oversight

Farm Programs: Efforts to Achieve Equitable Treatment of Minority Farmers

Published by the Government Accountability Office on 1997-01-24.

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

                 United States General Accounting Office

GAO              Report to Congressional Requesters




January 1997
                 FARM PROGRAMS
                 Efforts to Achieve
                 Equitable Treatment of
                 Minority Farmers




GAO/RCED-97-41
                   United States
GAO                General Accounting Office
                   Washington, D.C. 20548

                   Resources, Community, and
                   Economic Development Division

                   B-275744

                   January 24, 1997

                   The Honorable Bob Smith
                   Chairman
                   The Honorable Charles W. Stenholm
                   Ranking Minority Member
                   Committee on Agriculture
                   House of Representatives

                   For a number of years, minority farmers have expressed concern that U. S.
                   Department of Agriculture (USDA) officials do not treat them in the same
                   way as nonminority farmers in the conduct of USDA’s programs,
                   particularly in decisions made in the Department’s county offices and
                   district loan offices. Because of this concern, the former Chairman and
                   Ranking Minority Member requested in April 1996 that we review the
                   efforts of the Department’s Farm Service Agency (FSA) to conduct farm
                   programs in an equitable manner. Specifically, they asked us to (1) identify
                   FSA’s efforts to treat minority farmers in the same way as nonminority
                   farmers in delivering program services; (2) examine the representation of
                   minorities in county office staffing and on county committees in the
                   counties with the highest numbers of minority farmers; and (3) examine
                   data on the disposition of minority and nonminority farmers’ applications
                   for participation in the Agricultural Conservation Program (ACP) and the
                   direct loan program at the national level and in five county and five district
                   loan offices.

                   The county and district offices we visited were chosen because they had
                   higher disapproval rates for minority farmers than for nonminority farmers
                   for the ACP and the direct loan program or because they were located in
                   counties with high numbers of minority farmers. Because the number of
                   offices we visited was small, we cannot generalize our findings to FSA’s
                   offices nationwide.


                   The Farm Service Agency’s Civil Rights and Small Business Development
Results in Brief   Staff oversees the agency’s efforts to achieve equitable treatment for
                   minority farmers. While we did not evaluate the quality and thoroughness
                   of the Staff’s activities, we noted that a number of efforts are ongoing in
                   this area. The Staff investigates and resolves complaints of discrimination,
                   conducts management evaluations of compliance with civil rights laws,
                   and trains Farm Service Agency staff in equal employment opportunity
                   and civil rights issues. In fiscal years 1995 and 1996, the Staff closed 28




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complaints of discrimination against farmers on the basis of race or
national origin. It found discriminatory practices in 2 of the 28 cases. In
addition, as part of its routine assessments of the Farm Service Agency’s
overall operations in 13 states, the Staff assessed the performance of the
agency’s employees in treating all farmers equitably. None of the
evaluations found that minority farmers were being treated unfairly. The
Staff has also trained about one-half of the Farm Service Agency’s
employees in equal employment opportunity and civil rights matters and
expects to finish training all of the employees by the end of 1997. In
addition to these Staff activities, the Farm Service Agency, in July 1996,
created an outreach office to increase minority farmers’ participation in,
and knowledge of, the Department’s agricultural programs.

At the time of our review, 32 percent of the Farm Service Agency’s
employees serving the 101 counties with the highest numbers of minority
farmers were members of a minority group. About 90 percent of these
employees were county executive directors or program assistants involved
in conducting and managing the Farm Service Agency’s programs.
Minority farmers make up about 17 percent of the farmer population in
these counties. In 36 of the 101 counties, at least one minority farmer was
a member of the county committee.

At the national level, the Farm Service Agency’s data show that
applications for the Agricultural Conservation Program in fiscal year 1995
and for the direct loan program from October 1994 through March 1996
were disapproved at a higher rate for minority farmers than for
nonminority farmers. For the Agricultural Conservation Program, the rate
of disapproval was 33 percent for minority applicants and 27 percent for
nonminority applicants. For the direct loan program, the disapproval rate
was 16 percent for minority applicants and 10 percent for nonminority
applicants. The average time for processing loans was about the same: 88
days for minorities and 86 days for nonminorities.

