oversight

Civil Rights: Additional Actions in Pigford II Claims Process Could Reduce Risk of Improper Determinations

Published by the Government Accountability Office on 2012-12-07.

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

United States Government Accountability Office
Washington, DC 20548




          December 7, 2012

          Congressional Committees

          Subject: Civil Rights: Additional Actions in Pigford II Claims Process Could Reduce Risk of
          Improper Determinations

          On April 14, 1999, the U.S. District Court for the District of Columbia approved the settlement
          of Pigford v. Glickman (Pigford I), a class action lawsuit brought against the U.S. Department
          of Agriculture (USDA) by African American farmers. In Pigford I, the farmers alleged that
          USDA had willfully discriminated against them and other African American farmers by (1)
          denying or delaying the processing of their applications for farm loans and benefit programs
          and (2) failing to properly investigate and resolve their discrimination complaints. 1 The
          settlement was estimated at the time to be worth at least $2.25 billion, the largest civil rights
          settlement in U.S. history. 2 By the settlement’s claim filing deadline, approximately 22,700
          individuals had filed claims for relief under the settlement; however, about 74,000 additional
          individuals submitted requests to file late claims, about 97 percent of whom were not allowed
          to proceed under the settlement. 3 After congressional hearings, Congress passed
          legislation—the 2008 Farm Bill—which permitted claimants who had submitted a late-filing
          request under Pigford I and had not received a final determination on the merits of their claims
          to bring a civil action in federal court to obtain such a determination. 4 The legislation made
          available $100 million for payment of successful claims.

          After the legislation was enacted, 23 separate complaints were filed—together representing
          approximately 40,000 individual claims—which were subsequently consolidated into a single
          case commonly referred to as Pigford II. 5 After nearly 2 years of litigation, a settlement
          agreement was reached providing that $1.25 billion be made available for the resolution of
          claims, contingent upon congressional approval of $1.15 billion in funding beyond the $100
          million made available by the 2008 Farm Bill. The parties to the Pigford II settlement were
          USDA, represented by the U.S. Department of Justice (DOJ), and the African American
          farmers, represented by Class Counsel.



          1
          See Pigford v. Glickman, 185 F.R.D. 82 (D.D.C. 1999).
          2
          Id. at 95.
          3
           Pigford I Arbitrator, Arbitrator’s Ninth Report on the Late-Claim Petition Process (Washington, D.C.:
          Nov. 30, 2005).
          4
          Food, Conservation, and Energy Act of 2008, Pub. L. No. 110-246, § 14012, 122 Stat. 1651, 2209 (2008).
          5
          In re Black Farmers Discrimination Litig., 820 F. Supp. 2d 78 (D.D.C. 2011).



          Page 1                                                                                 GAO-13-69R Pigford II
The Claims Resolution Act of 2010, enacted in December 2010, appropriated the $1.15
billion and mandated that GAO evaluate the internal controls created to carry out the terms
of the Pigford II settlement agreement and report at least twice during the claims
adjudication process. 6 On November 13 and 14, 2012, we provided a briefing to your offices
in response to the first of these two reporting obligations. As agreed with your offices, this
report formally transmits the November briefing, provides updates to that briefing, and
satisfies the second reporting obligation. Our objectives were to examine: (1) the internal
control created to identify and deny fraudulent or otherwise invalid claims under the
settlement and (2) the extent to which the internal control design and operation provide
reasonable assurance that fraudulent or otherwise invalid claims are identified and denied.

Scope and Methodology
To conduct our work, we examined the settlement agreement’s legal framework; how it is
being executed; and the views of the parties to the settlement agreement and those charged
with carrying out its terms, among other things. We compared the internal control created to
carry out the settlement with the federal standards for internal control. 7 In addition, we
conducted testing of a random sample of 150 claims drawn from those submitted as of June
4, 2012, to determine whether selected controls were operating as intended. 8 We also
discussed a draft of the briefing slides with USDA, DOJ, and the parties charged with
carrying out the settlement’s terms before the briefing, and incorporated their comments and
suggested technical corrections, as appropriate.

We conducted this performance audit from April 2012 to December 2012 in accordance with
generally accepted government auditing standards. Those standards require that we plan
and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable
basis for our findings and conclusions based on our audit objectives. We believe that the
evidence obtained provides a reasonable basis for our findings and conclusions based on
our audit objectives.

Summary
The parties charged with carrying out the terms of the Pigford II settlement agreement have
created numerous internal control measures designed to balance various interests including
accuracy, efficiency, and cost. Many of these measures serve to identify and deny
fraudulent or otherwise invalid claims. For example, the parties conduct iterative reviews of
each claim and identify potential fraud concerns. In addition, the parties told us that they
plan to conduct final control measures after all claims are provisionally adjudicated and
before payments are made. Those measures include identifying duplicate claims (to ensure
no one is paid twice) and claims filed on behalf of the same farming operation (to ensure
only one payment per farming operation) or same class member (to ensure only one
payment per class member).




6
Claims Resolution Act of 2010, Pub. L. No. 111-291, § 201, 124 Stat. 3064, 3070, 3071 (2010).
7
 GAO, Standards for Internal Control in the Federal Government, GAO/AIMD-00-21.3.1 (Washington,
D.C.: Nov. 1, 1999).
8
 We performed testing from June 7 to July 25, 2012. Controls applied after this time—such as final adjudications
and those related to payment processing—are not reflected in our results.



