oversight

Crop Insurance: USDA Needs a Better Estimate of Improper Payments to Strengthen Controls Over Claims

Published by the Government Accountability Office on 1999-09-22.

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

                  United States General Accounting Office

GAO               Report to the Honorable Charles W.
                  Stenholm, Ranking Minority Member,
                  Committee on Agriculture, House of
                  Representatives

September 1999
                  CROP INSURANCE
                  USDA Needs a Better
                  Estimate of Improper
                  Payments to
                  Strengthen Controls
                  Over Claims




GAO/RCED-99-266
                   United States
GAO                General Accounting Office
                   Washington, D.C. 20548

                   Resources, Community, and
                   Economic Development Division

                   B-283433

                   September 22, 1999

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

                   Dear Mr. Stenholm:

                   Federal crop insurance protects participating farmers against crop losses
                   caused by perils such as droughts, floods, hurricanes, and other natural
                   disasters. This multibillion-dollar program, administered by the U.S.
                   Department of Agriculture’s Risk Management Agency (RMA), provides
                   subsidized insurance through private insurance companies that assume a
                   portion of the risk associated with claims payments. Since 1981, when the
                   current crop insurance program was established, the program has
                   provided $14.1 billion to farmers for insured crop losses. The program’s
                   loss experience is a major factor in determining the cost of federal crop
                   insurance to farmers and to the government.

                   Concerned about RMA’s effectiveness in managing the process to minimize
                   erroneous claims payments, you asked us to (1) review the extent to
                   which crop insurance claims are paid in error—either unintentionally or
                   fraudulently—and, to the extent practical, compare the rate at which
                   claims are paid in error with rates for other types of insurance;
                   (2) examine the insurance companies’ and RMA’s quality controls to ensure
                   that accurate claims payments are made; and (3) describe the proposals
                   being considered to reduce insurance companies’ administrative
                   requirements and the potential impact of these proposals on the
                   operations of the crop insurance program.


                   There are no precise estimates of the extent to which crop insurance
Results in Brief   claims are paid in error. While the Risk Management Agency estimated
                   that about 5 percent of claims were paid in error in 1997, the agency’s
                   methodology for estimating errors was questionable in several respects.
                   Specifically, the estimate was based on an inadequate sample size and did
                   not include the results of timely, on-site reviews to detect errors resulting
                   from fraud. Although information on payment errors for other types of
                   property and casualty insurance is limited, a recent insurance industry
                   study reported higher rates of fraud-related payment errors than the Risk
                   Management Agency reports for crop insurance. We are making a




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             recommendation to the Secretary of Agriculture to improve the agency’s
             methodology for estimating the program’s error rate for claims payments.

             The Risk Management Agency and the insurance companies revised the
             process for examining the accuracy of paid claims in 1998. Previously, the
             agency had reviewed the claims of a few companies every year for
             accuracy, but available resources limited the number of claims that could
             be examined. Under the new process, the agency is able to get much
             broader coverage of claims activity by relying on the companies
             themselves to review an agency-selected statistical sample of their claims
             to detect erroneous payments. The companies use agency guidance for
             ensuring that the sampled claims were properly paid. The agency then
             reviews a sample of these same claims to determine whether the
             companies’ review processes are adequate. While it is too early to evaluate
             the effectiveness of this approach, success will depend heavily on how
             well the companies implement this approach and the quality of the Risk
             Management Agency’s oversight of the process.

             The Risk Management Agency and the companies are considering
             proposals to simplify administrative requirements in three principal areas:
             developing alternatives to producers’ actual production histories, which
             are used to determine the insured value of a crop; simplifying the
             administration of one type of crop insurance—catastrophic; and changing
             other administrative requirements, such as allowing farmers to self-certify
             claims below certain dollar amounts. The agency and the companies do
             not agree on how these simplification proposals would affect program
             operations. For example, while some simplification proposals could
             reduce the companies’ administrative costs, these proposals could also
             increase claims payments, which would increase government costs.


