



STATEMENT OF BUDGETARY RESOURCES (UNAUDITED)



                                                                                                                                                                           FPAC
                                                                                                                                                                         Business
FY 2018                                                                                    FSA                           CCC                  NRCS          RMA           Center            FNS            FSIS          AMS           APHIS
                                                                                           Non-Budgetary                 Non-Budgetary
                                                                                             Financing                     Financing
                                                                               Budgetary     Accounts       Budgetary      Accounts       Budgetary     Budgetary    Budgetary          Budgetary      Budgetary     Budgetary     Budgetary

Budgetary Resources:
Unobligated balance from prior year budget authority, net                            544             218         3,276              75         4,925           584                  -        39,173            92           255            743
Appropriations (discretionary and mandatory)                                       4,605               -         1,815               -         5,202         6,553                  1       104,479         1,070         1,536          1,331
Borrowing authority (discretionary and mandatory)                                      -           3,198         9,888             340             -             -                  -             -             -             -              -
Spending authority from offsetting collections (discretionary and mandatory)         370           1,813            46              87            65         3,760                  -            59           208           180            198
Total budgetary resources                                                          5,519           5,229        15,025             502        10,192        10,897                  1       143,711         1,370         1,971          2,272



Status of Budgetary Resources:
New obligations and upward adjustments (total) (Note 23)                           2,740           2,879        14,384             345         4,999        10,315                  1        99,734         1,295         1,464          1,520
Unobligated balance, end of year:
Apportioned, unexpired accounts                                                    2,626           1,976           341              74         2,550           578                  -         8,012            58           166            640
Exempt from apportionment, unexpired accounts                                          -               -             -               -             -             -                  -             -             -             1              -
Unapportioned, unexpired accounts                                                     78             374           299              83            (7)            -                  -         6,179             -           320              4
Unexpired unobligated balance, end of year                                         2,704           2,350           640             157         2,543           578                  -        14,191            58           487            644
Expired unobligated balance, end of year                                              75               -             1               -         2,650             4                  -        29,786            17            20            108
Unobligated balance, end of year (total)                                           2,779           2,350           641             157         5,193           582                  -        43,977            75           507            752
Total budgetary resources                                                          5,519           5,229        15,025             502        10,192        10,897                  1       143,711         1,370         1,971          2,272

Budget Authority and Outlays, Net
Outlays, net (discretionary and mandatory)                                         2,117             679        12,442             (90)        3,991         6,525                  1        97,234         1,069         1,107          1,219
Distributed offsetting receipts (-)                                                    -            (178)           (1)            (30)           (5)            -                  -            (6)          (14)         (169)           (10)
Agency outlays, net (discretionary and mandatory)                              $   2,117   $         501    $   12,441 $          (120)   $    3,986    $    6,525   $              1   $    97,228    $    1,055    $      938    $     1,209
130
      USDA AGENCY FINANCIAL REPORT | 2018




      FY 2018                                                                            FS           FAS          ARS           NIFA          ERS            NASS                  RD                     DM                   TOTAL
                                                                                                                                                                                    Non-Budgetary                                  Non-Budgetary
                                                                                                                                                                                       Financing                                     Financing
                                                                                     Budgetary    Budgetary    Budgetary     Budgetary     Budgetary      Budgetary    Budgetary       Accounts       Budgetary       Budgetary       Accounts

      Budgetary Resources:
      Unobligated balance from prior year budget authority, net                          1,540          187           297           610               4            6        7,853           3,177           366          60,455            3,470
      Appropriations (discretionary and mandatory)                                       7,290          406         1,386         1,573              87          192        5,957               -           431         143,914                -
      Borrowing authority (discretionary and mandatory)                                      -            -             -             -               -            -            -          13,670             -           9,888           17,208
      Spending authority from offsetting collections (discretionary and mandatory)         811          256           160            35               2           24        2,595           3,667         1,069           9,838            5,567
      Total budgetary resources                                                          9,641          849         1,843         2,218              93          222       16,405          20,514         1,866         224,095           26,245



      Status of Budgetary Resources:
      New obligations and upward adjustments (total) (Note 23)                           8,476          525         1,413         1,619              91          222        7,111          15,535         1,476         157,385           18,759
      Unobligated balance, end of year:
      Apportioned, unexpired accounts                                                    1,108          163           413           666               -            -        3,210           4,497           338          20,869            6,547
      Exempt from apportionment, unexpired accounts                                          -            -             -             -               -            -            -               -             -               1                -
      Unapportioned, unexpired accounts                                                     52            9             1           (86)              -            -        5,985             482            11          12,845              939
      Unexpired unobligated balance, end of year                                         1,160          172           414           580               -            -        9,195           4,979           349          33,715            7,486
      Expired unobligated balance, end of year                                               5          152            16            19               2            -           99               -            41          32,995                -
      Unobligated balance, end of year (total)                                           1,165          324           430           599               2            -        9,294           4,979           390          66,710            7,486
      Total budgetary resources                                                          9,641          849         1,843         2,218              93          222       16,405          20,514         1,866         224,095           26,245

      Budget Authority and Outlays, Net
      Outlays, net (discretionary and mandatory)                                         7,234          369         1,148         1,344              87          190        3,140            3,116         350          139,567            3,705
      Distributed offsetting receipts (-)                                                 (736)          (3)          (25)           30               -            4           (4)          (1,684)        (23)            (962)          (1,892)
      Agency outlays, net (discretionary and mandatory)                              $   6,498    $     366    $    1,123    $    1,374    $         87   $      194   $    3,136 $          1,432    $    327    $     138,605 $          1,813
                                                                                                   131
                                                          SECTION II | FINANCIAL INFORMATION




RISK ASSUMED INFORMATION (UNAUDITED)
Risk assumed is generally measured by the present value of unpaid expected losses net of
associated premiums based on the risk inherent in the insurance or guarantee coverage in force.
Risk assumed information is in addition to the liability for unpaid claims from insured events
that have already occurred. The assessment of losses expected based on the risk assumed are
based on actuarial or financial methods applicable to the economic, legal and policy environment
in force at the time the assessments are made. The FCIC has estimated the loss amounts based on
the risk assumed for its programs to be $7,849 million as of September 30, 2018.
132
      USDA AGENCY FINANCIAL REPORT | 2018




      Section III:
      Other Information
      Response to Management Challenges
      The Reports Consolidation Act of 2000 requires the U.S. Department of Agriculture’s (USDA)
      Office of Inspector General (OIG) to report annually on the most serious management
      challenges USDA and its agencies face. To identify these Departmental challenges, OIG
      provides an annual assessment of the previous year’s challenges to determine if they are still
      critical challenges; examines recently issued audit reports to identify critical issues that remain
      topical and where corrective action has not been satisfactorily implemented; identifies repeated
      inquiries or hotline trends in risk areas; assesses ongoing audit and investigative work to
      identify new issues; and analyzes new programs and activities that pose significant challenges
      due to size and complexity.

      Based on OIG’s review of the challenges cited in fiscal year (FY) 2017, it concluded that these
      challenge areas continue to be critical for the Department. No challenges have been removed or
      added to this year’s report. Each challenge includes a discussion of the Department’s progress
      in addressing it as well as what remains to be done, if applicable.

      The following narratives summarize:

         •   OIG-recognized management challenges;
         •   USDA’s FY 2018 agency accomplishments; and
         •   FY 2019 planned actions to address these management challenges.


      CHALLENGE 1:
      MANAGEMENT NEEDS TO IMPROVE OVERSIGHT AND ACCOUNTABILITY
      FOR ITS PROGRAMS
      USDA, much like other agencies and departments throughout the Government, faces challenges
      in overseeing its many programs. USDA employs nearly 100,000 employees in 16 agencies and
      19 staff offices; in total, these employees operate approximately 300 programs responsible for
      delivering about $143 billion in public services annually. Overseeing these programs to ensure
                                                                                                     133
                                                               SECTION III | OTHER INFORMATION




that every dollar spent accomplishes its intended results for United States (U.S.) agriculture and
the American public poses significant challenges for USDA program managers.

USDA managers are responsible for establishing an effective internal control system, ensuring
a culture of compliance with those controls, and holding employees accountable for
implementing those controls. Managers use internal controls to ensure programs achieve
intended results efficiently and effectively, and they provide for program integrity and proper
stewardship of USDA’s resources.


OIG DETERMINED THE FOLLOWING:
   •   Agricultural Marketing Service (AMS) needs to strengthen its controls over the
       approval and oversight of international trade arrangements and agreements for the
       import of organic products into the United States;
   •   AMS’ process for determining equivalency of organic standards of foreign countries
       when compared to U.S. standards lacks transparency;
   •   AMS’ National Organic Program officials maintain documentation of the process to
       resolve differences between U.S. and foreign organic standards, but they did not have a
       methodology in place to disclose the results of that process to stakeholders;
   •   Food and Nutrition Service (FNS) needs to improve its monitoring and oversight of the
       Summer Food Service Program (SFSP). FNS’ primary monitoring control for ensuring
       SFSP integrity lacked the necessary documentation to confirm whether it was
       completed correctly and contained valid conclusions; and
   •   Office of Homeland Security and Emergency Coordination (OHSEC) had not
       adequately overseen and coordinated USDA’s efforts to prevent, detect, and respond
       to agroterrorism.


CORRECTIVE ACTIONS COMPLETED AND PLANNED:
Agricultural Marketing Service
The National Organic Program has updated its description of the equivalency procedure on the
AMS Web site. The description states, “If USDA determines that the foreign government’s
organic system is equivalent, the two governments exchange official letters and the terms of
equivalency arrangement, including any product exception if the systems are not equivalent in
specific areas. Once this process is complete, AMS will publicly disclose on its Web site the
terms of the determination and the final resolution of differences between the U.S. and foreign
government’s system.” In March 2019, AMS will publish a proposed rule that will include a
side-by-side analysis of the foreign government’s organic system to the U.S. system, and other
organic enforcement-related items.
134
      USDA AGENCY FINANCIAL REPORT | 2018




      Food and Nutrition Service
      In FY 2018, FNS convened a committee to address the key corrective actions needed to
      improve monitoring and oversight of the SFSP. FNS began and will continue its efforts to
      implement and/or disseminate the following:

         •   A centralized Management Evaluation (ME) documentation and work paper
             management protocol for agency use during all SFSP ME reviews;
         •   Instructions detailing requirements of the aforementioned protocol and a requirement
             that ME reviewers document affirmative findings within the ME Tool workbook; and
         •   Training materials for FNS staff to learn and institutionalize improved ME
             documentation protocols.

      Office of Homeland Security and Emergency Coordination
      OHSEC developed, implemented, and provided oversight to agencies based on the
      Agroterrorism Prevention, Detection, and Response Standard Operating Procedures.
      These procedures standardized and consolidated annual data calls; instituted the tracking of
      agency responses to the data calls; and prescribed a methodology to obtain information from
      agencies regarding the purpose, frequency, and outcomes of exercises related to agroterrorism.
      A data call was completed in FY 2018 to support the Sector Annual Report and the Homeland
      Security Presidential Directive (HSPD)-9 Report. To date, no USDA agencies have reported
      any agroterrorism-related exercises, however, OHSEC will solicit updates again in the first
      quarter of FY 2019. Additionally, OHSEC is in the process of revising Departmental
      Regulation (DR) 1800-001 “Incident Preparedness, Response, and Recovery” and
      Departmental Manual (DM)1800-001 “Incident Preparedness, Response, and Recovery” to
      codify the process of how OHSEC will oversee and coordinate USDA’s agroterrorism
      prevention, detection, and response activities. In FY 2020, OHSEC will work with the
      U.S. Department of Homeland Security (DHS); the U.S. Food and Drug Administration; other
      federal agencies, State, local, Tribal and territorial partners; academia and private-sector
      stakeholders to update the Food and Agriculture Sector Specific Plan.
                                                                                                        135
                                                                SECTION III | OTHER INFORMATION




CHALLENGE 2:
INFORMATION TECHNOLOGY SECURITY NEEDS CONTINUOUS
IMPROVEMENT
As technology advances, so do the threats to information technology (IT) security. While
USDA has taken actions to improve its IT security, the Department continues to display
weaknesses in planning, managing, and overseeing its cybersecurity initiatives. This, in turn,
affects USDA’s compliance with standards for safeguarding IT systems, as directed in the
Federal Information Security Modernization Act of 2014 (FISMA). USDA senior management
needs to ensure that agencies and offices understand that their individual IT security posture
directly affects the degree to which USDA complies with FISMA and other security guidance.
For USDA to attain a sustainable and secure IT posture, all 35 of its agencies and offices must
consistently implement Departmental policy based on a standard methodology. When every
agency and office complies with USDA’s policies, USDA as a whole will be compliant with
FISMA and, more importantly, have a sustainable security posture.

USDA must efficiently manage vast amounts of data to accomplish its mission of providing
benefits and services to the American public. Critical information stored in USDA IT systems
includes agriculture statistics that drive domestic and global markets or data from inspection
systems that ensure food safety. USDA employees must be able to access, use, and
communicate this information reliably and in a timely manner. Members of the public apply for
and access many USDA programs, benefits, and other services through online or mobile portals,
which can require the transfer of personal information. USDA has a responsibility to safeguard
this information by protecting the security, confidentiality, and integrity of its IT infrastructure.


OIG DETERMINED THE FOLLOWING:
The Department faces great challenges in complying with the 2014 FISMA:

   •   The Office of the Chief Information Officer (OCIO) has not implemented corrective
       actions that the Department committed to in response to prior OIG recommendations.
       Of the 67 recommendations made by OIG in FYs 2009 through 2016, OCIO has made
       progress in implementing corrective action; 27 recommendations are outstanding, and
       26 are overdue and require OCIO to issue critical policy and corrective action; and
   •   OCIO policies and programs designed to address FISMA requirements have not been
       completed or fully implemented, and USDA has not fully developed an organizational
       perspective that includes a comprehensive governance structure and organization-wide
       risk management strategy.
136
      USDA AGENCY FINANCIAL REPORT | 2018




      CORRECTIVE ACTIONS COMPLETED OR PLANNED:
      Office of the Chief Information Officer
      OCIO continues to work closely with DHS on the installation, configuration, and testing of
      Phase 1 of the Operational Readiness Review of Continuous Diagnostics and Mitigation
      (CDM) components throughout the USDA Enterprise. OCIO will continue to work closely with
      DHS on the planning and design for Phase 2 of CDM implementation at USDA.

      In FY 2018, OCIO developed a plan to document corrective actions on all open audit
      recommendations using the Agile approach. OCIO assigned a team of subject matter experts to
      document corrective actions and request final action from the Department. OCIO anticipates
      closing 50 percent of the open audit recommendations by the end of FY 2018, and closing the
      remainder by the end of FY 2019.

      OCIO continues to coordinate IT Security Risk Management activities with the component
      agencies. OCIO and the agencies have prioritized efforts to correct deficiencies of specific IT
      security control elements and meet bi-weekly with agencies to review compliance progress.
      OCIO anticipates completing corrective actions in FY 2019.


      CHALLENGE 3:
      USDA NEEDS TO STRENGTHEN PROGRAM PERFORMANCE AND
      PERFORMANCE MEASURES
      Designing, developing, and implementing programs that reliably achieve their intended results
      has been a recurring challenge for the Department. OIG found that agencies do not have adequate
      reviews or controls in place to supply the metrics necessary to evaluate program performance.
      In some programs, the strategy for measuring performance is missing altogether. As a result,
      some agencies are using inaccurate or unreliable data in program performance reports.

      USDA manages approximately 300 programs that provide a variety of services and financial
      assistance to the American public. This diverse portfolio of programs means that, for the
      Department to serve as a diligent steward of Federal funds, USDA must have well-designed
      programs with clear goals and performance measures.

      The Government Performance and Results Modernization Act of 2010 set requirements for
      regular and recurring program performance assessment. In keeping with the law, an agency
      should have controls in place that allow it to regularly review a program’s performance, and
      then compile reports that allow it to measure that performance. These reports allow the
      Department to fairly evaluate its programs’ successes and failures.
                                                                                                  137
                                                            SECTION III | OTHER INFORMATION




OIG DETERMINED THE FOLLOWING:
   •   Foreign Agricultural Service (FAS) had not updated its Country Strategy Statements
       (CSS) to align with the goals and objectives contained in the Strategic Plan;
   •   FAS needs to incorporate clear, outcome-based performance measures into the
       2013 CSS that align with the FAS and USDA strategic goals; and
   •   FAS needs to coordinate with the Department to update the performance measures related
       to trade policy and trade promotion in the Performance and Accountability Report and the
       Annual Performance Plan. This will allow FAS to better capture overall agency
       effectiveness and achievements and include goals related to the U.S. market share.


CORRECTIVE ACTIONS COMPLETED OR PLANNED:
Foreign Agricultural Service
FAS is working with the USDA’s Office of Budget and Program Analysis to update the
performance measures related to trade policy and trade promotion that are included in the
USDA Agency Financial Report and included in the Annual Performance Report and Plan.
Guidance for the annual review of CSS will be issued in 2019. This guidance will align to the
2019 FAS Strategic Plan and will properly align performance indicators.

CHALLENGE 4:
USDA NEEDS TO STRENGTHEN CONTROLS OVER IMPROPER PAYMENTS
AND FINANCIAL MANAGEMENT
USDA continues to be noncompliant with Federal requirements for improper payments. Also,
USDA needs to address internal control deficiencies to resolve ongoing problems with financial
management and reporting.

The Department’s annual financial reports provide the public, Congress, and the President with
information about the nearly $143 billion spent on public services every year. These reports
account for USDA’s costs and revenues, assets and liabilities, and other information, such as
improper payments. OIG reviews the Department’s financial reports annually, as required by law,
to verify accuracy and compliance with Federal rules regarding high-dollar overpayments and
improper payments. Improper payments occur when funds go to the wrong or ineligible recipient,
the proper recipient receives an incorrect amount of funds or uses funds in an improper manner,
or documentation is not available to support a payment. Not all improper payments involve fraud
or waste; payment errors are sometimes inadvertent or based on missing documentation.
Regardless of origin, improper payments affect the integrity of Federal programs.
138
      USDA AGENCY FINANCIAL REPORT | 2018




      OIG DETERMINED THE FOLLOWING:
      USDA did not comply with all requirements set by the Improper Payments Information Act
      (IPIA) of 2002, as amended, for the seventh consecutive year. USDA reported improper
      payments information for 10 programs identified as susceptible to significant improper
      payments and complied with three of the six requirements. However, six of 10 high-risk
      programs did not comply with one or more requirements as follows: (1) publishing an improper
      payment estimate as required; (2) meeting annual reduction targets; and/or (3) publishing gross
      improper payment rates of less than 10 percent.
         •   FNS should submit to Congress proposed statutory changes to bring the Supplemental
             Nutrition Assistance Program (SNAP) into compliance; and
         •   Farm Service Agency (FSA) needs to submit a plan to the Senate Committee on
             Homeland Security and Governmental Affairs, the House Committee on Oversight and
             Government Reform, and the Office of Management and Budget describing the actions
             that the agency will take to make the Noninsured Crop Disaster Assistance Program
             (NAP) compliant.

      Another opportunity for progress relates to the need for additional oversight over financial
      reporting controls. OIG determined that:

         •   USDA needs to provide additional oversight to ensure that financial reporting controls
             over unliquidated obligations are strengthened and maintained;
         •   Commodity Credit Corporation (CCC) should design and implement processes,
             procedures, and controls to ensure data used in its accounting estimates are complete
             and accurate; and
         •   The Natural Resources Conservation Service (NRCS) has material weaknesses in
             internal control in accounting for obligations and expenses.


      CORRECTIVE ACTIONS COMPLETED OR PLANNED FOR IPIA:
      Food and Nutrition
      On June 28, 2017, the USDA Deputy Secretary submitted FNS’ strategy for addressing
      SNAP’s noncompliance of the Improper Payments and Recovery Act (IPERA) to Congress.

      Farm Service Agency
      FSA has met measurable milestones and has enacted multiple corrective actions including:
         •   Issuance of Notice NAP-188, which required each State to create a NAP review team to
             analyze selected NAP payments for errors and to correct those errors within 30 days;
                                                                                                 139
                                                            SECTION III | OTHER INFORMATION




   •   Issuance of Notice NAP-189, which emphasized the responsibility of the County Office
       to maintain signatures and dates in the approved yield software; and
   •   Development and implementation of automated payment software to aid in the
       reduction of administrative and process errors.


CORRECTIVE ACTIONS COMPLETED OR PLANNED FOR FINANCIAL REPORTING:
Office of the Chief Financial Officer
The Office of the Chief Financial Officer (OCFO) provided additional oversight to ensure that
controls over financial reporting were strengthened and maintained, including those over
Unliquidated Obligations (ULO) and transactions resulting in negative (abnormal) fund
balances. The following corrective actions were completed:
   •   Required agencies and staff offices with ULO deficiencies resulting from the 2017 audit
       to create corrective action plans to remediate deficiencies;
   •   Monitored component agencies’ progress in completing remediation of existing
       corrective action plans related to the ULO process;
   •   Performed spot testing of component agencies’ ULO testing results;
   •   Developed a standard testing plan for abnormal balances;
   •   Enhanced monitoring of monthly abnormal balance reports; and
   •   Performed standard testing for abnormal balances.
   •   Also, OCFO provided oversight to ensure that property is classified properly, including
       Work-in-Progress (WIP) and lease agreements.

OCFO completed the following corrective actions:
   •   Reviewed disclosure requirements for leases with agencies at the Coordinating
       Committee meetings;
   •   Issued OCFO Bulletin 17-06, “Leases Financial Statement Disclosure,” that provided
       Departmental guidance to USDA agencies to improve the process for collecting and
       disclosing lease data in the financial statements;
   •   Compiled lease data for footnote disclosure and updated Lease Note 16 in the FY 2017
       Agency Financial Report;
   •   Issued OCFO Bulletin, “Reviewing and Tracking Property, Plant, and Equipment
       Work-in-Progress,” that provided guidance to USDA agencies for reviewing and
       tracking any property, plants, and equipment; and
   •   Reviewed accounting for WIP with FSA and the Forest Service (FS).
140
      USDA AGENCY FINANCIAL REPORT | 2018




      Commodity Credit Corporation
      CCC finalized its plan for implementation of the estimation methodology for accruals and
      advances. CCC also implemented and documented a review process to ensure that estimation
      methodology and look-back analyses are reviewed with the appropriate level of precision to
      determine the reasonableness of the accrual or advance calculation. The process was redefined
      to include management’s assessment of the validity of the estimates, as well as the accuracy
      and completeness of the data used to complete the advances and accruals for the grant portfolio.
      Also, CCC completed enhancements to the calculator that address classification, hybrid grants,
      cash basis reporting, and multi-funding.

      Natural Resources Conservation Service
      NRCS implemented a six-digit budget fiscal year that will provide accessible, searchable, and
      reliable data. The new structure will allow the agency to track agency spending and facilitate
      the identification of upward and downward adjustments. Currently, NRCS is compensating for
      the lack of enhancements in the new upward/downward remediation process until the ProTract
      enhancements are completed.

      NRCS implemented the Reconciliation Exception report to ensure completed acquisitions and
      agreements have been recorded in the FMMI. NRCS will analyze and verify the validity of the
      results from the Integrated Acquisition System (IAS) and FMMI will implement ServiceNow to
      ensure all completed acquisitions and agreements are being recorded in the financial system.

      To determine if NRCS is achieving objectives and addressing risks related to operational
      processes, NRCS will develop, document, and implement a process to evaluate the roles of
      service organizations, assess controls at those service organizations, and identify and assess the
      complementary end-user controls (CUECs) of those service organizations.


      CHALLENGE 5:
      USDA NEEDS TO IMPROVE OUTREACH EFFORTS
      USDA has emphasized its efforts to improve outreach to new and beginning farmers and
      ranchers, local and regional food producers, minorities, women, and veterans. As part of those
      efforts, the Department has stressed the importance of civil rights, highlighting that significant
      progress needs to be made in working with communities when addressing past civil rights
      issues. Due to the public’s perception of USDA regarding how it has historically treated
      members of socially disadvantaged groups, the Department is continually challenged to find
      effective ways to encourage and support all citizens in their agribusiness endeavors, especially
      those within underrepresented groups.
                                                                                                  141
                                                             SECTION III | OTHER INFORMATION




USDA has emphasized its efforts to improve outreach to socially disadvantaged farmers and
ranchers, including new and beginning farmers and ranchers, local and regional food producers,
veterans, disabled individuals, women, or minorities as defined by the Federal Civil Rights and
Americans with Disabilities legislation. FSA conducts outreach through planned activities that
raise awareness of FSA programs. Traditional outreach methods include activities such as the
following: (1) publishing articles in newsletters and local newspapers; (2) making
announcements through local radio and television stations; and (3) partnering with
community-based groups, non-governmental organizations, or other USDA agencies to
organize or attend public meetings, fairs, or other farm-related events. FSA’s method of
program outreach also includes the use of innovative marketing methods that specifically target
underrepresented groups in order to: (1) educate the public about FSA programs and services;
(2) eliminate participation barriers; and (3) increase program participation.

One of FSA’s programs whose equity and effectiveness depends on conscious, targeted
outreach is the Microloan Program. FSA’s Microloan Program is designed to better serve the
unique financing needs of beginning, niche, and small family farm operations, including those
owned by socially disadvantaged farmers. Furthermore, the Agricultural Act of 2014 created a
permanent authorization for the Microloan Program and made additional changes such as
exempting beginning and military veteran producers from term limits and providing these
producers with an optional lower interest rate (applicable in years when regular interest rates
are higher). The Microloan Program offers flexible access to credit and serves as an attractive
loan alternative for smaller farm operations, including non-traditional farm operations that
often face limited financing options.


OIG DETERMINED THE FOLLOWING:
The Department has made progress in improving its outreach efforts when OIG or other third
parties, such as the Government Accountability Office (GAO), have identified deficiencies.

Since OIG’s review of the Microloan Program, the FSA national office not only reports its
outreach efforts to the Administrator quarterly, but has also added an outreach component
performance measure to all field employees’ evaluations, allotted outreach funding to States,
and increased funding to States to cover outreach-related travel expenses. Regular reporting of
these enhanced outreach efforts will provide transparency and an opportunity for FSA to
conduct ongoing performance assessments to identify areas for further improvement.

The Department has addressed all recommendations OIG has currently issued. OIG looks
forward to the positive impact of more effective outreach encouraging the participation of
underrepresented groups.
142
      USDA AGENCY FINANCIAL REPORT | 2018




      CHALLENGE 6:
      FOOD SAFETY INSPECTIONS NEED IMPROVED CONTROLS
      The Food Safety and Inspection Service (FSIS) took action to improve food safety and the
      humane handling of animals at the plants FSIS inspects. However, OIG has found that FSIS
      continues to face challenges gathering reliable data to help ensure safety verification tasks are
      completed, effective, and consistent. FSIS also continues to face challenges in training,
      documenting, tracking, overseeing, testing, and verifying that the Nation’s commercial supply
      of meat, poultry, and egg products complies with regulatory requirements.

      The Federal Meat Inspection, Poultry Products Inspection, and Egg Products Inspection Acts
      authorize FSIS to regulate food ingredients used in the production of meat, poultry, and egg
      products. According to these acts, any meat, poultry, or egg product intended for human
      consumption must have proper labeling declaring major allergens in any amount, even trace
      amounts. Therefore, any ingredient used in producing meat, poultry, and egg products and
      intended for human consumption must have proper labeling to declare the inclusion of any of
      the eight major (“Big 8”) allergens defined by the Federal Food, Drug, and Cosmetic Act.
      FSIS has implemented a number of actions to alert and protect the American public by ensuring
      the proper identification and labeling of allergens in meat, poultry, and egg products. One of
      these actions included the release of a directive to FSIS inspectors, which provided verification
      instructions to guide inspectors in their duty to ensure that products with allergens are properly
      labeled. Proper identification and labeling of potential allergens in food products is critical to
      FSIS’ ability to protect vulnerable populations with food allergies and sensitivities.


      OIG DETERMINED THE FOLLOWING:
         •   FSIS has weaknesses in how they oversee the plant inspection process, collect critical
             information, comply with humane handling requirements, and schedule food safety
             assessments;
         •   FSIS did not always follow corrective actions as designed to prevent reported
             conditions from recurring. FSIS officials either did not effectively monitor or did not
             hold their staff accountable when these actions did not correct the problems identified;
         •   FSIS must enhance its methods of verifying labels for undeclared allergens to that of a
             more robust approach;
         •   FSIS needs to improve how it monitors and documents food safety tasks specific to
             allergens; and
         •   FSIS must develop and document, as part of its annual ongoing equivalence verification
             audit planning process, how foreign countries are selected for ongoing equivalence
             verification audits.
                                                                                                      143
                                                              SECTION III | OTHER INFORMATION




CORRECTIVE ACTIONS COMPLETED AND PLANNED:
Food Safety and Inspection Service
FSIS incorporated a graded approach to conduct periodic follow-up reviews on the
effectiveness of the corrective actions implemented from the prior audit recommendations in
the 2007 and 2008 audits into its management control audit processes.