Three of the five county offices we visited had higher disapproval rates for
minority farmers than for nonminority farmers applying to the Agricultural
Conservation Program, and three of the five district loan offices we visited
had higher disapproval rates for minority farmers than for other farmers
applying for the direct loan program. Our review of the information in the
application files in these offices showed that decisions to approve or
disapprove applications were supported by information in the files and
that decision-making criteria appeared to be applied to minority and
nonminority applicants in a similar fashion. For example, applications for



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             the Agricultural Conservation Program were denied for lack of funds, and
             applications for direct loans were turned down because of poor credit
             ratings.


             Within USDA, FSA has the overall administrative responsibility for
Background   implementing agricultural programs. FSA is responsible for, among other
             things, stabilizing farm income, helping farmers conserve environmental
             resources, and providing credit to new or disadvantaged farmers. FSA’s
             management structure is highly decentralized; the primary
             decision-making authority for approving loans and applications for a
             number of agricultural programs rests in its county and district loan
             offices. In county offices, for example, committees, made up of local
             farmers, are responsible for deciding which farmers receive funding for
             the ACP.1 Similarly, FSA officials in district loan offices decide which
             farmers receive direct loans.

             At the time of our review, the ACP provided funds for conservation projects
             that, among other things, controlled erosion resulting from planting and
             harvesting crops and alleviated water quality problems caused by farming,
             such as the pollution produced by animal waste. The federal government
             generally paid up to 75 percent of a project’s cost, up to a maximum of
             $3,500 annually. FSA, in conjunction with other departmental agencies, set
             national priorities for the program, and FSA allocated funds annually to the
             states on the basis of these priorities. The states in turn distributed funds
             to the county committees on the basis of the states’ priorities. Farmers
             could propose projects at any time during the fiscal year, and the county
             committees could approve the proposals at any time after the funds
             became available. Consequently, county committees often obligated their
             full funding allocation before receiving all proposals for the year.

             The district loan offices administer the direct loan program, which
             provides farm ownership and operating loans to individuals who cannot
             obtain credit elsewhere at reasonable rates and terms. Each district loan
             office is responsible for one or more counties. The district loan office’s
             agricultural credit manager is responsible for approving and servicing
             these loans. FSA accepts a farmer’s loan application documents, reviews


             1
              Section 336 of the Federal Agricultural Improvement and Reform Act of 1996 (P.L. 104-127, Apr. 4,
             1996), known as the 1996 farm bill, repealed the ACP and replaced it with the Environmental Quality
             Incentives Program. However, during the time of our review, FSA continued to operate the ACP as it
             had done previously because the Department had not issued guidance for the new program. For fiscal
             year 1997, the new program will be administered jointly by FSA and the Department’s Natural
             Resources and Conservation Service.



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                         and verifies these documents, determines the applicant’s eligibility to
                         participate in the loan program, and evaluates the applicant’s ability to
                         repay the loan. In servicing these loans, FSA assists in developing farm
                         financial plans, collects loan payments, and restructures delinquent debt.

                         For both the ACP and the direct loan program, as well as other programs,
                         farmers may appeal disapproval decisions to USDA’s National Appeals
                         Division (NAD). For the period of our review, about 7 percent of the direct
                         loan appeals to the Division were from minority farmers. In April 1991,2 we
                         reported that NAD had reversed loan application decisions at comparable
                         rates for minorities and nonminorities. NAD’s database does not separately
                         identify appeals from ACP applicants; we therefore could not obtain this
                         type of data for the ACP.