             Although the federal crop insurance program was established in 1938, it
Background   was substantially changed and expanded by the Federal Crop Insurance
             Act of 1980. Currently, RMA—through the Federal Crop Insurance
             Corporation (FCIC)—relies on private companies to sell and service crop
             insurance policies under their own name and to adjust losses when a claim
             is made. Federal crop insurance is currently available for 75 crops on a
             county-by-county basis. In addition, the number of farmers participating in
             the program has increased to over 400,000 out of about 2 million farmers
             nationwide.




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The financial soundness of the crop insurance program depends on
substantial participation by the nation’s farmers. Premium rates and cost
to the government are determined largely by the program’s loss
experience. Generally, the higher the crop losses, the higher the premiums
in future years. From 1981 through 1998, FCIC paid farmers $14.1 billion for
insured crop losses, and in 1998 alone, FCIC paid $1.7 billion.

Federal crop insurance offers farmers two primary levels of coverage,
catastrophic and buyup, which are available for major crops. Catastrophic
insurance, created by the Federal Crop Insurance Reform and Department
of Agriculture Reorganization Act of 1994, was designed to provide
producers with a minimum level of protection for a small processing fee.
Buyup insurance protects against more typical and smaller crop losses in
exchange for a farmer-paid premium. In addition to these two primary
types of coverage, federal crop insurance offers a number of products that
protect farmers’ revenues against declining market prices for their
production.

Federal crop insurance is sold to farmers by insurance agents representing
one or more insurance companies that have a standard reinsurance
agreement with the U.S. Department of Agriculture (USDA) to sell and
service crop insurance. The agent and the farmer work together to
determine the level of coverage for expected yield and/or price and the
number of acres to be planted. A farmer’s expected yield is based on 4 to
10 years of production history. In the absence of at least 4 years of
production history, the county’s averages for each crop can be used. The
agent and the farmer sign a completed application attesting that the
information is correct prior to transmitting the application to the
insurance company.

Upon receiving the application, the insurance company (1) verifies the
information by comparing it with any prior records, (2) recalculates the
computations on the applications, (3) determines if the completed
application meets all RMA requirements, and (4) calculates the premium. If
the application meets all company and RMA requirements, the company
issues the policy to the farmer.

If farmers incur crop losses, they file a claim with their insurance agent or
company. The company assigns an adjuster who visits the farm and, using
RMA guidance, determines the percentage of loss of the acres planted. The
adjuster forwards the claim to the insurance company, which verifies and
recalculates the claim. If all company and RMA requirements are met, the



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                           company pays the claim to the farmer. All paid claims are subject to
                           review by the companies and various government agencies, including RMA,
                           USDA’s Office of the Inspector General (OIG), and GAO.


                           The Federal Managers Financial Integrity Act (FMFIA), and the Federal
                           Financial Management Improvement Act (FFMIA), hold agency managers
                           responsible for ensuring that adequate systems of internal controls have
                           been developed and implemented. An adequate system of internal controls
                           should provide reasonable assurance that an agency is effectively and
                           efficiently using resources, preventing unauthorized disposition of agency
                           assets, and producing reliable financial reports. Furthermore, the
                           Government Performance and Results Act (Results Act) encourages
                           federal agencies to more effectively use their resources by requiring
                           annual reporting on the extent to which agencies meet their annual
                           performance goals.

                           In the last 5 years, the OIG has reported that the insurance companies’
                           quality control reviews were superficial and did not provide an
                           independent verification that claims were properly paid.1 To strengthen
                           the quality control process, the Inspector General recommended that RMA
                           develop an estimate of claims paid in error, including a detailed definition
                           of what constitutes an error. In 1998, in response to a series of internal
                           reviews and to the requirements of the Results Act, RMA initiated a study to
                           estimate the number of claims paid in error. This estimate is discussed in
                           the following section.