Page 2                                                                               GAO-13-69R Pigford II
In general, the internal control design provides reasonable assurance that fraudulent or
otherwise invalid claims could be identified and denied; however, certain weaknesses in the
control design could expose the claims process to risk of improper determinations. Some of
these weaknesses are a result of constraints imposed by the terms of the settlement
agreement, which were agreed to by the parties to the settlement agreement as fair,
reasonable, and adequate. In addition, the terms were approved by the presiding judge,
effectively ratified by Congress in the Claims Resolution Act of 2010 9 and in some cases
originated in Pigford I and were subsequently enacted in the 2008 Farm Bill. These design
weaknesses, hence, cannot be modified by the implementing parties. For example, by the
terms of the settlement agreement, most claims must be evaluated based solely on the
information submitted by the claimants and, as a result, the adjudicator of these claims has
no way of independently verifying that information. Another weakness is within the authority
of the implementing parties to modify. Specifically, the Claims Administrator is responsible
for determining class membership, including that claimants have not obtained prior
judgments on their complaints. The Claims Administrator, however, has not established
agreed upon procedures—beyond consulting two other settlement participant lists—for
checking whether claimants already obtained judgments in judicial or administrative forums.
Without such procedures, some individuals may improperly be found to be class members.

Finally, at the time of our review, the internal control design was generally operating as
intended to identify and deny fraudulent or otherwise invalid claims. However, the design
has not yet been fully implemented, and we cannot determine whether the remainder of the
design will operate as intended. For example, control measures yet to be implemented—
either in full or in part—include (1) identification of duplicate claims and claims submitted on
behalf of the same farming operation or the same class member and (2) verification of
timeliness determinations.

For additional information on the results of our work, please see enclosure I, slides 17
through 29.

Conclusions
Identifying and denying fraudulent or otherwise invalid claims among tens of thousands of
claims submitted is a daunting task. The parties charged with carrying out the terms of the
Pigford II settlement have designed and operated a system of internal control that, in
general, provides reasonable assurance of identifying and denying fraudulent or otherwise
invalid claims. There is an absence, however, of agreed upon procedures to identify
claimants who already obtained determinations on their complaints in judicial or
administrative forums. Additionally, the settlement’s internal control design has not been
fully implemented, and its effectiveness is contingent upon the remaining control measures
being fully and correctly carried out. We note that internal control need not provide absolute
assurance and recognize that accuracy must be weighed against other interests including
cost. However, reaching agreement on certain procedures and implementing the design fully
to provide reasonable assurance in accurate claim determinations is important, especially
where funds are limited, and improper awards reduce the amount available for those truly
entitled to relief—those harmed by USDA discrimination.



9
 The Claims Resolution Act of 2010 made available $1.15 billion, the use of which was to “be subject to the express
terms of the” Pigford II settlement agreement. Pub. L. No. 111-291, § 201(a)(1), (b), (c).



Page 3                                                                                GAO-13-69R Pigford II
Recommendations
We are making the following two recommendations:

•   To improve the internal control design, we recommend that the Claims Administrator
    establish and document procedures to provide reasonable assurance of identifying
    claimants who obtained prior judgments on their discrimination complaints in judicial or
    administrative forums, including reaching agreement with USDA on the Claims
    Administrator’s request that USDA check its records of judicial and administrative
    determinations.

•   To help ensure that the design operates as intended to provide reasonable assurance of
    identifying and denying fraudulent or otherwise invalid claims, we recommend that the
    parties charged with carrying out the terms of the settlement agreement continue their
    efforts to fully and correctly implement the remainder of the internal control design,
    including measures to (1) identify duplicate claims and claims submitted on behalf of the
    same farming operation or the same class member and (2) verify timeliness
    determinations.

Agency Comments, Third-Party Views, and Our Evaluation
We provided a draft of this report to USDA, DOJ, and the parties charged with carrying out
the terms of the settlement agreement, for their review and comment.

In written comments, which are reproduced in enclosure II, USDA disagreed with the
inclusion of USDA in our first recommendation—regarding the Claims Administrator’s
procedures to provide reasonable assurance of identifying claimants who obtained prior
judgments on their discrimination complaints in judicial or administrative forums. USDA
stated that, under the terms of the Pigford II settlement agreement, USDA is not required to
take any action other than to give loan information during the claims process. USDA also
stated that our recommendation gives “the appearance that USDA has failed/neglected to
work with the Claims Administrator on this issue,” which USDA said is not the case. In
addition, USDA said the Claims Administrator has alternative methods to search for judicial
records, and USDA is currently considering whether it is legally able to provide records of
administrative decisions to the Claims Administrator. USDA also noted that the Claims
Administrator could make a Freedom of Information Act (FOIA) request for the records. In
response to these and earlier oral comments from USDA, we modified our recommendation
to make clear that it is the Claims Administrator’s duty to establish the indicated procedures,
which include reaching an agreement on whether USDA will assist the Claims Administrator
with its request. However, whether the Claims Administrator obtains administrative records
from USDA as a result of its current request, or as a result of a future FOIA request, USDA
involvement is still required. USDA subsequently informed us in an e-mail that it would
provide the Claims Administrator with information on administrative decisions, but that the
Claims Administrator would need to obtain information on judicial decisions. USDA
indicated, and the Claims Administrator agreed, that the parties would meet to discuss
USDA’s involvement in early December 2012. These actions pave the way toward
implementation of our first recommendation. In order to fully implement the
recommendation, we continue to expect the Claims Administrator to establish and document
the indicated procedures.




