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Agricultural News


New GAO Study Recommends Limiting Crop Insurance Subsidies, Reducing Fraud and Abuse

Thu, 12 Apr 2012 19:05:45 CDT

New GAO Study Recommends Limiting Crop Insurance Subsidies, Reducing Fraud and Abuse
A new GAO study says the government can save over $1 billion each year in crop insurance costs by limiting premium subsidies on individual farmers or reducing subsidies for all farmers. The study says additional savings could be found through the elimination of fraud and waste if field inspections were completed on farmers who claim payments that are higher or more frequent than others in the same area.

Senator Tom Coburn agreed with the report and thinks the reforms called for by the GAO would not only save money, but would encourage new farmers.

"This report shows that Congress could cap premium subsidies at $40,000 and save taxpayers $1 billion. High premium subsidies have hurt small and beginning farmers because the subsidies themselves have distorted the market. For instance, high subsidies have artificially increased the value of land and have created other barriers to entry and expansion. I applaud GAO for providing Congress with yet another way to save taxpayer dollars and reform government," Coburn said.

The GAO selected $40,000 as an example of a potential subsidy limit because it is the limit for direct payments, which provide fixed annual payments to farmers based on a farm's crop production history. Had such a limit been applied in 2011, it would have affected up to 3.9 percent of all participating farmers, who accounted for about one-third of all premium subsidies and were primarily associated with large farms.

Since 2001, USDA has used data mining tools to prevent and detect fraud, waste, and abuse by either farmers or insurance agents and adjusters but has not maximized the use of these tools to realize potential additional savings.

USDA's Risk Management Agency (RMA), which is responsible for overseeing the integrity of the crop insurance program, has used data mining to identify farmers who received claim payments that are higher or more frequent than others in the same area. USDA informs these farmers that at least one of their fields will be inspected during the coming growing season, but does not complete all such inspections.   

For example, RMA did not obtain field inspection results for about 20 percent and 28 percent of these farmers, respectively, in 2009 and 2010. As a result, not all of the farmers RMA identified were subject to a review, increasing the likelihood that fraud, waste, or abuse occurred without detection.

Past cases have revealed that some farmers may harvest a high-yielding crop, hide its sale, and report a loss to receive an insurance payment.

The GAO study calls for Congress to consider limiting premium subsidies especially at a time when farm income is relatively high. The report noted that the USDA did not agree that Congress should consider such limits. The report did say, however, that the USDA did agree with encouraging the completion of field inspections.

The full GAO study is available by clicking here.


   

 

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