oversight

Audit of Federal Crop Insurance Corporation, Fiscal Year 1970

Published by the Government Accountability Office on 1971-01-13.

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

Audit 06
  deral Cro                     tion


Department of Agriculture




BY THE COMPTROLLIU?   GENERAL
OF THE UNITED  STATES
                      COMPTROLLER       GENERAL     OF     THE      UNITED      STATES
                                      WASHINGTON.    DC.         20548




    B-114834




    To the     President       of the Senate   and the
c   Speaker      of the     House of Representatives

             This is our report  on the audit of the Federal                                        Crop     T/ ,-
    Insurance      Corporation, Department    of Agriculture,                                      for the      ,-
                                                                                                             d _L-
P
    fiscal    year ended June 30, 1970.

             The audit was           made pursuant                to the Government
    Corporation     Control          Act (31 U.S.C.                841) and the Federal
    Crop Insurance       Act        (7 U.S.C.  1513).

              Copies      of this report     are being                   sent to the Direc-
    tor, Office      of    Management       and Budget;                    the Secretary       of
    Agriculture;          and the Chairman         of the                Board   of Directors,
    Federal      Crop      Insurance     Corporation.




                                                           Comptroller                   General
                                                           of the United                 States
                                                                                  AUDIT OF   FEDERAL CROP
,                                                                                 INSURANCE CORPORATION
I
                                                                                  FISCAL YEAR 1970
                                                                                  Department   of Agriculture
                                                                                  B-114834


        DIGEST
        -----_
        WHYTHE AUDIT WASM4DE

              The Government     Corporation      Control    Act and the Federal Crop Insurance
              Act require     the General     Accounting     Office   (GAO} to audit      annually    the
              Federal    Crop Insurance      Corporation,     Department   of Agriculture,         and to
              report   to the Congress       on the results.


        FINDINGS AND CONCLUSIONS

              In GAO's opinion,         the accompanying       financial     statements         present     fairly
              the financial      position     of the Corporation         at June 30,         1970, the      results
              of its operations,          and the sources      and application        of     its funds      for the
              year then ended,        in conformity       with generally       accepted        accounting       prin-
              ciples   applied    on a basis       consistent     with that     of the       preceding      year and
              with applicable       Federal     laws.      (See p. 13.)

              The Corporation        reported       a net'operating         loss of $20.8 million         in fiscal
              year 1970, a net loss from insurance                   operations       of $6.9 million,      and
              operating     and administrative           expenses     of $13.9 million.           The loss from
              insurance     operations       resulted      primarily     from losses        on the insurance       of
              cotton    and citrus      crops and, to a lesser             extent,      losses   on grapes,    to-
              matoes,    potatoes,      sugar beets,         and tobacco.         (See p. 5.)

              At June 30, 1970, the Corporation's             capital        was impaired        by about
              $34.3 million.        This impairment      has occurred          over the      past 5 years.     The
              impairment     in fiscal     year 1970--$8.8      million--resulted             from the net loss
              from insurance      operations      of $6.9 million,         the payment        from premium in-
              come of $1.8 million         for operating     and administrative              expenses,   and an
              administrative      fund deficit      of $156,000       resulting     from      noncash  charges
              to operating     and administrative        expenses.         (See p. 7.)

              The net investment          of the U.S. Government        in the Corporation      increased
              from $14.5 million          at the beginning       of the year to $15.7 million         at the
              close    of the year.         This change consisted       of increases     of $22 million--
              increases      in subscription       by the Secretary       of the Treasury     to capital
              stock    of $10 million        and in appropriations        and reimbursements      of
              $12 million--offset           by the net loss from operations          of $20.8 million.

              The Corporation's         statement     of income and expense    (sch.     2,         p. 18) clas-
              sifies  operating        and administrative      costs by object    class,            such as

        Tear Sheet


    1                                                   1
    personnel compensation, travel,      agents' commissions, supplies,    and ma-
    terials.     The Corporation prepares, for management purposes, annual cost
    statements showing, by function,      its operating and administrative     ex-
    penses. The Corporation's      major functions are marketing of insurance,
    program operations,     loss adjustments,   and actuarial  operations.    A
    table, extracted from the Corporation's       functional  cost statements, is
    presented on page 11 and shows the operating and administrative         expenses,
    by function,    for fiscal years 1970 and 1969.


RECO94VENDATIONS
             ORSUGGESTIONS
    None.


AGENCY
     ACTIONSANDUNRESOLVED
                       ISSUES
    None.


MATTERS
      FORCONSIDERATION
                    BY THE CONGRESS                                                     II
                                                                                         1
                                                                                        II
    This report contains no recommendations or suggestions requiring    action
    by the Congress.    It is submitted to the Congress as required by the               1I
    Government Corporation Control Act to disclose the results of the annual             i
    audit of the Corporation and such other information   as deemed necessary           II
    to keep the Congress informed on the operations and financial    condition
    of the Corporation.
                          Contents
                                                                   Page

DIGEST                                                                  1

CHAPTER

   1       GENERALCOMMENTS                                              3

   2       OPERATIONS                                                5
              Insurance activity    for fiscal     year     1970     5
              Impairment of capital                                  7
              Insurance experience                                   8
              Operating and administrative        expenses          11

   3       SCOPEOF AUDIT                                            12

   4       OPINION OF FINANCIAI      STATEMENTS                     13

FINANCIAL STATEMENTS

Schedule

   1       Comparative statement of financial        condi-
             tion,  June 30, 1970 and 1969                         17

   2       Comparative statement     of income and ex-
             pense, fiscal  years    1970 and 1969                 18