FSIS has conducted a comprehensive review of directives and notices associated with allergens
to ensure that allergen verification is a Priority 313 Task in all appropriate directives and
notices. The agency finalized updates to FSIS Directive 7230.1, “Ongoing Verification of
Product Formulation and Labeling Targeting the Eight Most Common (“Big 8”) Food
Allergens,” which is the policy document associated with allergens. FSIS is also finalizing the
Big 8 Formulation Verification Task questionnaire that will accompany the directive.

FSIS reviewed the “Big 8” formulation verification task instructions in the Public Health
Information System (PHIS) to ensure consistency with the instructions in FSIS Directive
7230.1, “Ongoing Verification of Product Formulation and Labeling Targeting the Eight Most
Common (“Big 8”) Food Allergens.” FSIS updated the PHIS “Inspector Task Guidance”
instructions to ensure consistency with FSIS Directive 7230.1 instructions.

On July 26, 2018, FSIS re-issued Directive 9780.1, “Verifying the Ongoing Equivalence of
Foreign Food Safety Inspection Systems” that provided updated instructions to FSIS personnel
with clarifying procedures for annual planning and the selection process for annual ongoing
equivalence verification audits. Specifically, the instructions in the directive outlined
procedures for annual planning and the selection process that must be completed and outlined
by FSIS’ International Audit Branch in collaboration with the FSIS International Equivalence
Staff for annual ongoing equivalence verification audits. These FSIS Directive 9780.1
instructions will be completed by July 31 of each calendar year in order to have an approved
Audit Schedule of Foreign Countries Decision Memorandum for the next fiscal year.




13FSIS ranks tasks by priority from 1 to 6, with 1 as the highest priority and 6 the lowest. Based
on the recent increase in recalls related to undeclared allergens, FSIS has identified the allergen
formulation verification task as a priority 3.
144
      USDA AGENCY FINANCIAL REPORT | 2018




      CHALLENGE 7:
      FNS NEEDS TO STRENGTHEN SNAP MANAGEMENT CONTROLS
      Although FNS has endeavored to improve management controls for SNAP, weaknesses
      continue to exist in controls over benefit distribution and quality control (QC) processes.
      The potential exists for billions of dollars of taxpayer-funded assistance not to be delivered or
      used as intended.

      As the largest benefit program within USDA and one of the largest in the Federal Government,
      SNAP presents a unique challenge for the program’s managers. In FY 2017, SNAP provided
      monthly food assistance for over 42 million low-income individuals and disbursed almost
      $64 billion in benefits.

      Given SNAP’s size and significance, fraud, waste, and abuse are critical concerns. OIG’s audit
      focused on improving the efficiency of program administration and maintaining the integrity of
      Federal funds. Further, USDA loses hundreds of millions of dollars every year to fraud and
      crime associated with SNAP and other FNS food assistance programs.


      OIG DETERMINED THE FOLLOWING:
         •   States have weakened the QC process by using third-party consultants and error review
             committees to mitigate QC-identified errors instead of reporting them;
         •   FNS’ current two-tier process is vulnerable to State abuses, does not meet SNAP
             regulatory requirements, and does not have sufficient FNS oversight;
         •   Some authorized SNAP retailers listed owners whose Social Security Numbers
             belonged to either people who were deceased or underage;
         •   FNS has not designed controls that would allow the data to reveal problems between the
             two information systems FNS uses to administer SNAP;
         •   FNS needs to finalize procedures to identify and reconcile discrepancies between the
             two information systems; and
         •   FNS needs to issue a clarification memorandum reiterating the importance of FNS and
             State agency compliance with FNS Instruction 113-1, “Civil Rights Compliance and
             Enforcement—Nutrition Programs and Activities.”
                                                                                                145
                                                            SECTION III | OTHER INFORMATION




CORRECTIVE ACTIONS COMPLETED AND PLANNED:
Food and Nutrition Service
FNS is awaiting completion of the study titled, “Feasibility of Revising the SNAP Quality
Control Review Process.” The results of the study will determine what actions FNS will need
to implement a one-tier QC system.

FNS completed their review of 1,819 owners on the Death Master File to verify the identity of
the owners, and took the necessary action to correct data that was incorrect, and removed any
owners who were no longer living.

FNS is currently researching and determining the procedures necessary to design controls to
identify deceased and underage owners and correct or update this information as needed.

FNS will be updating FNS Instruction 113-1 and will be issuing a memorandum reiterating the
importance of FNS employees, and State agencies’ compliance with the Instruction that
enforces the prohibition against discrimination in all FNS nutrition programs.

The OIG USDA Management Challenges Report issued August 31, 2018, may be viewed in its
entirety at the following Web site: https://www.usda.gov/oig/webdocs/
MgmtChallenges2018.pdf
146
      USDA AGENCY FINANCIAL REPORT | 2018




      Summary of Financial Statement Audit and
      Management Assurances

      SUMMARY OF EXISTING MATERIAL WEAKNESSES
      The U.S. Department of Agriculture’s (USDA) material weaknesses and financial system
      non-conformance, as related to management’s assurance for the Federal Managers’ Financial
      Integrity Act (FMFIA) and the certification for the Federal Financial Management
      Improvement Act (FFMIA), are listed in Exhibit 23 and Exhibit 24.

      EXHIBIT 23: Summary of Financial Statement Audit
      Audit Opinion: Unmodified 2018 Consolidated Financial Statement Audit
      Restatement: No

                                  Beginning                                                  Ending
        Material Weakness                           New        Resolved      Consolidated
                                   Balance                                                   Balance
      Improvement Needed in
                                       1            N/A              N/A         N/A           1
      Financial Management
      Improvement Needed in
      Information Technology           1            N/A              N/A         N/A           1
      Security and Controls
      TOTAL MATERIAL
                                       2            N/A              N/A         N/A           2
      WEAKNESSES


      EXHIBIT 24: SUMMARY OF MANAGEMENT ASSURANCES
      Effectiveness of Internal Control Over Reporting (FMFIA § 2)
      Statement of Assurance: Modified

                               Beginning                                                     Ending
       Material Weakness                      New   Resolved    Consolidated    Reassessed
                                Balance                                                      Balance
      Information
                                   1          N/A      N/A             N/A         N/A          1
      Technology
      Financial Management         1          N/A      N/A             N/A         N/A          1
      TOTAL MATERIAL
                                   2          N/A      N/A             N/A         N/A          2
      WEAKNESSES
                                                                                                     147
                                                                SECTION III | OTHER INFORMATION




Effectiveness of Internal Control Over Operations (FMFIA § 2)
Statement of Assurance: Unmodified

                        Beginning                                                         Ending
 Material Weakness                   New    Resolved     Consolidated      Reassessed
                         Balance                                                          Balance
TOTAL MATERIAL
                            0        N/A       N/A              N/A            N/A          0
WEAKNESSES




Conformance with Federal Financial Management System Requirements (FMFIA § 4)
Statement of Assurance: Systems do not conform to financial management system requirements

                         Beginning                                                         Ending
  Material Weakness                   New    Resolved     Consolidated      Reassessed
                          Balance                                                          Balance
Funds Control
                                1     N/A       N/A              N/A            N/A             1
Management
TOTAL
                                1     N/A       N/A              N/A            N/A             1
NON-CONFORMANCES




Compliance with Section 803 (A) of the Federal Financial Management Improvement Act (FFMIA)

                Item                            Agency                          Auditor
1. Federal Financial Management
                                       Lack of compliance noted         Lack of compliance noted
   System Requirements
2. Applicable Federal Accounting
                                       Lack of compliance noted         Lack of compliance noted
   Standards
3. U.S. Standard General Ledger
                                       Lack of compliance noted         Lack of compliance noted
   at Transaction Level
148
      USDA AGENCY FINANCIAL REPORT | 2018




      Payment Integrity
      The U.S. Department of Agriculture (USDA)—through its diverse portfolio of approximately
      300 programs, products, and services—touches the daily lives of almost every American.
      These diverse USDA programs provide for the following; the fighting of forest fires, feeding
      school children, preserving our Nation’s natural resources, improving water quality, enhancing
      private working lands’ health, and providing agricultural producers with disaster recovery
      assistance. Collectively, USDA efforts promote a healthy American agricultural industry,
      providing food, feed, fiber, and timber to meet the expanding needs of America and the world
      at large.

      As a result, USDA’s inherent responsibility to properly steward our taxpayer resources is a top
      financial management priority. USDA managers work diligently to ensure that the right
      payment is made to the right individual or entity at the right time and for the approved
      purposes. USDA financial managers test transactions to determine which programs are
      susceptible to payment errors or making “improper payments.”

      During fiscal year (FY) 2018, USDA had nine programs that have been identified as
      susceptible to significant improper payments with outlays of approximately $97.68 billion.
      These programs are statistically sampled every year to ensure that the corrective actions are
      effective at reducing improper payments while still allowing program participants to get the
      access they need.

      USDA initiated Enterprise Risk Management (ERM), which provides a strategically aligned
      portfolio view of organizational challenges and insight on how to most effectively prioritize
      resource allocations, ensuring successful mission delivery. In the context of improper payments,
      the ERM framework can be used to assist in the management of payment integrity risk.
      Leadership manages the payment integrity risk of an agency to allow it to achieve its strategic,
      operations, reporting, or compliance objectives. Following are a few examples of how payment
      integrity risk cuts across an agency’s strategic, operations, reporting and compliance objectives:

         •   Strategic—Achieving payment integrity in core programs and mission;
         •   Operations—Ensuring payments to eligible recipients and managing fraud risk;
         •   Reporting—Managing data integrity risk related to the Agency Financial Report and
             www.paymentaccuracy.gov reporting;
         •   Compliance—Improper Payments Legislation, the Office of Management and Budget
             (OMB) Guidance, and Privacy Laws.
                                                                                                  149
                                                            SECTION III | OTHER INFORMATION




Collectively, USDA efforts resulted in statistically validating the Farm Service Agency’s (FSA)
Loan Deficiency Payments (LDP) program, which improved its payment integrity levels above
reporting thresholds and is no longer considered susceptible to significant improper payments
by the Office of Inspector General (OIG) and the Office of Management and Budget (OMB).
As a result, FSA’s LDP program has been removed from the OMB list of programs susceptible
to significant improper payments during FY 2018.


WHAT ARE IMPROPER PAYMENTS?
OMB Circular A-123, Appendix C defines an improper payment as:

     “Any payment that should not have been made or that was made in an incorrect
     amount (including overpayments and underpayments) under statutory,
     contractual, administrative, or other legally applicable requirements; and

     Includes any payment to an ineligible recipient, any payment for an ineligible
     good or service, any duplicate payment, any payment for a good or service not
     received (except for such payments where authorized by law), and any payment
     that does not account for credit for applicable discounts.”


EXHIBIT 25: USDA Payment Outlook (in billions)




The pie chart provides a snapshot of USDA’s improper payments that are reported in this
year’s Agency Financial Report (AFR). As the chart demonstrates, most of USDA’s outlays are
made properly per the OMB definition above and the Improper Payments Information Act
(IPIA), as amended.
150
      USDA AGENCY FINANCIAL REPORT | 2018




      ARE IMPROPER PAYMENTS REQUIRED TO BE REPORTED?
      Yes. The Improper Payments Information Act of 2002 (IPIA), as amended by the Improper
      Payments Elimination and Recovery Act of 2010 (IPERA) and the Improper Payments
      Elimination and Recovery Improvement Act of 2012 (IPERIA) do the following: requires
      executive agencies to identify programs that may be susceptible to significant improper
      payments, estimate the annual amount of improper payments, and submit those estimates to
      Congress.

      A program susceptible to significant improper payments is also referred to as a high-risk
      program within USDA’s AFR. A high-risk program has both a 1.5-percent improper payment
      rate and at least $10 million in improper payments or exceeds $100 million dollars in improper
      payments. Readers can obtain more detailed information on improper payments and
      information published in past AFRs at PaymentAccuracy.gov.


      RISK ASSESSMENT SECTION
      In FY 2017, USDA’s Office of the Chief Financial Officer (OCFO) began conducting a
      “Risk Assessment Methodology Pilot” to leverage existing Office of Management and Budget
      (OMB) Circular A-123, Appendix A, assessment methods to meet the OMB Circular A-123,
      Appendix C, risk assessment deliverable. If successfully implemented, this initiative would
      reduce USDA employees’ burden of utilizing two different risk assessment methods to evaluate
      USDA’s programs and activities and increase objectivity of the risk assessment method.

      In FY 2018, the following five programs participated in the Risk Assessment Methodology Pilot:

         1. Animal and Plant Health Inspection Service (APHIS) Salaries and Expenses

         2. APHIS Indemnity Program

         3. APHIS Buildings and Facilities

         4. APHIS Trust Funds

         5. APHIS Cooperative Agreements

      OCFO made the decision not to onboard other U.S. Department of Agriculture (USDA)
      agencies to the OMB Circular A-123 pilot due to possible changes to the risk assessment
      methodology in the revised OMB Circular A-123, Appendix C, which was published in June
      2018. USDA will analyze the revised OMB Circular A-123, Appendix C, along with the results
      and lessons learned from the Risk Assessment Methodology Pilot, to determine if this strategy
      is potentially feasible for other USDA low-risk programs and activities.
                                                                                                   151
                                                              SECTION III | OTHER INFORMATION




OCFO guidance states “programs that are at possible risk of being declared susceptible to
making significant improper payments may be required to perform full statistical sampling that
meets the requirements for high-risk programs.” In FY 2018, OCFO required the Farm Service
Agency’s (FSA) Agriculture Risk Coverage and Price Loss Coverage (ARC/PLC) to perform a
full statistical sample. The results concluded that the program was above the threshold of a
program susceptible to significant improper payments, with an improper payment amount of
$214.46 million and an error rate of 2.73 percent. In FY 2019, FSA’s ARC/PLC will be
required to complete all the requirements of a program susceptible to significant improper
payments using FY 2018 data.

OCFO issued guidance for the OMB Circular A-123, Appendix C, risk assessment process and
performed extensive reviews on the risk assessments of USDA’s programs and activities.
The following evaluation criteria are included as part of USDA’s risk assessment process:

   1. Whether the program or activity reviewed is new to the agency;
   2. The complexity of the program or activity reviewed, particularly with respect to
      determining correct payment amounts;
   3. The volume of payments made annually;
   4. Whether payments or payment eligibility decisions are made outside of the agency, for
      example, by a State or local government, or a regional Federal office;
   5. Recent major changes in program funding, authorities, practices, or procedures;
   6. The level, experience, and quality of training for personnel responsible for making
      program eligibility determinations or certifying that payments are accurate; and
   7. Significant deficiencies in the audit reports of the agency including, but not limited to,
      the agency’s Inspector General or the Government Accountability Office (GAO) audit
      report findings, or other relevant management findings that might hinder accurate
      payment certification.
While USDA is cited in the Catalog of Federal Domestic Assistance (CFDA) as having
approximately 300 programs; similar programs were grouped together to help identify and
report improper payments. This resulted in a USDA program inventory list of 144 programs for
IPERA reporting purposes. Nine of these programs are considered significant risk of improper
payments, and 135 programs are considered low risk of improper payments. Risk assessments
for low-risk programs are completed on a 3-year rotation cycle. During FY 2018, the following
34 programs completed risk assessments and were determined to be low risk:
152
      USDA AGENCY FINANCIAL REPORT | 2018




      EXHIBIT 26: Programs that Conducted Risk Assessments in FY 2018

      No.                                       Program Name
        1    Agricultural Marketing Service (AMS) Commodity Purchase Programs
        2    AMS Salaries and Expenses
        3    AMS Grants Programs
        4    Commodity Credit Corporation (CCC) Administrative Contracts
        5    CCC Emergency Assistance for Livestock, Honeybees, and Farm Raised Fish
        6    CCC Marketing Programs
        7    CCC Tobacco Transition Payment Program
        8    CCC Tree Assistance Program
        9    Farm and Foreign Agricultural Service (FFAS) Salaries and Expenses
       10    Farm Service Agency (FSA) Agricultural Credit Insurance Fund Program Account
       11    Food and Nutrition Service (FNS) Food Distribution Program on Indian Reservations
       12    Food Safety and Inspection Service (FSIS) Salaries and Expenses
       13    FSIS Cooperative State Food and Safety Inspections
       14    Forest Service (FS) Forest and Rangeland Research
       15    FS Permanent Appropriations
       16    FS State and Private Forestry
       17    FS Stewardship Contracting Product Sales
       18    FS Working Capital Fund
       19    Natural Resources Conservation Service (NRCS) Watershed Programs
       20    National Institute of Food and Agriculture (NIFA) Extension Activities
       21    NIFA Integrated Activities
       22    NIFA Research and Education Activities
       23    Office of Inspector General (OIG) Salaries and Expenses
       24    Rural Business Service (RBS) Grant Programs
       25    RBS Guaranteed Loan Programs
       26    Rural Housing Service (RHS) Community Program Grants
       27    RHS Direct Community Facility Loans
       28    RHS Direct Single Family Housing
                                                                                             153
                                                           SECTION III | OTHER INFORMATION




 No.                                     Program Name
 29    RHS Guaranteed Single Family Housing Loans
 30    RHS Multi-Family Housing Preservation and Revitalization Demo Program:
       514/516 Loans/Grants & 515 Loans
 31    Rural Utilities Service (RUS) Congressional Earmarked Funds
 32    RUS Grants- Other- Electric- Telecom- Water and Environmental Programs (WEP)
 33    RUS Revolving Loan Fund Program
 34    RUS Water and Waste Guaranteed Loans


USDA has nine programs susceptible to significant improper payments (also referred to as
high-risk programs within USDA’s Agency Financial Report):

EXHIBIT 27: Programs Determined to be Susceptible to Making Significant Improper Payment

           Agency Name                                    Program Name
                                       Supplemental Nutrition Assistance Program (SNAP)
                                       National School Lunch Program (NSLP)
                                       School Breakfast Program (SBP)
Food and Nutrition Service (FNS)
                                       Special Supplemental Nutrition Program for Women,
                                       Infants and Children (WIC)
                                       Child and Adult Care Food Program (CACFP)

                                       Livestock Forage Disaster Program (LFP)
Farm Service Agency/Commodity
Credit Corporation (FSA/CCC)           Noninsured Crop Disaster Assistance Program (NAP)

Natural Resources Conservation         Farm Security and Rural Investment Act Program
Service (NRCS)                         (FSRIP)

Risk Management Agency (RMA)           Federal Crop Insurance Corporation (FCIC)
154
      USDA AGENCY FINANCIAL REPORT | 2018




      SAMPLING AND ESTIMATION SECTION
      When programs are susceptible to significant improper payments, USDA is required to conduct
      an annual sample that complies with OMB Circular A-123, Appendix C. This is accomplished by
      conducting a statistically valid sample or an OMB-approved alternative methodology.

      The following is a list of USDA’s high-risk programs and a brief description of the sampling
      processes used as a standard statistically valid sample or justification for utilizing an
      OMB-approved alternative methodology:

      1. FNS SNAP
         a. FNS requires states to pull a monthly random sample from the population of households
            receiving SNAP benefits for that given month. Most States draw the samples
            systematically (i.e. using a constant sampling interval); however, some States employ
            simple random or stratified sampling techniques. The sample universe represents
            payments made in the prior fiscal year.
         b. Change in sampling process: None.

      2. FNS NSLP
         a. Access, Participation, Eligibility, and Certification Study-II (APEC-II) established
            estimates of erroneous payments due to certification error and non-certification error for
            school year 2012–2013. FNS generates an annual update for the improper payment
            measurements of both components using statistical techniques based on the findings of
            this study. The estimates generated by the model represent payments made in
            school year 2016–2017.
         b. Change in sampling process: Non-certification error was previously made up of two
            components (meal claiming and counting error). FNS removed meal claiming from the
            non-certification error. Meal claiming error does not result in the payment of federal
            funds for services not delivered, nor does it result in the payment of funds for services
            delivered to ineligible recipients. Meal claiming is a standard of service error;
            eliminating it does not have any monetary impact. Meal claiming is typically triggered
            by a child’s failure to select a required fruit or vegetable.
         c. Justification: Using the OMB-approved alternative methodology is currently the only
            way to report an improper payment rate for these programs.

      3. FNS SBP
         a. APEC-II established estimates of erroneous payments due to certification error and
            non-certification error for school year 2012–2013. FNS generates an annual update for
            the improper payment measurements of both components using statistical techniques
                                                                                                 155
                                                            SECTION III | OTHER INFORMATION




     based on the findings of this study. The estimates generated by the model represent
     payments made in school year 2016–2017.
  b. Change in sampling process: Non-certification error was previously made up of two
     components (meal claiming and counting error). FNS removed meal claiming from the
     non-certification error. Meal claiming error does not result in the payment of federal
     funds for services not delivered, nor does it result in the payment of funds for services
     delivered to ineligible recipients. Meal claiming is a standard of service error;
     eliminating it does not have any monetary impact. Meal claiming is typically triggered
     by a child’s failure to select a required fruit or vegetable.
  c. Justification: Using the OMB-approved alternative methodology is currently the only
     way to report an improper payment rate for these programs.

4. FNS WIC
  a. Estimates of improper payments in WIC focus on two components: certification error
     and vendor error. FNS makes use of periodic studies to assess the level of error in
     program payments and then “ages” the data to produce updated estimates for each
     reporting year. The National Survey of WIC Participants-II Study, published in
     April 2012, established estimates of erroneous payments due to certification error.
     The 2013 WIC Vendor Management Study established the most recent national
     estimates of erroneous payments due to vendor error. FNS generates an annual update
     for the improper payment measurements of both components using statistical techniques
     based on the findings of these bookend studies. The sampling universe represents
     payments made in October 2016 through September 2017.
  b. Change in sampling process: None.
  c. Justification: Using the OMB-approved alternative methodology is currently the only
     way to report an improper payment rate for these programs.

5. FNS CACFP
  a. In lieu of producing a program-wide improper payment measure, FNS has identified the
     Family Day Care Home (FDCH) component of this program as potentially high risk.
     FNS periodically measures the level of erroneous payments due to sponsor error for the
     two types of program reimbursement (Tier 1 and Tier 2). FNS is developing a model
     using statistical techniques based on the findings of these studies. A three-stage sample
     design was used. The first stage was developing a sample of States, from which a
     sample of sponsors was selected at the second stage, and a sample of FDCHs was
     selected in the final stage. The latest CACFP study used sample payments made in
     August 2014 through July 2015. The improper payment measures presented do not
     include improper payments associated with the Adult Day Care component or
     Child Care Centers.
156
      USDA AGENCY FINANCIAL REPORT | 2018




         b. Change in sampling process: None.
         c. Justification: Using the OMB-approved alternative methodology is currently the only
            way to report an improper payment rate for these programs.

      6. FSA/CCC LFP
         a. FSA determined a sample from the payments made in the prior fiscal year using a
            95-percent confidence interval of plus or minus 3 percentage points.
         b. Change in sampling process: FSA adapted a more rigorous sampling methodology.
            Previously, FSA had a 90-percent confidence interval of plus or minus 2.5 percentage
            points.

      7. FSA/CCC NAP
         a. FSA determined a sample from the payments made in the prior fiscal year using a
            95-percent confidence interval of plus or minus 3 percentage points.
         b. Change in sampling process: FSA adapted a more rigorous sampling methodology.
            Previously, FSA had a 90-percent confidence interval of plus or minus 2.5 percentage
            points.

      8. NRCS FSRIP
         a. NRCS determined a sample from the payments made in the prior fiscal year using a
            95-percent confidence interval of plus or minus 3 percentage points.
         b. Change in sampling process: NRCS has expanded the universe of statistically sampled
            payments to include Technical Assistance payments related to contracts executed in
            Internal Audit Services (IAS), contracts executed in Protracts, and Cooperative
            Agreements not related to easements. The inclusion of these payments broadens the
            population of NRCS Farm Bill assistance-related activities, enabling additional testing
            that demonstrates NRCS’ commitment to reducing improper payments. NRCS adapted
            a more rigorous sampling methodology. Previously, NRCS had a 90-percent confidence
            interval of plus or minus 2.5 percentage points.

      9. RMA FCIC
         a. RMA’s sample resulted in a confidence interval of 95-percent plus or minus
            2.5 percentage points. The sampling period is for the reinsurance year (RY) 2016,
            which is based on the yearly reinsurance agreements in effect with Approved Insurance
            Providers (AIPs) July 2015 to June 2016.
         b. Change in sampling process: None.
                                                                                                                                                  157
                                                                                                         SECTION III | OTHER INFORMATION




PAYMENT INTEGRITY OUTLOOK SECTION
Below are USDA’s high-risk programs, sampling and estimation results. See the annotated notes for programs that are flatlining their future
year improper payment reduction target. Please refer to the Sampling and Estimation Section for additional information on the sampling
timeframe of each program susceptible to significant improper payments.

EXHIBIT 28: Payment Integrity Outlook Table ($ in millions)

                                        CY Properly Paid                   CY Improperly Paid                     Current Year +1 Estimated
                         Current
                        Year (CY)                                                     Over      Under
      Program           Outlays $     Total %     Total $     Total %    Total $    Payment $ Payment $        Outlays $     IP %          IP $
Food and Nutrition
Service (FNS)
Supplemental            $63,592.72    93.70%    $59,584.95     6.30%    $4,007.77    $3,301.13     $706.64     $63,592.72    6.30%    $4,007.36
Nutrition Assistance
Program (SNAP)
[Note #1]
FNS National School
Lunch Program           $12,249.74    90.57%    $11,094.34     9.43%    $1,155.40      $799.44     $355.96     $12,494.74    9.14%    $1,142.23
(NSLP)

FNS School Breakfast
Program (SBP)            $4,251.89    88.96%     $3,782.58    11.04%      $469.31      $298.66     $170.65      $4,379.45 10.77%        $471.68
158
          USDA AGENCY FINANCIAL REPORT | 2018




                                           CY Properly Paid               CY Improperly Paid                 Current Year +1 Estimated
                              Current
                             Year (CY)                                                Over      Under
            Program          Outlays $   Total %    Total $    Total %   Total $    Payment $ Payment $   Outlays $    IP %       IP $
      FNS Special
      Supplemental
      Nutrition Program      $3,604.98   94.61%    $3,410.75    5.39%    $194.23      $108.01   $86.22     $3,604.80   3.88%     $139.87
      for Women, Infants,
      and Children (WIC)
      FNS Child and Adult
      Care Food Program        $720.97   99.46%      $717.08    0.54%       $3.89       $2.93    $0.96      $716.79    0.54%        $3.87
      (CACFP)
      [Note #2]
      Farm Service Agency
      (FSA) Livestock          $353.35   88.08%      $311.24   11.92%     $42.11       $41.65    $0.46      $394.00    9.90%       $39.00
      Forage Disaster
      Program (LFP)
      FSA Noninsured Crop
      Disaster Assistance      $162.98   83.65%      $136.34   16.35%     $26.64       $26.05    $0.59      $150.00    9.90%       $14.85
      Program (NAP)

      Natural Resources
      Conservation Service
      (NRCS) Farm Security   $2,570.96   99.17%    $2,549.69    0.83%     $21.27       $21.27    $0.00     $3,439.00   0.82%       $28.30
      and Rural
      Investment Act
      Programs (FSRIP)
                                                                                                                                                     159
                                                                                                            SECTION III | OTHER INFORMATION




                                         CY Properly Paid                    CY Improperly Paid                       Current Year +1 Estimated
                         Current
                        Year (CY)                                                        Over      Under
     Program            Outlays $     Total %      Total $     Total %     Total $     Payment $ Payment $         Outlays $     IP %         IP $
Risk Management
Agency
(RMA)Federal Crop       $10,170.27    98.19%      $9,986.11      1.81%      $184.16       $153.79      $30.37       $7,883.00    1.80%      $141.89
Insurance
Corporation (FCIC)
Program Fund
USDA Total              $97,677.86    93.75%     $91,573.08      6.25%    $6,104.78     $4,752.93 $1,351.85       $96,654.50     6.20%     $5,989.05

Note #1:   SNAP currently lacks a sufficient baseline to accurately project future reduction target rates. SNAP assigned error rates to 9 of
           53 SNAP State agencies due to various reasons. Additionally, current legislative proposals are being considered that would
           significantly affect the improper payment rate in future years. The uncertainty created by these variables does not allow accurate
           future reduction target rate projections at this time, hence the need to flatline the CY+1 reduction target.
Note #2:   CACFP’s most recent sample-based estimate of 0.54 percent has a 90-percent confidence interval that ranges from 0.17 percent
           to 0.92 percent. FNS is working toward the development of a model to estimate CACFP Family Day Care Home tiering error rate in
           the years between sample-based studies. However, when the agency finalizes its model-based methodology, it will not be capable
           of measuring error any more precisely than the estimates generated by the agency’s sample-based studies. Once the agency
           conducts the next iteration in that series of studies, it will be able to set a new reduction target and measure progress toward a
           target that falls within the existing 0.17 percent–0.92 percent range. In short, until the next study, the CACFP tiering error rate is
           best described as less than 1 percent, hence the need to flatline the CY+1 reduction target.
160
          USDA AGENCY FINANCIAL REPORT | 2018




      The table below displays supplemental information, providing a breakdown of specific USDA programs to the component reporting level.