                         Recently, some minority farmers publicized their concerns that the
                         Department, among other things, takes longer to process the loan
                         applications of minority farmers than of other farmers and has denied debt
                         relief to minority farmers. Subsequently, the Secretary of Agriculture
                         promised to (1) create a civil rights action team to look at the
                         Department’s treatment of minority farmers, as well as other related
                         issues, and (2) hold national and statewide forums on the issue early in
                         1997. In addition, the Secretary suspended all farm foreclosures and asked
                         the Department’s Office of Inspector General to review the Department’s
                         system for handling discrimination complaints, including the length of
                         time taken to investigate and resolve such complaints.3


                         FSA’s efforts to achieve equitable treatment for minority farmers are
Ongoing Efforts to       overseen by the agency’s Civil Rights and Small Business Development
Enhance Minority         Staff. To carry out its responsibilities, the Staff (1) investigates farmers’
Farmers’ Participation   complaints of discrimination in program decisions, (2) conducts
                         management evaluations of FSA’s field offices to ensure that procedures
in Farm Programs         designed to protect civil rights are being followed, and (3) provides equal
                         employment opportunity (EEO) and civil rights training to its employees. In
                         addition to these efforts, FSA recently increased its outreach activities to



                         2
                          Farmers Home Administration: Information on Appeals of Farm and Housing Loan Decisions
                         (GAO/RCED-91-106, Apr. 9, 1991).
                         3
                          Five lawsuits alleging racial discrimination in the direct loan program have been consolidated for trial
                         in the Federal District Court for the District of Columbia. The court is considering whether the
                         plaintiffs can make the litigation a class action lawsuit, i.e., a lawsuit that would include all minority
                         farmers.



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                         minority farmers to encourage their involvement in the Department’s
                         programs, including their signing of 7-year production flexibility contracts.4


Civil Rights and Small   FSA’s Civil Rights and Small Business Development Staff is responsible for
Business Development     evaluating the agency’s compliance with civil rights requirements. While
Staff                    we did not evaluate the quality and thoroughness of the Staff’s activities,
                         we noted that a number of efforts are ongoing in this area. The Staff has
                         investigated a number of discrimination complaints filed by farmers.
                         During fiscal years 1995 and 1996, the Staff closed 28 cases in which
                         discrimination was alleged on the basis of race or national origin. In 26 of
                         these cases, the Staff found no discrimination. In the other two cases, the
                         Staff found that FSA employees had discriminated on the basis of race in
                         one case and national origin in the other. USDA has not resolved how it will
                         deal with the employees and compensate the affected farmers. As of
                         January 7, 1997, the Staff had 110 cases of discrimination alleged on the
                         basis of race or national origin under investigation. Ninety-one percent of
                         these cases were filed since January 1, 1995.

                         In addition to investigating individual complaints of discrimination, the
                         Staff periodically evaluates state and county offices’ compliance with EEO
                         and civil rights requirements as part of its routine assessments of these
                         offices’ overall operations. During fiscal years 1995 and 1996, the Staff
                         evaluated management activities within 13 states. None of the evaluations
                         concluded that minority farmers were being treated unfairly.

                         Beginning in 1993, the Staff began to present revised EEO and civil rights
                         training to all FSA state and county employees. About half of the FSA
                         employees have been trained, according to the Staff, and all are scheduled
                         to complete this training by the end of 1997. The training covers such areas
                         as civil rights (program delivery) and EEO counseling, mediation, and
                         complaints.


Outreach to Minority     FSAhas efforts under way to inform all farmers about USDA’s programs, as
Farmers                  well as special efforts to keep minority farmers informed about and
                         enrolled in these programs. To reach all farmers, county offices maintain
                         updated mailing lists and, through periodic newsletters and other


                         4
                          Under the 1996 farm bill, farmers may enter into binding 7-year production flexibility contracts with
                         the federal government for certain crops—wheat, feed grains, upland cotton, and rice. The
                         government’s payments to farmers for each crop are allocated each fiscal year on the basis of
                         budgetary levels and crop-specific percentages established in the act.



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                         announcements, keep all those who own or operate farms in a county
                         informed about new programs and program requirements.

                         In addition to its general outreach activities, FSA has specific efforts to
                         increase minority farmers’ participation in agricultural programs. For
                         example, since September 1993, the Small Farmer Outreach Training and
                         Technical Assistance Program has made grants available to at least 28
                         entities for outreach and assistance to minority farmers. These entities
                         include such institutions as historically black and Native American
                         colleges and universities. Among other things, grant recipients assist
                         applicants in applying for loans and in developing sound farm
                         management practices. Over 2,500 FSA borrowers have been served by
                         these efforts. FSA has also assisted Native American farmers by
                         establishing satellite offices on reservations.

