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.
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)