   3       Comparative   statement   of sources and ap-
             plication   of funds,   fiscal  years 1970
             and 1969                                              19

   4       Computation of insurance reserve for crop
             year 1969 and cumulative  for crop years
             1948 through 1969 as of June 30, 1970                 21

   5       Analysis of deficit     in administrative      fund
             for fiscal years     1949 through 1970                22

           Notes to financial     statements,    June 30,
             1970                                                  23
APPENDIX

   I       Principal       officials    of the Federal Crop In-
              surance      Corporation,    Department of Agri-
              culture,      during fiscal    year 1970            27

                                AEBREVIATIONS

FCIC       Federal       Crop Insurance    Corporation

GAO        General       Accounting   Office
COMPTROLLERGENERAL'S                                                    AUDIT OF FEDERAL CROP
REPORTTO THE CONGRESS                                                   INSURANCE CORPORATION
                                                                         FISCALYEAR1970
                                                                         Department      of Agriculture
                                                                         B-114834


DIGEST
-----_
WHYTHE AUDIT WASMADE

    The Government     Corporation      Control    Act and the Federal      Crop Insurance
    Act require    the General      Accounting     Office   (GAO) to audit      annually    the
    Federal    Crop Insurance      Corporation,     Department   of Agriculture,         and to
    report   to the Congress       on the results.


FINDINGS AND CONCLUSIONS

     In GAO’s opinion,        the accompanying       financial     statements         present     fairly
    the financial      position     of the Corporation         at June 30,         1970, the      results
    of its operations,          and the sources      and application        of     its funds      for the
    year then ended,        in conformity       with generally       accepted        accounting       prin-
    ciples   applied    on a basis       consistent     with that     of the       preceding      year and
    with applicable       Federal     laws.      (See p. 13.)

    The Corporation        reported       a net operating        loss of $20.8 million          in fiscal
    year 1970, a net loss from insurance                  operations        of $6.9 million,      and
    operating     and administrative           expenses    of $13.9 million.            The loss from
    insurance     operations       resulted     primarily     from losses         on the insurance       of
    cotton    and citrus      crops and, to a lesser             extent,      losses   on grapes,    to-
    matoes,    potatoes,      sugar beets,        and tobacco.          (See p. 5.)

    At June 30, 1970, the Corporation’s             capital was impaired               by about
    $34.3 million.        This impairment      has occurred          over the      past 5 years.        The
    impairment     in fiscal     year 1970--$8.8      million--resulted             from the net loss
    from insurance      operations      of $6.9 million,         the payment        from premium      in-
    come of $1.8 million         for operating     and administrative              expenses,    and an
    administrative      fund deficit      of $156,000       resulting     from      noncash   charges
    to operating     and administrative        expenses.         (See p. 7.)

    The net investment          of the U.S. Government        in the Corporation     increased
    from $14.5 million          at the beginning       of the year to $15.7 million         at the
    close    of the year.         This change consisted       of increases     of $22 million--
    increases      in subscription       by the Secretary       of the Treasury    to capital
    stock    of $10 million        and in appropriations        and reimbursements     of
    $12 million--offset           by the net loss from operations          of $20.8 million.

    The Corporation's         statement     of income and expense    (sch.     2,         p. 18) clas-
    sifies  operating        and administrative      costs by object    class,            such as
    personnel       compensation,       travel,     agents'     commissions,       supplies,     and ma-
    terials.        The Corporatian        prepares9      for management       purposesS      annual     cost
    statements        showing,     by function     , its operating         and administrative        ex-
    penses.       The Corporation's          major functions         are marketing       of insurance3
    program     operations,        loss adjustments,         and actuarial       operations.       A
    table,     extracted       from the Corporation's           functional     cost statements,          is
    presented       on page 11 and shows the operating                  and administrative        expenses,
    by function,         for fiscal     years    1970 and 1969.


RECOMMENDATIONS
            ORSUGGESTIONS
    None.


AGENCY
     ACTIONSAND UNRESOLVED
                        ISSUES
    None.


MATTERS
      FOR CONSIDERATION
                     BY THECONGRESS
    This report    contains     no recommendations     or suggestions         requiring            action
    by the Congress.         It is submitted     to the Congress        as required            by the
    Government    Corporation       Control  Act to disclose       the results       of        the annual
    audit   of the Corporation        and such other   information        as deemed            necessary
    to keep the Congress        informed    on the operations        and financial             condition
    of the Corporation.




                                               2
                               CHAPTER 1

                          GENEFXL COMMENTS

       The General Accounting Office has made an audit of the
Federal Crop Insurance Corporation   (FCIC), Department of
Agriculture,   for the fiscal year ended June 30, 1970.  The
scope of the audit is described on page 12.

        FCIC is a wholly owned Government corporation        which was
created in 1938 to promote the national          welfare by improving
the economic stability     of agriculture     through a sound sys-
tem of crop insurance and by providing          the means for the
research and experience helpful        in devising and establish-
ing such insurance,      FCIC insures crops against practically
all causes of crop losses,      including   weather, insect infes-
tation,    and plant disease,

       The Federal Crop Insurance Act (7 U.S.C. 1501) author-
izes FCIC to fix premiums at rates to cover claims for crop
losses and to establish       a reserve against unforeseen        losses.
No authorization    is provided,     however, for fixing     premiums
at rates sufficient      to cover operating     and administrative
expenses and the direct       cost of loss adjustment--primarily
costs of crop inspections        and loss determinations.        Section
516(a) of the act sets a limitation         of $12 million     on funds
to be appropriated     for each fiscal     year to cover FCIC's op-
erating   and administrative      expenses and also authorizes
FCIC to pay the direct       cost of loss adjustment      and part of
its operating    and administrative      expenses from premium in-
come.