                         More recently, in July 1996, FSA created an outreach office to increase
                         minority farmers’ knowledge of, and participation in, the Department’s
                         agricultural programs. According to FSA officials, the office is currently
                         identifying the outreach services that FSA already provides to minority
                         farmers and is assessing the need for additional efforts.

                         FSA hired the Federation of Southern Cooperatives to increase the number
                         of minority farmers participating in the 1996 farm bill’s 7-year production
                         flexibility contracts. It has also trained members of the Rural Coalition in
                         the process for electing county committee members. The Rural Coalition
                         consists of several grass-roots groups that provide outreach to minorities
                         in order to increase the number of minorities nominated and elected to
                         county committees.


                         In the 101 counties with the highest numbers of minority farmers,
Employment of            representing 34 percent of all minority farmers in the nation, FSA
Minority Staff in        employees and county committee members were often members of a
County Offices and       minority group. About one-third of the employees were members of a
                         minority group, and slightly more than one-third of the county committees
Representation of        had at least one minority farmer as a committee member.
Minority Farmers on
County Committees
Minority Employment in   Thirty-two percent of the FSA employees serving the 101 counties with the
County Offices           highest numbers of minority farmers were members of a minority group.




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                          Eighty-nine percent of these employees were county executive directors,
                          who manage the operations of FSA’s programs, or program assistants, who,
                          among other things, provide information on programs to farmers. In the
                          offices serving 77 of these counties, at least one staff member was from a
                          minority group, and in 29 of these offices, the executive director was a
                          member of a minority group. In these 101 counties, minority farmers make
                          up about 17 percent of the farmer population.

                          At the time of our visits, 7 of the 10 county and district loan offices
                          included in our review had at least one minority employee. The executive
                          directors of two county offices, Holmes, Mississippi, and Duval, Texas,
                          were members of a minority group, as were the managers of two district
                          loan offices, Elmore, Alabama, and Jim Wells, Texas, and the deputy
                          managers of three district loan offices, Holmes, Jim Wells, and Byron,
                          Georgia.

                          The number of minority employees could change as FSA continues its
                          current reorganization. FSA plans to decrease its field structure staff from
                          14,683 in fiscal year 1993 to 11,729 in fiscal year 1997—a change of about
                          20 percent. We do not know how this reduction will affect the number of
                          minority employees in county and district loan offices.


Minority Representation   Until recently, FSA required that in any county in which minority owners
on County Committees      and operators accounted for 5 percent or more of those eligible to vote in
                          committee elections,5 a minority farmer must be placed on the ballot. FSA
                          further required that if these counties did not elect a minority farmer to
                          the county committee, the committee must appoint a minority adviser.

                          As we reported in 1995,6 minority farm owners and operators, nationwide,
                          accounted for about 5 percent of those eligible to vote for committee
                          members, and about 2 percent of the county committee members came
                          from a minority group. In our current review, we found that for the 101
                          counties with the highest numbers of minority farmers, 36 had at least one
                          minority farmer on the county committee. In the five county offices we
                          visited, two committees had minority members and the other three had
                          minority advisers.



                          5
                           Eligible voters include landowners, farm operators, sharecroppers, or tenants farming in a county,
                          regardless of where they live.
                          6
                           Minorities and Women on Farm Committees (GAO/RCED-95-113R, Mar. 1, 1995).



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                             In February 1996, the President issued a memorandum directing federal
                             agencies to apply revised standards to their affirmative action programs to
                             take into account changes that have occurred since the programs were
                             first instituted.7 As a result, according to the Department, FSA can no
                             longer require that minorities be placed on the county committee ballots in
                             counties where 5 percent or more of the eligible voters are members of a
                             minority group. However, FSA officials informed us that their policy
                             requires state committees to ensure that county committees fairly
                             represent all agricultural producers in their jurisdiction and that, when
                             needed, minority advisers be used to ensure minority representation.