                           The extent to which crop insurance claims are paid in error has never
Extent to Which Crop       been precisely calculated. USDA reported in its 1998 financial statements
Insurance Claims Are       that an estimated 5 percent of crop insurance claims were paid in error in
Paid in Error Is           1997. However, this estimate may not be accurate because RMA’s
                           methodology for estimating errors is questionable in several respects.
Uncertain                  Information on error rates for other types of insurance that could be used
                           to compare with the RMA estimate is limited.


RMA’s Estimate of Errors   RMA’sestimate of errors may not be accurate because it is based on a small
Is Questionable            sample and did not include the results of timely field work to detect fraud.

                           1
                             Report To The Secretary On Federal Crop Insurance Reform, USDA Office of the Inspector General,
                           Audit Report No. 05801-2-At (April 1999); Risk Management Agency—Reinsured Companies’ Actual
                           Production History Self-Reviews, USDA Office of the Inspector General, Audit Report No. 05099-1-Te
                           (Sept. 1997); and Risk Management Agency—Federal Crop Insurance Claims, USDA Office of the
                           Inspector General, Audit Report No. 05601-3-Te (Feb. 1998).



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In order to determine a rate of claims paid in error, RMA used a statistical
sample of 200 claims—out of more than 121,000 claims paid in 1997.
However, because the sample size was relatively small, the estimated error
rate could be inaccurate by as much as 80 percent. Therefore, RMA’s
5-percent estimate could be as low as 1 percent or as high as 9 percent.
Because of the small sample size and the fact that only part of a claim may
have been paid in error, these error rates cannot be used to estimate the
percentage of dollars paid in error. However, according to GAO and OIG
reports completed in 1987 through 1991, incorrect payments totaled about
9 percent or more of the total dollar value of claims paid in the samples
reviewed. The GAO report, based on a sample of claims payments for three
crops in five states, did not contain a national estimate of payment errors.
The OIG report, based on a nationwide sample of claims payments,
recognized limitations in the accuracy of its estimate because of the small
number of claims reviewed.

According to RMA and OIG officials, a larger sample size would have
generated a more accurate error rate to serve as a baseline for judging
future performance. These officials said that a minimum sample size of
between 500 and 800 claims would be needed to produce an accurate error
rate.2 However, RMA officials told us they did not have the resources to
review a larger sample size.

RMA  estimated that one-tenth of 1 percent of the claims paid in 1997 were
fraudulent. To arrive at this estimate, RMA reviewed the paperwork
associated with claims to uncover fraudulent statements about the amount
of acreage planted, production history, or crop produced. However, RMA’s
Deputy Administrator for Compliance told us that this type of review is not
always effective in identifying fraud and that a more timely and thorough
field evaluation is needed to develop accurate estimates of fraud. More
specifically, claims would have to be examined when they are adjusted. In
this way, a reviewer could review the condition of crops for which losses
are claimed and interview individuals who might have knowledge about
the farmer’s production, such as elevator operators or field office officials
in USDA’s Farm Service Agency. This kind of inspection is common for
other types of insurance claims. For example, the Federal Emergency
Management Agency checks for fraud by quickly inspecting flood sites for
damage after insurance company inspections and before issuing claims
payments.



2
 A larger sample size will also provide a basis to estimate the dollar value of claims paid in error.



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                           Even with a timely, thorough field visit, identifying rates for fraudulent
                           claims payments is very difficult, according to RMA’s Deputy Administrator
                           for Compliance, because it is hard to determine whether an individual has
                           purposefully misrepresented claims data.


                           We could not obtain information on overall (unintentional and fraudulent)
Information on Error       payment error rates for other types of private insurance because
Rates for Other Lines      companies consider such data proprietary. However, other federal
of Insurance Is            insurance programs periodically measure payments made in error. For
                           example, the Department of Health and Human Services (HHS) made such
Limited                    an estimate for improper Medicare benefit payments to providers in 1998.
                           While the Medicare payments made in error are not directly comparable to
                           crop insurance payments made in error, improper Medicare payments
                           were about 7 percent of the $177 billion paid to health care providers,
                           according to HHS estimates.