        For a number of years the annual appropriation         acts
have provided funds from two sources--appropriations            and
funds derived from premium income--with         which to pay operat-
ing and administrative      expenses.    FCIC received an appropri-
ation of $12 million     for fiscal    year 1970 (83 Stat. 259).
The appropriation     act provided that FCIC could pay up to
$1,648,000 of the operating       and administrative     expenses
from premium income.       The act provided also for the Secretary
of the Treasury to subscribe        and pay for $10 million     in
capital    stock of FCIC. FCIC received an additional          $691,000
under the Second Supplemental Appropriation          Act, 1970
(84 Stat. 2181, approved May 19, 1970.
                                    3
      The management of FCIC is vested in its Board of Direc-
tors which is subject to appointment         and general supervision
by the Secretary     of Agriculture.      The Board consists    of the
manager of FCIC, two other persons employed in the Depart-
ment of Agriculture,       and two persons experienced     in the in-
surance business who are not otherwise         employed by the Gov-
ernment.   The   principal    officials   of FCIC during fiscal
year 1970 are listed       in appendix I.




                                  4
                               CHAPTER2

                             OPERATIONS

INSURWNCE~XTIVITY
FOR FISCAL YEAR 1970

      FCIC incurred    a net operating    loss in fiscal       year 1970
of about $20.8 million,     consisting    of a net loss from in-
surance operations     of about $6.9 million      (principally      in
crop year 1969), which included the cost of making loss ad-
justments     of about $2.2 million    and included operating         and
administrative     expenses of about $13.9 million.

      FCIC's insurance coverage for crop year 1969 totaled
about $919 million      on 24 different agricultural    commodities.
Premiums on insured crops amounted to about $48.7 million
and indemnities      amounted to $53.1 million,    which resulted    in
an unfavorable     loss ratio of 1.09.    For two insured crops,
indemnities    exceeded premiums by substantial      amounts, as
shown below.

                                                               Excess
 Crop            Premiums               Indemnities        indemnities

Cotton          $7,622,066              $19,942,302        $12,320,236
Citrus           3,308,493                6,067,109          2,758,616

To a lesser extent,    crop year 1969 insurance         of grapes,
tomatoes, potatoes,    sugar beets, and tobacco         also resulted
in excess indemnities.

       The insurance of crop year 1969 cotton resulted             in ex-
cess indemnities     in 15 of the 17 States in which cotton was
insured;   the fourth consecutive        year in which excess in-
demnities were incurred.          The larger    excess indemnities    in-
curred were about $5.6 million          in Texas and about $1 million
each in California,       Louisiana,    and South Carolina.      The in-
surance of citrus      crops in Florida      resulted  in excess indem-
nities   of about $1.9 million.




                                    5
      Although the insurance of some crops resulted   in ex-
cess indemnities,  the insurance of other crops resulted   in
excess premiums, as shown below.

                                                               Excess
     crop                Premiums         Indemnities         premiums

Wheat                  $13,199,339        $9,732,305         $3,467,034
Corn                     8,085,640         4,652,965          3,432,675
Barley                      962,838           291,461            671,377
Grain sorghum            1,076,711            441,739            634,972

      For crop year 1969, the more significant    results from
the insurance of wheat were excess premiums of about $2 mil-
lion each in Kansas and North Dakota and excess indemnities
of about $1.9 million  in Washington.    The insurance of corn
crops in Minnesota resulted  in excess premiums of about
$1.4 million.

       FCIC is authorized     by section 508(a) of the act to ex-
pand its insurance operations        to cover not more than (1)
three additional    agricultural     commodities and (2) 150 addi-
tional   counties each year.       In crop year 1969, FCIC expanded
its insurance operations       from 1,395 to 1,425 counties but
did not insure any additional        crops.

        On June 11, 1970, FCIC exercised          its option to renew
a reinsurance      agreement with the Farm Insurance of Puerto
Rico (the company), pursuant to section 508(f) of the act.
The original      agreement was executed in 1968 and was renewed
in 1969.       The renewed agreement covers the period May 1,
1970, through April 30, 1971, and provides for FCIC's par-
ticipation      in 11.8 percent of the company's insurance of
coffee,     shade, orange, and citron       trees; and bananas, plan-
tains,     oranges, papayas, and citrons.           FCIC will participate
in 10.3 percent of the company's insurance of coffee crops.
FCIC's aggregate liability          under the reinsurance     agreement
is limited      to specified    dollar maximums for each covered
crop.      The hazards covered by the company',s insurance pro-
gram are limited       to hurricanes     and squalls on the island of
Puerto Rico.

      In fiscal year 1970, FCIC realized a net income of
$42,753 from its participation  in the company's insurance

                                      6
program compared with $58,108 in fiscal    year         1969,   the first
year of its participation  in the program.

IMPAIRMENT OF CAPITAL

      At June 30, 1970, FCIC's capital  of $50 million was
impaired by $34,331,952.   This capital  impairment has oc-
curred over the past 5 fiscal  years, as follows:

                   Fiscal
                    year                   ATlount

                     1966               $ 8,873,118
                     1967                -6,211,349
                     1968                16,538,784
                     1969                  6,309,482
                     1970                  8,821,917

                                        $34,331,952

The capital  impairment resulted    from (1) a deficit   from in-
surance program operations     of $33,733,269, resulting    pri-
marily from the use of insurance premiums to pay for oper-
ating and administrative    expenses and from the direct
cost of loss adjustment    (sch. 4) and (2) an administrative
fund deficit  of $598,683 (sch. 5).