                             According to FSA’s data, applications for the ACP for fiscal year 1995 and for
Reasons Provided for         the direct loan program from October 1994 through March 1996 were
Disapprovals of ACP          disapproved at a higher rate nationwide for minority farmers than for
and Direct Loan              nonminority farmers. To develop an understanding of the reasons for
                             disapprovals, we examined the files for applications submitted under both
Applications                 programs during fiscal years 1995 and 1996 in five county and five district
                             loan offices. We chose these offices because they had higher disapproval
                             rates for minority farmers or because they were located in areas with large
                             concentrations of farmers from minority groups.


Reasons for Disapproval of   Nationally, during fiscal year 1995, the disapproval rates for applications
ACP Applications             for ACP funds were 33 percent for minority farmers and 27 percent for
                             nonminority farmers. We found some differences in the disapproval rates
                             for different minority groups. Specifically, 25 percent of the ACP
                             applications from Native American and Asian American farmers were
                             disapproved, while 34 percent and 36 percent of the applications from
                             African American and Hispanic American farmers, respectively, were
                             disapproved.

                             To develop an understanding of the reasons why disapprovals occurred,
                             we examined the ACP applications for fiscal years 1995 and 1996 at five
                             county offices.8 Table 1 shows the number of ACP applications during this


                             7
                              This memorandum was issued to take into account the Supreme Court’s decision in Adarand
                             Contractors, Inc. v. Pena 115 S. Ct. 2097 (1995). This case held that federal affirmative action programs
                             using racial and ethnic criteria as a basis for decision-making are subject to strict court scrutiny. An
                             affirmative action program will be allowed only if it serves a compelling government interest and is
                             narrowly tailored to serve such an interest.
                             8
                              For one of these offices—Glacier, Montana—we reviewed all applications through September 30,
                             1996. For the other four offices, we limited our review to the applications whose processing had been
                             completed at the time of our visit. These visits occurred between June and October 1996.



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                                          period from minority and nonminority farmers in each of the five counties,
                                          as well as the number and percent of applications that were disapproved.


Table 1: ACP Disapproval Rates in Five County Offices
                                        Minority applications                          Nonminority applications
                                    Total         Number            Percent          Total         Number          Percent
County office                     number      disapproved       disapproved        number      disapproved     disapproved
Russell, Alabama                       18               11              61              96               47              49
Dooly, Georgia                           5               0               0              29                0               0
Holmes, Mississippi                    28               16              57              88               38              43
Glacier, Montana                       74                9              12              47                6              13
Duval, Texas                          146               62              42              45               15              33

                                          When ACP applications were received in the county offices we visited, they
                                          were reviewed first for compliance with technical requirements. These
                                          requirements included such considerations as whether the site was
                                          suitable for the proposed project or practice, whether the practice was
                                          still permitted, or whether the erosion rate at the proposed site met the
                                          program’s threshold requirements.

                                          Following this technical evaluation, if sufficient funds were available, the
                                          county committees approved all projects that met the technical evaluation
                                          criteria. This occurred for all projects in Dooly County and for a large
                                          majority of the projects in Glacier County. In Holmes County, the county
                                          committee ranked projects for funding using a computed cost-per-ton of
                                          soil saved, usually calculated by the Department’s local office of the
                                          Natural Resources Conservation Service. The county committee then
                                          funded projects in order of these savings until it had obligated all funds.

                                          In the remaining two counties, Russell and Duval, the county committees,
                                          following the technical evaluations, did not use any single criterion to
                                          decide which projects to fund. For example, according to the county
                                          executive director in Russell County, the committee chose to fund several
                                          low-cost projects submitted by both minority and nonminority farmers
                                          rather than one or two high-cost projects. It also considered, and gave
                                          higher priority to, applicants who had been denied funds for eligible
                                          projects in previous years. In contrast, the Duval county committee
                                          decided to support a variety of farm practices. Therefore, it chose to
                                          allocate about 20 percent of its funds to projects that it had ranked as
                                          having a medium priority. These projects were proposed by both minority
                                          and nonminority farmers.