Page 4                                                                 GAO-13-69R Pigford II
USDA also disagreed with our use of the phrase “USDA’s history of discrimination.” USDA
stated that it never conceded liability regarding the discrimination alleged in either the
Pigford I or Pigford II settlements. USDA suggested adding the word “alleged” before the
phrase. We did not make this change because we attribute the phrase to the judicial
opinions approving the Pigford I and Pigford II settlements, not to any concession of liability
by USDA.

Finally, USDA stated that “the Standards for Internal Control in the Federal Government
were not considered during settlement negotiations” and that “the settlement terms need not
meet these standards.” The Standards for Internal Control in the Federal Government
defines the minimum level of quality acceptable for internal control in federal government,
and parallel standards apply to private industry. These standards provide the basis for
evaluating internal control and are therefore the appropriate criteria by which to evaluate the
internal control in the Pigford II settlement, as we were mandated to do under the Claims
Resolution Act of 2010.

USDA, DOJ, and the parties charged with carrying out the terms of the settlement
agreement all provided additional information and/or technical comments, which we
incorporated as appropriate.



We are sending copies of this report to the Secretary of Agriculture, the Attorney General of
the United States, the parties charged with carrying out the terms of the Pigford II settlement
agreement, the appropriate congressional committees, and other interested parties. This
report also is available at no charge on the GAO website at http://www.gao.gov.

If you or your staff members have questions concerning this report, please contact me at
(202) 512-3841 or garciadiazd@gao.gov. Contact points for our Offices of Congressional
Relations and Public Affairs may be found on the last page of this report. Key contributors to
this report were Susan Quinlan, Assistant Director; Kevin Bray; Darryl Chang; Debra
Cottrell; Alison O’Neill; Mark Ramage; Emmy Rhine; Tind Shepper Ryen; Kiki
Theodoropoulos; and Monique Williams.




Daniel Garcia-Diaz
Acting Director, Natural Resources and Environment

Enclosures (2)




Page 5                                                                  GAO-13-69R Pigford II
List of Committees

The Honorable Debbie Stabenow
Chairman
The Honorable Pat Roberts
Ranking Member
Committee on Agriculture, Nutrition, and Forestry
United States Senate

The Honorable Max Baucus
Chairman
The Honorable Orrin G. Hatch
Ranking Member
Committee on Finance
United States Senate

The Honorable Frank Lucas
Chairman
The Honorable Collin C. Peterson
Ranking Member
Committee on Agriculture
House of Representatives

The Honorable Dave Camp
Chairman
The Honorable Sander M. Levin
Ranking Member
Committee on Ways and Means
House of Representatives




Page 6                                              GAO-13-69R Pigford II
Enclosure I: Briefing Slides




                        Pigford II Settlement



                          Briefing to Congressional Committees
                                      November 2012




    For more information, contact Daniel Garcia-Diaz, (202) 512-3841 or garciadiazd@gao.gov       Page 1




              Page 7                                                                    GAO-13-69R Pigford II
Introduction

• On April 14,1999, the U.S. District Court for the District of Columbia approved
  the settlement of Pigford v. Glickman (Pigford I), a class action lawsuit brought
  against the U.S. Department of Agriculture (USDA) by African American farmers
  who alleged USDA had willfully discriminated against them and other African
  American farmers by denying or delaying the processing of their applications for
  farm loans and benefit programs and failing to properly investigate and resolve
  their discrimination complaints.1
• By the settlement’s claim filing deadline of October 12, 1999, approximately
  22,700 individuals had filed claims for relief; however, about 74,000 additional
  individuals submitted requests to file late claims, about 97 percent of whom were
  not allowed to proceed under the Pigford I settlement.2
• After congressional hearings, Congress included a provision in the 2008 Farm
  Bill that permitted claimants who had submitted a late-filing request under
  Pigford I but who had not received a final determination to bring a civil action in
  federal court to obtain such a determination.3

1See Pigford v. Glickman, 185 F.R.D. 82 (D.D.C.         1999).
2
    Pigford I Arbitrator, Arbitrator’s Ninth Report on the Late-Claim Petition Process (Washington, D.C.: Nov. 30, 2005).
                                                                                                                                       Page 2
3Food, Conservation, and        Energy Act of 2008, Pub. L. No. 110-246, § 14012, 122 Stat. 1651, 2209 (2008).




                      Page 8                                                                                                GAO-13-69R Pigford II
Introduction (cont’d)

• The 2008 Farm Bill made available $100 million for payment of successful
  claims.
• After the legislation was enacted, 23 separate complaints were filed—together
  representing approximately 40,000 individual claims—which were subsequently
  consolidated into a single case commonly referred to as Pigford II.4
• After nearly 2 years of litigation, a settlement agreement was reached providing
  that $1.25 billion be made available for the resolution of claims, contingent upon
  congressional approval of $1.15 billion in funding beyond the $100 million
  already set aside.
• The parties to the Pigford II settlement were USDA, represented by the U.S.
  Department of Justice (DOJ), and the African American farmers, represented by
  Class Counsel.
• The Claims Resolution Act of 2010, enacted in December 2010, appropriated the
  $1.15 billion and mandated that GAO evaluate the internal controls created to
  carry out the terms of the new settlement and report at least twice during the
  claims adjudication process.5
4In   re Black Farmers Discrimination Litig., 820 F. Supp. 2d 78 (D.D.C. 2011).
5Claims Resolution Act of 2010, Pub. L.    No. 111-291, § 201, 124 Stat. 3064, 3070, 3071 (2010).
                                                                                                                Page 3




                    Page 9                                                                          GAO-13-69R Pigford II
Objectives

This briefing responds to the first of two reporting obligations for
GAO during the Pigford II claims adjudication process, as mandated
by the Claims Resolution Act of 2010.6 Our objectives were to
examine the following:

(1) the internal control created to identify and deny fraudulent or
    otherwise invalid claims under the settlement, and

(2) the extent to which the internal control design and operation
    provide reasonable assurance that fraudulent or otherwise
    invalid claims are identified and denied.