        The unimpaired capital    balance of about $15.7 million
at June 30, 1970, is only about $1.2 million            higher than the
$14.5 million    balance at the start of fiscal         year 1970,
even though $10 million      in new capital      was provided during
the year through subscription       of additional      capital    stock
by the Secretary      of the Treasury.    The further      impairment
of capital    of about $8.8 million     resulted    from the net loss
from insurance operations      of about $6.9 million,          the use of
premium income of about $1.8 million          for payment of operat-
ing and administrative      expenses, and an administrative           fund
deficit    of about $156,000 resulting      from noncash items
charged to administrative      expenses.

     For fiscal   year 1971, the Congress appropriated       $12 mil-
lion and authorized   the use of $2.3 million     of premium in-
come for payment of operating   and administrative      expenses.


                                    7
INSURANCE EXPERIENCE

       As shown in schedule 4, FCIC's insurance of crops dur-
ing crop years 1948-69 resulted    in an excess of premiums
over indemnities   for damage to insured crops of about
$12.5 million--  a favorable loss ratio  of 0.98--which  com-
prised:

     Excess premiums from insurance      of certain     crops--
       $65.1 million

     Excess indemnities    from insurance    of other    crops--
       $52.6 million

      Tne major portion of the excess indemnities         was incurred
on the insurance of the following   crops.

                                                             Excess
                      Premiums        Indemnities        indemnities

Cotton              $54,539,046       $82,563,502        $28,024,456
Citrus               15,366,505        27,347,723         11,981,218
Combined crop        31,977,199        37,253,056          5,275,857
Pea, green            2,713,752         4,895,403          2,181,651
Potato                1,269,604         2,669,694          1,400,090

      For crop years 1948-65, cotton insurance premiums ex-
ceeded indemnities    by about $3.7 million    and for crop years
1966-69, indemnities    exceeded premiums by about $31.7 mil-
lion,  resulting   in excess indemnities    of about $28 million
for crop years 1948-69.

      FCIC's annual report to the Congress for 1969 showed
that,    for crop years 1961-68, cotton insurance coverage per
acre had increased under the program and premium rates had
decreased.      The table below, developed from FCIC actuarial
records,     shows the relation  of cotton insurance premiums to
coverage per acre for crop years 1961-69.




                                  8
                                                Average
                            FCIC premium       insurance
               Crop         as a percent         coverage
               year          of coverage        per acre

                1961              7.2           $ 54.34
                1962              6.2             67.45
                1963              6.2             80.56
                1964              6.3             84.07
                1965              6.3             84.23
                1966              5.8             95.75
                1967              5.1            115.67
                1968              5.1            124.99
                1969              5.5            116.58
               1961-69            6.0             98.08

       FCIC reduced cotton insurance coverages per acre and
increased premium rates for the 1969-70 crop years in an
effort   to reduce the excess indemnities  on insured cotton.

      FCIC’s   excess indemnities    on insured citrus      crops have
almost tripled    since crop year 1965.        Excess indemnities     on
insured citrus    crops from inception      of the program in 1951
through crop year 1965 were about $4.4 million            and had in-
creased to about $12 million      by the close of crop year 1969.
In an attempt to reduce excess indemnities           on insured citrus
crops, FCIC recently    modified   the citrus     insurance programs
in the three States--Arizona,      California,     and Florida--
where such insurance was offered       in crop year 1969.

       The potato insurance program, which operated for8years
with indemnities    exceeding premiums each year, is being dis-
continued effective    with the 1970 crop year.   Also FCIC has
terminated   the tung nut insurance program effective   with
crop year 1971, because demand for such insurance has de-
clined to the point where continuation    of the program is
not warranted.

      The following    table lists  those crops on which the
major portion    of the excess premiums was realized      for crop
years 1948-69.      The favorable  experience on these crops is
an offset   to the excess indemnities      incurred on the insur-
ance of other crops.


                                   9
                                                         Ekcess
 Crop          Premiums               Indemnities       premiums

Wheat        $235,656,705            $212,181,450     $23,475,255
Tobacco        54,878,762              32,900,986      21,977,776
Soybean        29,737,573              25,873,054       3,864,519
Barley          9,988,434               6,450,431       3,538,003

       Historically,     the tobacco and wheat insurance programs
have been the most successful--tobacco       premiums have ex-
ceeded indemnities       in 20 years of the 22-year period and
wheat premiums have exceeded indemnities        in 12 years of the
22-year period.       Although the insurance of other crops--
flax,    grain sorghum, oats, peanuts, and raisins--has     also
resulted     in excess premiums, the amounts of such excess
premiums have been relatively        small.




                                10
OPERATING
        ANDADMINISTRATIVEEXPENSES
       FCICIs comparative statement of income and expense for
fiscalyears         and 1969 (sch. 2, p. 18) shows that operat-
ing and administrative     costs for fiscal   year 1970 amounted
to $13.9 million    compared with about $13.3 million     for fis-
cal year 1969, an increase of about $680,000.        FCIC internal
reports attribute     this increase to increases   in personnel
compensation and benefits      of about $900,000 due to pay
raises in July and December 1969, which were partly         offset
by decreases in agents' commissions and advertising         expenses.