      EXHIBIT 29: Program Component Reporting Table ($ in millions)

                                                                                              Current Year Improperly Paid
                                                    Current Year (CY)
                      Program                           Outlays $             Total %         Total $      Overpayment $     Underpayment $
      FNS NSLP Total Program                           $12,249.74             9.43%         $1,155.40        $799.44            $355.96
             FNS NSLP Certification Error              $12,249.74             8.59%         $1,051.78        $750.11            $301.67
             FNS NSLP Counting Error                   $12,249.74             0.85%          $103.62           $49.33             $54.29
      FNS SBP Total Program                             $4,251.89           11.04%           $469.31         $298.66            $170.65
             FNS SBP Certification Error                $4,251.89             9.87%          $419.50         $287.27            $132.23
             FNS SBP Counting Error                     $4,251.89             1.17%            $49.81          $11.39             $38.42
      FNS WIC Total Program                             $3,604.98             5.39%          $194.23         $108.01              $86.22
             FNS WIC Certification Error                $3,604.98             2.55%            $91.79          $91.79              $0.00
             FNS WIC Vendor Error                       $3,604.98             2.84%          $102.44           $16.22             $86.22
                                                                                             161
                                                          SECTION III | OTHER INFORMATION




The following table provides information on the estimated amount of improper payments made
directly by the Government and the amount of improper payments made by recipients of
Federal money.

EXHIBIT 30: Improper Payment Additional Breakdown Table ($ in millions)

        Program                 Federal Government             Recipients of Federal Money

FNS SNAP                                $0.00                             $4,007.77

FNS NSLP                                $0.00                             $1,155.40

FNS SBP                                 $0.00                              $469.31

FNS WIC                                 $0.00                              $194.23

FNS CACFP                               $0.00                                $3.89

FSA LFP                                $42.11                                $0.00

FSA NAP                                $26.64                                $0.00

NRCS FSRIP                             $21.27                                $0.00

RMA FCIC                                $0.00                              $184.16

Total                                  $90.02                             $6,014.76
162
      USDA AGENCY FINANCIAL REPORT | 2018




      DISCUSSION OF HIGH-PRIORITY PROGRAMS SECTION
      The criteria for determining when a program is high priority are found in Office of
      Management and Budget (OMB) Circular A-123, Appendix C. High-priority programs are
      programs that report more than the $2 billion threshold in improper payments. USDA currently
      has three programs designated as high priority, and the following narrative addresses the
      additional reporting requirements that come with that designation.


      1. FNS SNAP
         •   USDA reports three additional measures for the Supplemental Nutrition Assistance
             Program (SNAP) on https://paymentaccuracy.gov/program/supplemental-nutrition-
             assistance-program/.
             o The first is the measure that breaks out State-reported error rates by type and source
               of error: Agency, Client, or Other. The information will help the agency and States
               to identify and prevent root causes of error.
             o The second is the measure that shows the national aggregate error rate for the
               program. It incorporates each State’s individual error rate into one aggregate,
               providing an early indicator of national trends.
             o The third is the measure providing the number of States with error rates better or
               worse than the previous year.
         •   The following narrative describes how SNAP’s corrective actions were specifically
             tailored to better reflect the unique processes, procedures, and risks involved in the
             program. This program’s actual corrective actions to prevent future improper payments
             can be found in the Improper Payment Corrective Actions Section.
             o Food and Nutrition Service (FNS) activities are guided by effective best practices
               developed over the years with State agencies and data analytics identifying the root
               causes of payment errors. FNS assesses sanctions for consecutive years of poor
               performance and requires States to implement corrective action plans to create
               incentives for greater payment accuracy. FNS works with State partners, through
               technical assistance and by offering competitive grants, to help States implement
               process improvements in their eligibility processes. FNS also provides technical
               assistance regarding new system development, greater use of technology, and data
               matching, which are also proven methods to positively impact payment accuracy.
               FNS also has regulatory prerequisites requiring States to collect overpayments and
               to address underpayments to help ensure, as partners, that we take our fiscal
               responsibility seriously in administering this critical nutrition assistance program.
                                                                                                     163
                                                              SECTION III | OTHER INFORMATION




  •   The following narrative describes the actions FNS has taken or plans to take to recover
      improper payment:
      o The National payment error rate is determined by calculating the weighted average
        of all the individual State error rates. A State’s payment error rate is the
        combination of the overpayment error rate and the underpayment error rate resulting
        in a SNAP payment error rate. Overpayments are benefits issued to households that
        they are not entitled to receive. Underpayments occur when households are entitled
        to more benefits than they receive. However, starting in fiscal year (FY) 2015, FNS
        conducted reviews of the integrity of the State processes for measuring the payment
        error rate. In most States, the reviews found practices that, intentionally or
        unintentionally, biased the results of the quality control (QC) system. Due to this
        bias, FNS was unable to determine an official national payment error rate for
        FY 2016 (October 2015–September 2016).


2. FNS NSLP
  •   USDA reports two supplemental measures for the National School Lunch Program
      (NSLP) on https://paymentaccuracy.gov/program/national-school-lunch-program/.
      These are below:
      o The first is the percent of students directly certified for free school meals as a
        percentage of all students certified for free meals. The figure is updated annually
        based on information reported to FNS by State each October. This figure summarizes
        State and school district success in transitioning from traditional applications that
        exhibit relatively high error rates, to direct certification, with much lower error rates.
      o The second is the number of State agencies that receive State Technology Grants
        from USDA. This figure is an indirect measure of State agency investments in
        technology improvements and automation that reduces the risk of human error,
        particularly in recordkeeping, counting, and claiming meals for Federal
        reimbursement. This figure is also reported on an annual cycle that coincides with
        the award of State agency grants by USDA.
  •   The following narrative describes how NSLP’s corrective actions were specifically
      tailored to better reflect the unique processes, procedures, and risks involved in the
      program. This program’s actual corrective actions to prevent future improper payments
      can be found in the Improper Payment Corrective Actions Section.
      o The FNS activities have been guided by FNS research findings. The 2015 Access,
        Participation, Eligibility and Certification (APEC)-II study, in particular, provides
        the agency with actionable information on program error at four critical points:
        (1) when households complete applications for school meal benefits, (2) when
        school districts certify those applications, (3) when cafeteria staff determines
164
      USDA AGENCY FINANCIAL REPORT | 2018




                whether the meals served are reimbursable, and (4) when meal counts are
                aggregated and submitted for reimbursement. Utilizing these research findings,
                FNS has tailored its efforts to specifically address the issues cited.
         •   The following narrative describes the actions FNS has taken or plans to take to recover
             improper payment:
             o Current statutory authority allows FNS to recover improper payments from State
               agencies when identified through reviews, audits or other operational oversight
               activities. Improper payments identified in this manner are recovered from States
               through direct billing and offset of future program payments earned. Further, our
               statutory authority does not support collection of improper payments identified
               based on a statistical sample or estimation procedure, as used to develop the national
               estimates of improper payments reported here.


      3. FNS SBP
         •   USDA reports two supplemental measures for the School Breakfast Program (SBP) on
             https://paymentaccuracy.gov/program/national-school-breakfast-program/. These are
             below:
             o The first is the percentage of students directly certified for free school meals as a
               percentage of all students certified for free meals. The figure is updated annually
               based on information reported to FNS by individual States each October. This figure
               summarizes State and school district success in transitioning from traditional
               applications that exhibit relatively high error rates, to direct certification, with much
               lower error rates.
             o The second is the number of State agencies that receive State Technology Grants
               from USDA. This figure is an indirect measure of State agency investments in
               technology improvements and automation that reduces the risk of human error,
               particularly in recordkeeping, counting, and claiming meals for Federal
               reimbursement. This figure is also reported on an annual cycle that coincides with
               the award of State agency grants by USDA.
         •   The following narrative describes how SBP’s corrective actions were specifically
             tailored to better reflect the unique processes, procedures, and risks involved in the
             program. This program’s actual corrective actions to prevent future improper payments
             can be found in the Improper Payment Corrective Actions Section.
             o The FNS activities have been guided by FNS research findings. The 2015 APEC II
               study, in particular, provides the agency with actionable information on program
               error at four critical points: (1) when households complete applications for school
               meal benefits, (2) when school districts certify those applications, (3) when cafeteria
               staff determines whether the meals served are reimbursable, and (4) when meal
                                                                                               165
                                                         SECTION III | OTHER INFORMATION




       counts are aggregated and submitted for reimbursement. Utilizing these research
       findings, FNS has tailored its efforts to specifically address the issues cited.
•   The following narrative describes the actions FNS has taken or plans to take to recover
    improper payment:
    o Current statutory authority allows FNS to recover improper payments from State
      agencies when identified through reviews, audits, or other operational oversight
      activities. Improper payments identified in this manner are recovered from States
      through direct billing and offset of future program payments earned. Further, our
      statutory authority does not support collection of improper payments identified
      based on a statistical sample or estimation procedure, as used to develop the national
      estimates of improper payments reported here.
166
           USDA AGENCY FINANCIAL REPORT | 2018




      IMPROPER PAYMENT ROOT CAUSE CATEGORIES SECTION
      EXHIBIT 31: Improper Payments Root Causes Table ($ in millions)

                                                                                FNS SNAP         FNS NSLP [Note #1]     FNS SBP [Note #1]
                          Reason for Improper Payment                     Over-       Under-      Over-     Under-      Over-      Under-
                                                                        payments     payments   payments   payments   payments    payments
      Program Design or Structural Issue                                    0              0    $430.85     $257.31   $151.09    $113.89

      Inability to Authenticate         Inability to Access Data            0              0       0           0         0           0
      Eligibility                       Data Needed Does Not Exist          0              0       0           0         0           0
                                        Death Data                          0              0       0           0         0           0
                                        Income Data                         0              0       0           0         0           0
      Failure to Verify                 Excluded Party Data                 0              0       0           0         0           0
                                        Prisoner Data                       0              0       0           0         0           0
                                        Other Eligibility                   0              0       0           0         0           0
                                        Federal Agency                      0              0       0           0         0           0
      Administrative or Process
                                        State and Local Agency       $1,527.33       $608.13    $368.59      $98.65   $147.57      $56.76
      Error Made By
                                        Other Party                         0              0       0           0         0           0
      Medical Necessity                                                     0              0       0           0         0           0
      Insufficient Documentation to Determine                               0              0       0           0         0           0
      Other Reason [Note #1]                                         $1,773.80        $98.51       0           0         0           0
      TOTAL                                                          $3,301.13       $706.64    $799.44     $355.96   $298.66    $170.65
                                                                                                                                   167
                                                                                                SECTION III | OTHER INFORMATION




                                                                      FNS WIC              FNS CACFP               FSA LFP
                    Reason for Improper Payment                  Over-     Under-      Over-     Under-       Over-      Under-
                                                               payments   payments   payments   payments    payments    payments
Program Design or Structural Issue                                0             0      0           0           0             0

Inability to Authenticate         Inability to Access Data        0             0      0           0           0             0
Eligibility                       Data Needed Does Not Exist      0             0      0           0        $11.87       $0.03
                                  Death Data                      0             0      0           0           0             0
                                  Income Data                     0             0      0           0          $0.38          0
Failure to Verify                 Excluded Party Data             0             0      0           0           0             0
                                  Prisoner Data                   0             0      0           0           0             0
                                  Other Eligibility               0             0      0           0           0             0
                                  Federal Agency                  0             0      0           0        $14.47       $0.43
Administrative or Process
                                  State and Local Agency       $108.01     $86.22     $2.93       $0.96        0             0
Error Made By
                                  Other Party                     0             0      0           0           0             0
Medical Necessity                                                 0             0      0           0           0             0
Insufficient Documentation to Determine                           0             0      0           0        $14.93           0
Other Reason                                                      0             0      0           0           0             0
TOTAL                                                          $108.01     $86.22     $2.93       $0.96     $41.65       $0.46
168
           USDA AGENCY FINANCIAL REPORT | 2018




                                                                           FSA NAP                   NRCS FSRIP                RMA FCIC
                      Reason for Improper Payment                     Over-       Under-        Over-       Under-        Over-       Under-
                                                                    payments     payments     payments     payments     payments     payments
      Program Design or Structural Issue                               0             0           0            0            0              0

      Inability to Authenticate    Inability to Access Data            0             0           0            0            0              0
      Eligibility                  Data Needed Does Not Exist         $0.68          0           0            0        $108.22        $15.66
                                   Death Data                          0             0           0            0            0              0
                                   Income Data                        $0.21          0           0            0            0              0
      Failure to Verify            Excluded Party Data                 0             0           0            0            0              0
                                   Prisoner Data                       0             0           0            0            0              0
                                   Other Eligibility                   0             0        $12.12          0            0              0
                                   Federal Agency                    $15.20       $0.59        $9.15          0            0              0
      Administrative or Process
                                   State and Local Agency              0             0           0            0            0              0
      Error Made By
                                   Other Party                         0             0           0            0         $45.57        $14.71
      Medical Necessity                                                0             0           0            0            0              0
      Insufficient Documentation to Determine                         $9.96          0           0            0            0              0
      Other Reason                                                     0             0           0            0            0              0
      TOTAL                                                          $26.05       $0.59       $21.27         $0.00     $153.79        $30.37


      Note #1:   The Other Reason Root Cause Category is made up of payments caused by the client; however, these errors are not administrative
                 or process errors.
                                                                                                    169
                                                             SECTION III | OTHER INFORMATION




IMPROPER PAYMENT CORRECTIVE ACTIONS SECTION
In the spring of 2018, USDA agencies analyzed transactions from fiscal year (FY) 2017 and the
results are published in the FY 2018 Agency Financial Report (AFR). Please keep this in mind
if narratives cite FY 2017 transactions in this report. Since USDA reports improper payments
one year in arrears, corrective actions taken to reduce improper payments in FY 2018 have not
been reflected in the improper payment amount of this report. USDA continues to enact
specific corrective actions to resolve root causes of improper payments and strategically
strengthen program integrity while ensuring access to program and activities.

All programs and activities determined to have improper payments exceeding the susceptible to
significant improper payment thresholds (See Part I.B.1) must put in place a corrective action
plan to prevent and reduce the improper payment amount. The tables below describe the
actions taken and planned for each high-risk program that is above the reporting threshold
(error rate equal or above 1.5 percent and improper payment amount of $10 million or more).

Office of Management and Budget (OMB) Circular A-136, dated July 30, 2018, states the
following: “Agencies should also describe the results of actions taken to address the root causes
and the planned or actual completion date of the actions taken to address each root cause.”
Some of the corrective actions offer an indication of the impact it will have on addressing a
root cause; however, in most cases, a series of corrective actions have cumulative impacts in
improving payment accuracy.
170
      USDA AGENCY FINANCIAL REPORT | 2018




      EXHIBIT 32: Program Corrective Actions Table ($ in millions)

                                             PROGRAM: FNS SNAP
                                                             Administrative or Process Errors Made by:
      Root Cause (See Exhibit 31)                    ➔
                                                             State or Local Agency
      Amount Associated with the Root
                                                     ➔       $2,135.46 (millions)
      Cause (See Exhibit 31)

      Estimated Completion Date                      ➔       September 2019

      Supplemental Nutrition Assistance Program (SNAP) Corrective Actions:
       ▪ Legislation requires that States with a high error rate for 2 or more subsequent years pay a
         financial liability to SNAP. States have the option to invest 50 percent of this financial liability
         back into the SNAP program and hold the remaining 50 percent in abeyance, which must be
         paid if the State’s error rate does not improve in the upcoming year. The 50 percent invested
         back into the program is called new investment. States must target their new investment
         money toward correcting the issues that caused the State’s error rate. Each State conducts a
         root cause analysis to determine the causes for their errors as part of the new investment
         plan. New investments are completely State funded and not eligible for Federal matching.
         In the past, States have used their new investment funds to undertake a document
         scanning project to ensure that client documents are more easily accessible, providing
         training to help eligibility workers better understand and follow SNAP rules, and a rewrite of
         the State’s policy manual so it is easier for workers to read, access, and understand.
       ▪ Business Process Reengineering (BPR) is the analysis and redesign of a process or workflow
         to achieve greater efficiency. When States apply BPR to their SNAP certification process,
         the resulting savings in staff time create an opportunity to channel savings into activities
         that improve customer service, application processing timeliness, payment accuracy, and
         negative errors. FNS is currently facilitating BPR in three States.
       ▪ The Process and Technology Improvement Grants (PTIGs) provide grantees with funding to
         improve the quality and efficiency of operations and processes in SNAP offices. Grantees
         often combine BPR initiatives with modernization efforts to improve the accuracy and
         efficiency of the certification process so that eligible SNAP participants receive the correct
         amount of benefits they are entitled to, thus reducing the amount of improper payments.
         Each year, FNS awards a total of five million dollars in PTIG grants to States.
                                                                                                   171
                                                             SECTION III | OTHER INFORMATION




                                     PROGRAM: FNS SNAP

Root Cause (See Exhibit 31)                    ➔       Other Reason (Client-Caused)

Amount Associated with the Root Cause
                                               ➔       $1,872.31 (millions)
(See Exhibit 31)

Estimated Completion Date                      ➔       September 2019

SNAP Corrective Actions:
SNAP’s corrective actions are the same across type of payment error. To avoid repetition of the
same corrective actions, please read SNAP’s corrective actions located in the Administrative or
Process Errors Made by: State or Local Agency root cause, found above.




                                      Program: FNS NSLP

Root Cause (See Exhibit 31)                   ➔      Program Design or Structural Issue

Amount Associated with the Root Cause
                                              ➔      $688.16 (millions)
(See Exhibit 31)

Estimated Completion Date                     ➔      November 2019

                                                     Administrative or Process Errors Made by:
Root Cause (See Exhibit 31)                   ➔
                                                     State or Local Agency
Amount Associated with the Root Cause
                                              ➔      $467.24 (millions)
(See Exhibit 31)

Estimated Completion Date                     ➔      November 2019

National School Lunch Program (NSLP) Corrective Actions:
 ▪ FNS evaluated its definition of improper payment error(s) for this program and determined
   previously identified ‘meal claiming’ error (those errors typically triggered by a child’s
   failure to select a required fruit or vegetable) did not affect the eligibility status of the
   recipient, nor whether the right recipient received the right benefit. FNS conferred with
   OMB on the change in error definition for FY 2018.
 ▪ Modified process for assessing fiscal action across a School Food Authority (SFA) for
   certification error identified during a State Agency Administrative Review (AR).
 ▪ Updated AR guidance for School Year (SY) 2018–2019; the guidance provides clarifications
   on resource management and more accurately assesses fiscal action.
172
      USDA AGENCY FINANCIAL REPORT | 2018




       ▪ Conducted AR webinars for State agencies in Spring and Summer of 2018; continue to
         assess technical assistance needs and provide any needed guidance and training.
       ▪ Conducted webinars on how to complete the new FNS-640 (Administrative Review Data
         Report) for State agencies and State systems vendors; SFAs began reporting data on the
         new form in May 2018. The new form provides higher quality data to support research into
         school meal program error.
       ▪ Conducted the fifth year of a demonstration project in selected school districts and States
         to test the potential for direct certification for free school meals using Medicaid data.
       ▪ Awarded direct certification grants to three States to fund projects associated with
         improving their direct certification rates.
       ▪ Provided technical assistance aimed at improving direct certification of children using the
         Food Distribution Program on Indian Reservations (FDPIR) participant data.
       ▪ Continued management of a contracted research portfolio to measure and study the
         underlying causes of improper payments in FNS programs and to test solutions designed to
         reduce error.
       ▪ Development of a new process to improve the quality of data collected on the FNS-742, the
         Verification Collection Report. This is a collaboration with the General Services
         Administration’s 18F, an office tasked with improving the business of government through
         technology-based solutions.
       ▪ Development of a voluntary, self-administered testing protocol to assist software vendors
         in evaluating the functionality of their web-based applications for school meals.
       ▪ Collaboration with seven other Federal agencies and a nonprofit organization to develop
         and judge a public challenge competition aimed at identifying new ideas to validate
         applicant eligibility for means-tested assistance programs.
       ▪ Promotion of USDA’s integrity focused web-based model school meal application through
         policy memo and presentation at national conferences and trainings.
       ▪ Continue to work with State and local agencies to ensure that eligible school districts have
         the information needed to make informed local decisions about Community Eligibility
         Provision (CEP) participation. CEP eliminates the use of household income applications;
         it relies instead on direct certification which has a lower certification error rate.
       ▪ Offer States Administrative Review and Training (ART) grants to implement training and
         technology solutions to reduce and prevent administrative errors in local educational
         agencies (LEAs) that are at high risk for such errors.
       ▪ Continue to lead and coordinate meetings of the Child Nutrition State Systems Workgroup
         made up of State agencies and FNS regional and national office representatives.
         The purpose of this workgroup is to identify priorities for State and local automation to
         improve accountability, monitoring, training, and data quality.
       ▪ Conduct the fourth national technology training for State agencies and technology vendors,
         “Child Nutrition (CN) Access & Accountability through Technology” in 2018. The training is
         focused on developing State agency skills and knowledge in technology-related areas that
         can improve program integrity.
                                                                                                  173
                                                            SECTION III | OTHER INFORMATION




 ▪ Annually award Child Nutrition Technology Innovation competitive grants to States to
   implement innovative technology solutions to improve accountability, data accuracy,
   performance measurement, and the capacity to identify and target error-prone areas in
   Child Nutrition Programs at the State and LEA or sponsor levels.
 ▪ Annually approve State Agency direct certification Continuous Improvement Plans to
   improve the effectiveness of their direct certification processes.



                                      Program: FNS SBP

Root Cause (See Exhibit 31)                  ➔      Program Design or Structural Issue

Amount Associated with the Root Cause
                                             ➔      $264.98 (millions)
(See Exhibit 31)

Estimated Completion Date                    ➔      November 2019

                                                    Administrative or Process Errors Made by:
Root Cause (See Exhibit 31)                  ➔
                                                    State or Local Agency
Amount Associated with the Root Cause
                                             ➔      $204.33 (millions)
(See Exhibit 31)

Estimated Completion Date                    ➔      November 2019

SBP Corrective Action:
SBP’s corrective actions are the same across type of payment error. To avoid repetition of the
same corrective actions, please read NSLP’s corrective actions located in the Program Design or
Structural Issue root cause, found above.
174
      USDA AGENCY FINANCIAL REPORT | 2018




                                             Program: FNS WIC
                                                           Administrative or Process Errors Made by:
      Root Cause (See Exhibit 31)                   ➔
                                                           State or Local Agency
      Amount Associated with the Root Cause
                                                    ➔      $194.23 (millions)
      (See Exhibit 31)

      Estimated Completion Date                     ➔      January 2019

      Special Supplemental Nutrition Program for Women, Infants, and Children (WIC)
      Corrective Actions:
       ▪ In FY 2017, FNS began a 2-year management evaluation (ME) focus on funding and
         participation. The most recent target area was chosen because access to WIC benefits and
         services is dependent on appropriate management of program funds and caseload. FNS
         analyzes program integrity MEs to determine trends and to inform policy, guidance, and
         technical assistance.
       ▪ In September 2017, FNS released a comprehensive WIC Vendor Management and Food
         Delivery Handbook, which includes topical guidance designed to help State agencies
         effectively develop, assess, and implement key vendor management and cost containment
         system components. FNS currently is working on the first update to the Handbook, which
         will include two additional chapters: Vendor Cost Containment and Monitoring and Audits.
         Additionally, FNS will release several tip sheets designed for WIC State agencies, including:
         administrative review of WIC vendors, high-risk vendor identification, EBT vendor
         agreement provisions, and above 50-percent vendor cost neutrality assessments.
       ▪ In early FY 2019, FNS plans to provide resources, including trainings, worksheets, and
         toolkits to WIC State agencies on cost neutrality assessments for above 50-percent
         vendors, the development of vendor peer group systems, and the development of
         high-risk vendor indicators.
                                                                                               175
                                                           SECTION III | OTHER INFORMATION




                                    Program: FNS CACFP
                                                   Administrative or Process Errors Made by:
Root Cause (See Exhibit 31)                 ➔
                                                   State or Local Agency
Amount Associated with the Root Cause
                                            ➔      $3.89 (millions)
(See Exhibit 31)

Estimated Completion Date                   ➔      November 2019

Child and Adult Care Food Program (CACFP) Corrective Actions:
 ▪ Released a redesigned CACFP Meal Benefit Income Eligibility Application based on FNS NSLP
   paper prototype application.
 ▪ Engaged in the identification of key factors and barriers to day care home provider
   participation in CACFP, including barriers and challenges to program operations, tiering,
   and claims.
 ▪ Annually award Child Nutrition Technology Innovation competitive grants to States to
   implement innovative technology solutions to improve accountability, data accuracy,
   performance measurement, and the capacity to identify and target error-prone areas in
   Child Nutrition Programs at the State and LEA or sponsor levels.
 ▪ Conduct routine management evaluations of State agencies, to ensure State agency
   compliance with program regulations.
 ▪ Finalize contracted study of improper program payments in CACFP child care centers, which
   will allow FNS to report a more complete set of improper payment figures for CACFP in
   satisfaction of Improper Payments Elimination and Recovery Act of 2010 (IPERA)
   requirements.
176
      USDA AGENCY FINANCIAL REPORT | 2018




                                             Program: FSA LFP
                                                           Inability to Authenticate Eligibility:
      Root Cause (See Exhibit 31)                   ➔
                                                           Data Needed Does Not Exist
      Amount Associated with the Root Cause
                                                    ➔      $11.90 (millions)
      (See Exhibit 31)

      Estimated Completion Date                     ➔      November 2018


                                                           Administrative or Process Errors Made by:
      Root Cause (See Exhibit 31)                   ➔
                                                           Federal Agency
      Amount Associated with the Root Cause
                                                    ➔      $14.90 (millions)
      (See Exhibit 31)

      Estimated Completion Date                     ➔      November 2018

      Livestock Forage Disaster Program (LFP) Corrective Actions:
       ▪ Agency is implementing an LFP software enhancement that automatically reads and
         imports eligible acreage data from the Farm Service Agency (FSA)-578 Report of Acreage
         into the Commodity Credit Corporation (CCC)-853 LFP Application. Training was provided to
         State offices to implement software enhancements and to review the Improper Payments
         Information Act of 2002 (IPIA) results, with the requirement that State offices provide
         equivalent training to field offices.
       ▪ Issued a notice to field offices to review IPIA results, and reinforce and outline program
         policies and procedures for what is acceptable evidence for documenting each LFP
         applicant’s grazing land ownership and/or leasing, ensuring that it is on file before the
         application is approved.
                                                                                                    177
                                                             SECTION III | OTHER INFORMATION




                                       Program: FSA LFP

Root Cause (See Exhibit 31)                  ➔       Insufficient Documentation to Determine

Amount Associated with the Root Cause
                                             ➔       $14.93 (millions)
(See Exhibit 31)

Estimated Completion Date                    ➔       November 2018

LFP Corrective Actions:
 ▪ Notice issued to field offices to reinforce program policies and procedures, outlining what is
   acceptable evidence for documenting eligible forage, livestock, and acreage.
 ▪ Notice to field offices addressed what is acceptable documentation for determining
   producer eligibility including ensuring farm operating plans, acreage reports, adjusted gross
   income certifications, and highly erodible land conservation and wetland conservation
   certifications are completed prior to application approval and payment.
 ▪ Training provided to State offices to implement software enhancements and to review IPIA
   results, with the requirement that State offices provide equivalent training to field offices.