                                                                                         Page 4
6We   plan to respond to the second reporting obligation in December 2012.




                   Page 10                                                   GAO-13-69R Pigford II
Scope and Methodology

To determine the internal control created, we examined
• the legal framework prescribing the creation and implementation of internal
  control under the settlement by identifying, obtaining, and reviewing governing
  authorities including the 2008 Farm Bill, the Claims Resolution Act of 2010, the
  presiding judge’s orders and opinions, and the judicially approved settlement
  agreement;

• how the settlement’s legal framework is being executed by the parties charged
  with carrying out its terms—such as the designated Claims Administrator and
  Class Counsel—by identifying, obtaining, and reviewing the internal control
  policies and procedures created by those parties; and

• the views of the parties to the settlement agreement and the parties charged with
  carrying out its terms on the creation and application of the settlement’s internal
  control by identifying, contacting, and interviewing those parties.

                                                                                 Page 5




         Page 11                                                     GAO-13-69R Pigford II
Scope and Methodology (cont’d)

To examine the internal control design and operation, we
• compared the internal control created to identify and deny fraudulent or
  otherwise invalid claims7 with the standards for internal control prescribed in the
  Standards for Internal Control in the Federal Government,8 and
• conducted testing of a random sample of 150 claims drawn from those submitted
  as of June 4, 2012, to determine whether selected controls were operating as
  intended.9
We conducted this review from April 2012 to November 2012 in accordance with
generally accepted government auditing standards. Those standards require that
we plan and perform the audit to obtain sufficient, appropriate evidence to provide
a reasonable basis for our findings and conclusions based on our audit objectives.
We believe that the evidence obtained provides a reasonable basis for our findings
and conclusions based on our audit objectives.
7Our review did not include an examination of fraud perpetrated on claimants. According to the settlement’s court-appointed Ombudsman, however, all complaints of

fraud his office has received pertain to fraud perpetrated on, not by, claimants.
8GAO, Standards for Internal Control in the Federal Government, GAO/AIMD-00-21.3.1 (Washington, D.C.: Nov. 1, 1999).
9We performed testing from June 7 to July 25, 2012. Controls applied after this time—such as final adjudications and those related to payment processing—are not

reflected in our results.

                                                                                                                                                          Page 6




                  Page 12                                                                                                           GAO-13-69R Pigford II
Summary

• The parties charged with carrying out the terms of the Pigford II
  settlement agreement have created numerous internal control measures
  designed to balance various interests including accuracy, efficiency, and
  cost. Many of these measures serve to identify and deny fraudulent or
  otherwise invalid claims.

• In general, the internal control design provides reasonable assurance
  that fraudulent or otherwise invalid claims could be identified and denied;
  however, certain weaknesses in the control design could expose the
  claims process to risk of improper determinations. In addition, at the time
  of our review, the internal control design was generally operating as
  intended to identify and deny fraudulent or otherwise invalid claims;
  however, the design has not yet been fully implemented, and we cannot
  determine whether the remainder of the design will operate as intended.

                                                                          Page 7




        Page 13                                               GAO-13-69R Pigford II
Background
Claims Process

To obtain relief under the settlement, a claimant is to take the following
steps:
• Obtain a claim form. Claimant contacts Claims Administrator via
  telephone, e-mail, or mail. Claims Administrator obtains preliminary
  information to determine whether claimant may be a class member, as
  only such persons are to receive a claim form. Claims Administrator
  sends claim form and information about how Class Counsel can help
  with completing claim form.
• Choose between tracks A and B. Like Pigford I, Pigford II provides
  both a “fast-track” adjudication process (Track A) and a track for higher
  payments to claimants who go through a more rigorous review and
  documentation process (Track B).10
10Under Track A, successful claimants may obtain a cash payment of up to $50,000, tax relief, and debt relief (i.e., reductions or forgiveness of certain qualifying

USDA loans). Under Track B, successful claimants may obtain a cash payment of up to $250,000. Payments will be made after all claims are decided, with the actual
amounts subject to the total appropriation cap of $1.25 billion—less the costs of administering the settlement and attorneys’ fees and expenses—and dependent on
the number of successful claims, among other constraints.

                                                                                                                                                            Page 8




                  Page 14                                                                                                             GAO-13-69R Pigford II
Background
Claims Process (cont’d)

• Submit a timely and complete claim. Claimant, or Class Counsel on
  claimant’s behalf, files claim with Claims Administrator who determines
  whether the claim was submitted by May 11, 2012,11 with all required
  information and documentation.

• Be a class member. Claims Administrator determines whether claimant
  (1) sent a written late-filing request to participate in Pigford I on or after
  October 13, 1999, and by June 18, 2008, to one of five named officials in
  Pigford I and (2) did not already obtain a determination on the merits of
  his or her discrimination complaint.

• Establish relevant elements. Adjudicators review each claim and
  decide whether it establishes, to the required standard of proof, the
  relevant elements for relief.

                                                                                                                                                                Page 9
11On September 14, 2012, the presiding judge approved an extension of the claim filing deadline for specified groups of claimants. The order allows
claimants that meet certain criteria to have their claims deemed timely if submitted within 30 days of being sent the claim form by the Claims Administrator.