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                             In the aggregate, 98 of 271 applications from minority farmers were
                             disapproved in the five county offices we visited. Thirty-three were
                             disapproved for technical reasons and 62 for lack of funds. FSA could not
                             find the files for the remaining three minority applicants. We found that
                             the applications of nonminority farmers were disapproved for similar
                             reasons. Of the 305 applications for nonminority farmers we reviewed, 106
                             were disapproved. Fifty-three were disapproved for technical reasons and
                             52 for lack of funds. FSA could not find the file for the remaining applicant.
                             Approval and disapproval decisions were supported by material in the
                             application files, and the assessment criteria used in each location were
                             applied consistently to applications from minority and nonminority
                             farmers.


Reasons for Disapproval of   Nationally, the vast majority of all applicants for direct loans have their
Direct Loan Applications     applications approved. However, the disapproval rate for minority farmers
                             is higher than for nonminority farmers. From October 1994 through
                             March 1996, the disapproval rate was 16 percent for minority farmers and
                             10 percent for nonminority farmers. We found some differences in the
                             disapproval rates for different minority groups. Specifically, 20 percent of
                             the loan applications from African American farmers, 16 percent from
                             Hispanic American farmers, 11 percent from Native American farmers, and
                             7 percent from Asian American farmers, were disapproved.

                             To assess the differences in disapproval rates, we examined the direct loan
                             applications for fiscal years 1995 and 1996 at five district loan offices.9
                             Table 2 shows the number of applications for direct loans during this
                             period for minority and nonminority farmers in each of the five districts,
                             as well as the number and percent of applications disapproved.




                             9
                              For two of these offices—Glacier, Montana, and Jim Wells, Texas—we reviewed all applications
                             through September 30, 1996. For the other three offices, we limited our review to the applications
                             whose processing had been completed at the time of our visit. These visits occurred between June and
                             August 1996.



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Table 2: Direct Loan Disapproval Rates in Five District Offices
                                    Minority applications reviewed                             Nonminority applications reviewed
                                    Total          Number               Percent                   Total            Number               Percent
District office                   number       disapproved          disapproved                 number         disapproved          disapproved
Elmore, Alabama                         30                   7                   23                   22                     3                   14
Byron, Georgia                          20                   9                   45                   45                     9                   20
Holmes, Mississippi                     39                   5                   13                   29                     0                     0
Glacier, Montana                         4                   0                     0                    7                    1                   14
Jim Wells, Texas                        22                   1                     5                  41                     2                     5

                                          Our review of the direct loan program files in these locations showed that
                                          FSA’s decisions to approve and disapprove applications appeared to follow
                                          USDA’s established criteria. These criteria were applied to the applications
                                          of minority and nonminority farmers in a similar fashion and were
                                          supported by materials in the files. The process for deciding on loan
                                          applications is more uniform for the direct loan program than for the ACP.
                                          The district loan office first reviews a direct loan application to determine
                                          whether the applicant meets the eligibility criteria, such as being a farmer
                                          in the district, having a good credit rating, and demonstrating managerial
                                          ability. Farmers who do not demonstrate this ability may take a course, at
                                          their own expense, to meet this standard. If the applicant meets these
                                          criteria, the loan officer determines whether the farmer meets the
                                          requirements for collateral and has sufficient cash flow to repay the loan.
                                          These decisions are based on the Farm and Home Plan—the business
                                          operations plan for the farmer—prepared by the loan officer with
                                          information provided by the farmer. If the collateral requirements and the
                                          cash flow are sufficient, the farmer generally receives the loan.

                                          In the five district loan offices we visited, 22 of the 115 applications from
                                          minority farmers were disapproved. Twenty were disapproved because the
                                          applicants had poor credit ratings or inadequate cash flow.10 One was
                                          disapproved because the applicant was overqualified and was referred to a
                                          commercial lender. In the last case, the district loan office was unable to
                                          locate the loan file because it was apparently misplaced in the
                                          departmental reorganization. However, correspondence dealing with this

                                          10
                                            One of these 20 applicants submitted an application on Mar. 30, 1995, to restructure a past-due loan
                                          and obtain a new loan. At that time, the state had already obligated all available 1995 direct loan funds.
                                          Because no funds were available, the applicant was given 35 days to obtain financing elsewhere to
                                          carry out his projected farm and home plan. The farmer did not obtain financing. After the 35-day
                                          period, FSA calculated the farm and home plan’s cash flow and found that it was not positive. Direct
                                          loan funds did not become available in this state until late Aug. 1995. (Only one other application was
                                          submitted to this district office for 1995 funds after Mar. 30, 1995. That applicant was also told that
                                          funds were unavailable. The applicant withdrew her application.)