                           Although information on overall error rates for other types of insurance
                           was limited, we identified a recent industry study of payment errors
                           associated specifically with fraud. According to this study, the fraud rate
                           for property and casualty insurance—the type of insurance most
                           comparable to crop insurance—was estimated to be between 10 and
                           25 percent in 1996.3 The study’s estimates were based on surveys of fraud
                           prevention associations and insurance companies.


                           Under a recently instituted process to minimize the number of erroneous
RMA Is Relying on          payments, RMA relies principally on the insurance companies’ reviews of an
Companies’ Quality         RMA-selected statistical sample of claims payments. This process is also

Control Efforts to         designed to ensure broader coverage of claims reviews by having all the
                           companies review a portion of their claims payments each year. To
Reduce Erroneous           prevent and detect erroneous claims, RMA has also instituted procedures
Payments                   that increase training requirements for agents and loss adjusters.

RMA’s New Process for      Until 1998, RMA conducted its own annual reviews of claims payments to
Reviewing Claims Depends   assess companies’ handling of claims, including error detection. However,
on the Accuracy of the     because of limited resources, RMA did not review enough claims or
                           insurance companies to adequately determine if claims were properly
Companies’ Efforts         paid. Instead, these reviews focused on a sample of claims from 3 to 4 of
                           the 18 companies that sell and service crop insurance. In addition, RMA
                           relied on referrals from farmers, insurance companies, and USDA’s Farm

                           3
                            Insurance Fraud: The Quiet Catastrophe 1996, Conning Insurance Research and Publications.



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Service Agency to identify erroneous payments. A number of the insurance
companies told us that they supplemented RMA’s reviews by internally
reviewing the accuracy of a portion of the claims’ payments they made
each year.

Starting in 1998, RMA and the insurance companies agreed to change the
way claims are reviewed for erroneous payments. This new process
provides a basis for the companies to determine if their internal controls
are working effectively and if their employees, including agents and
adjusters, are properly trained in order to minimize erroneous claims
payments. RMA’s role is to oversee the companies’ efforts to review claims
payments for errors. To implement the new process, RMA provided the
companies with guidance on the type and scope of reviews to be
conducted. It also provided each company with a statistical sample of at
least 50 (and in many cases up to 150) of its policies that had claims paid
for crop year 1998. RMA’s compliance staff provided oversight by reviewing
about 600 selected claims from the same sample. The random samples
were designed to cover a percentage of crop insurance policies written
and crop insurance claims paid for each company.

Under RMA’s new review process, for each policy in the sample, the
company must verify the accuracy of the information reported by the
policyholder, the agent, and the loss adjuster, including the planted
acreage reported for the policy, the certification of the producer’s actual
production history, and the summary of insurance coverage. In addition,
each company is required to review all relevant claim information and
supporting production information, such as the production worksheets,
appraisal reports, and settlement sheets. RMA completes the review
process by selecting a sample of the companies’ reviews and auditing them
for quality and completeness. To implement these new review
requirements, several participating companies instituted new procedures
and hired and trained additional staff.

In 1998, the first year of implementing the new review process, RMA and
the companies worked together to clarify technical and reporting
requirements and placed less emphasis on completing all the steps in the
review process. For example, RMA reviewed procedural matters with
companies and clarified supporting documentation requirements for
future submissions rather than evaluating the effectiveness of the
companies’ reviews.




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                          In addition to the new review process, RMA has established a working
                          group with the participating crop insurance companies to review and
                          revise compliance processes as needed. This working group hopes to find
                          ways RMA and the companies can cooperate to better use limited
                          compliance resources and to reduce the number of erroneous payments.