                  Page 15                                                                                                                GAO-13-69R Pigford II
Background
Implementing Parties’ Roles and Responsibilities

The settlement agreement defines the roles and responsibilities of the
following parties charged with carrying out its terms:
Role          Responsibilities
Lead Class    Coordinate and direct activities of all other Class Counsel in assisting class
Counsel       members in completing claims. Numerous other duties include, subject to court
              approval, retaining and dismissing Claims Administrator and Track A and B Neutrals.
Claims        Receives potential class members' claims. Determines whether claims are timely,
Administrator complete, and meet class definition. Assigns claims to Neutrals for adjudication,
              among other duties.
Track A and   Adjudicate whether claims establish relevant elements of required standard of proof.
B Neutrals    In addition, the Track A Neutral retained a firm to serve as the Initial Track A
               Reviewer and issue recommended decisions on whether the relevant elements of
               each Track A claim are established to the Track A Neutral who then reviews the
               claim anew.
Ombudsman      Addresses concerns of class members and the public about settlement
               implementation. Makes periodic written reports and recommendations on settlement
               implementation to the court.
                                                                                           Page 10




          Page 16                                                              GAO-13-69R Pigford II
Background
Tracks A and B: Standards of Proof and Claim Elements

Track A claimants must establish by “substantial evidence”12 each of the
following elements:

1. they are African American;
2. within the period from Jan. 1, 1981, to Dec. 31, 1996, they farmed or
   attempted to farm; owned, leased, or attempted to own or lease
   farmland; and applied or attempted to apply for participation in a USDA
   farm credit or program benefit;
3. if they submitted a written application for a loan or program benefit, they
   were denied participation; were approved for a lesser amount than
   requested; were burdened by restrictive conditions; did not receive
   appropriate loan service from USDA; or participation was provided late;


                                                                                                                                                        Page 11
12Such evidence that a reasonable person might accept as adequate to support a conclusion after taking into account other evidence in the record that

fairly detracts from that conclusion.




                  Page 17                                                                                                             GAO-13-69R Pigford II
Background
Tracks A and B: Standards of Proof and Claim Elements (cont’d)

4. if they attempted to submit an application for a loan or program benefit, they
   made a bona fide effort to apply, and USDA actively discouraged the
   application;
5. they suffered economic loss as a result of USDA’s treatment; and
6. they complained of discrimination to a federal official on or before July 1,
   1997.

Track B claimants must establish by a “preponderance of the evidence”13 that
they:
1. meet the same elements required under Track A except they must have
   applied (not merely attempted to apply) for a loan (not a program benefit);
2. were treated less favorably by USDA than a similarly situated white farmer;
   and
3. they must prove their actual damages.
                                                                                                              Page 12
13Such   relevant evidence as is necessary to prove something is more likely true than not true.




                    Page 18                                                                        GAO-13-69R Pigford II
Background
Tracks A and B: Evidentiary Requirements

To establish the relevant elements, Track A and B claimants are to:
Track A                        Track B
1. answer all questions in the claim form regarding the required elements (requiring some yes or
   no responses and some explanations and clarifications);

2. declare, under penalty of perjury, that each of the statements made in the claim form is true and
   correct; and
3. submit a form requesting 3. submit independent, documentary evidence for every required
   and authorizing USDA to     element, except that two of the elements (regarding the
   provide information         complaint of discrimination and the similarly situated white
   about the claimant’s        farmer) may be supported with a sworn written statement by an
   farm loan program loans     individual who is not a member of the claimant’s family
   to the Claims               describing his or her personal knowledge of the claimant’s
   Administrator, if seeking   complaint of discrimination or a specific white farmer in the
   debt relief in addition to  claimant’s circumstances who was treated more favorably than
   cash payment and tax        the claimant by USDA.
   relief.
                                                                                            Page 13




          Page 19                                                               GAO-13-69R Pigford II
Background
Overview of Internal Control

As discussed in the Standards for Internal Control in the Federal
Government, internal control

• comprises the plans, methods, and procedures used by entities to meet their
  missions, goals, and objectives;
• is not one event, but a series of actions and activities that occur throughout an
  entity’s operations on an ongoing basis;
• serves as the first line of defense in safeguarding assets and preventing and
  detecting errors and fraud;
• should be designed to provide reasonable assurance regarding prevention of or
  prompt detection of unauthorized acquisition, use, or disposition of an entity’s
  assets; and
• should be designed and implemented based on the related cost and benefits.


                                                                               Page 14




         Page 20                                                    GAO-13-69R Pigford II
Background
Overview of Internal Control (cont’d)

Internal Control Standards
The federal government and private industry have developed five standards for
designing and implementing internal control.14 The standards define the minimum
level of quality acceptable for internal control and provide the basis against which
internal control is to be evaluated.
 Standard                    Description
 Control                     Management and employees should establish and maintain an environment throughout the
 Environment                 organization that sets a positive and supportive attitude toward internal control and
                             conscientious management.
 Risk Assessment             Internal control should provide for an assessment of the risks the agency faces from both
                             external and internal sources.
 Control Activities          Internal control activities help ensure that management's directives are carried out. The control
                             activities should be effective and efficient in accomplishing the agency's control objectives.
 Information and             Information should be recorded and communicated to management and others within the entity
 Communications              who need it and in a form and within a time frame that enables them to carry out their
                             responsibilities.
 Monitoring                  Internal control monitoring should assess the quality of performance over time and ensure that
                             the findings of audits and other reviews are promptly resolved.