      FCIC's statement     of income and expense classifies           the
expenses by object class,        such   as  personnel   compensation,
travel,    agents' commissions,       supplies,    and materials.     FCIC
prepares,     for management purposeso annual cost statements
showing, by function,      its operating        and administrative    ex-
penses.     The following    table,    extracted    from FCIC's func-
tional    cost statements,     shows the operating      and administra-
tive expenses, by function,         for fiscal     years 1970 and 1969.
                    Function                  Fiscal     year 1970   Fiscal   year 1969
      Marketing of insurance:
          Sales promotion                         $      806,362       $      841,053
          Selling                                     3,968,271            3,758,759
          County offices                              1,763,646            1,522,432
          Agents' agreements      (note a>               951,921           1,158,285
          Sales management                               267.255              249 s293
                Total                                 7,757,455            73529,822
       Program operations:
            Program development                           92,729              125,724
            Applications                                 606,104              572,963
            Acreage reports                           1,155;965            1,163,450
            Collections                                  804,870              676,356
            Program management                           328,452              287,051
                Total                                 2,988,120            2.825.544
       Loss adjustment                                1,974,231            1,757,593
       Actuarial                                      1,212,607            1,147,922
       Unallocated  (note b)                                                    6.034

       Total operating    and
         administrative    expenses               $13.932,413           $13.254.847

       aDiffers   from "Agents' commissions" as shown in FCIC's income and ex-
        pense statement     (sch. 2) because "Agents' agreements" includes salaries
        and adjustments which are included in personnel costs and prior year
        adjustments   in sch. 2.
       bRepresents reimbursements which, in the income and expense statement
        (sch. 21, are applied against related expenses.




                                             11
                            CHAPTER 3

                          SCOPEOF AUDIT

      Our audit was made in accordance with generally         accepted
auditing   standards   and accordingly   included    such tests of
FCIC's accounting    records and financial.     transactions   and
such other auditing     procedures   as we considered necessary
in the circumstances.




                                12
                           CHAPTER4

              OPINION OF FINANCIAL STATEMENTS

      In our opinion, the accompanying financial      statements
(schs. 1 through 5) present fairly     the financial     position
of FCIC at June 30, 1970, and the results       of its operations
and sources and application    of its funds for the year then
ended, in conformity    with generally   accepted accounting
principles   applied on a basis consistent     with that of the
preceding year and with applicable     Federal laws.




                                 13
       i




‘L,,
-CIAL   STATEMENTS
                                                                                                                        SCHEDULE1
    ,

b

                     FEDERAL                      CROP               INSURANCE                      CORPORATION


                                            COMPARATIVE STATEMENT OF FINANCIAL                 CONDITION

                                                            JUNE 30,       1970 AND 1969


                                                                                         Year ended June 30              Increase    or
                                                                                          1970          1969             decrease(-)
                                       ASSETS

        CASH:
            Insurance      program funds                                          $15,582,560         $14,906,743        $       675,817
            Funds appropriated        for operating                  and
               administrative      expenses                                            1,715,665           1,651,905              63,760

                     Total                                                            17,298,225          16,558,648             739,577

        ACCOUNTS AND NOTES RECEIVABLE                                                 27,075,285       26,523,344                551,941
            Less estimated bad debts                                                   1,461,236        1,375,697                 85,539"

                     Total                                                            25,614,049       25,147,647               466,402

        FURNITURE AND EQUIPMENT:
            Cost or transferred     value                                                 524,509            511,916              12,593
            Less accumulated    depreciation                                              290,549            280,353              10,196"
                     Total                                                                233,960            231,563               2,397

                     Total   assets                                               $43,146,234         $41,937,858        $ 1,208,376

                      LIABILITIES            AND INVESTMENT

        ACCOUNTS PAYABLE AND OTHER LIABILITIES:
            Agents ' commissions    payable                                       $       709,679     $       873,988    $     -164,309
            Employees'   accrued   annual leave                                           857,130             713,577            143,553
            Estimated  indemnities     payable                                         3,278,295           2,794,468             483,827
            Accrued payroll     and other liabilities                                  1,139,284              913,133            226,151

                     Total                                                             5,984,388           5,295,166             689,222

        DEFERRED PREMIUMS AND COSTS:
            1970 crop year premiums,      less approved
               indemnity claims,  reinsurance    expense,
               and bad debt expense (note 1)                                          21,418,798          22,077,727           -658,929

                     Total    liabilities                                             27,403,186          27,372,893              30,293

        PROVISION FOR SURETY LOSSES (note                       5)                         75,000              75,000

        INVESTMENT OF U.S. GOVERNMENT:
            Capital     stock (authorized       $100,000,000)
                issued and outstanding         (note 4)                             50,000,000          40,000,000           10,000,000
             Insurance     program deficit       (schedule    4)                  -33,733,269         -25,067,637            -8,665,632-k
            Administrative        fund deficit      (schedule    5)                    -598,683            -442,398             -156,285-k

                     Total    investment          of U.S.      Government             15,668,048          14,489,965          1,178,083

                     Total    liabilities              and investment             $43,146.234          $41,937,858       $ 1,208,376

        *Deduction

        The notes       following           schedule      5 are an integral       part     of this     statement.