Revised Training          In order to reduce the potential for erroneous claims payments, RMA
Requirements for Agents   requires the companies to provide a minimum number of hours of training
and Adjusters             per year for their agents and loss adjusters. In 1998, to improve the skills
                          and knowledge of agents and adjusters, RMA revised these requirements.
                          For new agents, annual training requirements increased from 8 hours to 12
                          hours. For experienced agents, these training requirements decreased
                          from 6 hours to 3 hours. For new loss adjusters, annual training increased
                          from 32 classroom hours and 24 field training hours to a total of 60 hours,
                          of which 24 must be in the classroom. For experienced loss adjusters,
                          training requirements increased from 16 hours to 18 hours. Also, by 2000,
                          all agents and adjusters will be required to pass certain competency tests
                          in order to continue to sell and service crop insurance policies. Among
                          other things, an agent must be able to review actuarial documents, know
                          how to complete and distribute forms and materials used in sales and
                          service activities, and understand reporting requirements and other
                          procedures and regulations.


                          In response to the Federal Crop Insurance Reform and the Department of
Consensus Lacking on      Agriculture Reorganization Act of 1994, RMA and the industry are
the Effects of            considering proposals in three areas to reduce administrative effort and
Additional                cost: (1) changing the way producers’ actual production histories are
                          determined, (2) simplifying the administration of catastrophic insurance,
Simplification            and (3) increasing the amount of allowable overstatement of acreage and
Proposals on              production on claims forms—referred to as the allowable tolerance for
                          erroneous claims payments.4 However, RMA and the companies do not
Program’s Operations      agree on the savings associated with these changes and their potential
                          effect on the program’s vulnerability to losses.




                          4
                           The proposals we refer to were submitted by a working group of the National Crop Insurance
                          Services—an industry association representing the majority of the companies participating in the
                          federal crop insurance program.



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                          B-283433




Changing the Way Actual   Currently, a crop insurance policy’s insured value and associated risk is
Production History Is     based primarily on the producer’s actual production history for 10 years.
Calculated                Developing this history is time-consuming and somewhat complex
                          because it is based on a rolling 10-year crop production average, and a
                          farmer often cannot adequately document production.

                          Questions are frequently raised by farmers and their associations about
                          the number of crop years required for determining this history, the
                          reliability of the farmer-provided information, and the reliability and
                          fairness of the formula used.5 In addition, some farmers have raised
                          questions about the validity of using a 10-year average crop production
                          history because recent technical improvements in herbicides, pesticides,
                          and other farming practices have allowed farmers to greatly increase
                          production in the past few years. To deal with these questions, insurance
                          companies have proposed two alternative approaches that the industry is
                          now considering. These proposals, if adopted, would probably be
                          pilot-tested in a number of locations for each crop before they are
                          instituted nationwide.

                          One industry proposal would replace farmers’ individual production
                          history with an average county yield for all farmers in that county. By
                          adopting this approach, the insurance companies and the farmers could
                          eliminate extensive documentation and calculations and make it easier for
                          the companies to compute losses. However, farmers with above-average
                          production are generally opposed to this change because it would benefit
                          farmers with lower than average historical yields and penalize farmers
                          with higher historical yields. Such a change could discourage farmers with
                          above-average production from participating and encourage greater
                          participation from farmers with below-average production. The change
                          could benefit the federal government by reducing the possibility of fraud
                          associated with false or inaccurate production data, but it could increase
                          claims payments to producers with below-average production.

                          The second industry proposal would eliminate the use of production
                          history and average county yield altogether. Instead, the proposal would
                          rely heavily on the combined judgment of the farmer and insurance agent
                          to establish expected production and value of coverage, and on the

                          5
                           In addition, USDA’s OIG has consistently reported problems associated with calculating and applying
                          production history data for determining claims. Risk Management Agency—Crop Insurance Claims in
                          Virginia 1995 and 1996 Crop Years, Audit Report No. 05601-1-Hy (Dec. 1997); Risk Management
                          Agency—Reinsured Companies’ Actual Production History Self-Reviews Washington, D.C.; USDA
                          Office of the Inspector General, Audit Report No. 0599-1-Te (Sept. 1997); and Risk Management
                          Agency—Crop Insurance Claims in California 1995 and 1996 Crop Years, USDA Office of the Inspector
                          General, Audit Report No. 05601-1-SF (May 1997).