                                                                                                                                                           Page 15
14See  the federal standards (described above) in GAO/AIMD-00-21.3.1; see the private industry standards (organized within the same five categories with
similar definitions) in Committee of Sponsoring Organizations of the Treadway Commission, Internal Control - Integrated Framework (September 1992).




                  Page 21                                                                                                            GAO-13-69R Pigford II
Background
Overview of Internal Control (cont’d)

Internal Control Deficiencies
A deficiency in internal control exists when the design or operation of a
control does not allow management or employees, in the normal course of
performing their assigned functions, to prevent or detect and correct
impairments of effectiveness or efficiency of operations.
• A deficiency in design exists when (1) a control necessary to meet the
  control objective is missing or (2) an existing control is not properly
  designed so that, even if the control operates as designed, the control
  objective is not met.
• A deficiency in operation exists when a properly designed control does
  not operate as designed, or when the person performing the control does
  not possess the necessary authority or qualifications to perform the
  control effectively.

                                                                      Page 16




        Page 22                                            GAO-13-69R Pigford II
Objective 1: Pigford II Internal Control
Many Measures Aim to Identify Invalid Claims

The parties charged with carrying out the terms of the settlement agreement have
created numerous internal control measures designed to balance various interests
including accuracy, efficiency, and cost. Many of these serve to identify and deny
fraudulent or otherwise invalid claims, including:
• Restrictions on claim form access. Only persons whom the Claims
  Administrator determines may be a class member based on a review of
  preliminary information are to receive a claim form (as of September 28,
  2012, the Claims Administrator reported receiving requests for 199,216
  claim forms and that 89,057 had been sent out).

• Reviews for timeliness, completeness, and class membership prior to
  adjudication. Before a claim may be reviewed to determine whether the
  required elements have been established, the Claims Administrator
  assesses whether the claim is timely, complete, and submitted by or on
  behalf of a class member. A claim may be denied as invalid on any one of
  these grounds.
                                                                              Page 17




         Page 23                                                   GAO-13-69R Pigford II
Objective 1: Pigford II Internal Control
Many Measures Aim to Identify Invalid Claims (cont’d)

• Iterative reviews of whether elements are established. Track A claims,
  subject to a lower standard of proof, are each assessed multiple times. First, the
  Initial Track A Reviewer conducts two independent reviews of each claim and
  issues a recommended decision. Next, a Track A Neutral reviews the claim anew
  and renders a decision. If that decision is a denial, the claim is reviewed again by
  a different Track A Neutral. The Track B Neutral told us that it is conducting two
  independent reviews of each claim.
• Identification of potential fraud concerns. The Initial Track A Reviewer and
  the Track A and B Neutrals may mark claims as potential fraud concerns,
  sometimes indicated by similar patterns across claims, such as similar
  allegations, structure, or handwriting.15 For example, as of October 23, 2012, the
  Track A Neutral and Initial Track A Reviewer identified about 3,180 claims with
  potential fraud concerns. These claims were referred to the parties to the
  settlement agreement for concurrence on how to resolve them, which may
  include subsequent referral to the appropriate law enforcement agency for
  investigation.

                                                                                                                                                          Page 18
15Accordingto the Track A Neutral and USDA officials, some perceived patterns may not in fact be fraudulent and instead may result from appropriate
circumstances. For example, similarities across claims may be attributable to a single individual assisting several claimants in completing their claim
forms.




                  Page 24                                                                                                               GAO-13-69R Pigford II
Objective 1: Pigford II Internal Control
Many Measures Aim to Identify Invalid Claims (cont’d)

• Authority to request additional information from claimants. Track A and B
  Neutrals may request additional documentation or evidence from claimants
  where the neutral suspects fraud or determines such information would be
  necessary or helpful to determine the claim validity (21 such requests had been
  made as of September 18, 2012, according to the Track A and B Neutrals).
• Consideration of material beyond that provided by Track B claimants
  where Track B Neutral determines a fraud concern exists. Under the terms
  of the settlement agreement, the Track B Neutral may consider any information
  or material that the Track B Neutral deems appropriate (in contrast to constraints
  imposed on the Track A Neutral who may consider only material submitted by
  the claimant, as discussed below).The Track B Neutral told us it will utilize this
  authority by taking into account standard information sources—such as those
  accessed via web searches—where the Track B Neutral determines there is
  reason to suspect a potentially fraudulent claim. Track B claims with fraud
  concerns will be referred to the parties to the settlement agreement for guidance
  on how to resolve them, which may include subsequent referral to the
  appropriate law enforcement agency for investigation.
                                                                               Page 19




         Page 25                                                    GAO-13-69R Pigford II
Objective 1: Pigford II Internal Control
Many Measures Aim to Identify Invalid Claims (cont’d)

• Final control measures after all claims are provisionally
  adjudicated. No payments will be made until all claims have first been
  provisionally adjudicated, and final control measures are taken. Those
  measures include identifying duplicate claims (to ensure no one is paid
  twice) and claims filed on behalf of the same farming operation (to
  ensure only one payment per farming operation) or the same deceased
  or physically or mentally limited class member (to ensure only one
  payment per class member).




