USDA Lacks Controls Over Crop Insurance Claims

September 27, 1999

The General Accounting Office says USDA has no precise estimates of the extent to which improper crop insurance claims are made. GAO questions the method used by the Risk Management agency and says erroneous claims probably are greater than RMA estimates.

RMA's methodology was based on "an inadequate sample size and did not include the results of timely, on-site reviews to detect errors resulting from fraud," GAO says. "Although information on payments 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 RMA reports for crop insurance."

GAO provided copies of a draft of the report to RMA for review and comment and met with RMA officials. USDA officials "generally agreed with the information provided in our report and the report's conclusions and recommendation," says GAO. RMA provided technical changes and clarifications which were incorporated "as appropriate."

RMA and crop insurance companies revised the process for examining the accuracy of paid claims in 1998, GAO continues. Previously, RMA 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," says GAO. The companies use RMA guidance to ensure the sampled claims were properly paid.

"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 RMA's oversight of the process," GAO adds.

RMA and the companies are considering proposals to simplify administrative requirements in three areas: developing alternatives to producers' actual production histories; 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," says GAO. "For example, while some simplification proposals could reduce the companies' administrative costs, these proposals could also increase claims payments which would increase government costs."

To access the entire report on the Internet, the address is http://www.gao.gov/new.items/rc99266.pdf.