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                           integrity of the loss adjuster to calculate the amount of loss. It is therefore
                           a more subjective approach and could expose the government to greater
                           risk. In addition, this alternative could eliminate the need to collect actual
                           production data, making it difficult to return to the current method for
                           determining insurable value and loss.

                           Changes in the way the production histories are calculated could be costly
                           to insurance companies because of the need to create new software
                           programs and revise thousands of individual histories. According to some
                           insurance company officials, these revisions could undermine their
                           companies’ investments in databases.


Simplifying Catastrophic   This industry proposal would simplify catastrophic insurance in three
Insurance Coverage         ways. First, it would eliminate coverage for different acreages (fields),
                           which is now allowed when a farmer has different ownership-operator
                           agreements (shares) within a county. This proposal would require farmers
                           to buy a farmwide policy by crop, regardless of ownership arrangements,
                           and could reduce the companies’ administrative costs for selling and
                           servicing catastrophic crop insurance. Insuring on a farmwide basis by
                           crop would reduce the opportunity for farmers to create or enhance
                           claims by shifting reported production from one insured field to another.
                           (According to agency officials, some producers shift reported production
                           from one insured field to another in order to understate production on one
                           acreage, resulting in a fraudulent claim for that field.) This practice is
                           difficult to discover and document. However, according to farmers and
                           their associations, requiring them to buy farmwide policies would reduce
                           participation in the program because this change could reduce their
                           coverage. For example, assume a farmer insured two 100-acre fields with
                           actual production histories of 80 bushels of corn per acre. Under a
                           farmwide policy, the farmer would not receive a claims payment if one
                           field produced 40 bushels per acre and the other produced 120 bushels per
                           acre since the average farmwide production would be 80 bushels per acre,
                           which is equal to the farmer’s actual production history. Under a
                           field-by-field policy, the farmer could receive a claims payment on the field
                           that produced 40 bushels per acre because its yield was below the actual
                           production history.

                           The two remaining administrative simplification ideas under this proposal
                           include easing reporting requirements on production history and allowing
                           farmers to self-certify claims. For example, several companies said that
                           allowing farmers to report acreage by telephone and to self-certify claims



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                      below certain dollar limits could simplify their administrative processing
                      of claims. However, according to an RMA official, acreage reporting by
                      telephone could create legal problems if the farmer disputed the unsigned
                      acreage report. In addition, self-certification of claims could increase the
                      number and amount of fraudulent claims. Since this proposal was first
                      made, RMA has permitted self-certification of claims on a trial basis.


Changing Tolerances   Other industry proposals to reduce administrative costs are under
                      consideration by RMA and the industry. One proposal, increasing the
                      tolerances for acreage reporting and claims dollars paid, could affect the
                      program’s financial soundness.

                      Currently, insurance companies are required to seek reimbursement for
                      overpayments from farmers who incorrectly reported planted acres if the
                      overpayment exceeds $250. The proposed change would not require
                      reimbursement for an error less than $500. This change responds to crop
                      insurance companies’ concerns that it costs more than $250 to collect
                      small overpayments.

                      This proposal to increase tolerances could increase the amount of claims
                      filed and indemnities paid, according to an RMA official, once farmers
                      become aware of the higher tolerance. This could adversely affect the
                      soundness of the crop insurance program. However, it could also reduce
                      administrative costs and provide faster claims service. The costs and
                      savings associated with this proposed change have not been estimated.


                      Recent changes to RMA’s program for ensuring the accuracy of claims
Conclusions           payments appear to offer a good opportunity to maximize the limited
                      resources available to both the crop insurance companies and RMA.
                      However, until RMA has sound information on the level of improper claims
                      payments, it cannot evaluate, among other things, the effectiveness of the
                      new quality control program or the impact of these changes on the
                      program effectiveness. Such information is fundamental for basic program
                      management and proper control over the millions of federal dollars spent
                      each year for claims payments.