                                                                       Page 20




        Page 26                                             GAO-13-69R Pigford II
Objective 1: Pigford II Internal Control
Many Measures Aim to Identify Invalid Claims (cont’d)

Selected Internal Control Measures Throughout Course of Claims Process

                                        Initial Track A                                Track A Neutral                                       Claims
                                          Reviewer                       • Reviews Track A claims                                          Administrator
    Claims
                                        • Performs two                   • Conducts secondary review of                                  • Prior to payment,
  Administrator                                                            denied claims                                                   performs final
                                          independent
 • Provides claim                         reviews of                     • Identifies fraud concerns and                                   controls to, e.g.,
   forms to                               Track A claims                   reviews fraud concerns identified                               identify duplicate
   potential class                      • Identifies fraud                 by Initial Track A Reviewer                                     claims and claims
   members                                concerns                       • May request additional information                              submitted on
 • Reviews claims                                                          from claimants                                                  behalf of the
   for timeliness,                                                                                                                         same farming
   completeness,                                                                                                                           operation or same
   and class                                                         Track B Neutral                                                       class member
   membership                                                                                                                              (these checks
                                    •   Performs two independent reviews of Track B claims
                                    •   Identifies fraud concerns                                                                          occur also as
                                    •   May request additional information from claimants                                                  claims are initially
                                    •   May consider material beyond that submitted by claimants                                           processed)

Source: GAO analysis of information provided by the parties charged with carrying out the terms of the Pigford II settlement, including the Claims
Administrator, Initial Track A Reviewer, and Track A and B Neutrals.
                                                                                                                                                      Page 21




                  Page 27                                                                                                               GAO-13-69R Pigford II
Objective 2: Design and Operation
The Design Generally Provides Reasonable Assurance, but Certain
Weaknesses May Increase Risk
The internal control design generally provides reasonable assurance that
fraudulent or otherwise invalid claims can be identified and denied, but certain
weaknesses could expose the claims process to risk of improper determinations.
• The design addresses the five standards for internal control. For example, the
  implementing parties described and GAO observed the following:
    o a positive and supportive attitude toward accurately evaluating claims;
    o assessment of the claim form’s risk of eliciting inadequate information,
       leading to revision of the claim form prior to the claim filing period;
    o numerous control activities aimed at detecting invalid claims;
    o regular communication and information sharing within and among the
       implementing parties, such as weekly meetings by the Claims
       Administrator, Initial Track A Reviewer, and Track A Neutral; and
    o ongoing monitoring of control measures, such as statistical evaluations of
       Track A Neutral adjudications by an external organization and efforts to
       review and act on these evaluations.

                                                                              Page 22




         Page 28                                                   GAO-13-69R Pigford II
Objective 2: Design and Operation
The Design Generally Provides Reasonable Assurance, but Certain
Weaknesses May Increase Risk (cont’d)
• We identified certain weaknesses in the internal control design
  that may allow fraudulent or otherwise invalid claims to go
  unidentified.
   o Some weaknesses are a result of constraints imposed by the
     terms of the settlement agreement, which were agreed to by
     the parties to the settlement agreement as fair, reasonable,
     and adequate. In addition, the terms were approved by the
     presiding judge, effectively ratified by Congress in the Claims
     Resolution Act of 201016 and, in some cases, originated in
     Pigford I and were subsequently enacted in the 2008 Farm Bill.
     These design weaknesses, hence, cannot be modified by the
     implementing parties.
   o Another weakness is within the authority of the implementing
     parties to modify.
                                                                                                                                                          Page 23
16TheClaims Resolution Act of 2010 made available $1.15 billion, the use of which was to “be subject to the express terms of the” Pigford II settlement
agreement. Pub. L. No. 111-291, § 201(a)(1), (b), (c).




                  Page 29                                                                                                              GAO-13-69R Pigford II
Objective 2: Design and Operation
The Design Generally Provides Reasonable Assurance, but Certain
Weaknesses May Increase Risk (cont’d)
Weaknesses Constrained by Terms of Settlement Agreement
Absence of procedures for Track A Neutral to consider information other than that
submitted by claimant.
• Under the Standards for Internal Control in the Federal Government, control
  activities include verification.
• The Track A Neutral’s determination must be based solely on the materials
  submitted by the claimant and, as a result, the Track A Neutral has no way of
  independently verifying the information provided by claimants. Under the
  settlement agreement, Track A claimants are to establish their claims by
  “substantial evidence,” which requires that they answer all relevant questions in
  the claim form and declare that their statements are true and correct but not that
  they submit any supporting documentation.
• As stated in the judicial opinions approving Pigford I and Pigford II, the lenient
  standard of proof for Track A claims is in recognition of USDA’s history of
  discrimination and class members’ lack of documentation—attributable in part to
  the passage of time and USDA’s not processing complaints in a timely manner.
                                                                                Page 24




         Page 30                                                     GAO-13-69R Pigford II
Objective 2: Design and Operation
The Design Generally Provides Reasonable Assurance, but Certain
Weaknesses May Increase Risk (cont’d)
Weaknesses Constrained by Terms (cont’d)
Absence of procedures for opposing Track A or B claims or reviewing the Claims
Administrator’s or Track A or B Neutrals’ determinations.
• Standards for Internal Control in the Federal Government states that internal
  control includes monitoring and review.
• Under the terms of the settlement agreement, the opposing party—USDA and its
  counsel, DOJ—has no role in the claims determination process, and the
  Ombudsman has no authority to reexamine the Claims Administrator’s or Track
  A or B Neutral’s determinations.17 As a result, two mechanisms of monitoring and
  review are absent.
• According to the parties to the settlement agreement, these terms were chosen
  to reduce cost and accelerate the rate of claim determinations and payments.18
17In Pigford I, the government responded to every claim filed, and the Pigford I Monitor had the authority to direct claim reexamination and did so for half of the 5,848
claims that were the subject of a petition for reexamination. For a full discussion of the Pigford I Monitor, see GAO, Pigford Settlement: The Role of the Court-
Appointed Monitor, GAO-06-469R (Washington, D.C.: Mar. 17, 2006).
18In Pigford I, USDA incurred significant cost opposing claims (more than $48 million in administrative and staff salaries and expenses alone from 1999 to 2009,

according to USDA), and the adjudication process lasted more than a decade.