                                       Program: FSA LFP

Root Cause (See Exhibit 31)                  ➔       Failure to Verify: Income Data

Amount Associated with the Root Cause
                                             ➔       $0.38 (millions)
(See Exhibit 31)
Estimated Completion Date                    ➔       November 2018

LFP Corrective Actions:
 ▪ Notice issued to field offices to reinforce program policies and procedures, outlining what is
   acceptable documentation for determining producer eligibility including ensuring farm
   operating plans, acreage reports, adjusted gross income certifications, and highly erodible
   land conservation and wetland conservation certifications are completed prior to
   application approval and payment.
 ▪ Training provided to State offices to implement software enhancements and to review IPIA
   results, with the requirement that State offices provide equivalent training to field offices.
178
      USDA AGENCY FINANCIAL REPORT | 2018




                                            Program: FSA NAP
                                                          Administrative or Process Errors Made by:
      Root Cause (See Exhibit 31)                  ➔
                                                          Federal Agency
      Amount Associated with the Root Cause
                                                   ➔      $15.79 (millions)
      (See Exhibit 31)

      Actual Completion Date                       ➔      September 2018

      Noninsured Crop Disaster Assistance Program (NAP) Corrective Actions:
      Implemented NAP software to automate the computation of unit acres/pay group when
      calculating NAP payments. This action took place in June 2017.
      Proposed training for new Program Specialists in the State Offices and Program Technicians in
      the County Offices who are responsible for NAP. This Train the Trainer Training was proposed
      for State and selected County Office employees from across the county, to then be presented
      locally. In addition, specific training is targeted for Alabama. This action took place in
      September 2018.




                                            Program: FSA NAP

      Root Cause (See Exhibit 31)                  ➔      Insufficient Documentation to Determine

      Amount Associated with the Root Cause
                                                   ➔      $9.96 (millions)
      (See Exhibit 31)

      Estimated Completion Date                    ➔      November 2018

      NAP Corrective Actions:
      Training needs have been identified. The ongoing Office of Inspector General (OIG)
      investigation will provide valuable information to correct records and proceed with
      overpayment collections. The Production, Emergencies, and Compliance Division (PECD)
      encouraged training to occur prior to September 28, 2018. The Train the Trainer Training was
      proposed for State and selected County Office employees from across the county, to then be
      presented locally. In addition, specific training is targeted for Alabama.
                                                                                               179
                                                           SECTION III | OTHER INFORMATION




                                     Program: FSA NAP

Root Cause (See Exhibit 31)                ➔      Failure to Verify: Income Data

Amount Associated with the Root Cause
                                           ➔      $0.21 (millions)
(See Exhibit 31)

Actual Completion Date                     ➔      June 2017


                                                  Inability to Authenticate Eligibility:
Root Cause (See Exhibit 31)                ➔
                                                  Data Needed Does Not Exist
Amount Associated with the Root Cause
                                           ➔      $0.68 (millions)
(See Exhibit 31)

Actual Completion Date                     ➔      June 2017

NAP Corrective Actions:
Automated NAP software became available for the 2017 crop year. This software validates that
all eligibility records have been updated and that payments are authorized to be issued.
The payment process has been integrated into the automation process.
180
      USDA AGENCY FINANCIAL REPORT | 2018




                                             Program: RMA FCIC
                                                           Administrative or Process Errors Made by:
      Root Cause (See Exhibit 31)                   ➔
                                                           Other Party
      Amount Associated with the Root Cause
                                                    ➔      $60.28 (millions)
      (See Exhibit 31)
      Estimated Completion Date                     ➔      June 2019

      Federal Crop Insurance Corporation (FCIC) Corrective Actions:
      Each year, the Risk Management Agency (RMA) provides a broad overview to the private sector
      Approved Insurance Providers (AIPs) of the types of errors identified during the Improper
      Payments Elimination and Recovery Improvement Act of 2012 (IPERIA) review process.
      To address the diverse types of administrative or process errors (e.g., acreage reporting, actual
      production history [APH], application, claim), RMA will provide a more detailed analysis to the
      AIPs to help them better identify and control the specific types of problems, such as a signature
      type, which are contributing to the errors.




                                             Program: RMA FCIC
                                                           Inability to Authenticate Eligibility:
      Root Cause (See Exhibit 31)                   ➔
                                                           Data Needed Does Not Exist
      Amount Associated with the Root Cause
                                                    ➔      $123.88 (millions)
      (See Exhibit 31)
      Estimated Completion Date                     ➔      September 2019

      FCIC Corrective Actions:
      Almost half of the Inability to Authenticate errors were related to Audit of Production History,
      which includes the acceptability of production records and the accuracy of production
      certification. To clarify consequences of production certification audits, RMA made changes in
      the 2018 Crop Insurance Handbook outlining exceptions to assigned yield procedures.
      In addition, for the 2019 Crop Insurance Handbook, RMA will be editing the production
      evidence language to improve clarity and minimize burdensome reporting requirements for
      acceptable records. Action will be completed by December 2018.
      Acreage reporting issues were the other primary cause of Inability to Authenticate errors.
      A Regional Compliance Office, in collaboration with RMA’s Business Analytics Division and
      geographic information system (GIS) specialists, will be conducting a program review to help
      identify land that is chronically unavailable for planting and/or ineligible for inclusion on an
      acreage report. Action will be completed by September 2019.
                                                                                                    181
                                                             SECTION III | OTHER INFORMATION




INTERNAL CONTROL OVER PAYMENT INTEGRITY SECTION
USDA programs have implemented internal controls to prevent improper payments. USDA
programs are:
   •   Enhancing communication of updated policies and guidance to the field offices;
   •   Encouraging managers to build an atmosphere in which reducing improper payments is
       a top priority;
   •   Establishing accountability through performance standards;
   •   Examining root causes of error;
   •   Developing appropriate corrective actions; and
   •   Engaging critical stakeholders through communication and educational efforts.


ACCOUNTABILITY SECTION
The following steps were taken to ensure that agency managers are held accountable for
reducing and recovering improper payments:


Food and Nutrition Service (FNS)
For items 1–3 which follow, the agency goals and priorities are incorporated into each
manager’s performance plan. Standards for meeting reduction targets and establishing and
maintaining sufficient internal controls have been incorporated into each manager’s plan,
beginning in 2005.

   1. FNS has established corporate priorities to improve stewardship of Federal funds and to
      improve program management. Within these priorities are specific goals applicable to
      programs at high risk for erroneous payments. The goal for the Supplemental Nutrition
      Assistance Program (SNAP), National School Lunch Program (NSLP), School
      Breakfast Program (SBP), Special Supplemental Nutrition Program for Women, Infants,
      and Children (WIC), and Child and Adult Care Food Program (CACFP) is to continue
      management improvements.

   2. In NSLP and SBP, USDA has a strategic objective to improve nutrition assistance
      program management that is managed by FNS, including a measure to improve the
      accuracy of school administrative processes that certify children for school meals. As part
      of its actions to advance this objective, FNS sets annual priority goals and initiatives,
      including specific goals applicable to programs at high risk for erroneous payments.
182
      USDA AGENCY FINANCIAL REPORT | 2018




         3. FNS has a corporate priority to maintain a high standard of integrity in SNAP. This
            priority includes specific goals to support achievement of error-reduction goals, to use
            multiple strategies to support payment accuracy, even as program participation increases.


      Farm Service Agency (FSA)
      The following steps were completed by September 2017 and are ongoing:

         1. FSA has a performance management program in place to improve individual and
            organizational effectiveness in accomplishing the agency’s mission and goals.
            This program provides for improper payments to be included in the State Executive
            Director’s Performance Plan, Element 5, titled “Program Management.”

         2. National Office and State Office (STO) managers are held accountable for ensuring that
            program policies and procedures are provided to the STO and County Office (COF)
            employees accurately and on a timely basis. National Office managers are also held
            accountable, as reflected in the performance-based rating measures, for overall program
            administration at the National level. In accordance with agency performance
            management requirements in FSA Handbook 5-PM and FSA Notice PM-2993, all FSA
            employees have performance elements that are aligned with applicable strategic goals
            and objectives from FSA’s FY 2016–FY 2018 Strategic Plan. Goal #4, Objectives 4.1
            and 4.2, specifically address accountability and internal controls. In addition, all field
            office employees who work with farm program payments have an improper payments
            performance standard as detailed in FSA Notice PM-2993.

         3. COF employees, including the County Executive Director, are responsible for making
            payments to producers and following all administrative steps in doing so. Employees
            will be evaluated through their performance plans on program delivery, as well as their
            compliance with regulations, policies, and procedures.

         4. The Deputy Administrator of Field Operations will facilitate meetings with the program
            areas to discuss any additional action necessary for senior management to address
            accountability.

         5. FSA’s 2016-2018 Strategic Plan, in accordance with USDA’s effort to develop
            comprehensive internal controls, quality assurance processes and systems, and
            compliance with the IPIA, incorporates the priority of reducing improper payments into
            its strategic planning documents.


      Risk Management Agency (RMA)
         1. RMA senior accountable officials’ annual performance plans are tied to Goal #4 of the
            RMA Strategic Plan—“Safeguarding the integrity of the Federal crop insurance
            program.” The Strategic Plan goal was to reduce the improper payment rate from
                                                                                                    183
                                                            SECTION III | OTHER INFORMATION




      5.23 percent in 2013 to 4.9 percent by 2018. RMA exceeded its strategic targets, and the
      actual improper payment rate was 1.81 percent in FY 2018.

  2. RMA incorporated standards in the FY 2018 annual performance plans to ensure that
     compliance personnel conduct IPERIA reviews to measure the Federal crop insurance
     program (FCIP) improper payment error rate and perform data mining reviews to
     identify, reduce, and collect improper payments. RMA Regional Compliance Offices
     (RCOs) conducted IPERIA reviews between April 2017–March 2018 using statistical
     sampling and data mining reports.


AGENCY INFORMATION SYSTEMS AND OTHER INFRASTRUCTURE

FNS
  1. CACFP does not have an infrastructure or methods for producing yearly estimates of
     improper payment rates and dollar values. FNS has developed a measurement
     methodology for one component of the program and is in the process of determining the
     feasibility of measuring error in a second component. CACFP payments and claim
     information are transferred among FNS, State agencies, program sponsors, and program
     sites; each transaction represents a risk for improper payment. Because requirements
     vary significantly for each different type of program sponsor and site, a full and
     rigorous assessment of the rate of improper payments is extremely complex.

      Currently, FNS has two CACFP studies looking at alternative methodologies for
      developing a reliable measurement for the meal claims component. The two studies are
      expected to be completed by December 2018 and April 2019.

  2. The NSLP does not have an administrative infrastructure for producing yearly estimates
     of improper payment rates and dollar values. FNS uses its periodic Access, Participation,
     Eligibility, and Certification (APEC) study to provide a baseline error rate estimate and an
     aging methodology to update this estimate annually using program administrative data
     and macroeconomic indicators. FNS has worked with OMB to provide an annual estimate
     using an approved methodology to estimate payment errors. The continuance of the
     APEC study will enable FNS to estimate and measure changes in erroneous payments
     over time and would help inform FNS, Congress, the States, and advocacy partners
     regarding the development of additional guidance, training, and policy options.

  3. The FNS FY 2018 Budget requested an increase in funding for the following program
     integrity line items to establish and maintain effective internal controls to reduce
     improper payments as follows:
184
      USDA AGENCY FINANCIAL REPORT | 2018




         a. Child Nutrition (CN) Training and Technical Assistance—an increase of $565,000 was
            requested ($13,137,000 enacted for FY 2017). Effective and continual training and
            technical assistance are necessary to help States properly administer the CN program to
            ensure that States are equipped to identify and prevent fraud and abuse. This is
            especially critical because of the changes made to these vital programs by the Healthy,
            Hunger-Free Kids Act of 2010, which reauthorized these programs and instituted new
            requirements for State agencies. This request reflects an increase in Federal activity
            associated with this project, including implementation of the new requirements.

         b. CN Payment Accuracy—an increase of $454,000 was requested ($10.562 million
            enacted for FY 2017). Robust Federal oversight, monitoring, and technical assistance
            are essential to the identification, prevention, and resolution of erroneous payments.
            This request supports FNS’ efforts to reduce erroneous payments through training,
            technical assistance, and oversight.

      FNS’ FY 2018 Budget reflects the same level of funding as in previous years to continue
      effective internal control measures to promote program integrity for the Coordinated Review
      Effort.

      Administrative Reviews—$10 million was provided for training and technical assistance for
      State agencies responsible for reviewing local school food authorities that participate in the
      school meal programs. Local administrative reviews help ensure that school children are
      offered meals that meet regulatory standards and that the financial claims associated with those
      meals are appropriate.


      FSA
      FSA has the internal controls, human capital, information systems, and other infrastructure
      needed to reduce improper payments.


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

      Discretionary Funding—Salaries and Expenses (S&E)—Discretionary funds for the Federal
      crop insurance programs cover most of the Federal salaries and related expenses to manage the
      program. The 2018 Budget includes about $74 million in discretionary appropriations for these
      costs. In addition, the Federal Crop Insurance Act authorizes the transfer of up to $9 million
      each fiscal year from mandatory funding to the RMA S&E account for program compliance
      and integrity reviews.
                                                                                                       185
                                                               SECTION III | OTHER INFORMATION




BARRIERS SECTION

FNS
FNS is committed to ensuring that eligible individuals and families have access to the nutrition
assistance they need while it works to reduce the risk of improper payments. Some program
provisions designed to ensure access pose the greatest risk to program integrity. While the risks
vary by program, some general characterizations can be made:

Program administration is highly decentralized and involves a myriad of governmental and
non-governmental organizations. For example, there are approximately 68,000 child and adult
care centers, 700 Family Day Care Home (FDCH) sponsoring organizations, and
approximately 103,000 FDCH providers through which CACFP benefits are distributed.
Similarly, the NSLP and the SBP rely on nearly 98,800 schools and institutions to serve meals
to 30 million children consistent with program rules. Many of these organizations simply do
not have the capacity to develop robust accountability processes, which puts a special burden
on Federal and State oversight and technical assistance systems.

The entire cost of program benefits and a significant portion of administrative expenses
incurred by State agencies are funded by Federal appropriations. Federal funding strengthens
the nutrition safety net with national eligibility standards and rules to ensure program access,
but it also means that USDA relies on States and localities to ensure the proper management of
billions of dollars in Federal funds.

Any approach to reducing school meals improper payments must:

   1. Improve accuracy without compromising access for low-income families. A process
      that keeps eligible children from participating would undermine the program;

   2. Not increase the burden on schools and other partner institutions. Many schools
      consider the program burdensome now. Adding burden could discourage schools from
      participating, decreasing access for some low-income children;

   3. Be cost effective. Improving accuracy is potentially resource intensive, and
      policymakers must not create a process that increases net program costs; and

   4. Answer the needs of other users of program data, which often use certification data to
      distribute millions of dollars in other kinds of benefits to schools (e.g. Title I, State, and
      local education funding). As these needs contribute to the problem, a solution may also
      require new commitments from those users.

SNAP benefits are processed and administered by State agencies, with FNS oversight. The Food
and Nutrition Act of 2008, as amended, provides for incentives in the form of financial bonuses
and disincentives in the form of financial penalties to encourage States to accurately issue SNAP
186
      USDA AGENCY FINANCIAL REPORT | 2018




      benefits and maintain low improper payment rates. FNS provides oversight and technical
      assistance to States in measuring and reporting improper payments. Since FNS does not provide
      benefits directly to recipients, the Program must work through its State administering agencies to
      measure, monitor, and address improper payments. In recent years, SNAP FNS has made efforts
      to strengthen program integrity regarding improper payment measurement. It has instituted new
      procedures to strengthen monitoring and has conducted reviews of all State agency error rate
      measurements to identify areas for improvement and to require corrective action for States where
      data collection issues were identified.


      FSA
      FSA rarely encounters statutory or regulatory barriers in the pursuit of overpayments. If an
      overpayment is established, from no fault of the customer, and if the overpayment is not
      discovered within 90 days of the payment issued, the producer can be removed from liability
      based on the Finality Rule, which is described as follows: The U.S. Department of Agriculture
      Reorganization Act of 1994, Section 281, provides that “Each decision of a State, County, or
      area committee or an employee of such a committee, made in good faith in the absence of
      misrepresentation, false statement, fraud, or willful misconduct shall be final not later than
      90 calendar days after the date of filing of the application for benefits, [and] no action may be
      taken to recover amounts found to have been disbursed as a result of the decision in error unless
      the participant had reason to believe that the decision was erroneous.”

      Prior to the 2008 Farm Bill, all receivables over 10 years old were written off if the receivable
      was not secured by collateral, a judgment, or pending litigation. With the 2008 Farm Bill, the
      elimination of the 10-year statute of limitation enhanced the pursuit of overpayments. The Farm
      Service Agency pursues all overpayments until they are determined to be uncollectible because
      of death of the customer, bankruptcy discharging the debt, or inability to pay (no assets).

      All payments for a customer with open receivables will be automatically offset and applied
      against any open receivables the customer may have in FSA’s receivable system.

      FSA’s pursuit of delinquent debt, including overpayments, is in accordance with the Debt
      Collection Improvement Act. Delinquent receivables are referred to the U.S. Department of the
      Treasury and the Treasury Offset Program (TOP) to ensure that Federal payments are
      offset. Due process is provided to the customer for each overpayment (initial notification, first,
      and second demand letter). After due process has been given to the producer, annual reminder
      letters are mailed to the producer with outstanding receivables. FSA uses LexisNexis to assist
      with locating producers and finding more current information on debtors.

      RMA
      RMA is not subject to any critical statutory or regulatory barriers to reducing improper payments.
                                                                                                  187
                                                            SECTION III | OTHER INFORMATION




RECAPTURE OF IMPROPER PAYMENTS REPORTING
USDA is required to conduct payment recapture auditing on all programs with over $1 million
in annual expenditures or provide justification that a payment recapture audit program would
not be cost effective, per OMB Circular A-123 Appendix C. USDA utilized FY 2017 actual
outlay information to determine which programs meet the $1 million payment recapture
auditing requirement. The following results highlight the payment recapture activities
completed in FY 2018:

   1. USDA recaptured approximately $0.25 million from its Supplier Credit Recovery Audit
      contractor (0.04 percent of USDA’s total identified overpayments), $204.81 million
      from USDA programs’ internal payment recapture audits (34.00 percent of USDA’s
      total identified overpayments), and $371.59 million outside of payment recapture audits
      (60.92 percent of USDA’s total identified overpayments). Results are shown in the
      Exhibit 34: Overpayments Recaptured through Payment Recapture Audits.

   2. USDA distributed $201.60 million in recovered funds in accordance with IPERA as
      shown in Exhibit 36: Disposition of Funds Recaptured.

   3. Fifty eight programs participated in the Supplier Credit Recovery Audit, and 42 programs
      developed internal payment recapture plans, which were approved by OCFO. These
      internal plans identify and recover improper payments. Activities include data
      mining-initiated reviews, limited-scope reviews, special investigations, eligibility
      verification, agency-wide audits, etc. As outlined in OMB Circular A-123 Appendix C
      Part III Section C. 5 and 6, 40 programs submitted a cost-effective waiver to OMB. A list
      of programs categorized by recovery auditing activity is provided in the table below:
188
            USDA AGENCY FINANCIAL REPORT | 2018




      EXHIBIT 33: List of Programs Categorized by Recovery Auditing Activity Table

                                                                                             Programs with Approved     Programs with less than
                                                        Supplier Credit   Internal Payment      Waivers-Based Cost       $1 million in FY 2017
      No.                Program Name                   Recovery Audit     Recapture Audit    Effectiveness [Note #3]   Expenditures [Note #7]
             Agricultural Marketing Service (AMS)
      1
             Commodity Purchase Programs
                                                              ✓             Unchecked              Unchecked                  Unchecked

      2      AMS Grants Programs                              ✓             Unchecked              Unchecked                  Unchecked
      3      AMS Salaries and Expenses                        ✓             Unchecked              Unchecked                  Unchecked
             Animal and Plant Health Inspection
      4
             Service (APHIS) Buildings and Facilities
                                                              ✓             Unchecked              Unchecked                  Unchecked

      5      APHIS Cooperative Agreements                                       ✓
      6      APHIS Indemnity Program                          ✓             Unchecked              Unchecked                  Unchecked
      7      APHIS Salaries and Expenses                      ✓             Unchecked              Unchecked                  Unchecked
      8      APHIS Trust Funds                                ✓             Unchecked              Unchecked                  Unchecked
             Agricultural Research Service (ARS)
      9
             Buildings and Facilities
                                                              ✓             Unchecked              Unchecked                  Unchecked

             Commodity Credit Corporation (CCC)
      10
             Administrative Contracts
                                                         Unchecked              ✓                  Unchecked                  Unchecked

             CCC Agricultural Wool Apparel
      11
             Manufacturers Trust Funds
                                                         Unchecked              ✓                  Unchecked                  Unchecked

             CCC Agriculture Risk Coverage and
      12
             Price Loss Coverage
                                                         Unchecked              ✓                  Unchecked                  Unchecked

      13     CCC Biomass Crop Assistance Program         Unchecked              ✓                  Unchecked                  Unchecked
                                                                                                                                        189
                                                                                                     SECTION III | OTHER INFORMATION




                                                                                   Programs with Approved     Programs with less than
                                              Supplier Credit   Internal Payment      Waivers-Based Cost       $1 million in FY 2017
No.              Program Name                 Recovery Audit     Recapture Audit    Effectiveness [Note #3]   Expenditures [Note #7]
14    CCC Conservation Reserve Program         Unchecked              ✓                  Unchecked                  Unchecked
      CCC Cotton Transition Assistance
15
      Program
                                               Unchecked              ✓                  Unchecked                  Unchecked

16    CCC Dairy Domestic Donations             Unchecked          Unchecked              Unchecked                       ✓
17    CCC Dairy Indemnity                      Unchecked              ✓                  Unchecked                  Unchecked
      CCC Emergency Assistance for
18    Livestock, Honeybees, and Farm           Unchecked              ✓                  Unchecked                  Unchecked
      Raised Fish Program
      CCC Emergency Forestry Conservation
19
      Reserve
                                               Unchecked              ✓                  Unchecked                  Unchecked

20    CCC Export 416 Ocean Transportation           ✓             Unchecked              Unchecked                       ✓
21    CCC Export Guarantee Program Level       Unchecked              ✓                  Unchecked                       ✓
22    CCC Farm Storage Facility Loan           Unchecked              ✓                  Unchecked                  Unchecked
23    CCC Feedstock Flexibility Program        Unchecked          Unchecked              Unchecked                       ✓
      CCC Food for Progress Program
24
      [Note #1]
                                                    ✓                 ✓                  Unchecked                  Unchecked

25    CCC Hazardous Waste Activities           Unchecked              ✓                  Unchecked                  Unchecked
      CCC Hurricane Sandy—Emergency
26
      Forest Restoration Program
                                               Unchecked              ✓                  Unchecked                  Unchecked

27    CCC Livestock Forage Disaster Program    Unchecked              ✓                  Unchecked                  Unchecked
28    CCC Livestock Indemnity Program          Unchecked              ✓                  Unchecked                  Unchecked
190
            USDA AGENCY FINANCIAL REPORT | 2018




                                                                                             Programs with Approved     Programs with less than
                                                        Supplier Credit   Internal Payment      Waivers-Based Cost       $1 million in FY 2017
      No.                Program Name                   Recovery Audit     Recapture Audit    Effectiveness [Note #3]   Expenditures [Note #7]
      29     CCC Loan Deficiency Payments                Unchecked              ✓                  Unchecked                  Unchecked
             CCC Margin Protection Program for
      30
             Dairy Producers
                                                         Unchecked              ✓                  Unchecked                  Unchecked

             CCC Marketing Assistance Loan
      31
             Program
                                                         Unchecked              ✓                  Unchecked                  Unchecked

      32     CCC Marketing Programs                      Unchecked              ✓                  Unchecked                  Unchecked
             CCC Noninsured Crop Disaster
      33
             Assistance Program
                                                         Unchecked              ✓                  Unchecked                  Unchecked

             CCC Pima Agriculture Cotton Trust
      34
             Fund
                                                         Unchecked              ✓                  Unchecked                  Unchecked

             CCC Supplemental Revenue Assistance
      35
             Payments Program
                                                         Unchecked              ✓                  Unchecked                      ✓
             CCC Tobacco Transition Payment
      36
             Program
                                                         Unchecked              ✓                  Unchecked                      ✓
             CCC Trade Adjustment Assistance
      37
             Program
                                                         Unchecked          Unchecked              Unchecked                      ✓
      38     CCC Tree Assistance Program                 Unchecked              ✓                  Unchecked                  Unchecked
             CCC Upland Cotton Economic
      39
             Adjustment Assistance Program
                                                         Unchecked              ✓                  Unchecked                  Unchecked

             Office of Civil Rights (CR) Salaries and
      40
             Expenses
                                                              ✓             Unchecked              Unchecked                  Unchecked
                                                                                                                                         191
                                                                                                      SECTION III | OTHER INFORMATION




                                                                                    Programs with Approved     Programs with less than
                                               Supplier Credit   Internal Payment      Waivers-Based Cost       $1 million in FY 2017
No.               Program Name                 Recovery Audit     Recapture Audit    Effectiveness [Note #3]   Expenditures [Note #7]
      Departmental Management (DM)
41
      Agriculture Buildings and Facilities
                                                     ✓             Unchecked              Unchecked                  Unchecked

42    DM Biobased Markets Program                    ✓             Unchecked              Unchecked                  Unchecked
43    DM Hazardous Materials Management              ✓             Unchecked              Unchecked                  Unchecked
      Foreign Agricultural Service (FAS)
44    McGovern-Dole Food for Education               ✓             Unchecked              Unchecked                  Unchecked
      Grants
      Farm and Foreign Agricultural Services
45
      (FFAS) Salaries and Expenses
                                                     ✓             Unchecked              Unchecked                  Unchecked

      Food and Nutrition Service (FNS)
46
      America Samoa
                                                Unchecked          Unchecked                  ✓                      Unchecked

      FNS Child and Adult Care Food
47
      Program
                                                     ✓             Unchecked              Unchecked                  Unchecked

      FNS Commonwealth of the Northern
48
      Mariana Islands
                                                Unchecked          Unchecked                  ✓                      Unchecked

      FNS Commodity Supplemental Food
49
      Program
                                                     ✓             Unchecked              Unchecked                  Unchecked

      FNS The Emergency Food Assistance
50
      Program
                                                     ✓             Unchecked              Unchecked                  Unchecked

      FNS Farmers Market Nutrition
51
      Program
                                                Unchecked          Unchecked                  ✓                      Unchecked
192
            USDA AGENCY FINANCIAL REPORT | 2018




                                                                                           Programs with Approved     Programs with less than
                                                      Supplier Credit   Internal Payment      Waivers-Based Cost       $1 million in FY 2017
      No.               Program Name                  Recovery Audit     Recapture Audit    Effectiveness [Note #3]   Expenditures [Note #7]
             FNS Food Distribution Program on
      52
             Indian Reservations
                                                            ✓             Unchecked              Unchecked                  Unchecked

      53     FNS National School Lunch Program              ✓             Unchecked              Unchecked                  Unchecked
      54     FNS Nutrition Assistance—Puerto Rico      Unchecked          Unchecked                  ✓                      Unchecked
      55     FNS Salaries and Benefits                      ✓                                                               Unchecked
      56     FNS School Breakfast Program              Unchecked          Unchecked                  ✓                      Unchecked
             FNS Senior Farmers Market Nutrition
      57
             Program
                                                       Unchecked          Unchecked                  ✓                      Unchecked

      58     FNS Special Milk Program                  Unchecked          Unchecked                  ✓                      Unchecked
             FNS Special Supplemental Nutrition
      59     Program for Women, Infants and            Unchecked          Unchecked                  ✓                      Unchecked
             Children
      60     FNS Summer Food Service Program                ✓             Unchecked              Unchecked                  Unchecked
             FNS Supplemental Nutrition Assistance
      61
             Program
                                                       Unchecked          Unchecked                  ✓                      Unchecked

             Food Safety and Inspection Service
      62     (FSIS) Cooperative State Food Safety      Unchecked          Unchecked                  ✓                      Unchecked
             and Inspection
      63     FSIS Salaries and Expenses                     ✓             Unchecked              Unchecked                  Unchecked
             Farm Service Agency (FSA) Agricultural
      64     Credit Insurance Fund                     Unchecked              ✓                  Unchecked                  Unchecked
             —Program Account
                                                                                                                                     193
                                                                                                  SECTION III | OTHER INFORMATION




                                                                                Programs with Approved     Programs with less than
                                           Supplier Credit   Internal Payment      Waivers-Based Cost       $1 million in FY 2017
No.              Program Name              Recovery Audit     Recapture Audit    Effectiveness [Note #3]   Expenditures [Note #7]
65    FSA Emergency Conservation Program    Unchecked              ✓                  Unchecked                  Unchecked
      FSA Emergency Forest Restoration
66
      Program
                                            Unchecked              ✓                  Unchecked                  Unchecked

      FSA Grassroots Source Water
67
      Protection Program
                                            Unchecked              ✓                  Unchecked                  Unchecked