                      We recommend that the Secretary of Agriculture require the Administrator
Recommendation        of the Risk Management Agency to evaluate the costs of alternative
                      methods for developing more accurate estimates of error rates for claims



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                  payments and implement an alternative that would improve the estimate at
                  a reasonable cost to the federal government. Alternatives that could be
                  considered include (1) having the Risk Management Agency sample and
                  analyze a sufficient number of claims to make an estimate and (2) using
                  the claims sampling done by the insurance companies under the quality
                  control program to make the estimate.


                  We provided copies of a draft of this report to USDA’s Risk Management
Agency Comments   Agency for review and comment. We met with officials from the Risk
                  Management Agency, including the Agency Administrator. USDA generally
                  agreed with the information provided in our report and the report’s
                  conclusions and recommendation. The agency provided a number of
                  technical changes and clarifications to the report, which we incorporated
                  as appropriate.


                  To determine the extent to which crop insurance claims are paid in error
Scope and         and compare this rate with the experience of other types of insurance, we
Methodology       reviewed agency documentation and discussed with RMA and insurance
                  company officials their efforts to determine error rates. We also contacted
                  a number of insurance companies to determine how federal crop
                  insurance claims paid in error compare with other types of insurance,
                  such as property and casualty. Furthermore, we discussed with program
                  officials other federal programs, including Medicare and federal flood
                  insurance, which periodically measure their claims paid in error.

                  To review RMA’s internal controls over claims payments for crop losses, we
                  reviewed agency documentation and discussed with agency and insurance
                  company officials their efforts to improve their quality control programs.
                  We also discussed with USDA’s OIG its recommendations for improving
                  USDA’s efforts in reducing crop insurance claims paid in error.
                  Furthermore, we reviewed a series of OIG reports dating from 1983 that
                  have commented on the extent to which crop insurance claims have been
                  paid in error and on the weaknesses in federal and insurance companies’
                  controls over claims payments for crop losses.

                  To identify opportunities to reduce administrative requirements that may
                  contribute to erroneous claim payments and/or increase costs for the
                  insurance companies, we contacted National Crop Insurance Services,
                  Inc., an industry association for crop insurance companies; several
                  participating crop insurance companies; RMA; several private insurance



                  Page 12                                        GAO/RCED-99-266 Crop Insurance
           B-283433




           agents and farmers representing different regions of the country; and
           associations representing major commodities insured by federal crop
           insurance. We discussed with these officials how a proposed change might
           affect program simplicity, savings, and soundness. To identify changes
           already made, we contacted RMA officials to obtain a summary of
           simplification actions completed.

           We performed our review from January 1999 through September 1999 in
           accordance with generally accepted government auditing standards.
           Although we did not independently assess the accuracy and reliability of
           USDA’s computerized databases, we used the same files USDA uses to
           manage the crop insurance program, which are the only available data.


           We are sending copies of this report to Senator Richard Lugar, Chairman,
           and Senator Tom Harkin, Ranking Minority Member, Senate Committee on
           Agriculture, Nutrition, and Forestry; Representative Larry Combest,
           Chairman, House Committee on Agriculture; and other appropriate
           congressional committees. We are also sending copies to the Honorable
           Dan Glickman, the Secretary of Agriculture; the Honorable Kenneth
           Ackerman, Administrator, the Risk Management Agency; and the
           Honorable Jacob Lew, Director, Office of Management and Budget; and
           other interested parties. Copies will also be made available to others upon
           request.

           Please contact me at (202) 512-5138 if you or your staff have any questions
           about this report. Key contributors to this report were Ronald E.
           Maxon, Jr.; Sheldon H. Wood, Jr.; Robert G. Hammons; Jay Scott; David A.
           Rogers; and Carol Herrnstadt Shulman.

           Sincerely yours,




           Robert E. Robertson
           Associate Director, Food
             and Agriculture Issues



(150087)   Page 13                                        GAO/RCED-99-266 Crop Insurance
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