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                  applicant’s appeal to NAD indicates that the application was disapproved
                  because the applicant did not meet the eligibility criterion for recent
                  farming experience. NAD upheld the district loan office’s decision. The
                  Department allows all farmers to appeal adverse program decisions made
                  at the local level through NAD. The division conducts administrative
                  hearings on program decisions made by officers, employees, or
                  committees of FSA and other USDA agencies.

                  The applications of nonminority farmers that we reviewed were
                  disapproved for similar reasons. Of the 144 applications from nonminority
                  farmers we reviewed, 15 were disapproved. Nine were disapproved
                  because of poor credit ratings or inadequate cash flow; five were
                  disapproved because the applicants did not meet eligibility criteria; and
                  one was disapproved because of insufficient collateral.

                  Additionally, in reviewing the 129 approved applications of nonminority
                  farmers, we did not find any that were approved with evidence of poor
                  credit ratings or insufficient cash flow.

                  For the period of our review, we also wanted to obtain information on
                  whether FSA was more likely to foreclose on loans to minority farmers
                  while restructuring or writing down loans to nonminority farmers. We
                  found only one foreclosed loan—for a nonminority farmer—in the five
                  district loan offices we reviewed. We also found 62 cases in which FSA
                  restructured delinquent loans.11 Twenty-two of these were for minority
                  farmers.

                  Finally, the amount of time FSA takes to process applications from minority
                  and nonminority farmers is about the same. Nationwide, from October
                  1994 through March 1996, FSA took an average of 86 days to process the
                  applications of nonminority farmers and an average of 88 days to process
                  those of minority farmers. More specifically, for African Americans, FSA
                  took 82 days; for Hispanic Americans and Native Americans, 94 days; and
                  for Asian Americans, 97 days.


                  We provided a draft of this report to USDA for its review and comment.
Agency Comments   Subsequently, we met with departmental officials—FSA’s Administrator of
                  Farm Services; the Director, Civil Rights and Small Business Development
                  Staff; and the Special Assistant to the Director of NAD—to discuss the

                  11
                   Restructuring refers to either rescheduling the loan payments or reducing the outstanding principal
                  and accumulated interest.



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              information in this report. These officials generally agreed with the
              information discussed. They provided some clarifying comments that we
              have incorporated into the report where appropriate.


              To identify FSA’s efforts to achieve equitable treatment of minority farmers
Scope and     in the delivery of program services, we interviewed FSA officials and
Methodology   examined documents concerning the efforts of the Civil Rights and Small
              Business Development Staff. We did not, however, examine the processes
              used to investigate complaints of discrimination or the time this office
              takes to investigate and resolve farmers’ complaints. The Secretary of
              Agriculture has asked the Department’s Office of Inspector General to
              examine these issues.

              We also identified minority staffing and minority representation on county
              committees in the 101 counties that had the highest numbers of minority
              farmers. The minority farmer population in these counties represents
              34 percent of all minority farmers in the nation, according to the 1992
              Census of Agriculture. Finally, we visited five county offices and five
              district loan offices to examine in detail the treatment of minority farmers
              at the local level. See appendix I for a detailed discussion of our
              methodology.

              We conducted our work from April 1996 through January 10, 1997, in
              accordance with generally accepted government auditing standards.


              As arranged with your offices, unless you publicly announce its contents
              earlier, we plan no further distribution of this report until 7 days after the
              date of this letter. At that time, we will send a copy of this report to the
              Secretary of Agriculture. We will also make copies available to others on
              request.

              Please call me at (202) 512-5138 if you or your staff have any questions
              about this report. Major contributors to this report are listed in appendix
              II.