      FSA Hurricane Sandy
68
      —Emergency Conservation Program
                                            Unchecked          Unchecked              Unchecked                       ✓
69    FSA Public Law 480                         ✓             Unchecked              Unchecked                  Unchecked
70    FSA Reforestation Pilot Program       Unchecked          Unchecked              Unchecked                       ✓
      FSA Reimbursement Transportation
71
      Cost Payment Program
                                            Unchecked              ✓                  Unchecked                  Unchecked

72    FSA State Mediation Grants            Unchecked              ✓                  Unchecked                  Unchecked
      Forest Service (FS) Capital
73
      Improvement and Maintenance
                                                 ✓             Unchecked              Unchecked                  Unchecked

74    FS Forest and Rangeland Research           ✓             Unchecked              Unchecked                  Unchecked
75    FS Permanent Appropriations                ✓             Unchecked              Unchecked                  Unchecked
76    FS Trust Funds                             ✓             Unchecked              Unchecked                  Unchecked
      FS Hurricane Sandy—Capital
77
      Improvement and Maintenance
                                            Unchecked          Unchecked              Unchecked                       ✓
      FS Hurricane Sandy—Emergency
78
      Forest Restoration Program
                                                 ✓             Unchecked              Unchecked                       ✓
194
            USDA AGENCY FINANCIAL REPORT | 2018




                                                                                           Programs with Approved     Programs with less than
                                                      Supplier Credit   Internal Payment      Waivers-Based Cost       $1 million in FY 2017
      No.                Program Name                 Recovery Audit     Recapture Audit    Effectiveness [Note #3]   Expenditures [Note #7]
      79     FS Land Acquisition                            ✓             Unchecked              Unchecked                  Unchecked
             FS Management of National Forest
      80
             Lands for Subsistence Uses
                                                            ✓             Unchecked              Unchecked                  Unchecked

      81     FS National Forest System                      ✓             Unchecked              Unchecked                  Unchecked
      82     FS Range Betterment Fund                       ✓             Unchecked              Unchecked                  Unchecked
      83     FS State and Private Forestry                  ✓             Unchecked              Unchecked                  Unchecked
             FS Stewardship Contracting Product
      84
             Sales
                                                            ✓             Unchecked              Unchecked                  Unchecked

      85     FS Wildland Fire Management                    ✓             Unchecked              Unchecked                  Unchecked
             FS Wildland Fire Management
      86
             —Suppression
                                                            ✓             Unchecked              Unchecked                  Unchecked

      87     FS Working Capital Fund                        ✓             Unchecked              Unchecked                  Unchecked
             National Institute of Food and
      88     Agriculture (NIFA) Community Foods        Unchecked              ✓                  Unchecked                  Unchecked
             Project
      89     NIFA Extension Activities                 Unchecked              ✓                  Unchecked                  Unchecked
      90     NIFA Integrated Activities                Unchecked              ✓                  Unchecked                  Unchecked
      91     NIFA Research and Education Activities    Unchecked              ✓                  Unchecked                  Unchecked
             Natural Resources Conservation
      92     Service (NRCS) Conservation Technical          ✓             Unchecked              Unchecked                  Unchecked
             Assistance (non-Farm Bill)
                                                                                                                                          195
                                                                                                       SECTION III | OTHER INFORMATION




                                                                                     Programs with Approved     Programs with less than
                                                Supplier Credit   Internal Payment      Waivers-Based Cost       $1 million in FY 2017
No.               Program Name                  Recovery Audit     Recapture Audit    Effectiveness [Note #3]   Expenditures [Note #7]
      NRCS Farm Security and Rural
93
      Investment Act Program (FSRIP)
                                                      ✓             Unchecked              Unchecked                  Unchecked

94    NRCS Plant Materials Centers                    ✓             Unchecked              Unchecked                  Unchecked
      NRCS Snow Survey and Water Supply
95
      Forecasting
                                                      ✓             Unchecked              Unchecked                  Unchecked

96    NRCS Soil Surveys                               ✓             Unchecked              Unchecked                  Unchecked
97    NRCS Watershed Programs                         ✓             Unchecked              Unchecked                  Unchecked
      Office of Advocacy and Outreach for
98
      Socially Disadvantaged Farmers
                                                      ✓             Unchecked              Unchecked                  Unchecked

      Office of Budget and Program Analysis
99
      Salaries and Expenses
                                                      ✓             Unchecked              Unchecked                  Unchecked

      Office of the Chief Economist Salaries
100
      and Expenses
                                                      ✓             Unchecked              Unchecked                  Unchecked

      Office of the Chief Financial Officer
101
      Salaries and Expenses
                                                      ✓             Unchecked              Unchecked                  Unchecked

      Office of the Chief Information Officer
102
      Salaries and Expenses
                                                      ✓             Unchecked              Unchecked                  Unchecked

      Office of the General Counsel (OGC)
103
      Salaries and Expenses
                                                      ✓             Unchecked              Unchecked                  Unchecked

      Office of Hearings and Appeals Salaries
104
      and Expenses
                                                      ✓             Unchecked              Unchecked                  Unchecked
196
            USDA AGENCY FINANCIAL REPORT | 2018




                                                                                         Programs with Approved     Programs with less than
                                                    Supplier Credit   Internal Payment      Waivers-Based Cost       $1 million in FY 2017
      No.                Program Name               Recovery Audit     Recapture Audit    Effectiveness [Note #3]   Expenditures [Note #7]
             Office of Inspector General (OIG)
      105
             Salaries and Expenses
                                                          ✓             Unchecked              Unchecked                  Unchecked

             Office of the Secretary Salaries and
      106
             Expenses
                                                          ✓             Unchecked              Unchecked                  Unchecked

             Rural Business-Cooperative Service
      107
             (RBS) Grant Programs
                                                     Unchecked          Unchecked                  ✓                      Unchecked

      108 RBS Guaranteed Loan Programs               Unchecked          Unchecked                  ✓                      Unchecked
      109 RBS Payment Programs                       Unchecked          Unchecked                  ✓                      Unchecked
      110 RBS Relending Programs                     Unchecked          Unchecked                  ✓                      Unchecked
             Rural Development (RD) Salaries and
      111
             Expenses
                                                          ✓             Unchecked              Unchecked                  Unchecked

             Rural Housing Service (RHS)
      112
             Community Program Grants
                                                     Unchecked          Unchecked                  ✓                      Unchecked

      113 RHS Direct Community Facility Loans        Unchecked          Unchecked                  ✓                      Unchecked
      114 RHS Direct Single Family Housing           Unchecked              ✓                                             Unchecked
          RHS Farm Labor Housing Loans
      115 (Section 514) Farm Labor Housing           Unchecked          Unchecked                  ✓                      Unchecked
          Grants (Section 516)
             RHS Guaranteed Community Facility
      116
             Loans
                                                     Unchecked          Unchecked                  ✓                      Unchecked

             RHS Guaranteed Single Family Housing
      117
             Loans
                                                     Unchecked              ✓                  Unchecked                  Unchecked
                                                                                                                                          197
                                                                                                       SECTION III | OTHER INFORMATION




                                                                                     Programs with Approved     Programs with less than
                                                Supplier Credit   Internal Payment      Waivers-Based Cost       $1 million in FY 2017
No.               Program Name                  Recovery Audit     Recapture Audit    Effectiveness [Note #3]   Expenditures [Note #7]
      RHS Guaranteed Multi-Family Housing
118
      (MFH) Loans (Section 538 Loans)
                                                 Unchecked          Unchecked                  ✓                      Unchecked

119 RHS Housing Loans and Grants—Other           Unchecked          Unchecked                  ✓                      Unchecked
    RHS MFH Preservation & Revitalization
120 Demo Program: 514/516 Loans/Grants           Unchecked          Unchecked                  ✓                      Unchecked
    & 515 Loans
121 RHS Rental Assistance Program                Unchecked              ✓                  Unchecked                  Unchecked
      RHS Rural Community Development
122
      Initiative Grants
                                                 Unchecked          Unchecked                  ✓                      Unchecked

    RHS Rural Rental Housing Loans
123 (Section 515 Direct Rural Rental             Unchecked          Unchecked                  ✓                      Unchecked
    Housing Loans)
      RHS Voucher Program (Section 542)
124
      [Note #1]
                                                      ✓                 ✓                  Unchecked                  Unchecked

      Rural Utilities Service (RUS) Broadband
125
      Telecom Loans—Treasury Rate
                                                 Unchecked          Unchecked                  ✓                      Unchecked

126 RUS Community Connect Grants                 Unchecked          Unchecked                  ✓                      Unchecked
127 RUS Congressional Earmarked Funds            Unchecked          Unchecked                  ✓                      Unchecked
    RUS Electric Loan Programs [Catalog of
128 Federal Domestic Assistance (CFDA)           Unchecked          Unchecked                  ✓                           ✓
    10.850]—Direct Treasury Rate
198
            USDA AGENCY FINANCIAL REPORT | 2018




                                                                                             Programs with Approved     Programs with less than
                                                        Supplier Credit   Internal Payment      Waivers-Based Cost       $1 million in FY 2017
      No.                Program Name                   Recovery Audit     Recapture Audit    Effectiveness [Note #3]   Expenditures [Note #7]
          RUS Electric Loan Programs (CFDA
      129 10.850)—Federal Financing Bank (FFB)           Unchecked          Unchecked                  ✓                      Unchecked
          Guaranteed
      130 RUS Rural Energy Savings Program               Unchecked          Unchecked              Unchecked                      ✓
             RUS Grants—Other Electric
      131
             —Telecom. WEP
                                                         Unchecked          Unchecked                  ✓                      Unchecked

             RUS Public Television Digital Transition
      132
             Grants
                                                         Unchecked          Unchecked                  ✓                      Unchecked

      133 RUS Revolving Loan Fund Program                Unchecked          Unchecked                  ✓                      Unchecked
          RUS Rural Telecommunications
      134 Hardship Loans                                 Unchecked          Unchecked                  ✓                      Unchecked
          —Direct Telecom. Loans
             RUS Rural Telecommunications Loans
      135
             —FFB Telecom. Loans
                                                         Unchecked          Unchecked                  ✓                      Unchecked

             RUS Rural Telecommunications Loans
      136
             —Treasury Telecom. Loans
                                                         Unchecked          Unchecked                  ✓                      Unchecked

             RUS Rural Utilities Electric Program
      137
             —Direct 5 percent
                                                         Unchecked          Unchecked                  ✓                      Unchecked

             RUS Rural Utilities Electric Program
      138
             —Municipal Rate
                                                         Unchecked          Unchecked                  ✓                          ✓
          RUS Water and Waste Disposal
      139 Systems for Rural Communities                  Unchecked          Unchecked                  ✓                      Unchecked
          —Grant
                                                                                                                                     199
                                                                                                  SECTION III | OTHER INFORMATION




                                                                                Programs with Approved     Programs with less than
                                           Supplier Credit   Internal Payment      Waivers-Based Cost       $1 million in FY 2017
No.              Program Name              Recovery Audit     Recapture Audit    Effectiveness [Note #3]   Expenditures [Note #7]
    RUS Water and Waste Disposal
140 Systems for Rural Communities                ✓             Unchecked                  ✓                      Unchecked
    —Loans [Note #2]
    RUS Water and Waste Disposal
141 Systems Loans and Grants Section        Unchecked          Unchecked                  ✓                      Unchecked
    306C
      RUS Water and Waste Guaranteed
142
      Loans
                                            Unchecked          Unchecked                  ✓                      Unchecked

      Research, Education, and Economics
143
      (REE) Salaries and Expenses
                                                 ✓             Unchecked              Unchecked                  Unchecked

      Risk Management Agency Federal
144
      Crop Insurance Corporation
                                            Unchecked              ✓                  Unchecked                  Unchecked
200
      USDA AGENCY FINANCIAL REPORT | 2018




      Overpayment Recaptures with and without Recapture Audit Programs
      USDA had mechanisms in place to collect overpayments, even prior to the establishment of
      official payment recapture audits. For the FY 2018 AFR Recapture reporting period [Note #4],
      USDA recovered $371.59 million out of the identified $381.01 million through methods
      outside of Recapture Audit Programs (See Exhibit 35: Overpayment Recaptured Outside of
      Recapture Audit for additional breakout). The table below provides detailed information
      regarding the recoveries collected through official payment recapture audits.

      EXHIBIT 34: Overpayments Recaptured through Payment Recapture Audits Table ($ in millions)
                  [Note #4]

                                                                                         CY +1
                                     Amount          Amount         CY Recapture      Recapture
         Program or Activity        Identified      Recaptured          Rate          Rate Target

      Supplier Credit Recovery
                                     $0.25              $0.25         100.00%         100.00%
      Audit Program [Note #5]


      APHIS Internal Program         $0.10              $0.00           0.00%           50.00%


      FSA/CCC Internal
                                   $195.86           $186.64           95.29%           96.00%
      Program


      NIFA Internal Program         $15.98              $6.80          42.55%           43.00%



      RD Internal Programs           $5.31              $4.62          87.01%           88.00%


      RMA—Federal Crop
      Insurance Corporation         $11.40              $6.75          59.21%         100.00%
      [Note #6]


      TOTAL                        $228.90           $205.06          N/A             N/A
                                                                                                    201
                                                             SECTION III | OTHER INFORMATION




EXHIBIT 35: Overpayment Recaptured Outside of Recapture Audit Programs ($ in millions)
            [Note #4]

 Program or Activity      Amount Identified       Amount Recaptured           Recapture Rate
AMS                               $0.00                    $0.00                    N/A
APHIS                             $0.06                    $0.06                 100.00%
DA                                $0.00                    $0.00                    N/A
FAS                               $0.09                    $0.09                 100.00%
FNS                            $353.19                  $353.19                  100.00%
FS                                $2.98                    $2.54                  85.23%
FSA                               $4.94                    $5.93                 120.04%14
FSIS                              $0.00                    $0.00                    N/A
GIPSA                             $0.00                    $0.00                    N/A
NAD/OAO                           $0.00                    $0.00                    N/A
NRCS                              $3.51                    $1.11                  31.62%
OCFO/OBPA/OCIO                    $0.00                    $0.00                    N/A
OGC                               $0.00                    $0.00                    N/A
OIG                               $0.00                    $0.00                    N/A
OSEC/OCE                          $0.00                    $0.00                    N/A
RBS                               $0.02                    $0.00                    0.00%
REE                              $16.21                    $8.66                  53.42%
RHS                               $0.01                    $0.02                 200.00%
RMA                               $0.00                    $0.00                    N/A
RUS                               $0.00                    $0.00                    N/A
OCR                               $0.00                    $0.00                    N/A
Total                          $381.01                  $371.59                   97.53%



14The amount recaptured can be higher than the amount identified within a specific time
period given the nature of collections. Collection of overpayments occur after the identification
of the overpayment which can lapse into other reporting periods and there may be instances
that require multiple collections (such as a payment plan for individuals who have a lower
income) in order to return the overpayment in full.
202
          USDA AGENCY FINANCIAL REPORT | 2018


      USDA recaptured $205.06 million dollars of which $187.89 million or 91.63% was returned to the Treasury, $13.71 million or 6.68% was
      returned to agencies for the original program purpose, and $3.46 million or 1.69% was used for Other purposes, as described in Exhibit 36 below.

      EXHIBIT 36: Disposition of Funds Recaptured Through Payment Recapture Audit Programs Table ($ in millions)




                                                                   Administer the Program




                                                                                                                Improvement Activities
                                                                                                                Financial Management




                                                                                                                                                                       Returned to Treasury
                                                                   Agency Expenses to


                                                                                            Payment Recapture
                             Amount Recovered



                                                 Type of Payment




                                                                                                                                          Original Purpose
                                                                                            Auditor Fees




                                                                                                                                                             To OIG




                                                                                                                                                                                              Other
         Program or                                                                                                                                                                                    Justification for “Other”
           Activity                                                                                                                                                                                             Amounts
      Supplier Credit
      Recovery Audit                                                                                                                                                                                  Funds in "Other" Column
                             $0.25 Contracts                        $0.00                   $0.00                  $0.00                  $0.00              $0.00        $0.00               $0.25
      Program                                                                                                                                                                                         have not been distributed.
      [Note #5]
      APHIS Internal
                             $0.00              Grants              $0.00                   $0.00                  $0.00                  $0.00              $0.00        $0.00               $0.00 N/A
      Program
      FSA/CCC Internal                          Loans
                          $186.64                                   $0.00                   $0.00                  $0.00                  $0.66              $0.00    $185.98                 $0.00 N/A
      Program                                   Other
      NIFA Internal
                             $6.80              Grants              $0.00                   $0.00                  $0.00                  $6.30              $0.00        $0.50               $0.00 N/A
      Program
      RD Internal                               Loans                                                                                                                                                 Funds in "Other" Column
                             $4.62                                  $0.00                   $0.00                  $0.00                  $0.00              $0.00        $1.41               $3.21
      Program                                   Grants                                                                                                                                                have not been distributed.
      RMA—Federal
      Crop Insurance         $6.75              Other               $0.00                   $0.00                  $0.00                  $6.75              $0.00        $0.00               $0.00 N/A
      Corporation
      Total               $205.06                N/A                $0.00                   $0.00                  $0.00                 $13.71              $0.00    $187.89                 $3.46 See justifications above.
                                                                                                                                                 203
                                                                                                         SECTION III | OTHER INFORMATION



EXHIBIT 37: Aging of Outstanding Overpayments Identified in the Payment Recapture Audits Table ($ in millions)

                                          Amount             Amount              Amount             Amount              Justification for
                             Type of    Outstanding         Outstanding        Outstanding     Determined to not      Amounts Determined
   Program or Activity      Payment    (0–6 months)     (6 months to 1 year)   (over 1 year)     be Collectable       not to be Collectable
Supplier Credit Recovery
                              N/A          $0.00              $0.00               $0.00                0.00         N/A
Audit Program
APHIS Internal Program        N/A          $0.00              $0.00               $0.00               $0.00         N/A
                                                                                                                    Write-offs due to finality
FSA/CCC Internal             Loans/                                                                                 rule, relief granted,
                                           $7.77              $2.72               $0.25               $0.06
Program                      Other                                                                                  deceased debtor, and
                                                                                                                    small balances
NIFA Internal Program         N/A          $0.40              $0.10               $1.30               $0.00         N/A
                             Loans
RD Internal Program                        $1.32              $1.06               $5.13               $0.00         N/A
                             Grants
RMA—Federal Crop
                             Other         $0.06              $0.41               $1.30               $0.00         N/A
Insurance Corporation
TOTAL [Note #6]               N/A          $9.55              $4.29               $7.98               $0.06         See justification above.

Note #1:   The Food for Progress Program and RD Voucher Program (Section 542) are participating in both the Supplier Credit Recovery Audit
           Program and in their respective agencies’ Internal Program.
Note #2:   The RUS Water and Waste Disposal Systems for Rural Communities—Loans is participating in the Supplier Credit Recovery Audit
           Program and are covered under RD’s waiver (waiver mentioned in Note #3).
Note #3:   OMB was notified of FNS’ determination in October 2016. FNS determined they would be unable to conduct an official payment
           recapture audit on its programs because States make payments to FNS program recipients. RD’s and FSIS’ justifications were
           provided in the FY 2016 AFR.
Note #4:   The FY 2018 AFR Recapture Reporting Period consists of 4th Qtr. FY 2017, 1st Qtr. FY 2018, 2nd Qtr. FY 2018, and 3rd Qtr. FY 2018.
204
          USDA AGENCY FINANCIAL REPORT | 2018



      Note #5:   The Supplier Credit Recovery Audit’s reporting timeframe is September 29, 2017, through July 11, 2018.
      Note #6:   USDA has a total of $21.82 million dollars in amounts outstanding (i.e., 9.53 percent of the total overpayments identified through
                 payment recapture audits). USDA has a total of $0.06 million dollars in amounts determined to not be collectable (i.e. 0.03 percent
                 of the total overpayments identified through payment recapture audits).
      Note #7:   These programs or activities had less than $1 million in FY 2017 expenditures. Outlay levels can vary year to year, which is why
                 some of these programs are currently conducting recovery auditing despite being under the $1 million IPERA threshold.
                                                                                                    205
                                                              SECTION III | OTHER INFORMATION




AGENCY REDUCTION OF IMPROPER PAYMENTS WITH THE DO NOT PAY
INITIATIVE SECTION
Personal Identity Verification (PIV) Conversion
The U.S. Department of Agriculture (USDA) continued to expand its use of the Do Not Pay
(DNP) Portal in fiscal year (FY) 2018 in the development and use of Personal Identity
Verification (PIV) card/LincPass conversion access for USDA DNP portal users. USDA DNP
Portal users expressed that the major difficulty in using the DNP Portal was the multi-tiered
Public Key Infrastructure (PKI) token logon to the DNP Portal. USDA presented the issue to
the U.S. Department of the Treasury (Treasury) and soon after was engaged in a
PIV/LincPass pilot project.

USDA Office of the Chief Financial Officer (OCFO) collaborated with the Treasury, Bureau of
the Fiscal Service, and the DNP Business Center to provide a simplified logon. USDA’s Office
of the Chief Financial Officer (OCFO) managed the internal implementation of the pilot to
include the demonstration, testing, and documentation of the process for conversion from the
multi-tiered PKI token logon to PIV card/LincPass access. USDA’s OCFO selected USDA’s
Rural Development (RD) agency to test, pilot, and track implementation of user access from
the multi-tiered PKI Token logon to PIV card/LincPass access.

USDA’s OCFO selected RD because it had many users (more than 1,800), which covered a
wide area across the United States and the U.S. protectorates, to capture lessons learned and to
document the best practices to be applied throughout the agency. USDA recognized the need to
reduce the number of users by identifying those whose current duties did not require access to
the DNP Portal. USDA conferred with RD and their Local Security Administrators (LSAs) to
verify conversion of creditable users and created a roll-out plan for more than 1,500 users,
while concurrently deactivating RD users who no longer needed access to the DNP Portal.
Overall, USDA converted more than 1,500 users to the PIV card/LincPass access in less than
45 days.

In addition, USDA created internal conversion guidance for PIV card/LincPass access to
include a frequently asked questions sheet that assists users with information technology error
notification answers. USDA is currently tracking and updating a packet of lessons learned,
which it will share with Treasury, with the hope that it can be used government-wide. USDA
has been successful in increasing portal user activity in the DNP portal. After the conversion, a
deliberative metric assessment was conducted on RD user activity using statistical data
provided by DNP. Although there has been a decrease in users from the previous fiscal year,
users have responded positively to the change in access point-based on the table below.
206
      USDA AGENCY FINANCIAL REPORT | 2018



      EXHIBIT 38: DNP Portal Usage for RD from June 2017 to June 2018

                 Usage                   June 2017             June 2018             Increase
      Total DNP Portal Logins              3,867                 6,987               80.68%
      Total DNP Portal Searches            7,149                13,296               85.98%

      USDA’s OCFO is currently creating a roll-out plan for all USDA-enrolled agencies to convert
      from PKI token to PIV card/LincPass access to verify accurate use of Federal funds and reduce
      improper payments.

      As part of the 2018 Annual Government-wide Financial Management Conference, which is
      hosted by the U.S. Department of the Treasury, USDA PIV card transition was presented as a
      best practice and lessons learned.


      USDA and DNP Databases
      USDA has incorporated the DNP databases in the following ways:

         1. The death records maintained by the Commissioner of Social Security are checked
            extensively for Farm Service Agency (FSA) FY 2018 new enrollees, Guaranteed Loans,
            and Direct Loans Divisions on a post-payment basis. Several additional programs use
            this database in pre-award activities in the DNP portal. All USDA payments made
            through Treasury are checked against this database on a post-payment basis.

         2. The General Services Administration’s System for Award Management (SAM)
            database is checked at pre-award for most contracts, grants, cooperative agreements,
            and insurance programs. All USDA payments made through Treasury are checked
            against this database on a post-payment basis.

         3. The Credit Alert System or Credit Alert Interactive Voice Response System (CAIVRS)
            of the U.S. Department of Housing and Urban Development is used by USDA loan
            programs at time of award. RD signed a memorandum of understanding with Treasury
            and updated its system of records notice (SORN). RD began transmitting its CAIVRS
            data to Treasury in June 2017.

         4. RD is using the Debt Check Database of the Treasury (Debt Check) for most pre-award
            verifications.

         5. USDA is using the List of Excluded Individuals/Entities (LEIE) of the Office of
            Inspector General of the U.S. Department of Health and Human Services for pre-award
            for some loans, grants, and contracts.
                                                                                                  207
                                                            SECTION III | OTHER INFORMATION



   6. USDA is not currently using the Prisoner Update Processing System of the Social
      Security Administration (PUPS) but is evaluating programs that have the legal authority
      to use and benefit from this database. State officials in the food and nutrition programs
      are required to use prisoner data when making awards.

USDA’s use of these databases is through the DNP portal and directly from the database
providers. However, RD utilizes the DNP portal for single searches on pre-award checks,
pre-approval, and pre-disbursement checks.


USDA and DNP ADJUDICATION
USDA is utilizing DNP adjudication during the payment integration function, which allows
USDA agencies to detect a payment to a deceased individual. USDA verification eligibility
activities for deceased individuals are now adjudicated within the DNP Portal. Matches for
deceased individuals were made in the DNP Portal. After some due diligence, USDA
determined that the payments were legitimate because they needed to be made to the estate
rather than to the deceased individual. USDA’s OCFO is in the process of joining the FSA’s
guaranteed loans and direct loans for post-payment review in FY 2018. DNP payment
integration review and adjudication within the Portal has enabled USDA to identify and correct
issues with long-term contracts and awards. Improved internal controls are now in place to
update payment records with USDA’s long-term business partners as ownership changes.


USDA DELIVERABLES
USDA has completed a SORN for USDA’s RD to transmit CAIVRS data to Treasury’s DNP
Portal. USDA is working to complete a similar SORN process for USDA’s FSA to transmit
CAIVRS data to Treasury’s DNP Portal.

The USDA National Finance Center has amended the SORN OCFO-10. They are continuing the
process to complete the Computer Matching Agreement (CMA) for continuous monitoring for
the Financial Management Modernization Initiative or accounting system to communicate with
Treasury’s DNP Portal. USDA is working with the DNP Business Center in its efforts to engage
the state of Tennessee in accordance with the Federal Improper Payments Coordination Act.
208
      USDA AGENCY FINANCIAL REPORT | 2018




      Fraud Reduction Report
      OVERVIEW
      As required by Office of Management and Budget (OMB) Circular No. A-123, Management’s
      Responsibility for Internal Control, the U.S. Department of Agriculture (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. To date, a number of USDA agencies have implemented ERM.
      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 continues to implement
      the requirement of OMB Circular A-123, the Department will use agency best practices to
      identify and minimize risks and vulnerabilities to prevent fraud. Outlined below are specific
      actions the Department is taking to integrate fraud risk prevention and monitoring into the
      management of internal controls.


      RISK ASSESSMENT:
      The A-123 Appendix A, Assessment of Internal Control over Financial Reporting, 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, and is tallied along with other risk responses, to
      determine the level and frequency of testing.

      Additionally, as a requirement of the Statement on Auditing Standards (SAS) No. 122,
      Clarification and Recodification, specifically Audit (AU) Section 240, Consideration of Fraud
      in a Financial Statement Audit, the Office of the Chief Financial Officer (OCFO) disseminates
      and consolidates responses to a fraud questionnaire among USDA’s financial community.


      TECHNOLOGY:
      The A-123 Appendix A annual assessment includes 15 automated, continuously monitored,
      financial controls. The controls are configured in the USDA financial system to detect potential
      fraud/misuse. Configuration changes are immediately reported as exceptions to responsible
      control owners and first-line supervisors, and the Internal Controls Division has the ability to
      run real-time system reports to further monitor exceptions. An oversight workflow is
      established where the OCFO’s Internal Audit and Compliance Group is responsible for
      assigning remediation tasks to correct any exception issues. Reports are available to be
      communicated to the USDA agencies at any time.
                                                                                                    209
                                                              SECTION III | OTHER INFORMATION




ENTITY LEVEL CONTROLS:
USDA agencies and staff offices are required to complete an annual Entity Level Control
(ELC) assessment. The ELC assessment was recently updated to comply with the most current
Government Accountability Office (GAO)—Standards for Internal Control in the Federal
Government (“Green Book”). The assessment includes GAO Principle 8, which assesses fraud
risk. Attributes include: (1) types of fraud, (2) fraud risk factors, and (3) responses to fraud
risks. Objectives include: (1) identifying fraud risks based on fraud risk factors, (2) assessing
identified fraud risks for significance, and (3) properly responding to identified fraud risks.


ACCESS CONTROLS:
The USDA consolidated financial systems’ access controls are managed through the
Governance Risk and Compliance (GRC) Access Control module. Access controls are
configured to prevent conflicting accounting roles 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 DUTY:
USDA’s consolidated financial system is configured in such a way that conflicting roles are
prohibited, which ensures proper segregation of duty (SOD). Those who initiate a transaction in
the financial system 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 A-123, Appendix A assessment. The strict prohibition of conflicting roles reduces
the risk of fraud.