                                                                            17
SCHEDULE 2


                  FEDERAL                     CROP                 INSURANCE                     CORPORATION


                                          CO41PARATIvE STATEMENT OF INCOME AND EXPENSE

                                                        FISCAL YEARS 1970 A!?D 1969


                                                                                        Fiscal          year         Fiscal    year      Increase    or
                                                                                                 m                         _1969         decrease(-)

INSURANCE OPERATIONS :
     Premiums                                                                           $48,744,536                  $48,873,196         $ -128,660
     Indemnities                                                                         53,145.487                   11,083,518          2,061,969

            Excess      of indemnities          or premiums(-)                               4,400,951                 2,210,322             2,190,629

     Cost of loss adjustment                                                                 2,225,932                 2,197,914                 28,018
     Provision  for losses on accounts                       receivable                         252,502                    20,261               232,241
     Other expense or income(-)                                                                  58,646                   191,790             -133,144

            Net loss or income(-)               from      direct      insurance
              operations                                                                     6,938,031                 4,620,287             2,317,744

     Reinsurance            premiums                                                                 70,889                 96,344             -25,455
     Reinsurance            commissions       and claims                                             28,136                 38,236             -10,100

            Net loss         or income(-)       from      reinsurance                            42,753                   -58,108              -15,355

            Net loss or income(-)               from      insurance       op-
               erations                                                                      6,895,278                 4,562,179             2,333,099

OPERATING AND ADMINISTRATIVE EXPENSES:
    Personnel      compensation                                                              8,996,105                 8,116,024                880,081
    Personnel      benefits                                                                     685,454                   623,130                 62,324
    Travel     and transportation        of persons                                          1,491,019                 1,507,253                -16,234
    Transportation         of things                                                             17,089                    21,159                 -4,070
    Rent, communications           and utilities                                                655,863                   633,044                  22,819
    Rinting       and reproduction                                                              115,701                   170,622               -54,921
    Other contractual          services                                                         819,506                   913,950               -94,444
    Agents'      commissions                                                                    976,231                1,194,071              -217,840
    Supplies      and materials                                                                  52,980                    79,222               -26,242
    Expendable       equipment                                                                   25,822                    22,755                   3,067
    Administrative        claims                                                                 e                               15                    -15
    Depreciation       expense                                                                   29,827                    30,904                 -1,077
    Net loss on sale and transfer                of equipment                                      1,918                     3,010                -1,092
    Accrued annual leave                                                                        143,553                    41,948               101,605
    Prior year adjustments--other                accrued operating
       and administrative          expenses                                                      -78,655                -102,260                 23,605

            Total     operating       and administrative                expenses          13,932,413                  13,254,847               677,566

     Lapsed      appropriation            adjustments                                                         34                                         34

     Adjusted    total    operating            and administrative
        expenses     (note a>                                                             13,932,447                  13,254,847               677,600

NET LOSS FROM OPERATIONS                                                                $20,827,725                  $17,817,026         $3,010,699

a$1,849,117  paid from premium                  income       in 1970 and $1,735,039              paid         from    premium       income     in
 1969, an increase   of $114,078                  (note      2).

The notes       following        schedule      5 are an integral            part   of this       statement.
                                                                                            SCHEDULE3


    FEDERAL                 CROP              INSURANCE                    CORPORATION




            COMPARATIVE STATEMENT OF SOURCES AND APPLICATION OF FUNDS

                                   FISCAL YEARS 1970 AND 1969




                                                       Fiscal year         Fiscal year         Increase    or
                                                            1970                1969           decrease(-)

FUNDS PROVIDED:
    Premium income                                     $48,744,536         $48,873,196         $      -128,660
    Reinsurance       premiums                               70,889               96,344                -25,455
    Subscription       to capital      stock            10,000,000                                 10,000,000
    Appropriation        for operating       and
       administrative        expense                      12,000,000        11,517,500                 482,500
    Reduction       in prior    years'    operat-
       ing and administrative           expense
       paid from premium income                                 78,763           98,760              -19,997
    Interest      income                                         5,457             5,530                   -73
    Decrease in working capital                                              6,418,076          -6,418,076

                Total     funds   provided             $70,899,645         $67,009,406         $ 3,890,239

FUNDS APPLIED:
    Cost of indemnities                                $53,145,487         $51,083,518         $ 2,061,969
    Reinsurance       commissions      and
       claims                                                   28,136           38,236                -10,100
    Cost of loss adjustment                                 2,225,932        2,197,914                   28,018
    Operating       and administrative        ex-
       penses:
          Charged to appropriated           funds          11,976,799       11,542,707                  434,092
          Charged to insurance          funds               1,849,117        1,735,039                  114,078
    Purchase of fixed assets                                    34,143           24,844                   9,299
    Miscellaneous       expense                                 64,103          197,320               -133,217
    Appropriation       transfer     to General
       Services Administration                                    4,188           9,956                  -5,768
    Debts receivable        charged off                        160,476          179,872                -19,396
    Increase      in working capital                        1,411,264                               1,411,264

                Total     funds   applied                 $70,899,645      $67,009,406          $ 3,890,239


The notes     following     schedule        5 are an integral       part   of this       statement.