                                                                                                                                                               Page 25




                  Page 31                                                                                                                  GAO-13-69R Pigford II
Objective 2: Design and Operation
The Design Generally Provides Reasonable Assurance, but Certain
Weaknesses May Increase Risk (cont’d)
Weakness within Authority of Implementing Parties to Modify
Absence of agreed upon procedures to identify claimants who already obtained
determinations on their complaints in judicial or administrative forums.
• Under the Standards for Internal Control in the Federal Government, control
  activities should effectively accomplish control objectives.
• The Claims Administrator is responsible for determining class membership,
  including that claimants have not obtained prior judgments on their complaints.
  To satisfy this requirement, it checks whether claimants appear in certain
  records—indicating they obtained judgments in, or opted out of, Pigford I—and
  plans to check the participant lists of two other settlements. It also asked USDA
  to check its records of judicial and administrative determinations. USDA has not
  yet responded to the request.
• Because no agreement has been reached on these procedures, we cannot know
  whether the control design will provide reasonable assurance of identifying
  claimants who already obtained judgments in judicial or administrative forums20
  and some claimants may, therefore, improperly be found to be class members.
                                                                                                                                                                 Page 26
19According   to Lead Class Counsel, the proportion of Pigford II claimants that obtained determinations in judicial or administrative forums is likely small.




                  Page 32                                                                                                                   GAO-13-69R Pigford II
Objective 2: Design and Operation
Internal Control Generally Operated as Designed, but Not Fully Implemented

At the time of our review, the internal control design was generally operating as
intended to identify and deny fraudulent or otherwise invalid claims. The design,
however, has not yet been fully implemented, and we cannot determine whether
the remainder of the design will operate as intended.
• Our testing of a random sample of 150 claims drawn from the 37,275 claims that
   had been submitted as of June 4, 2012 found, for example, that:
     o The Claims Administrator consistently and accurately recorded in the claims
       database20 whether:21
          there were missing pieces of required information or documentation to
           determine completeness of the claims;
          the claimants appear in certain records from Pigford I—indicating they
           submitted late-filing requests to participate in Pigford I—or had
           submitted adequate independent evidence of late-filing requests to
           determine the first requirement of class membership; and
20The claims database is a web-based platform that tracks records, documents, adjudication decisions, correspondence, and other information related to

implementation of the settlement.
21We found no exceptions in our testing of these claims. Because our sample is based on random selections, the resulting estimates are subject to sampling error. We

are 95 percent confident that the actual error rate is less than or equal to 2 percent.

                                                                                                                                                       Page 27




                Page 33                                                                                                             GAO-13-69R Pigford II
Objective 2: Design and Operation
Internal Control Generally Operated as Designed, but Not Fully Implemented
(cont’d)
           the claimants appear in other records from Pigford I—indicating they
            obtained judgments on their complaints in, or opted out of, Pigford I—to
            determine the second requirement of class membership.22
• The Claims Administrator consistently and accurately recorded in the claims
  database the claim submission dates for an estimated 95 percent of claims in
  order to determine timeliness. For an estimated 5 percent of claims, however,
  the submission dates were incorrectly recorded.23 According to the Claims
  Administrator, the final control measures will include verification of a sample of
  timeliness determinations by comparing actual with recorded submission dates.
• The Initial Track A Reviewer consistently performed two independent reviews of
  Track A claims, and the Track A Neutral consistently adjudicated claims after the
  Initial Track A Reviewer.24
22The  Claims Administrator has not, however, completed other steps, as discussed above.
23We  found 6 exceptions in our testing of 126 claims. We are 95 percent confident that the actual error rate is less than or equal to 9 percent. For the remaining claims,
we could not evaluate the control due to illegible or not visible submission dates.
24These estimates are based on 115 and 99 of the claims in our sample, respectively, for which there were no exceptions. We are 95 percent confident that the actual

error rate for each does not exceed 3 percent. For the remaining claims, we could not evaluate these controls because 5 claims were not Track A claims, 20 claims
had not been routed to the Initial Track A Reviewer for reasons such as incompleteness, the Initial Track A Reviewer had not yet begun review of 10 claims, and the
Track A Neutral had not yet begun adjudication of 16 claims.

                                                                                                                                                               Page 28




                  Page 34                                                                                                                 GAO-13-69R Pigford II
Objective 2: Design and Operation
Internal Control Generally Operated as Designed, but Not Fully Implemented
(cont’d)
• The settlement’s internal control design has not yet been fully
  implemented because the adjudication process is ongoing. Therefore,
  we cannot know whether certain future control measures will operate as
  intended.
    o Although internal control may be well designed, its effectiveness
       may be impaired if not fully or correctly implemented.
    o Control measures yet to be implemented under the Pigford II
       settlement, either in full or in part, include (1) identification of
       duplicate claims and claims submitted on behalf of the same farming
       operation or the same class member and (2) verification of
       timeliness determinations.
    o If the remaining control measures are not fully and correctly
       implemented, the internal control design cannot be expected to
       operate as intended in providing reasonable assurance that
       fraudulent or otherwise invalid claims will be identified and denied.
                                                                        Page 29




        Page 35                                               GAO-13-69R Pigford II
Enclosure II: Comments from the U.S. Department of Agriculture




         Page 36                                                 GAO-13-69R Pigford II
(361398)



Page 37    GAO-13-69R Pigford II
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