ADDITIONAL FRAUD RISK INTEGRATION EFFORTS:
During fiscal year (FY) 2018, the OCFO participated in the OMB Fraud Working Group,
whose mission is “to improve the sharing and development of best practices and data analytics
techniques for detecting, preventing, and responding to fraud, including improper payments.”
Several Federal agencies shared implementation practices and pilots, including the
U.S. Department of the Treasury (Treasury) and the Veterans Administration (VA) which built
a government-wide playbook “to assist agencies in identifying, prioritizing, and responding to
fraud, waste, and abuse.” Treasury issued the draft playbook in early August for review and
comment, with input from USDA. OCFO also independently met with Treasury and the VA to
benchmark against their fraud risk assessment and fraud risk profile, and to better understand
how to integrate the existing external financial reporting assessment into an evolving fraud risk
management structure.
210
      USDA AGENCY FINANCIAL REPORT | 2018



      In addition, OCFO met with the USDA Office of Inspector General to understand the existing
      confirmed fraud cases (including those related to improper payments), and the reporting and
      adjudication process. That information, coupled with USDA cases recently reported in the
      Fraud Digest, allowed for OCFO to submit the most significant program and financial fraud
      types for consideration to include in the consolidated Federal Fraud Taxonomy, updated and
      managed by OMB.

      In compliance with A-123, OCFO also included a fraud assertion in the FY 2018 Assurance
      Statement Template. The USDA component agencies’ and staff office’s progress on the
      establishment of strategies, procedures, and other steps to curb fraud were then gauged and
      consolidated in the Agency Financial Report. All component agencies and staff offices reported
      that financial and administrative controls were established to identify and assess fraud risks,
      and control activities were designed and implemented to prevent, detect, and respond to fraud,
      including improper payments.

      Component agencies and staff offices also assessed the fraud risk principle in the Standards for
      Internal Control for Federal Government and OMB Circular A-123, with respect to leading
      practices for managing fraud risk; assessed risks and vulnerabilities to fraud, including payroll,
      beneficiary payments, grants, large contracts, and purchase and travel cards, as applicable; and
      established strategies, procedures, and other steps to curb fraud as part of internal control
      activities operating during the normal course of business.

      *The agency transactional control objectives to reduce fraud risk (a subset of the full A-123,
      Appendix A control library) are included in the tables following this section.


      SPECIFIC USDA COMPONENT AGENCIES REPORTED THE FOLLOWING
      DEVELOPMENTS RELATED TO THE MANAGEMENT OF FRAUD RISK:
      Farm Service Agency (FSA) established internal controls over agency programs and
      operations by issuing program and administrative guidance to help curb fraud.

      FSA has controls over segregation of duties to prevent fraud when disbursing funds. Examples
      include policies that prevent the same person from certifying and signing payments. When
      delegating employees to disburse payments, employees acknowledge that payments that they
      certify and/or sign must be issued in accordance with the Commodity Credit Corporation (CCC)
      bylaws. Annual reviews are conducted to determine whether delegations should be revoked.

      FSA also requires expenditure corrections to be reviewed by someone other than the individual
      responsible for issuing the original payment.
                                                                                                     211
                                                              SECTION III | OTHER INFORMATION



A whistleblower hotline is also administered by FSA where employees and producers can
report actual and suspected program violations by employees and producers. Complaints are
investigated to determine validity.

FSA developed an in-depth risk assessment process based on ERM principles to identify risks,
including fraud risks, associated with FSA programs.

FSA piloted this “deep dive” process on the Livestock Forage Disaster Program (LFP).
The assessment included a survey completed by employees that implemented LFP in the prior
3 years. The survey included questions specifically related to identifying fraud risk leveraging
GAO’s Fraud Risk Management Framework. Findings were summarized and shared with the
LFP program management for review and action.

The Food and Nutrition Service (FNS) implemented the Supplemental Nutrition Assistance
Program (SNAP) Fraud Framework that combines innovations in the use of analytics with
concepts and practices from industry in order to more effectively detect potential fraud and
improve administration and oversight. It offers individual states the flexibility to choose
techniques that best fit their needs, recognizing that fraud is not a static concept and that one
size does not fit all. Components of the framework include: (1) Organizational Management,
(2) Performance Measurement, (3) Recipient Integrity Education, (4) Fraud Detection,
(5) Investigations and Dispositions, (6) Analytics and Data Management, and (7) Learning
and Development.

The Risk Management Agency’s (RMA) Federal Crop Insurance Program is a
self-certification program where participants certify as to the correctness of information (acres,
share, production, etc.) as a basis for program participation. This information may be subject to
further review and verification to determine its accuracy. For this type of program, the primary
root causes of errors and improper payments are due to the individual program participants,
(producers, Approved Insurance Providers (AIPs), agents, and/or loss adjusters) failure to
correctly interpret, provide, and/or process information in accordance with policy and/or
procedure requirements for determining eligibility and program payment amounts.

The AIPs and agents are to review the System for Award Management (SAM) and other
suspension and debarment systems before providing policies and payments.

The strategies for identifying and controlling fraud include reviews such as:

   •   Data Mining-Initiated Reviews—RMA has an agreement with the Center for
       Agribusiness Excellence (CAE) to conduct data mining. Results of CAE’s data mining
       are used to detect potential cases of fraud, waste, or abuse by: (1) developing scenarios
       of potential program abuse by farmers, insurance agencies, and loss adjusters; and
       (2) querying the database containing crop insurance data and information on weather,
212
      USDA AGENCY FINANCIAL REPORT | 2018



             soil, and land surveys to generate reports and lists of participants with anomalous claim
             payments. For example, RMA develops an annual list of producers (i.e., a spot-check
             list) whose operations warrant an on-site inspection because their claims exhibit
             patterns consistent with the potential for fraud and abuse.
         •   Program Reviews—RMA conducts Program Reviews to evaluate the overall performance
             of a specific program. Program Reviews may be broad or limited in scope, and either
             nationwide or regional. Program Reviews may involve both crop-specific programs and
             insurance concepts such as Crop Revenue Coverage or Prevented Planting.
         •   Special Investigations—RMA’s Special Investigations Branch investigates alleged
             fraud, waste, and abuse and identifies reasons the abuse occurred. Special Investigations
             Branch (SIB) reviews high-profile, highly complex cases involving multiple subjects
             spread over wide geographic areas.
         •   Special Reviews—RMA conducts Special Reviews in response to allegations of
             noncompliance with Federal crop insurance laws, policies, agreements/contracts, or
             approved procedures. RMA receives complaints or requests for Special Reviews from
             various sources including Office of Inspector General hotlines, general public
             complaints, congressional inquiries, the Farm Service Agency or other USDA offices,
             AIP officials, etc.
         •   Standard Reinsurance Agreements (SRAs) Required Reviews—SRAs establish the
             terms and conditions under which AIPs that sell and service policies have to operate.
             Under the 2016 SRA, AIPs are to conduct reviews, including inspections of policies for
             which anomalies or large claims have been identified through data mining, and report
             the results to RMA.
      RMA is aware of the self-certification aspect of the program and the potential vulnerabilities it
      presents, but is confident the coordination with AIPs and policyholders will limit the risk
      associated with this regulatory barrier. In addition, the Acreage Crop Reporting Streamlining
      Initiative (ACRSI) replaces duplicative crop reporting of common acreage information by
      producers. Three USDA agencies (Natural Resources Conservation Service [NRCS], FSA, and
      RMA) have established a memorandum of understanding to create a common data set of
      acreage reporting documentation used to verify participant’s self-certification information.

      Rural Development’s (RD) ERM framework includes a Risk Taxonomy, which provides a
      consistent structure for identifying and classifying risks into logical groups. The Risk
      Taxonomy includes a “Fraud & Criminal Activity” sub-category. RD has provided training to
      all levels of personnel across the organization on ERM concepts, which included a focus on the
      Risk Taxonomy and how staff can use it.
                                                                                                    213
                                                               SECTION III | OTHER INFORMATION



THE USDA DEPARTMENTAL STAFF OFFICES REPORTED THE FOLLOWING
PROGRESS:

Office of the Chief Financial Officer (OCFO)
Grants—System edits have been built and identified in the ezFedGrants module in the
Financial Management Modernization Initiative (FMMI) for more than half of the required
objectives in the A-123, Appendix A, Grants Cycle. Potential risks in eligibility, segregation of
duties, completeness, accuracy, and validity are mitigated through automated preventive
controls. The controls minimize the risk of grants being awarded to ineligible recipients; users
being able to perform incompatible duties; and incomplete, inaccurate, invalid, untimely award
information, obligations, and payments.

USDA agencies and staff offices that have deployed to ezFedGrants are National Institute of
Food and Agriculture (NIFA), Animal and Plant Health Inspection Service (APHIS), Office of
Advocacy and Outreach (OAO), NRCS, Agricultural Marketing Service (AMS) and Foreign
Agricultural Service (FAS). OCFO is currently piloting the EzFedGrants module with Forest
Service (FS) and RMA.

Payroll—At the USDA National Finance Center (NFC), logical access controls are
implemented and separation of duties are enforced as a preventive measure to lessen the
likelihood of fraud. Role-based access is used (employees are assigned roles) to ensure that
conflicting access is not assigned to employees. Access for payroll-related activities is
segregated to ensure that no one employee has all the access to create a fictitious (ghost)
employee and obtain a salary for this ghost employee.

Based on the roles that are established for NFC’s systems, it is very difficult to create a
fictitious employee and get that employee paid (unless there is collusion, which cannot be
prevented). To create a fictitious employee and get that employee paid, you would need the
access to:

   •   create a position or assign an individual to a position that already exists;
   •   enter all the personnel actions in the Human Resources (HR) system for the employee
       accession and establish the employee on the database; and
   •   establish the employee in the Time and Attendance (T&A) system, enter the time and
       attendance record for the employee in the T&A system, and approve/certify the time
       and attendance record for the employee in the system.
The HR and T&A access listed above are segregated via role-based access so that no one
employee can create a fictitious employee and disburse payment. In addition, there is separation
of duties between the person who enters a payroll action and the person who approves that
214
      USDA AGENCY FINANCIAL REPORT | 2018



      action. Where separation of duties is not feasible, compensating controls are in place as a
      detective measure to identify potential fraud. Payroll Operations Branch personnel have the
      access to enter manual payment requests for agencies they service and also approve the payment
      requests if the payment is made to a non-NFC employee or is less than $5,000 gross.
      All payments to NFC personnel or payments over $5,000 gross require special approval.

      Alternatively, a manual payment may be processed in the NFC Special Payroll Processing
      System (SPPS). All manual payments processed by NFC personnel are logged for an
      independent review by a separate section in the Payroll Operations Branch. This independent
      group reviews all manual payments processed for NFC personnel as well as a sample of manual
      payments processed for other agencies.

      NFC’s HR, T&A, and payroll systems are designed with hundreds of edits that would help
      prevent errors up front. For example, a T&A payment cannot be made for a Social Security
      Number (SSN) that is not in NFC’s database, and there are edits to ensure that the employees
      are paid according to their established pay plan and pay rate. Changes to pay plans and pay
      rates could only be made through the established configuration management process.

      As a service organization providing payroll services, NFC’s function is to process payroll based
      on the data entered into and processed by NFC’s systems. It is the customer’s responsibility to
      ensure that inputs are complete, accurate, and authorized, and it is the customer’s responsibility to
      review payroll outputs to ensure that what NFC processed is complete and accurate. For agencies
      that use FMMI, the payroll accounting data is available in FMMI. For agencies that do not use
      FMMI, NFC makes the payroll accounting data file available to them via a mainframe scheduled
      job. In addition, NFC provides various reporting tools for extracting the payroll data for review.
      Payroll information is available in NFC’s Insight system, as well as the Reporting Center.

      Travel Cards—The OCFO Fiscal Policy Division (FPD) restricts travel charge card use by
      blocking 922 Merchant Category Codes (MCCs); this prevents cardholders from successfully
      completing transactions with these vendors.

      Additionally, the OCFO FPD uses the Visa IntelliLink Compliance Management tool to
      identify and detect possible travel charge card misuse. This is a web-based modular application
      designed to provide sophisticated information services including analytics and investigative
      reporting, misuse detection, program compliance, regulatory compliance, spend management,
      and support for strategic sourcing. Our travel charge card vendor, U.S. Bank, provides access to
      this tool.

      OCFO FPD uses this application to identify possible charge card misuse, flag cases for review,
      route cases to the responsible agency/staff offices, record agency comments, and provide a final
      classification for each case. Using Visa IntelliLink, the FPD developed seven business rules to
                                                                                                      215
                                                               SECTION III | OTHER INFORMATION



identify instances of potential misuse of the travel charge card; these rules, as listed below, are
run on a monthly basis:

   •   Blocked MCCs 2—Identifies attempted transactions with merchants whose MCC is
       blocked/restricted for the travel charge card program (blocked MCCs are a method to
       prevent fraudulent activities);
   •   Cash Test—Provides a listing of accounts with large ATM transactions;
   •   Cash Withdrawal with no associated Travel—Provides ATM and cash transactions that
       do not have associated travel (air, hotel, car rental, and rail) reservations within
       3 business days before official travel begins or are after the last day of official travel;
   •   Restaurant/Bar multiple charges over $100 in a 7-day period—Provides transactions
       with MCCs for restaurants and bars, where the billing amount was over $100 and
       occurred more than once in a 7-day period;

   •   Spender—Provides normal travel transactions that are unusually high in their amount;
   •   Unauthorized Travel System—Searches for non-ConcurGov or Travel Management
       Center (TMC) travel system use; and
   •   Predictor Test—Transactions with a high score (from 90 to 95) indicates the predictive
       level of potential transaction misuse. The ‘Predictor Score’ is a proprietary algorithm
       developed by Visa to detect misuse.

Once the tests are run, questionable transactions are checked, and cases of potential misuse are
sent to the associated Agency/Staff Office data mining Point of Contact (POC) for a response.


Departmental Administration Office of Contracting and Procurement (DA-OCP)
Contracts—Contracting personnel review contract files to ensure that justification of limited
competition or limited-source justification is present in accordance with Federal Acquisition
Regulation (FAR) 6.302, FAR 8.405-6, and agency procedures.

Also, automated controls are configured in the procurement Integrated Acquisition System
(IAS) to reduce risks and vulnerabilities that could lead to fraud.

IAS limits the ability to select a vendor from the list of vendors received from the financial
system. Contracting Officers are required to look at the Excluded Parties List System (EPLS)
(accessible through the System for Award Management [SAM] and the Federal Award
Performance and Integrity Information System [FAPIIS]) exclusions reports before awarding a
vendor. These measures prevent vendors on the active “Do Not Pay” list from receiving awards.
216
      USDA AGENCY FINANCIAL REPORT | 2018



      As a segregation of duty measure, IAS access and roles are defined in the IAS user roles and
      responsibilities segregation of duty matrix documentation that outlines which users’ roles cannot
      be held by the same person. These measures prevent employees from accessing the system as
      vendors and prevents employers from acting on all aspects of a contracting transaction.

      Purchase Cards—The Departmental Administration Office of Contracting and Procurement
      (DA-OCP) has established financial and administrative controls to identify and assess fraud
      risks and has designed and implemented control activities to prevent, detect, and respond to
      fraud, including improper payments.

      The Charge Card Service Center (CCSC), Agency Program Coordinators (APCs), Local
      Agency Program Coordinators (LAPCs), Approving Officials (AOs), and the Office of
      Inspector General (OIG) monitor purchase card transactions through Access Online.
      Cardholders are required to comply with any requests for information/investigations from the
      LAPC, APC, CCSC, or Agency acquisition review offices, AOs, and other duly authorized
      organizations/individuals regarding questionable purchases.

      Management and oversight of the Purchase Card Program is the responsibility of the AO,
      LAPC, and APC. AOs monitor purchasing activity of cardholders within their agency. As part
      of oversight, Coordinators are to respond to user alerts within 30 days after notifications. Alerts
      are messages to Coordinators regarding questionable transactions and transactions selected by
      statistical sampling for review and other events by the CCSC.
                                                                                                              217
                                                                  SECTION III | OTHER INFORMATION



EXHIBIT 39: Agency Transactional Control Objectives to Reduce Fraud Risk:
*Subset of full A-123, Appendix A, Control Library

Process                               Objective                                      Risk
Accounts              Invoices are complete, accurate, and          Invoices generated are not complete
Receivable            appropriately represent the fees              and accurate, and do not
                      due/services provided.                        appropriately represent the fees
                                                                    due/services provided.
Awards Contracts      Contracts are awarded to eligible vendors     Contracts are awarded to inactive
                      (includes Do Not Pay verification).           vendors or vendor record not found in
                                                                    the financial system (includes Do Not
                                                                    Pay verification).
Charge Card           Employees assigned as Approving               Employees assigned as Approving
Issuance              Officials for purchase card transactions      Officials for purchase card
                      are authorized.                               transactions are not authorized.
Collections           Cash receipts are protected before they       Cash receipts are not protected
                      are deposited.                                before they are deposited, which may
                                                                    result in fraudulent activity.
Credit Extension      Direct loan obligations recorded in the       Direct loan obligations recorded in the
                      general ledger are valid, pertain to the      general ledger are not valid, do not
                      purpose of the appropriation, and are         pertain to the purpose of the
                      supported by documentation.                   appropriation, and are not supported
                                                                    by documentation.
Daily Escrow          Loss Claims are paid to valid insurance       Loss Claims may be paid without
Processing            companies in compliance with collateral       appropriate risk coverage for agency.
                      arrangements included in reinsurance
                      agreement.
Disbursements         Disbursements are valid and supported         Disbursements are not valid and
                      by sufficient and relevant documentation.     supported by sufficient and relevant
                                                                    documentation.
Grant Awards and      Grants are awarded to eligible recipients     Grants are awarded to ineligible
Modifications         (includes Do Not Pay verification).           recipients (includes Do Not Pay
                                                                    verification).
Loss Claims           Loss Claims are for valid policy              Unauthorized or incomplete Loss
                      reinsurance year.                             Claims may be paid.
Monitoring—           Duties are adequately segregated.             Users are able to perform
Charge Card Cycle                                                   incompatible duties.

Monitoring—           Fleet card transactions adhere to Federal     Fleet card transactions do not adhere
Fleet Card            laws and regulations within the terms of      to Federal laws and regulations within
                      the fleet card agreement.                     the terms of the fleet card agreement.
218
      USDA AGENCY FINANCIAL REPORT | 2018




      Process                             Objective                                     Risk
      Monitoring—          Purchase card transactions adhere to        Purchase card transactions do not
      Purchase Card        Federal laws and regulations within the     adhere to Federal laws and
                           terms of the purchase card agreement.       regulations within the terms of the
                                                                       purchase card agreement.
      Monitoring—          Travel card transactions adhere to          Travel card transactions do not adhere
      Travel Card          Federal laws and regulations within the     to Federal laws and regulations within
                           terms of the purchase card agreement.       the terms of the purchase card
                                                                       agreement.
      Payments—            Recorded obligations and payments for       Recorded obligations and payments
      Farm Support         the Commodity Credit Corporation (CCC)      for CCC farm support programs are
                           farm support programs are valid (made to    not valid (made to ineligible
                           only eligible farms/producers) and are      farms/producers) and/or are not
                           approved/authorized by management.          approved/authorized by management.
      Payroll Processing   Amounts recorded in the general ledger      Amounts recorded in the general
                           for payroll are accurate, valid, and        ledger for payroll are not accurate,
                           properly supported by sufficient and        valid, and properly supported by
                           relevant documentation.                     sufficient and relevant
                                                                       documentation.
      Relocation           Claims for relocation expenses are timely   Claims for relocation expenses are not
      Allowance            reviewed for completeness and accuracy      timely reviewed for completeness and
                           in accordance with agency directives and    accuracy in accordance with agency
                           Federal Travel Regulation (FTR)             directives and FTR requirements.
                           requirements.
                                                                                                   219
                                                             SECTION III | OTHER INFORMATION




Inspector General Act Amendments of 1988:
Management’s Report on Audit Follow Up

BACKGROUND
The Inspector General Act Amendments of 1988 (Public Law [P.L.] 100–504), require that
each agency head submit semi-annual reports to Congress on the actions taken in response to
the Office of Inspector General (OIG) audit, evaluation, and inspection reports. Consistent with
the Reports Consolidation Act of 2000 (P.L. 106–531), the U.S. Department of Agriculture’s
(USDA) Office of the Chief Financial Officer (OCFO) consolidates and annualizes the required
semi-annual Inspector General Act Amendments’ reporting elements for inclusion in the annual
Agency Financial Report (AFR).

OIG audits USDA’s programs, systems, and operations. It then recommends improvements to
management based on its findings. USDA management may agree or disagree with the audit’s
findings or recommendations. An agreement is reached during the management-decision
process. If management agrees with a recommendation, a written plan for corrective action
with a target completion date is developed. The plan is then submitted to OIG for concurrence.
If both OIG and management agree that the proposed corrective action will correct the
weakness, a management decision is concluded for that recommendation.

Audit follow-up ensures that prompt and responsive action is taken. USDA’s OCFO oversees
audit follow-up for the Department. An audit remains open until all corrective actions for each
recommendation are completed. As agencies complete planned corrective actions and submit
closure documentation, OCFO reviews the submitted documentation for sufficiency and
determines if final action can be completed.


FISCAL YEAR RESULTS
USDA agencies closed 44 audits during fiscal year (FY) 2018. As of September 21, 2018, OIG
and USDA agencies reached management decisions on 37 audits. As shown in the following
exhibit, the Department’s inventory of open audits decreased in FY 2018 by 6.8 percent from
103 to 96.
220
      USDA AGENCY FINANCIAL REPORT | 2018




      EXHIBIT 40: Open Audit Inventory




      Note: The final FY 2017 ending balance was revised from 86 to 103 to include: (1) fifteen audits
            transmitted by OIG after the close of the reporting period, and (2) two additional audits
            that reached management decision in the previous fiscal year. These adjustments are
            also reflected in the beginning balances for audits with disallowed costs (DC) and/or
            Funds to Be Put to Better Use (FTBU) shown in Exhibit 42 and Exhibit 43.



      AUDIT FOLLOW-UP PROCESS
      The Inspector General Act Amendments of 1988 require an annual report to Congress
      providing the status of resolved audits that remain open. Resolved audits are those for which
      management decision has been reached for all recommendations. Reports on resolved audits
      must include the elements listed in the following bullet points (see Exhibit 41 for definitions):

         •   Beginning and ending balances for the number of audit reports and dollar value of
             disallowed costs (DC) and Funds to Be Put to Better Use (FTBU);
         •   The number of new management decisions reached;
         •   The disposition of audits with final action;
         •   Resolved audits that remain open 1 year or more past the management decision date
             require additional reporting elements. These elements include: date issued, revised
             estimated completion date, original dollar value of DC or FTBU, and an explanation as
             to why final action has not been taken.
                                                                                                 221
                                                               SECTION III | OTHER INFORMATION




EXHIBIT 41: Audit Follow-Up Definitions

Term                      Definition
Disallowed Cost (DC)      An incurred cost questioned by the Office of Inspector General (OIG)
                          that management has agreed should not be chargeable to the
                          Government.
Final Action              Actions that management has taken to address the audit findings and
                          recommendations.
Funds to Be Put to        An OIG recommendation that funds could be used more efficiently if
Better Use (FTBU)         management completes the recommendation, including:
                            ▪ Reductions in outlays or other savings;
                            ▪ Deobligation of funds from programs or operations, or the
                              withdrawal of subsidy costs on loans, guarantees, or bonds; and
                            ▪ Implementation of recommended improvements for grants or
                              contracts, or unnecessary expenditures noted in pre-award
                              reviews of contracts or grant agreements.
Management Decision       Agreement between management and OIG on corrective action
                          needed to address audit findings and recommendations.



BEGINNING AND ENDING INVENTORY FOR AUDITS WITH DISALLOWED
COSTS AND FUNDS TO BE PUT TO BETTER USE
Of the 44 audits that achieved final action during the fiscal year, seven contained DC.
The number of DC audits remaining in the inventory at the end of the fiscal year is 29, with a
monetary value of $46,000,197 (see Exhibit 42).

EXHIBIT 42: Inventory of Audits with Disallowed Costs (DC)

Audits with DC                                        # of Audits             Amount ($)
Beginning of the Period (October 1, 2017)                 29                  $ 45,420,039
Plus: New Management Decisions                            7                    $ 1,145,398
Total Audits Pending Collection of DC                     36                  $ 46,565,437
Less: Adjustments                                        N/A                    ($ 60,042)
Revised Subtotal                                         N/A                  $ 46,505,395
Less: Final Actions (Recoveries)                          7                      $ 505,198
Audits with DC Requiring Final Action at the
                                                          29                  $ 46,000,197
End of the Period (September 6, 2018)
222
      USDA AGENCY FINANCIAL REPORT | 2018



      Exhibit 42 and Exhibit 43: include only those open audits with DC and FTBU, respectively.
      Additionally, some audits contain both DC and FTBU amounts. For this reason, the number of
      audits shown as the ending balances in Exhibit 42 and Exhibit 43 does not equal the total
      resolved audit inventory balance in Exhibit 40. The beginning balance in Exhibit 42 was
      adjusted to include five audits with DC that were transmitted by OIG after the closing of the
      reporting period.

      For DC audits that achieved final action in FY 2018, OIG and management agreed to collect
      $487,419. Based on documentation to resolve the issues identified, adjustments were made
      totaling $77,821.

      Final action occurred on two audits that involved FTBU amounts. There are nine FTBU audits
      remaining in the inventory as of September 21, 2018, with a monetary value of $188,129,917
      (see Exhibit 43:).

      EXHIBIT 43: Inventory of Audits with Funds To Be Put To Better Use (FTBU)

      Audits with FTBU                                           # of Audits           Amount ($)
      Beginning of the Period (October 1, 2017) *                     9              $193,110,819
      Plus: New Management Decisions                                  2                 $4,208,971
      Total Audits Pending                                           11              $197,319,790
      Less: Final Actions                                             2                $ 9,189,873
      Audits with FTBU Requiring Final Action at the End
                                                                      9              $188,129,917
      of the Period (September 21, 2018)
      Disposition of FTBU:
             FTBU Implemented                                       N/A                 $9,189,873
             FTBU Not Implemented                                   N/A                          $0
             Total FTBU Amounts for Final Action Audits             N/A                 $9,189,873

      * The beginning inventory in Exhibit 43: was adjusted to include one audit with FTBU that was
      transmitted by OIG after the closing of the reporting period.

      The number of audits open 1 or more years without final action in FY 2018 (65) remained at
      the same level as the previous fiscal year. The ending inventory includes 22 audits that reached
      1 year past the management decision date during FY 2018. USDA agencies continue to pursue
      remediation and/or compensating controls to address many of the underlying issues identified
      in these older audits.
                                                                                                   223
                                                              SECTION III | OTHER INFORMATION




EXHIBIT 44:     The Number of Audits Open 1 or More Years Past the Management Decision Date
                (MDD) Remains the Same as the Previous Fiscal Year.

Audits 1 Year or More Past MDD                                            # of Audits
Beginning of the period                                                         65
Less: Audits closed                                                             22
Subtotal FY 2018 audits 1 year or more past MDD                                 43
Plus: Audits that reached 1 year past MDD during FY 2018                        22
Ending balance as of September 30, 2018                                         65

Agencies have completed planned corrective actions, with the exception of associated DC and
FTBU, on 11 audits (see Exhibit 45), and one audit pending judicial action.

EXHIBIT 45: Distribution of Audits Open 1 Year or More Past the Management Decision Date
            (MDD)*
           Audits Behind Schedule                              Audits Under Collection
No.           DC ($)            FTBU ($)            No.          DC ($)               FTBU ($)
53       $5,733,837          $118,528,436            11       $29,914,812            $65,669,524
*The total audits in Exhibit 45 does not include one audit pending judicial action
224
          USDA AGENCY FINANCIAL REPORT | 2018




      MANAGEMENT’S REPORT ON AUDIT FOLLOW UP
      Audits without final action 1 year or more past the Management Decision Date (MDD), and behind schedule (excluding collections) are listed
      individually in Exhibit 46. The audits are categorized by agency and reason why final action has not occurred. More detailed information on
      audits pending judicial action, and audits under collection, is available from OCFO.