                                                     19
                 FEDERAL                    CROP             INSURANCE                            CORPORATION

                                                   COMPUTATION OF INSURANCE RESERVE
                     FOR CROP YEAR 1969 AND CUMULATIVE FOR CROP YEARS 1948 THROUGH 1969

                                                          AS OF JUNE 30,            1970

                                                                              Crop year 1969
                                                                                                                                Loss ratio
                                                                                                     Excess of                  (ratio of
                                                                                                    premiums or                indemnities
         crop                         Premiums                 Indemnities                        indemnities&)                to premiums)
Awle                              $      372,862                $        89,078                    $        283,784                   .24
Barley                                   962,838                        291,461                             671,377                   .30
Bean                                     398,399                        328,308                              70,091                   .a2
Cherry
Citrui                                3.308.493                      6,0;7,109                        -2,758,616                    1:83
Combined         crop                   '393;118                         24,484                            368,634                   .06
Corn                                  8,085,640                      4,652,965                          3,432.675                    .58
Cotton                                7,622,066                     19,942,302                      --12,320,236                    2.62
Flax                                      522,857                       141,170                            381,687                   .27
Grain         sorghum                 1,076,711                         441,739                            634,972                   .41
Grape                                     102,662                       272.005                          -169,343                   2.65
Oat                                       723,934                       319;930                            404.004                    .44
Pea, dry                                   50,013                          5,900                            -L4Jlil                   .12
Pea, green                                451,473                       356,559                              94,914                   .79
Peach                                     366,440                       148,333                            218;107                    -40
Peanut                                1,007,586                         646,799                            360;787                   .64
Potato                                     55.156                        as,375                            -30,219                  1.55
Raisin                                   386; 669                       114,993                            271,676                    .30
Rice                                      42,913                         18,766                              24,147                   .44
Safflower
Soybean                            4,235,380                         3,761,879                              473,501                  :89
Sugar beet                            540,648                           684,263                           -143,615                  1.27
Sugarcane                             144,352                            11,014                             133,338                   .08
Tobacco                            4,650,973                         4,940,655                            -289,682                  1.06
Tomato                                 35,433                            64,852                             -29,419                 1.83
Tung nut                                8,581                             3,243                                5,338                  .3a
Wheat                             H--199,339                         9,732,305                           3,467,034                    .74
         Total                    $48,744,536                   S53,145,487                            -4,400,951                    1.09
Direct  cost of loss adjustment(-)                                                                     -2,225,932
Other income and expense(-),       net                                                                    -311,148
Net income from reinsurance                                                                                  42,753
Net income or loss(-)     from insurance                     operations           ex-
   cluding operating   and administrative                       expenses                               -6,895,278
Premium income applied      to operating                    and administra-
       tive    expenses                                                                                -1,770,354      (note   21

         Insurance      program       deficit(-)                                                   $ -8,665,632
The notes         following       schedule          5 are an integral        part       of this        statement.
                                                                   SCHEDULE4




                Crop years 1948 through 1969
                                                      Loss ratio
                                   Excess of          (ratio of
                                  premiums or       indemnities
 Premiums       Indemnities     indemnities(-)      to premiums)
$ yu;Jn;        $ 1,773,672      $    -238,953          1.16
                   6,450,431         3,538,003            .65
   4:521;329       5,292,552          -771,223            .17
      149,954         391,504         -241,550          2.61
  15,366,505      27,347,723     -11,981,218            1.78
  31,977,199      37,253,056       -5,275,857           1.16
  79,284,002      80,644,601       -1,360,599           1.02
  54,539,046      82,563,502     -28.024.456            1.51
  13,722,053      10,723,463         2;998;590            .78
   6,289,951       4,400,932         1,889,019            -70
      304,348         503,170         -198;822          1.65
   4,910,660       2,487,803         2,422,857            .51
      389,932         229,071           160,861           .59
   2,713,752       4,895,403       -2,181,651           1.80
   3,679,085       4,623,281          -944,196          1.26
   5,316,251       3,208,786         2,107,465          ..60
   1,269,604       2,669,694       -1,400,090           2.10
   3,103,306       1,520,659         1;582;647            .49
      414,437         207,016           207,421           .50
        2,290           8,999            -6.709         3.93
  29,737,573      25,873,054         3,864;519            .87
   2,083,060       1,618,736            464,324           .78
      408,042          52,304           355,738           .13
  54,878,762      32,900,986        21,977,776            .60
      233,568         199,042             34,526          .85
       84,250          55,469             28,781          .66
 235,656,705     212,181,450        23,475,255            .YO
$562,558,817    $550,076,359         12,482,458           -98
                                  -18,767,252
                                   -1,785,411
                                       100,861

                                     -7,969,344
                                  -25,763,925
                                 S-33,733,269      (schedule 1)




                                                          21
 SCHEDULE5


      FEDERAL                     CROP            INSURANCE                            CORPORATION
                                                                        I


                           ANALYSIS OF DEFICIT              IN ADMINISTRATIVE                FUND

                                    FOR FISCAL YEARS 1949 THROUGH 1970



                                                             July   1, 1948                  Fiscal           July   1, 1948
                                                                 through                      year                through
                                                             June 30, 1969                    1970            June 30, 1970

COMPUTATION OF DEFICIT:
   Administrative         fund expenses:
        Total operating        and adminis-
            trative     expenses                             $167,962,444              $13,932,447            $181,894,891
        Less:
                Reimbursements     from others                                                      9,996                 9,996
               Premium income applied        to
                   operating   and administra-
                   tive expenses                                  23,993,571                1,770,354              25,763,925

                 Total                                           143,968,873               12,152,097             156,120,970

    Deduct net appropriations:
        Appropriations                                           150,575,742               12,000.,000            162,575,742
        Less lapses,   recisions                and net
           transfers                                                7,049,267                       4,188            7,053,455

                 Net appropriations                              143,526,475               11,995,812             155,522,287

                 Administrative       fund
                   deficit      (schedule        1)          $=.e 442,398              $       156.285        $        598,683

ANALYSIS OF DEFICIT:
    Noncash charges:
         Accrued annual leave                                $        713,577          $       143,553        $        857,130
         Depreciation                                                 362,671                   29,827                 392,498
         Net loss on equipment    disposi-
           tion                                                         21,300                      1,918                23,218
         Equipment adjustment                                           59,527                  -                        59,527
         Depreciation  adjustment                                       24,487                  -                        24,487

                 Total                                              1,181,562                  175,298               1,356,860

    Less:
            Furniture      and equipment
              acquisitions       capitalized                          699,547                    34,143                733,690
            Undelivered      orders                                    39,617                  -15,130                  24,487

                 Administrative          fund
                   deficit                                   $        442.398          $       156,285        $        598.683

The notes      following     this     schedule        are an integral           part       of this       statement.