              Robert A. Robinson
              Director, Food and
                Agriculture Issues

              Page 13                       GAO/RCED-97-41 USDA’s Treatment of Minority Farmers
Appendix I

Detailed Methodology


              From the Civil Rights and Small Business Development Staff, we obtained
              information on the cases of alleged discrimination closed in fiscal years
              1995 and 1996 and obtained copies of and analyzed the Staff’s management
              evaluations for the same period. Finally, we obtained information on the
              equal employment opportunity and civil rights training the Staff has
              provided to the Farm Service Agency’s (FSA) employees. However, we did
              not evaluate the adequacy of this training.

              To examine minority staffing in county offices and minority representation
              on county committees, we first used the 1992 Census of Agriculture to
              identify the 101 counties with the highest numbers of minority farmers.1
              We then used the Department’s databases to obtain information on the
              number of minority staff serving the 101 counties and the number of
              minority farmers on the county committees in each of these counties. We
              also used the Department’s database to obtain information on the number
              of minority county executive directors serving the 101 counties.

              To examine the treatment of minority farmers at the local level, we visited
              county offices and district loan offices that either had higher disapproval
              rates for minority than nonminority farmers for the Agricultural
              Conservation Program (ACP) in fiscal year 1995 and for the direct loan
              program from October 1994 to March 1996 or had high numbers of
              minority farmers.2 Within the five county and five district loan offices, we
              reviewed the applications for the ACP and the direct loan program for fiscal
              years 1995 and 1996.3 For the Glacier, Montana, and Jim Wells, Texas,
              offices, we reviewed all applications through September 30, 1996. For the
              other offices, we limited our review to the applications that had been
              completely processed at the time of our visit. These visits took place
              between June and October 1996. The offices we visited were located in
              Alabama, Georgia, Mississippi, Montana, and Texas.

              At the county and district loan offices we visited, we reviewed 576 ACP and
              259 direct loan files for information on the reasons for disapproval and
              approval in fiscal years 1995 and 1996. We determined whether farmers’
              applications were acted upon in accordance with established criteria and
              whether information to support decisions was contained in the files. We

              1
               We reviewed 101 counties because we wanted to identify the 100 counties with the highest numbers
              of minority farmers, but 4 counties were tied for the ninety-eighth place—each having 93 minority
              farmers. The highest number of minority farmers in one county was 1,953.
              2
               Except for Dooly County, Georgia, which we selected and visited before obtaining national data.
              3
               District loan offices provide direct loan coverage to farmers in one or more counties. The five district
              loan offices we visited covered a total of 48 counties.



              Page 14                                 GAO/RCED-97-41 USDA’s Treatment of Minority Farmers
Appendix I
Detailed Methodology




examined nonminority farmers’ applications to determine whether they
were approved when similar applications from minority farmers were
disapproved. Our review focused exclusively on the documentation
contained in the files of the county and district loan offices we visited. We
did not directly contact any farmers to discuss any of the information
contained in these files or independently verify the information contained
in these files.

To determine the extent to which direct loan disapprovals are appealed to
the National Appeals Division (NAD), we obtained appeals statistics from
NAD. NAD’s database does not separately identify the appeals from ACP
applicants; we therefore could not obtain this type of data for the ACP.

To determine whether minority farmers received equitable treatment
nationally, we would have had to visit at least 30 county offices and 30
district loan offices to have statistically valid results. To provide valid
estimates, we would have had to select the offices on a statistical basis.
This effort would have significantly increased the resources and time
necessary to conduct the review. Additionally, whenever a sample from a
universe is selected, the estimates made are always subject to error
introduced by the sampling procedure. When samples are small, as they
would have been in this case, the estimation error tends to be quite large.
The only way to decrease the estimation error is to increase the sample
size. Therefore, we determined that judgmentally selecting a limited
number of offices for case studies represented a more efficient use of our
resources.




Page 15                      GAO/RCED-97-41 USDA’s Treatment of Minority Farmers
Appendix II

Major Contributors to This Report


               Robert C. Summers, Assistant Director
               Fredrick C. Light, Evaluator-in-Charge
               Jerry Hall
               Natalie Herzog
               Paul Pansini
               Stuart Ryba
               Carol Herrnstadt Shulman




(150422)       Page 16                     GAO/RCED-97-41 USDA’s Treatment of Minority Farmers
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