WASHINGTON – Senator Chuck Grassley today continued questioning the U.S. Department of Agriculture following a Government Accountability Office report that revealed the Agriculture Department had paid $1.1 billion in farm payments to deceased individuals.
Grassley is concerned about billions of dollars of farm payments going out on October 1 without the necessary checks to ensure that improper payments aren’t being made as outlined in the Government Accountability Office report.
A hearing in the Senate Finance Committee today also showed a major flaw in the farm payment system. The information from the hearing made it appear that a farmer has more to lose if he is honest and certifies to the Department of Agriculture that the participant in the program has died.
“In 1987 we passed a law that said a person must be actively engaged in the business of farming before they could receive a farm payment. It’s a mystery to me how a dead farmer can be actively engaged. As far as I know, the only way dead farmers can be actively engaged is if they're pushing up daisies,” Grassley said. “I’ll be interested to see how the Department has progressed on these new issues as well as the problems that were brought to light in 2004.”
Grassley’s letter and questions to Department of Agriculture Secretary Mike Johanns outlined several concerns he had regarding the Department’s payments to dead farmers as well as status updates on questions brought forward in a 2004 Government Accountability Office report on farm payments.
July 24, 2007
The Honorable Mike Johanns
Secretary of Agriculture
Department of Agriculture
1400 Independence Avenue, NW
Washington, DC20250
Dear Mr. Secretary:
Today the Government Accountability Office (GAO) will be presenting a report to the Senate Finance Committee titled “USDA Needs to Strengthen Controls to Prevent Improper Payments to Estates and Deceased Farmers.” This report is a follow-up to another GAO report issued in April of 2004 titled “USDA Needs to Strengthen Regulations and Oversight to Better Ensure Recipients Do Not Circumvent Payment Limitations.” This report was also presented during a Senate Finance Committee hearing. I am worried that it seems there has not been any progress made in the last three years on this issue. Attached please find several questions I have composed for today’s hearing. As we work on reauthorization of the Farm Bill, it is very important that these issues are addressed. I expect responses to these questions. Furthermore, I expect substantial progress on this issue prior to the October 1, 2007 Farm Bill payments being issued.
Sincerely,
Senator Charles Grassley
Ranking Member
Questions for USDA:
1. Today GAO recently reported that USDA made farm program payments to estates more that 2 years after recipients died, without first determining, as required by regulations, whether the estates were kept open primarily to receive these payments.
For example, from 1999 through 2005, USDA did not conduct any eligibility determinations for 73, or 40 percent, of the 181 estates GAO reviewed. In addition, 69 of the remaining 108 estates did not receive annual determinations for every year of payments received. And of the remaining 39 estates, GAO generally found problems with the determinations done, such as missing or insufficient documentation explaining reasons for keeping the estate open.
What actions does USDA plan to take to ensure that its field offices are capable of doing the following: (1) complete required eligibility determinations and (2) adequately document the reasons for continuing payments beyond 2 years after the recipient's death?
2. In your testimony, you stated USDA issued a notice emphasizing FSA’s current payment rules, procedures, and review requirements for payments with respect to deceased individuals and estates. This directive instructs all field offices to review all estates in existence more than 2 years and that have requested 2007 program benefits; this review is to be completed and eligibility updated as necessary by August 31, 2007.
What is the status of this initiative? What other steps are being considered for future years to ensure that required eligibility determinations are completed, performed consistently across states, and documented adequately?
3. Today in GAO’s testimony when they compared USDA's payments databases to SSA's Death Master File, GAO found that USDA paid $1.1 billion in farm program payments in the names of 172,801 individuals during the period, 1999 through 2005. Of this total, 40 percent went to those who had been dead for 3 or more years, and 19 percent to those dead for 7 or more years. Over on-half of these payments were made to deceased individuals through entities.
What actions does USDA plan to take to recover at least part of these funds?
4. Your testimony indicated that USDA will work with SSA to obtain access to the Death Master File and develop a process for matching the respective agency's data on at least an annual basis. I believe that it is very important to accomplish that goal prior to issuing any new checks in October.
What is the status of this effort with Social Security and what is the time frame for its completion?
5. In its report, GAO found that more than $1 billion in farm program payments went to individuals after they had died. Over one-half (58 percent) these payments, or $648 million, went to deceased individuals indirectly-that is, as members of entities. According to GAO, in many large farming operations, one individual often holds signature authority for the entire operation, which may include multiple members or entities. This individual may be the only contact USDA has with the operation; therefore, UDSA cannot always know that each member of the operation is represented accurately to USDA by the signing individual.
In addition to conducting computer matching of the Social Security Administration master death file to strengthen management controls in this area.
What other management controls are needed?
6. In its FY 2006 Performance and Accountability Report, USDA identified six farm programs susceptible to significant risk of improper payments with estimated improper payments totaling over $2.8 billion in fiscal year 2006. Those programs with improper payments included Conservation Reserve Program and Disaster Assistance Programs.
What actions has USDA taken to reduce this level of improper payments? What additional actions are planned?
7. In 2004, GAO documented widespread abuse related to the requirement that recipients of farm program payments be actively engaged in farming. GAO found that the abuse resulted from a lack of any measurable standard to determine whether payments are being made to actual working farmers or to participants in sham partnerships designed to avoid payment limitations. GAO recommended, among other things, that USDA develop and enforce measurable requirements defining a significant contribution of active personal management. I would note that the U.S. Internal Revenue Service uses 500 hours to determine material participation in a business enterprise.
Why has USDA not implemented this recommendation?
8. In a typical example, in 2004 GAO documented a farming operation that received more than $5 million in federal farm program payments on its over 50,000 acres and that was comprised of a general partnership with dozens of corporations embedded within the partnership. The farming operation had close links to one individual who directly, or through his commercial enterprises, provided the farming operation with almost all of its land, capital, and equipment, as well as its seed, fuel, and other supplies. On the output side, this individual's rice and cotton processing facilities received most of the farming operation's production. In effect, the farming operation was being used to funnel the farm program payment to the one individual. GAO recommended that USDA clarify its regulations and guidance as to what constitutes a scheme and device.
What action has USDA taken to implement this recommendation?
9. In its 2004 testimony and report, GAO made other recommendations to USDA for improving its oversight of compliance with the Agricultural Reconciliation Act of 1987 Act--the foundation for most farm program payment rules. These recommendations to USDA include improving its sampling method for selecting farming operations for review; and developing management controls to ensure all available tools are used to assess compliance with the act.
What has been USDA's progress in implementing these recommendations?
10. In 2004, GAO reported to this committee that USDA's regulations lack clarity as to whether certain transactions and farming operation structures that GAO found could be considered schemes or devices to evade, or that have the effect of evading, payment limitations. For example, GAO found examples of farming operations where recipients may circumvent the payment limits by organizing large farming operations to maximize program payments and then channeling the payments to affiliated non-farming operations, such as financial services companies or crop processing companies that are owned by one or a few individuals. Among other things, GAO recommended that USDA (1) develop measurable requirements defining a significant contribution of active personal management and (2) clarify regulations and guidance as to what constitutes a scheme or device to effectively evade payment limitations.
What steps has USDA taken to implement these recommendations made in GAO's report?