                                                            22
                   NOTES TO FINANCIAL STATEXENTS

                               JUNE 30, 1970

L. Accounting
-I
                  Sasis

     Insurance operations    shown for fiscal    year 1970 relate
     principally   to the 1969 crop year.     Crop year 1970 pre-
     miums and unapplied cash collections      totaling     $21,995,328
     have been deferred for inclusion     in fiscal     year 1971 ac-
     counts e In a like manner the estimate of possible           losses
     in the collection    of 1970 crop year premiums and approved
     1970 crop year indemnities    have been deferred.        These two
     items total   $576,530.

     Operating and administrative   expenses are not allocated
     to crop years but are recorded and accounted for in the
     fiscal   year in which the expense was paid or incurred.

2, Source of Funds for         Operating     and Administrative   Expenses

     The Corporation     received an appropriation        of $12,000,000
     (Public Law 91-127 approved November 26, 1969) for fiscal
     year 1970. The Law also provided that the Corporation
     may pay up to $1,648,000 of operating           and administrative
     expenses from premium income,         In addition,     House Joint
     Resolution    1232 (Public Law 91-257, approved May 19,
     1970) provided that the Corporation           may pay up to
     $691,000 of operating       and administrative      expenses from
     premium income.      This made a total       of $2,339,000.     The
     operating    and administrative    expenses paid from premium
     income consisted      of $1,849,117 for expenses applicable
     to fiscal    year 1970, less an adjustment        of $78,763 for
     prior fiscal    years' expenses.

3. Services     and Benefits     Furnished     the Corporation

     Services and benefits,     the estimated      costs of which are
     not for the most part readily        determinable,   have been
     furnished    to the Corporation     by other Government agen-
     cies without    charge.   Among these are rentals      for field
     office    space paid by the General Services Administration,
     audit and investigative      services    provided by the Office



                                     23
   of   the    Tnsgector       General   of    thk2 TIepTrtment   of   Agricul-
   ture,      legal
                 servicrs  rendered by the Department of Agri-
   culture  and Just ice, ;!nd disbursing   services    furnished
   by the Treasus.y Department.      The Corporation    is not re-
   quired to pay interest     on the Government's    investment    in
   capital  stock ($50,000,000     at June 30, 1970) and does
   not receive interest   on its funds on deposit with the
   Treasury ($15,582,560    at June 30, 1970).

4. --
   Investment         of U.S. Government

   A net loss of $73,000,000 was sustained           from insurance
   operations     through the 1947 crop year.        The loss was
   offset   by cancellation     of an equal amount of outstanding
   capital    stock pursuant to section 5 of the Act of Au-
   gust 25, 1949 (63 Stat. 665).         In August 1955, the Sec-
   retary   of the Treasury subscribed      and paid for
   $13,000,000 of the unissued capital          stock pursuant to
   the Supplemental Appropriation       Act, 1957 (70 Stat. 678).
   During fiscal      year 1970, an additional      $10,000,000 of
   capital    stock was subscribed to by the Secretary           of the
   Treasury of the United States of America.              Pursuant to
   Public Law 91-127, approved November '26, 1969, the
   amount of $10,000,000 was credited         to the Federal Crop
   Insurance Corporation       Fund. During fiscal        year 1962,
   the accumulated deficit       from appropriated      funds was
   reduced by $50,097,996,       which represented      the total   ex-
   pense for fiscal      years 1938 through 1948.         This adjust-
   ment was made in order to report operating             and adminis-
   trative    expenses on a basis comparable with operations
   of the insurance fund.

5. Contingent         Liabilities

   The Corporation     customarily   has a contingent    liability
   under the Federal Tort Claims Act for various unresolved
   small claims arising       out of automobile accidents       or for
   other wrongful     acts of employees.     Corporation    officials
   believe the reserve for surety losses which was estab-
   lished in lieu of bonding of employees is sufficient               to
   cover any liability      that may arise.




                                          24
APPENDIX




    25
                                                                       APPENDIX I   .   I


                                PRINCIPAL OFFICIALS OF THE

                             FEDERAL CROP INSURANCE CORPORATION

                                DEPARTMENTOF AGRICULTURE

                                 DURING FISCAL YEAR 1970


                                                           Tenure of office
                                                           From           To
  SECRETARYOF AGRICULTURE:
     Clifford M. Hardin                             Jan.      1969     Present

 UNDER §ECRETARYOF AGRICULTURE:
    J. Phil Campbell, Jr.                           Jan.      1969     Present

  BOARD OF DIRECTORS:
     Clarence D. Palmby, Chairman
        (Assistant   Secretary)                     June      1969     Present
     Carroll    G. Brunthaver
        (Associate   Administrator,
       Agricultural     Stabilization
        and Conservation     Service)               June      1969     Present
     Richard H. Aslakson (Manager,
        Federal Crop Insurance Cor-
        poration)                                   June      1969     Present
     Fred W. Benson (industry         mem-
        ber)                                        July      1969     Present
     Elmo A. Carlson (industry
        member)                                     July      1969     Present

  CORPORATI[ONOFFICIALS:
     Richard Hti Asf_aksbrl, Manager                Feb.      II.969   Present
     Frank Nayfor, Jr*
       j&!puQt mfiq$r                               &Y        1969     Present




U.S.   GAO   Wash.,   D.C.