      EXHIBIT 46: Audits Open 1 Year or More Past the MDD and Behind Schedule
      Agricultural Marketing Service (AMS)

                                           Revised                                                Monetary Amount
           Audits        Date Issued                                    Audit Title                                     Reason Pending
                                        Completion Date                                           DC ($)     FTBU ($)
                                                           National Organic Program—
                                                                                                                        Pending OCFO review
      01601-0001-21      09/13/2017          9/30/2018     International Trade Arrangements         $0          $0
                                                                                                                        for closure
                                                           and Agreements
      AMS Subtotal (1)       N/A               N/A                         N/A                      $0          $0                N/A


      Animal and Plant Health Inspection Service (APHIS)

                                            Revised                                               Monetary Amount
           Audits         Date Issued                                   Audit Title                                     Reason Pending
                                         Completion Date                                          DC ($)     FTBU ($)
                                                            APHIS: Animal Welfare Act—                                  Pending Administrative
       33601-0001-31       5/30/2017          9/30/2019                                             $0          $0
                                                            Marine Mammals (Cetaceans)                                  Action
                                                                                                                     Issuance of Policy
       33601-0001-41      12/09/2014          9/30/2019     Oversight of Research Facilities        $0      $420,299 Guidance and/or
                                                                                                                     Legislation
                                                                                                                                         225
                                                                                                     SECTION III | OTHER INFORMATION



                                         Revised                                            Monetary Amount
      Audits         Date Issued                                    Audit Title                                 Reason Pending
                                      Completion Date                                       DC ($)   FTBU ($)
                                                        Controls Over APHIS’ Introduction                       Pending Administrative
 50601-0001-32       09/22/2015         9/30/2019       of Genetically Engineered            $0        $0       Action
                                                        Organisms
                                                        USDA’s Response to Antibiotic                           Pending Administrative
 50601-0004-31       03/30/2016         9/30/2019                                            $0        $0
                                                        Resistance                                              Action
                                                        Controls over APHIS’ Issuance of                        Issuance of Policy
 50601-0008-TE       01/28/2005         9/30/2019       Genetically Engineered Organisms     $0        $0       Guidance and/or
                                                        Release Permits                                         Legislation
APHIS Subtotal (5)       N/A               N/A                          N/A                  $0      $420,299             N/A


Agricultural Research Service (ARS)

                                         Revised                                            Monetary Amount
      Audits         Date Issued                                    Audit Title                                 Reason Pending
                                      Completion Date                                       DC ($)   FTBU ($)
                                                        ARS’ Controls Over Plant Variety                        Pending Administrative
 50601-0006-TE       03/04/2004         12/31/2018                                           $0        $0
                                                        Protection and Germplasm Storage                        Action
                                                        ARS’ Follow Up Report on the                            Issuance of Policy
                                                        Security of Biological Agents at                        Guidance and/or
 50601-0010-AT       03/8/2004          12/31/2018                                           $0        $0
                                                        U.S. Department of Agriculture                          Legislation
                                                        Laboratories
 ARS Subtotal (2)        N/A               N/A                          N/A                  $0        $0                 N/A
226
          USDA AGENCY FINANCIAL REPORT | 2018


      Commodity Credit Corporation (CCC)

                                              Revised                                            Monetary Amount
            Audits         Date Issued                                   Audit Title                                  Reason Pending
                                           Completion Date                                       DC ($)    FTBU ($)
                                                             CCC’s Financial Statements for                           Issuance of Policy
       06401-0005-11       02/12/2016        9/30/2018       FY 2015 and 2014                     $0         $0       Guidance and/or
                                                                                                                      Legislation
       CCC Subtotal (1)        N/A              N/A                         N/A                   $0         $0                 N/A


      Foreign Agricultural Service (FAS)

                                              Revised                                            Monetary Amount
            Audits         Date Issued                                   Audit Title                                  Reason Pending
                                           Completion Date                                       DC ($)    FTBU ($)
                                                             Private Voluntary Organization                           Pending Administrative
       07601-0001-22       03/31/2014        12/30/2018                                         $242,676   $8,481
                                                             Grant Fund Accountability                                Action
                                                             FAS’ Monitoring of the                                   Issuance of Policy
       07601-0002-23       12/05/2016        12/30/2018      Administration’s Trade Agreement     $0         $0       Guidance and/or
                                                             Initiatives                                              Legislation
                                                             Effectiveness of FAS’ Recent                             Issuance of Policy
                                                             Efforts to Implement Measurable                          Guidance and/or
       50601-0001-22       03/28/2013        12/30/2018      Strategies Aligned to the            $0         $0       Legislation
                                                             Department’s Trade Promotion
                                                             and Policy Goals
                                                             Section 632(a) Transfer of Funds                         Issuance of Policy
       50601-0002-16       02/06/2014        12/30/2018      from USAID to USDA for               $0         $0       Guidance and/or
                                                             Afghanistan                                              Legislation
       FAS Subtotal (4)        N/A              N/A                         N/A                 $242,676   $8,481               N/A
                                                                                                                                       227
                                                                                                   SECTION III | OTHER INFORMATION


Food, Nutrition, and Consumer Service (FNCS)

                                      Revised                                              Monetary Amount
     Audits         Date Issued                                  Audit Title                                   Reason Pending
                                   Completion Date                                        DC ($)   FTBU ($)
                                                     Audit of Food, Nutrition, and
                                                     Consumer Services FY 2015 Firm                            Pending
 81099-0001-12      08/30/2017       9/30/2018                                             $0         $0
                                                     Fixed Price Contract Award Price                          Administrative Action
                                                     Reasonableness Determinations
FNCS Subtotal (1)       N/A             N/A                         N/A                    $0         $0                N/A


Food and Nutrition Service (FNS)

                                      Revised                                              Monetary Amount
     Audits         Date Issued                                 Audit Title                                      Reason Pending
                                   Completion Date                                       DC ($)     FTBU ($)
                                                     State Agencies’ Food Costs for
                                                     the Food and Nutrition Service’s                            Pending
 27004-0001-22      09/25/2014       11/30/2018      Special Supplemental Nutrition       $0           $0        Administrative
                                                     Program for Women, Infants,                                 Action
                                                     and Children
                                                     Florida’s Controls Over Summer                              Pending
27004-0001-31(1)     9/29/2017       10/05/2018      Food Service Program                 $0           $0        Administrative
                                                     (Interim Report)                                            Action
                                                     Summer Food Service Program—                                Pending
27004-0003-21(1)      9/7/2017       10/05/2018      Texas Sponsor Cost—                $110,670       $0        Administrative
                                                     Interim Report                                              Action
                                                     Texas Controls Over Summer                                  Pending
27004-0004-21(1)     9/28/2017       10/05/2018      Food Service Program                 $0           $0        Administrative
                                                     (Interim Report)                                            Action
228
        USDA AGENCY FINANCIAL REPORT | 2018



                                        Revised                                                Monetary Amount
         Audits        Date Issued                                 Audit Title                                         Reason Pending
                                     Completion Date                                         DC ($)       FTBU ($)
                                                       Disaster Food Stamp Program for                                 Issuance of Policy
      27099-0049-TE   09/04/2007       9/30/2018       Hurricanes Katrina and Rita in         $0            $0         Guidance and/or
                                                       Louisiana, Mississippi, and Texas                               Legislation
                                                       Controls for Authorizing
                                                                                                                       Issuance of Policy
                                                       Supplemental Nutrition
      27601-0001-31   07/31/2013       3/31/2019                                              $0         $6,700,000    Guidance and/or
                                                       Assistance Program (SNAP)
                                                                                                                       Legislation
                                                       Retailers
                                                                                                                       Pending
                                                       FNS Quality Control Process for
      27601-0002-41   09/23/2015       8/30/2019                                              $0            $0         Administrative
                                                       SNAP Error Rate
                                                                                                                       Action
                                                                                                                       Pending
                                                       New Mexico SNAP
      27601-0003-10   09/27/2016       10/31/2018                                           $9,784          $0         Administrative
                                                       Determination of Eligibility
                                                                                                                       Action
                                                                                                                       Pending
      27601-0003-22    9/29/2016       10/15/2018      SNAP Administrative Costs           $3,575,424   $111,399,656   Administrative
                                                                                                                       Action
                                                       Michigan’s Compliance with                                      Pending
      27601-0004-10   10/25/2016       10/31/2018      SNAP Certification of Eligible       $12,517         $0         Administrative
                                                       Households Requirements                                         Action
                                                                                                                       Pending
                                                       Georgia SNAP Requirements for
      27601-0008-10   06/14/2017       11/15/2018                                           $1,427          $0         Administrative
                                                       Participating State Agencies
                                                                                                                       Action
                                                       SNAP Compliance with                                            Pending
      27601-0010-10   08/09/2017       9/30/2018       Requirements for Participating        $969           $0         Administrative
                                                       State Agencies                                                  Action
                                                                                                                                     229
                                                                                                   SECTION III | OTHER INFORMATION



                                     Revised                                              Monetary Amount
     Audits         Date Issued                                Audit Title                                        Reason Pending
                                  Completion Date                                       DC ($)       FTBU ($)
                                                    State of South Carolina’s
                                                                                                                  Pending
                                                    Compliance with 7 CFR, Part 272
27601-0011-10       09/14/2017      9/30/2018                                          $26,209         $0         Administrative
                                                    —SNAP Requirements for
                                                                                                                  Action
                                                    Participating State Agencies
                                                    Washington’s Compliance with
                                                                                                                  Pending
                                                    SNAP Requirements for
27601-0012-10       09/28/2017      9/30/2018                                            $0            $0         Administrative
                                                    Participating State Agencies
                                                                                                                  Action
                                                    (7 CFR, Part 272)
                                                                                                                  Pending
                                                    Detecting Potential SNAP
27901-0002-13       01/09/2017      10/31/2018                                           $0            $0         Administrative
                                                    Trafficking Using Data Analysis
                                                                                                                  Action
FNS Subtotal (15)      N/A             N/A                        N/A                 $3,737,000   $118,099,656          N/A
230
          USDA AGENCY FINANCIAL REPORT | 2018


      Farm Service Agency (FSA)

                                          Revised                                                Monetary Amount
           Audits        Date Issued                                  Audit Title                                       Reason Pending
                                       Completion Date                                            DC ($)     FTBU ($)
                                                         Review of Farm Service Agency’s                                Information
                                                         Initiative to Modernize and Innovate                           Technology (IT) System
      03501-0001-12      05/26/2015      11/30/2018                                                 $0            $0
                                                         the Delivery of Agricultural Systems                           Implementation
                                                         (MIDAS)                                                        and/or Enhancements
                                                                                                                        Issuance of Policy
      03601-0001-22      07/31/2014      12/30/2018      Compliance Activities                      $0            $0    Guidance and/or
                                                                                                                        Legislation
                                                         Economic Adjustment Assistance to                              Pending
      03601-0002-22      07/31/2014      10/1/2018                                              $1,518,068        $0
                                                         Users of Upland Cotton                                         Administrative Action
                                                                                                                        Pending
      03601-0003-22      09/23/2015      12/30/2018      Farm Service Agency Microloans             $0            $0
                                                                                                                        Administrative Action
                                                                                                                        IT System
                                                         Farm Service Agency Livestock Forage
      03702-0001-32      12/10/2014      12/30/2018                                              $208,374         $0    Implementation
                                                         Program
                                                                                                                        and/or Enhancements
                                                         Coordination of USDA Farm Program
                                                         Compliance—Farm Service Agency,                                Pending
      50601-0003-22      01/27/2017      12/30/2018                                                 $0            $0
                                                         Risk Management Agency, and Natural                            Administrative Action
                                                         Resources Conservation Service
      FSA Subtotal (6)      N/A             N/A                          N/A                    $1,726,442   $0                  N/A
                                                                                                                                         231
                                                                                                   SECTION III | OTHER INFORMATION


Food Safety and Inspection Service (FSIS)

                                       Revised                                            Monetary Amount
      Audits         Date Issued                                  Audit Title                                   Reason Pending
                                    Completion Date                                       DC ($)   FTBU ($)
                                                      Food Safety and Inspection                                Issuance of Policy
 24601-0005-31       6/12/2017         9/30/2018      Service’s Controls Over Declaring    $0        $0         Guidance and/or
                                                      Allergens on Product Labels                               Legislation
                                                      Food Safety and Inspection
                                                                                                                Pending Administrative
 50099-0002-21       3/27/2017         9/30/2018      Service’s Process for Handling       $0        $0
                                                                                                                Action
                                                      Vehicle Misuse Complaints
                                                      Assessment of USDA’s Controls to                          IT System
 50601-0006-HY       07/15/2009        12/1/2018      Ensure Compliance with Beef          $0        $0         Implementation and/or
                                                      Export Requirements                                       Enhancements
 FSIS Subtotal (3)       N/A                N/A                      N/A                   $0        $0                   N/A


Natural Resources Conservation Service (NRCS)

                                       Revised                                             Monetary Amount
      Audits         Date Issued                                  Audit Title                                      Reason Pending
                                    Completion Date                                       DC ($)     FTBU ($)
                                                                                                                   Issuance of Policy
                                                      NRCS Conservation Easement
 10601-0002-31       07/30/2014       12/30/2018                                            $0         $0          Guidance and/or
                                                      Compliance
                                                                                                                   Legislation
NRCS Subtotal (1)        N/A                N/A                      N/A                    $0         $0                   N/A
232
          USDA AGENCY FINANCIAL REPORT | 2018


      Office of the chief financial officer (OCFO)

                                               Revised                                              Monetary Amount
            Audits          Date Issued                                    Audit Title                                      Reason Pending
                                            Completion Date                                        DC ($)     FTBU ($)
                                                               Implementation of Suspension and                             Issuance of Policy
       50016-0001-23        09/28/2017        02/28/2019       Debarment Tools in the                $0         $0          Guidance and/or
                                                               U.S. Department of Agriculture                               Legislation
      OCFO Subtotal (1)         N/A                  N/A                      N/A                    $0         $0                   N/A


      Office of the Chief Information Officer (OCIO)

                                                Revised                                            Monetary Amount
             Audits           Date Issued                                   Audit Title                                  Reason Pending
                                             Completion Date                                       DC ($)   FTBU ($)
                                                                Fiscal Year 2011 Federal                                 Issuance of Policy
        50501-0002-12         11/15/2011         9/30/2019      Information Security                $0        $0         Guidance and/or
                                                                Management Act                                           Legislation
                                                                USDA, Office of the Chief
                                                                                                                         Issuance of Policy
                                                                Information Officer, Fiscal Year
        50501-0003-12         11/15/2012         9/30/2019                                          $0        $0         Guidance and/or
                                                                2012 Federal Information
                                                                                                                         Legislation
                                                                Security Management Act
                                                                USDA, Office of the Chief
                                                                                                                         Issuance of Policy
                                                                Information Officer, Fiscal Year
        50501-0004-12         11/26/2013         9/30/2019                                          $0        $0         Guidance and/or
                                                                2013 Federal Information
                                                                                                                         Legislation
                                                                Security Management Act
                                                                CIGIE Cloud Computing Initiative
                                                                                                                         Pending Administrative
        50501-0005-12         09/26/2014         9/30/2019      —Status of Cloud—Computing          $0        $0
                                                                                                                         Action
                                                                Environment Within The USDA
                                                                                                                                        233
                                                                                                    SECTION III | OTHER INFORMATION



                                      Revised                                              Monetary Amount
     Audits          Date Issued                                 Audit Title                                   Reason Pending
                                   Completion Date                                         DC ($)   FTBU ($)
                                                     USDA, Office of The Chief
                                                                                                               Issuance of Policy
                                                     Financial Officer, Fiscal Year 2014
 50501-0006-12       11/07/2014      9/30/2018                                              $0        $0       Guidance and/or
                                                     Federal Information Security
                                                                                                               Legislation
                                                     Management Act
                                                     Office of the Chief Information
                                                                                                               Issuance of Policy
                                                     Officer, FY 2015 Federal
 50501-0008-12       11/10/2015      9/30/2018                                              $0        $0       Guidance and/or
                                                     Information Security
                                                                                                               Legislation
                                                     Modernization Act
                                                     Office of the Chief Information
                                                     Officer, FY 2016 Federal                                  Pending Administrative
 50501-0012-12       11/10/2016      9/30/2019                                              $0        $0
                                                     Information Security                                      Action
                                                     Modernization Act
                                                     Security Protocols and
                                                                                                               Pending
50501-0012-12(2)     11/09/2016      9/30/2019       Connections for USDA’s                 $0        $0
                                                                                                               Rulemaking/Legislation
                                                     Public-Facing Web sites
                                                     Fiscal Year 2009 Federal
                                                                                                               Pending Administrative
 50501-0015-FM       11/18/2009      9/17/2019       Information Security                   $0        $0
                                                                                                               Action
                                                     Management Act
                                                     OCIO’s FY’s 2010 and 2011
                                                                                                               Pending Administrative
 88401-0001-12       08/02/2012      9/30/2019       Funding Received for Security          $0        $0
                                                                                                               Action
                                                     Enhancements
OCIO Subtotal (10)      N/A             N/A                         N/A                     $0        $0                  N/A
234
          USDA AGENCY FINANCIAL REPORT | 2018


      Office of homeland security and Emergency Coordination (OHSEC)

                                            Revised                                           Monetary Amount
            Audits         Date Issued                                 Audit Title                                     Reason Pending
                                         Completion Date                                       DC ($)      FTBU ($)
                                                                                                                       Issuance of Policy
                                                           Agroterrorism Prevention,
       61701-0001-21       03/27/2017      10/01/2019                                           $0           $0        Guidance and/or
                                                           Detection, and Response
                                                                                                                       Legislation
      OHSEC Subtotal (1)       N/A              N/A                       N/A                   $0           $0                   N/A


      Rural Development (RD)

                                            Revised                                               Monetary Amount
           Audits          Date Issued                                 Audit Title                                            Reason Pending
                                         Completion Date                                        DC ($)         FTBU ($)
                                                           Rural Rental Housing Program                                       Issuance of Policy
       04601-0018-CH       09/27/2012      9/30/2018       Maintenance Costs and Inspection       $0              $0          Guidance and/or
                                                           Procedures                                                         Legislation
                                                                                                                              IT System
                                                           Review of Rural Rental Housing’s
                                                                                                                              Implementation
       04901-0001-13       09/24/2015      9/30/2018       Tenant and Owner Data Using         $27,719            $0
                                                                                                                              and/or
                                                           Data Analytics
                                                                                                                              Enhancements
       RD Subtotal (2)         N/A            N/A                         N/A                  $27,719            $0                  N/A
        Total Number
                               N/A            N/A          Total                              $5,733,837     $118,528,436             N/A
         Audits (53)
                                                                                                     235
                                                              SECTION III | OTHER INFORMATION



Reduce the Footprint
The U.S. Department of Agriculture successfully implemented the OMB (Office of
Management and Budget) policy “Reduce the Footprint” formally known as “Freeze the
Footprint” as an initiative to maintain its office and warehouse square footage baselines at the
FY 2012 levels, through 2015. Beginning in FY 2016, the policy shifted to an emphasis on
disposal of excess real property held by the Federal Government, thus making the overall
Federal real estate asset portfolio more efficient. CFO (Chief Financial Officer) Act entities are
required to define annual targets to reduce their total square footage of domestic office and
warehouse inventories in comparison to the revised FY 2015 “Reduce the Footprint” baseline,
as compiled by the General Services Administration (GSA).

EXHIBIT 47: Reduce the Footprint Baseline Comparison
Square Footage (SF) (in millions)

  Fiscal Year 2015 Baseline                   2017                      Change (2015–2017)
            32.62                             31.90                            -2.22%


EXHIBIT 48: Reporting of Operation and Maintenance Costs—Owned and Direct-Leased
            Facilities
Operations and Maintenance (O&M) Costs ($ in millions)

  Fiscal Year 2015 Baseline                   2017                      Change (2015–2017)
           $580.20                           $594.40                           +$14.2


More information about Federal Real Property can be found in the Federal Real Property
Profile Summary Report Library.

USDA issued an Agriculture Property Management Regulation Advisory (AGPMR No. 15-05)
providing policy guidance and procedures for the Reduce the Footprint OMB space initiative.
Since FY 2012, Departments have been projecting their 5-year office and warehouse
requirements. The Department has set forth processes and procedures to manage space needs at
or below the FY 2015 baseline, represented in the figures above.

USDA continues to support footprint reductions by identifying opportunities for disposal,
consolidation, and increased utilization of real property. The Department issued an updated
AGPMR Advisory (No 16-01) “Space Utilization Rate Policy”, to clarify the existing
150 square foot per person office utilization rate policy. These continuing actions represent
236
      USDA AGENCY FINANCIAL REPORT | 2018


      USDA’s commitment to strategically managing and utilizing its space to achieve the highest
      return for the taxpayer. USDA also monitors compliance with this policy and requests agencies
      to submit waivers when this utilization rate cannot be met in new space acquisitions. USDA
      also provides periodic reports to senior management on agency compliance with this policy.
      USDA has also provided training to agencies to ensure an understanding of how utilization data
      is captured in the corporate property information system.
                                                                                                                                              237
                                                                                                       SECTION III | OTHER INFORMATION




Civil Monetary Penalties
USDA maintains regulations regarding civil monetary policies at Title 7 of the Code of Federal Regulations § 3.91. The Department has
reviewed and updated the penalties in accordance with the Civil Monetary Penalties Inflation Act of 2015. On December 5, 2017, the
Department published the revised listing of penalties in the Federal Register (https://www.federalregister.gov/documents/2017/12/05/2017-
26194/inflation-catch-up-adjustment-of-civil-monetary-penalty-amounts). Each year, the Department must update its civil monetary penalties
to account for annual inflation. On March 14, 2018, the Department published the revised penalties for 2018 in the Federal Register
(https://www.federalregister.gov/documents/2018/03/14/2018-04832/civil-monetary-penalty-inflation-adjustment-for-2018). The table below
briefly describes the penalty, under which authority it pertains, and the anticipated current penalty amount.

EXHIBIT 49: Civil Monetary Penalties
                                                                                      Date of Current Anticipated Current Penalty Level
Penalty (Name of Penalty)                 Authority (Statute)
                                                                                      Adjustment      ($ Amount)
Improper recordkeeping first-time         Federal Insecticide, Fungicide, and         03/14/2018       $923
offense; pesticides                       Rodenticide Act, 7 U.S.C. 136i-1(d)
Improper recordkeeping subsequent         Federal Insecticide, Fungicide, and         03/14/2018       $1,795
offense; pesticides                       Rodenticide Act, 7 U.S.C. 136i-1(d)
Violation of the unfair conduct rule      Perishable Agricultural Commodities Act,    03/14/2018       $5,029
                                          codified at 7 U.S.C. 499b(5)
Willful violation of the licensing        Perishable Agricultural Commodities Act,    03/14/2018       $1,605 plus $401 per day for as long
requirements                              codified at 7 U.S.C. 499c(a)                                 as the violation continues
Unwillful violation of the licensing      Perishable Agricultural Commodities Act,    03/14/2018       $401 for each non-willful offense
requirements                              codified at 7 U.S.C. 499c(a)
Violative transaction                     Perishable Agricultural Commodities Act,    03/14/2018       $3,209
                                          codified at 7 U.S.C. 499h(e)
Violation                                 Export Apple Act, 7 U.S.C. 586              03/14/2018       $147–$14,665
238
           USDA AGENCY FINANCIAL REPORT | 2018




                                                                                               Date of Current Anticipated Current Penalty Level
      Penalty (Name of Penalty)                    Authority (Statute)
                                                                                               Adjustment      ($ Amount)
      Violation                                    Export Grape and Plum Act, codified at      03/14/2018       $281–$28,061
                                                   7 U.S.C. 596
      Violation of an order issued by the          Agricultural Adjustment Act, reenacted      03/14/2018       $2,806
      Secretary                                    with amendments by the Agricultural
                                                   Marketing Agreement Act of 1937,
                                                   codified at 7 U.S.C. 608c(14)(B)
      Failure to file certain reports              Agricultural Adjustment Act, reenacted by   03/14/2018       $281
                                                   the Agricultural Marketing Agreement Act
                                                   of 1937, codified at 7 U.S.C. 610(c)
      Violation of a seed program                  Federal Seed Act, codified at               03/14/2018       $96–$1,913
                                                   7 U.S.C. 1596(b)
      Failure to collect any assessment or fee     Cotton Research and Promotion Act,          03/14/2018       $2,806
      for violation                                codified at 7.U.S.C. 2112(b)
      Failure to pay, collect, or remit any        Potato Research and Promotion Act,          03/14/2018       $1,257–$12,570
      assessment or fee for a violation of a       codified at 7 U.S.C. 2621(b)(1)
      program
      Failure to obey a cease and desist order     Potato Research and Promotion Act,          03/14/2018       $1,257
                                                   codified at 7 U.S.C. 2621(b)(3)
      Failure to pay, collect, or remit any        Egg Research and Consumer Information       03/14/2018       $1,454–$14,544
      assessment or fee, or for a violation of a   Act, codified at 7 U.S.C. 2714(b)(1)
      program
      Failure to obey a cease and desist order     Egg Research and Consumer Information       03/14/2018       $1,454
                                                   Act, codified at 7 U.S.C. 2714(b)(3)
      Failure to remit any assessment or fee,      Beef Research and Information Act,          03/14/2018       $11,346
      or for a violation of a program              codified at 7 U.S.C. 2908(a)(2)
                                                                                                                                          239
                                                                                                      SECTION III | OTHER INFORMATION




                                                                                      Date of Current Anticipated Current Penalty Level
Penalty (Name of Penalty)                    Authority (Statute)
                                                                                      Adjustment      ($ Amount)
Failure to remit any assessment or fee,      Wheat and Wheat Foods Research and       03/14/2018       $2,806
or for a violation of a program              Nutrition Education, codified at
                                             7 U.S.C. 3410(b)
Failure to pay, collect, or remit any        Floral Research and Consumer             03/14/2018       $1,320–$13,205
assessment or fee, or for a violation of a   Information Act, codified at
program                                      7 U.S.C. 4314(b)(1)
Failure to obey a cease and desist order     Floral Research and Consumer             03/14/2018       $1,320
                                             Information Act, codified at
                                             7 U.S.C. 4314(b)(3)
Violation of an order                        Dairy Promotion Program, codified at     03/14/2018       $2,442
                                             7 U.S.C. 4510(b)
Failure to pay, collect, or remit any        Honey Research, Promotion, and           03/14/2018       $752–$7,250
assessment or fee, or for a violation of a   Consumer Information Act, codified at
program                                      7 U.S.C. 4610(b)(1)
Failure to obey a cease and desist order     Honey Research, Promotion, and           03/14/2018       $752
                                             Consumer Information Act, codified at
                                             7 U.S.C. 4610(b)(3)
Violation of a program                       Pork Promotion, Research, and Consumer   03/14/2018       $2,269
                                             Information Act of 1985, codified at
                                             7 U.S.C. 4815(b)(1)(A)(i)
Failure to obey a cease and desist order     Pork Promotion, Research, and Consumer   03/14/2018       $1,135
                                             Information Act of 1985, codified at
                                             7 U.S.C. 4815(b)(3)(A)
Failure to pay, collect, or remit any        Watermelon Research and Promotion Act,   03/14/2018       $1,135–$11,346
assessment or fee, or for a violation of a   codified at 7 U.S.C. 4910(b)(1)
program
240
          USDA AGENCY FINANCIAL REPORT | 2018




                                                                                            Date of Current Anticipated Current Penalty Level
      Penalty (Name of Penalty)                    Authority (Statute)
                                                                                            Adjustment      ($ Amount)
      Failure to obey a cease and desist order     Watermelon Research and Promotion Act,   03/14/2018       $1,135
                                                   codified at 7 U.S.C. 4910(b)(3)
      Failure to pay, collect, or remit any        Pecan Promotion and Research Act of      03/14/2018       $1,848–$18,477
      assessment or fee, or for a violation of a   1990, codified at 7 U.S.C. 6009(c)(1)
      program
      Failure to obey a cease and desist order     Pecan Promotion and Research Act of      03/14/2018       $1,848
                                                   1990, codified at 7 U.S.C. 6009(e)
      Failure to pay, collect, or remit any        Mushroom Promotion, Research, and        03/14/2018       $898–$8,977
      assessment or fee, or for a violation of a   Consumer Information Act of 1990,
      program                                      codified at 7 U.S.C. 6107(c)(1)
      Failure to obey a cease and desist order     Mushroom Promotion, Research, and        03/14/2018       $898
                                                   Consumer Information Act of 1990,
                                                   codified at 7 U.S.C. 6107(e)
      Failure to pay, collect, or remit any        Lime Research, Promotion, and Consumer   03/14/2018       $898–$8977
      assessment or fee, or for a violation of a   Information Act of 1990, codified at
      program                                      7 U.S.C. 6207(c)(1)
      Failure to obey a cease and desist order     Lime Research, Promotion, and Consumer   03/14/2018       $898
                                                   Information Act of 1990, codified at
                                                   7 U.S.C. 6207(e)
      Failure to pay, collect, or remit any         Soybean Promotion, Research, and        03/14/2018       $1,848
      assessment or fee, or for a violation of a   Consumer Information Act, codified at
      program                                      7 U.S.C. 6307(c)(1)(A)
      Failure to obey a cease and desist order     Soybean Promotion, Research, and         03/14/2018       $9,239
                                                   Consumer Information Act, codified at
                                                   7 U.S.C. 6307(e)
                                                                                                                                               241
                                                                                                          SECTION III | OTHER INFORMATION




                                                                                          Date of Current Anticipated Current Penalty Level
Penalty (Name of Penalty)                    Authority (Statute)
                                                                                          Adjustment      ($ Amount)
Failure to pay, collect, or remit any        Fluid Milk Promotion Act of 1990, codified   03/14/2018       $898–$8,977
assessment or fee, or for an unwillful       at 7 U.S.C. 6411(c)(1)(A) and
violation of a program                       7 U.S.C. 6411(c)(1)(B)
Failure to pay, collect, or remit any        Fluid Milk Promotion Act of 1990, codified   03/14/2018       $17,952–$179,522
assessment or fee, or for a willful          at 7 U.S.C. 6411(c)(1)(A) and
violation of a program                       7 U.S.C. 6411(c)(1)(B)
Failure to obey a cease and desist order     Fluid Milk Promotion Act of 1990, codified   03/14/2018       $9,239
                                             at 7 U.S.C. 6411(e)
Knowingly labeling or selling a product      Organic Foods Production Act of 1990,        03/14/2018       $17,952
as organic except in accordance with the     codified at 7 U.S.C. 6519(a)
Organic Foods Production Act of 1990
Failure to pay, collect, or remit any        Fresh Cut Flowers and Fresh Cut Greens       03/14/2018       $847–$8,464
assessment or fee, or for a violation of a   Promotion and Information Act of 1993,
program                                      codified at 7 U.S.C. 6808(c)(1)(A)(i)
Failure to obey a cease and desist order     Fresh Cut Flowers and Fresh Cut Greens       03/14/2018       $8,464
                                             Promotion and Information Act of 1993,
                                             codified at 7 U.S.C. 6808(e)(1)
Violation of a program                       Sheep Promotion, Research, and               03/14/2018       $1,650
                                             Information Act of 1994, codified at
                                             7 U.S.C. 7107(c)(1)(A)
Failure to obey a cease and desist order     Sheep Promotion, Research, and               03/14/2018       $824
                                             Information Act of 1994, codified at
                                             7 U.S.C. 7107(e)
Violation of an order or regulation          Commodity Promotion, Research, and           03/14/2018       $1,558–$15,582 for each violation
                                             Information Act of 1996, codified at
                                             7 U.S.C. 7419(c)(1)
242
          USDA AGENCY FINANCIAL REPORT | 2018




                                                                                              Date of Current Anticipated Current Penalty Level
      Penalty (Name of Penalty)                  Authority (Statute)
                                                                                              Adjustment      ($ Amount)
      Failure to obey a cease and desist order   Commodity Promotion, Research, and           03/14/2018       $1,558–$15,582 for each day the
                                                 Information Act of 1996, codified at                          violation continues
                                                 7 U.S.C. 7419(e)
      Violation of an order or regulation        Canola and Rapeseed Research,                03/14/2018       $1,558 for each violation
                                                 Promotion, and Consumer Information
                                                 Act, codified at 7 U.S.C. 7448(c)(1)(A)(i)
      Failure to obey a cease and desist order   Canola and Rapeseed Research,                03/14/2018       $7,791 for each day the violation
                                                 Promotion, and Consumer Information                           continues
                                                 Act, codified at 7 U.S.C. 7448(e)
      Violation of an order or regulation        National Kiwifruit Research, Promotion,      03/14/2018       $780–$7,791
                                                 and Consumer Information Act, codified
                                                 at 7 U.S.C. 7468(c)(1)
      Failure to obey a cease and desist order   National Kiwifruit Research, Promotion,      03/14/2018       $780 for each day the violation
                                                 and Consumer Information Act, codified                        continues
                                                 at 7 U.S.C. 7468(e)
      Violation of an order or regulation        Popcorn Promotion, Research, and             03/14/2018       $1,558 for each violation
                                                 Consumer Information Act, codified at
                                                 7 U.S.C. 7487(a)
      Certain violations                         Egg Products Inspection Act, codified at     03/14/2018       $8,977 for each violation
                                                 21 U.S.C. 1041(c)(1)(A)
      Violation of an order or regulation        Hass Avocado Promotion, Research, and        03/14/2018       $1,417–$14,177 for each violation
                                                 Information Act of 2000, codified at
                                                 7 U.S.C. 7807(c)(1)(A)(i)
      Failure to obey a cease and desist order   Hass Avocado Promotion, Research, and        03/14/2018       $14,177 for each violation
                                                 Information Act of 2000, codified at
                                                 7 U.S.C. 7807(e)(1)
                                                                                                                                           243
                                                                                                       SECTION III | OTHER INFORMATION




                                                                                       Date of Current Anticipated Current Penalty Level
Penalty (Name of Penalty)                   Authority (Statute)
                                                                                       Adjustment      ($ Amount)
Violation of certain provisions             Livestock Mandatory Reporting Act of       03/14/2018       $14,665 for each violation
                                            1999, codified at 7 U.S.C. 1636b(a)(1)
Failure to obey a cease and desist order    Livestock Mandatory Reporting Act of       03/14/2018       $14,665 for each violation
                                            1999, codified at 7 U.S.C. 1636b(g)(3)
Failure to obey an order of the Secretary   Dairy Product Mandatory Reporting          03/14/2018       $14,177 for each violation
                                            Program, codified at
                                            7 U.S.C. 1637b(c)(4)(D)(iii)
Willful violation of the program by a       Country of Origin Labeling Program,        03/14/2018       $1,139 for each violation
retailer or person engaged in the           7 U.S.C. 1638b(b)(2)
business of supplying a covered
commodity to a retailer
Violations of the program                   Dairy Research Program, codified at        03/14/2018       $2,442 for each violation
                                            7 U.S.C. 4535 and 4510(b)
Violation of the imported seed              Federal Seed Act, codified at              03/14/2018       $96–$1,913
provisions                                  7 U.S.C. 1596(b)
Violation of the Animal Welfare Act         Animal Welfare Act, codified at            03/14/2018       $11,390, and knowing failure to obey
                                            7 U.S.C. 2149(b)                                            a cease and desist order has a civil
                                                                                                        penalty of $1,708
 Any person that causes harm to, or         Civil Penalties (Department of             03/14/2018       $14,177
interferes with, an animal used for the     Agriculture), 7 U.S.C. 2279e(a)
purposes of official inspection by the
Department
Penalty for a violation of the Swine        Swine Health Protection Act, codified at   03/14/2018       $28,061
Health Protection Act                       7 U.S.C. 3805(a)
244
          USDA AGENCY FINANCIAL REPORT | 2018




                                                                                               Date of Current Anticipated Current Penalty Level
      Penalty (Name of Penalty)                    Authority (Statute)
                                                                                               Adjustment      ($ Amount)
      Any person that violates the Plant           Plant Protection Act, 7 U.S.C. 7734(b)(1)   03/14/2018       $70,881 in the case of any individual
      Protection Act (PPA), or that forges,                                                                     (except that the civil penalty may not
      counterfeits, or, without authority from                                                                  exceed $1,417 in the case of an initial
      the Secretary, uses, alters, defaces, or                                                                  violation of the PPA by an individual
      destroys any certificate, permit, or other                                                                moving regulated articles not for
      document provided for in the PPA                                                                          monetary gain); $354,402 in the case
                                                                                                                of any other person; $569,468 for
                                                                                                                violations adjudicated in a single
                                                                                                                proceeding if not a willful violation;
                                                                                                                $1,138,937 for violations adjudicated
                                                                                                                in a single proceeding if a willful
                                                                                                                violation; or twice the gross gain or
                                                                                                                gross loss for any violation, forgery,
                                                                                                                counterfeiting, unauthorized use,
                                                                                                                defacing, or destruction of a
                                                                                                                certificate, permit, or other
                                                                                                                document provided for in the PPA
                                                                                                                that results in the person deriving
                                                                                                                pecuniary gain or causing pecuniary
                                                                                                                loss to another.
                                                                                                                                          245
                                                                                                   SECTION III | OTHER INFORMATION




                                                                                   Date of Current Anticipated Current Penalty Level
Penalty (Name of Penalty)                   Authority (Statute)
                                                                                   Adjustment      ($ Amount)
Any person [except as provided in           Animal Health Protection Act,          03/14/2018       $68,027 in the case of any individual
7 U.S.C. 8309(d)] that violates the         7 U.S.C. 8313(b)(1)                                     (except that the civil penalty may not
Animal Health Protection Act (AHPA);                                                                exceed $1,360 in the case of an initial
or that forges, counterfeits, or, without                                                           violation of the AHPA by an individual
authority from the Secretary, uses,                                                                 moving regulated articles not for
alters, defaces, or destroys any                                                                    monetary gain); $340,131 in the case
certificate, permit, or other document                                                              of any other person for each
provided under the AHPA                                                                             violation; $569,468 for all violations
                                                                                                    adjudicated in a single proceeding if
                                                                                                    the violations do not include a willful
                                                                                                    violation; $1,138,937 for all violations
                                                                                                    adjudicated in a single proceeding if
                                                                                                    the violations include a willful
                                                                                                    violation; or twice the gross gain or
                                                                                                    gross loss for any violation, forgery,
                                                                                                    counterfeiting, unauthorized use,
                                                                                                    defacing, or destruction of a
                                                                                                    certificate, permit, or other
                                                                                                    document provided under the AHPA
                                                                                                    that results in the person’s deriving
                                                                                                    pecuniary gain or causing pecuniary
                                                                                                    loss to another person.
Any person that violates certain            Bioterrorism Protection Act of 2002,   03/14/2018       $340,131 in the case of an individual
regulations under the Agricultural          codified at 15 U.S.C. 8401 (i)(1)                       and $680,262 in the case of any other
Bioterrorism Protection Act of 2002                                                                 person.
regarding transfers of listed agents and
toxins or possession and use of listed
agents and toxins
246
           USDA AGENCY FINANCIAL REPORT | 2018




                                                                                                         Date of Current Anticipated Current Penalty Level
      Penalty (Name of Penalty)                        Authority (Statute)
                                                                                                         Adjustment      ($ Amount)
      Violation of the act                             Horse Protection Act, codified at 15              03/14/2018       $5,612
                                                       U.S.C. 1825(b)(1)
      Failure to obey act disqualification             Horse Protection Act, codified at 15              03/14/2018       $10,969
                                                       U.S.C. 1825(c)
      Knowingly violating or, if in the business       Endangered Species Act of 1973,                   03/14/2018       $51,302
      as an importer or exporter, violating,           (16 U.S.C. 1538(a)(1)(A) through (F),
      with respect to terrestrial plants, any          (a)(2)(A) through (D), (c), (d), (f), and (g)),
      provision of the Endangered Species Act          as set forth at 16 U.S.C. 1540(a)(1)
      of 1973, any permit or certificate issued
      thereunder, or any regulation issued
      pursuant to section 9(a)(1)(A) through
      (F), (a)(2)(A) through (D), (c), (d) (other
      than regulations relating to
      recordkeeping or filing reports), (f), or
      (g) of the Endangered Species Act of
      1973 (16 U.S.C. 1538(a)(1)(A) through
      (F), (a)(2)(A) through (D), (c), (d), (f), and
      (g)), as set forth at 16 U.S.C. 1540(a)
      Knowingly violating or, if in the business       Endangered Species Act of 1973, as set            03/14/2018       $24,625
      as an importer or exporter, violating,           forth at 16 U.S.C. 1540(a)(1)
      with respect to terrestrial plants, any
      other regulation under the Endangered
      Species Act of 1973, as set forth at
      16 U.S.C. 1540(a)
                                                                                                                                            247
                                                                                                        SECTION III | OTHER INFORMATION




                                                                                        Date of Current Anticipated Current Penalty Level
Penalty (Name of Penalty)                  Authority (Statute)
                                                                                        Adjustment      ($ Amount)
Violation, with respect to terrestrial     Endangered Species Act of 1973, as set       03/14/2018       $1,296
plants, of the Endangered Species Act of   forth at 16 U.S.C. 1540(a)(1)
1973, or any regulation, permit, or
certificate issued thereunder, as set
forth at 16 U.S.C. 1540(a)
Knowingly and willfully violating          28 Hour Law, 49 U.S.C. 80502(d)              03/14/2018       $165–$824
49 U.S.C. 80502 with respect to the
transportation of animals by any rail
carrier, express carrier, or common
carrier (except by air or water); a
receiver, trustee, or lessee of one of
those carriers; or an owner or master of
a vessel
Violating a provision of or a regulation   Food and Nutrition Act of 2008 (Act), or a   03/14/2018       $113,894
under the Act, by a retail food store or   regulation under the Act, codified at
wholesale food concern                     7 U.S.C. 2021(a) and (c)
Trafficking in food coupons                Food and Nutrition Act of 2008 (Act),        03/14/2018       $41,042–$73,906
                                           codified at 7 U.S.C. 2021(b)(3)(B)
Sale of firearms, ammunitions,             Food and Nutrition Act of 2008 (Act),        03/14/2018       $36,953–$73,906
explosives, or controlled substances for   codified at 7 U.S.C. 2021(b)(3)(c)
coupons
248
          USDA AGENCY FINANCIAL REPORT | 2018




                                                                                              Date of Current Anticipated Current Penalty Level
      Penalty (Name of Penalty)                   Authority (Statute)
                                                                                              Adjustment      ($ Amount)
      Any entity that submits a bid to supply     Child Nutrition Act of 1966, as amended     03/14/2018       $173,951,364
      infant formula to carry out the Special     by Sec. 204 of the Child Nutrition Act of
      Supplemental Nutrition Program for          1992, P.L. 1102-512.,
      Women, Infants, and Children and            42 U.S.C. 1786(h)(8)(H)(i)
      discloses the amount of the bid, rebate,
      or discount practices in advance of the
      bid opening, or for any entity that makes
      a statement prior to the opening of bids
      for the purpose of influencing a bid
      Vendor convicted of trafficking in food     Child Nutrition Act of 1966, as amended     03/14/2018       $15,041–$60,161
      instruments                                 by Sec. 203 (p)(1) of the William F.
                                                  Goodling Child Nutrition Reauthorization
                                                  Act of 1998, P.L. 105-336.,
                                                  42 U.S.C. 1786(o)(1)(A) and
                                                  42 U.S.C. 1786(o)(4)(B)
      Vendor convicted of selling firearms,       Child Nutrition Act of 1966, as amended     03/14/2018       $15,041–$60,161
      ammunition, explosives, or controlled       by Sec. 203 (p)(1) of the William F.
      substances in exchange for food             Goodling Child Nutrition Reauthorization
      instruments                                 Act of 1998, P.L. 105-336.,
                                                  42 U.S.C. 1786(o)(1)(B) and
                                                  42 U.S.C. 1786(o)(4)(B)
      Certain violations                          Egg Products Inspection Act, codified at    03/14/2018       $8,977 for each violation
                                                  21 U.S.C. 1041(c)(1)(A)
      Willful disregard of the prohibition        Forest Resources Conservation &             03/14/2018       $923,831
      against the export of unprocessed           Shortage Relief Act of 1990, as amended,
      timber originating from Federal lands       16 U.S.C. 620d(c)(1)(A)
                                                                                                                                                  249
                                                                                                          SECTION III | OTHER INFORMATION




                                                                                          Date of Current Anticipated Current Penalty Level
Penalty (Name of Penalty)                   Authority (Statute)
                                                                                          Adjustment      ($ Amount)
Violation in disregard of the Forest        Forest Resources Conservation &               03/14/2018       $138,575
Resources Conservation and Shortage         Shortage Relief Act of 1990, as amended,
Relief Act or the regulations that          16 U.S.C. 620d(c)(2)(A)(i)
implement such Act
Person that should have known that an       Forest Resources Conservation and             03/14/2018       $92,383
action was a violation of the Forest        Shortage Relief Act or the regulations that
Resources Conservation and Shortage         implement such Act,
Relief Act or the regulations that          16 U.S.C. 620d(c)(2)(A)(ii)
implement such Act
Willful violation of the Forest Resources Forest Resources Conservation and               03/14/2018       $923,831
Conservation and Shortage Relief Act or   Shortage Relief Act or the regulations that
the regulations that implement such Act   implement such Act, codified at
                                          16 U.S.C. 620d(c)(2)(A)(iii)
Violation involving protections of caves  Federal Cave Resources Protection Act of        03/14/2018       $20,191
                                          1988; P.L. 100-691; 102 Stat. 4546,
                                          16 U.S.C. 4307(a)(2)
Packer or swine contractor violation      Packers and Stockyards Act, 1921, as            03/14/2018       $28,061
                                          amended, 7 U.S.C. 193(b)
Livestock market agency or dealer failure Packers and Stockyards Act of 1921,             03/14/2018       $1,913
to register                               7 U.S.C. 203
Livestock market agency or dealer failure Packers and Stockyards Act of 1921,             03/14/2018       $96 each day the violation continues
to register                               7 U.S.C. 203
Operating without filing, or in violation Packers and Stockyards Act of 1921,             03/14/2018       $1,913
of, a stockyard rate schedule, or of a    7 U.S.C. 207(g)
regulation or order of the Secretary
made thereunder
250
          USDA AGENCY FINANCIAL REPORT | 2018




                                                                                                Date of Current Anticipated Current Penalty Level
      Penalty (Name of Penalty)                    Authority (Statute)
                                                                                                Adjustment      ($ Amount)
      Operating without filing, or in violation    Packers and Stockyards Act of 1921,          03/14/2018       $96 each day the violation continues
      of, a stockyard rate schedule, or of a       7 U.S.C. 207(g)
      regulation or order of the Secretary
      made thereunder
      A stockyard owner, livestock market          Packers and Stockyards Act of 1921,          03/14/2018       $28,061
      agency, and dealer violation                 7 U.S.C. 213(b)
      Stockyard owner, livestock market            Packers and Stockyards Act of 1921,          03/14/2018       $1,913
      agency, and dealer compliance order          7 U.S.C. 215(a)
      Live poultry dealer violations               Packers and Stockyards Act of 1921,          03/14/2018       $81,633
                                                   7 U.S.C. 228b-2(b)
      Refusal of inspection and weighing           7 U.S.C. 86(c)                               03/14/2018       $274,235
      services violation
      Any person who willfully and                 Federal Crop Insurance Act, codified at      03/14/2018       Has a maximum of the greater of: the
      intentionally provides any false or          7 U.S.C. 1515(h)(3)(A)                                        amount of the pecuniary gain
      inaccurate information to the Federal                                                                      obtained as a result of the false or
      Crop Insurance Corporation, or to an                                                                       inaccurate information or the
      approved insurance provider with                                                                           noncompliance; or $11,984
      respect to any insurance plan or policy
      that is offered under the authority of the
      Federal Crop Insurance Act, or who fails
      to comply with a requirement of the
      Federal Crop Insurance Corporation
      Violation of section 536 of Title V of the   Section 536 of Title V of the Housing Act    03/14/2018       $196,387 in the case of an individual
      Housing Act of 1949                          of 1949, codified at 42 U.S.C. 1490p(e)(2)                    and $1,963,870 in the case of an
                                                                                                                 applicant other than an individual
                                                                                                                                              251
                                                                                                          SECTION III | OTHER INFORMATION




                                                                                          Date of Current Anticipated Current Penalty Level
Penalty (Name of Penalty)                     Authority (Statute)
                                                                                          Adjustment      ($ Amount)
Equity skimming                               Section 543(a) of Title V of the Housing    03/14/2018       $35,440
                                              Act of 1949, codified at
                                              42 U.S.C. 1490s(a)(2)
Violation of regulations or agreements        Section 543(b) of Title V of the Housing    03/14/2018       $70,881
made in accordance with Title V of the        Act of 1949, codified at
Housing Act of 1949 by submitting false       42 U.S.C. 1490s(b)(3)(A)
information, submitting false
certifications, failing to timely submit
information, failing to maintain real
property in good repair and condition,
failing to provide acceptable
management for a project, or failing to
comply with applicable civil rights
statutes and regulations
Failure to comply with certain provisions     U.S. Warehouse Act, codified at             03/14/2018       $35,440
                                              7 U.S.C. 254
Willful failure or refusal to furnish         Section 156 of the Federal Agricultural     03/14/2018       $15,582 for each violation
information, or willful furnishing of false   Improvement and Reform Act of 1996,
information                                   codified at 7 U.S.C. 7272(g)(5).
Willful failure or refusal to furnish         Section 156 of the Federal Agriculture      03/14/2018       $15,582 for each violation
information, or willful furnishing of false   Improvement and Reform Act of 1996,
data by a processor, refiner, or importer     codified at 7 U.S.C. 7272(g)(5)
of sugar, syrup, and molasses
Filing a false acreage report that exceeds    Federal Agriculture Improvement and         03/14/2018       $15,582 for each violation
tolerance                                     Reform Act of 1996, Section 156, codified
                                              at 7 U.S.C. 7272(g)(5)
252
          USDA AGENCY FINANCIAL REPORT | 2018




                                                                                              Date of Current Anticipated Current Penalty Level
      Penalty (Name of Penalty)                   Authority (Statute)
                                                                                              Adjustment      ($ Amount)
      Knowingly violating any regulation of the   Section 359h(b) of the Agricultural         03/14/2018       $11,390 for each violation
      Secretary of the Commodity Credit           Adjustment Act of 1938, codified at
      Corporation pertaining to flexible          7 U.S.C. 1359hh(b)
      marketing allotments for sugar
      Knowingly violating any regulations         Section 104(d) of the Agricultural Act of   03/14/2018       $14,031
      promulgated by the Secretary pertaining     1949, codified at 7 U.S.C. 1444a(d)
      to cotton insect eradication
      Making, presenting, submitting, or          Program Fraud Civil Remedies Act of 1986, 03/14/2018         $11,182
      causing to be made, presented, or           codified at 31 U.S.C. 3802(a)(1)
      submitted, a false, fictitious, or
      fraudulent claim
      Making, presenting, submitting, or          Program Fraud Civil Remedies Act of 1986, 03/14/2018         $11,182
      causing to be made, presented, or           codified at 31 U.S.C. 3802(a)(2)
      submitted, a false, fictitious, or
      fraudulent written statement
      Violation of any of the slaughter horse     Commercial Transportation of Equine for     03/14/2018       $5,000
      transportation regulations in               Slaughter Act, 7 U.S.C. 1901 note
      9 CFR part 88
                                                                                                                                  253
                                                                                            SECTION III | OTHER INFORMATION




                                                                            Date of Current Anticipated Current Penalty Level
Penalty (Name of Penalty)                 Authority (Statute)
                                                                            Adjustment      ($ Amount)
Knowingly violating section 3(d) or 3(f) of Lacey Act Amendments of 1981,   03/14/2018       $25,928 for each violation (but if the
the Lacey Act Amendments of 1981, or        16 U.S.C. 3373(a)(1)                             plant has a market value of less than
for violating any other provision                                                            $350, and involves only the
provided that, in the exercise of due                                                        transportation, acquisition, or receipt
care, the violator should have known                                                         of a plant taken or possessed in
that the plant was taken, possessed,                                                         violation of any law, treaty, or
transported, or sold in violation of any                                                     regulation of the United States, any
underlying law, treaty, or regulation                                                        Indian Tribal law, any foreign law, or
                                                                                             any law or regulation of any State, the
                                                                                             penalty shall not exceed the
                                                                                             maximum provided for violation of
                                                                                             said law, treaty, or regulation, or
                                                                                             $25,928, whichever is less)
Violating section 3(f) of the Lacey Act   Lacey Act Amendments of 1981,     03/14/2018       $648
Amendments of 1981                        16 U.S.C. 3373(a)(2)
254
      USDA AGENCY FINANCIAL REPORT | 2018




      Grant Oversight and New Efficiency (GONE) Act
      EXHIBIT 50: Aging and Balances for Grants and Cooperative Agreements Subject to
                  GONE Act Reporting

      CATEGORY                                 2–3 YEARS             >3–5 YEARS            >5 YEARS
      Number of Grants/Cooperative
      Agreements with Zero Dollar                   4                     21                  41
      Balances
      Number of Grants/Cooperative
      Agreements with Undisbursed                  677                   411                  106
      Balances
      Total Amount of
                                             $ 4,339,705.64        $ 7,764,474.03       $ 3,273,133.88
      Undisbursed Balances


      CHALLENGES
      The U.S. Department of Agriculture (USDA) faces several challenges leading to delayed grant
      agreement award closeout. In some instances, agencies have not received closeout
      documentation in a timely manner, which may be a result of ongoing disputes with grant
      recipients about allowable expenditures and/or as a result of legal situations. Several
      agreements are either in litigation or have the potential for litigation. Pursuant to 2 Code of
      Federal Regulations (CFR) 200.333 Retention of Records (Title 2 CFR Part 200 “Uniform
      Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards”)
      and Department Regulation (DR) Litigation Retention Policy (DR3090-001), the agreement
      must be maintained in both hard copy and electronically in its native format while the litigation
      hold or potential for litigation is in force. The closeout process will occur, and any remaining
      balances will be de-obligated or dispersed as directed after litigation action is resolved.

      There are cases in which awardees must submit a return of funds; USDA is awaiting receipt of
      these funds. In these cases, the projects will be officially marked as “closed” once funds have been
      received. USDA has certain awards with State Agencies in Puerto Rico that have not been able to
      perform reconciliation in their systems due to Hurricane Rita and Irma activity. The closeout
      process for awards in Puerto Rico has been challenging, and many have not been completed.

      In limited situations, an incorrect period of performance (POP) in award systems has allowed
      awards to remain open after the POP has past. As a result of invalid POPs, the grantee must
      submit invoices to the agency for review. If the invoices are found to have discrepancies, USDA
      must reach out to the grantee for the additional information, delaying the closeout process.
                                                                                                  255
                                                            SECTION III | OTHER INFORMATION




With imposed hiring freezes, agencies are facing staff shortages in the Grants and Agreements
Service Branches (GASB). Staff priorities have been placed on processing new agreements,
which limits the amount of time available for agreement closeout.


CORRECTIVE ACTIONS
USDA remains committed to working to address the requirements of Title 2 CFR Part 200, as
well as the Grant Oversight and New Efficiency (GONE) Act, to ensure grants and cooperative
agreements are closed out within the time identified in the regulatory guidance. Agencies are
working on corrective action plans, which include revising the grant closeout process and fully
documenting the procedures and notifications that will be required for all grant agreements.

Agencies continue to work with grantees who drawdown funds after a period of performance.
There is ongoing work to appropriately collect funds and close out grants or cooperative
agreements as soon as possible.

Although USDA may have a grant community staff shortage, extra time is being devoted to
agreement closeout in fiscal year (FY) 2018. Additionally, the teams are working to bring other
contractor support to assist with closing expired agreements. Closing out expired agreements is
an agency priority.
Learn more about USDA OIG
Visit our website: www.usda.gov/oig/index.htm
Follow us on Twitter: @OIGUSDA

How to Report Suspected Wrongdoing in USDA Programs

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

Monday–Friday, 9:00 a.m.– 3:00 p.m. ET
In Washington, DC 202-690-1622
Outside DC 800-424-9121
TDD (Call Collect) 202-690-1202

Bribes or Gratuities
202-720-7257 (24 hours)




In accordance with Federal civil rights law and U.S. Department of Agriculture        Relay Service at (800) 877-8339. Additionally, program information may be made
(USDA) civil rights regulations and policies, the USDA, its Agencies, offices, and    available in languages other than English.
employees, and institutions participating in or administering USDA programs
are prohibited from discriminating based on race, color, national origin, religion,   To file a program discrimination complaint, complete the USDA Program Discrimina-
sex, gender identity (including gender expression), sexual orientation, disability,   tion Complaint Form, AD-3027, found online at How to File a Program
age, marital status, family/parental status, income derived from a public             Discrimination Complaint and at any USDA office or write a letter addressed to
assistance program, political beliefs, or reprisal or retaliation for prior civil     USDA and provide in the letter all of the information requested in the form. To
rights activity, in any program or activity conducted or funded by USDA (not all      request a copy of the complaint form, call (866) 632-9992. Submit your completed
bases apply to all programs). Remedies and complaint filing deadlines vary by         form or letter to USDA by: (1) mail: U.S. Department of Agriculture, Office of the
program or incident.                                                                  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.
Persons with disabilities who require alternative means of communication for
program information (e.g., Braille, large print, audiotape, American Sign             USDA is an equal opportunity provider, employer, and lender.
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          All photographs are from USDA's Flickr site and are in the public domain.