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GAO Reveals Potential Farm Payment Snafus

Report shows potentially erroneous FSA and NRCS payments based on income; GAO recommends simplifying payment requirements

Published on: Aug 30, 2013

According to a Government Accountability Office audit released this week, two USDA agencies responsible for administering a majority of farm payments may have paid out to ineligible individuals.

The payments, divvied out by the Farm Service Agency and Natural Resources Conservation Service, were potentially ineligible because recipients exceeded qualifying income limits.

The audit is an extension of a previous audit completed in 2008 that recommended improved oversight on the part of FSA and NRCS to ensure payments were not going to ineligible individuals. Currently, individuals are ineligible to receive payments under some farm programs if his or her average adjusted gross income exceeds $500,000. For some programs, the cap is higher at $750,000. Additionally, conservation payments are generally only offered if AGI is under $1 million.

Report shows potentially erroneous FSA and NRCS payments based on income; GAO recommends simplifying payment requirements
Report shows potentially erroneous FSA and NRCS payments based on income; GAO recommends simplifying payment requirements

The latest review was completed due to renewed interest in farm payments as a result of federal budget questions and the cost of federal farm programs, GAO said. Senate Agriculture Committee Chairwoman Debbie Stabenow, D-Mich., ordered the study.

In addition to meeting income requirements, state agency offices must also collect participants' tax returns or a signed statement from an attorney or accountant to verify a payee's income. For the FSA, consent forms allowing the Internal Revenue Service to share some information with the agency are also required.

However, GAO says investigators found some participant files had incomplete or inaccurate information that did not meet agency guidance or contained errors.

For example, GAO found errors in 19 of the 22 tax return files it reviewed from FSA offices in two states. One of the errors led to a potentially improper payment of $40,000. Some required attorney or accountant statements also contained inaccuracies or miscalculations.

In total, GAO reviewed 115 tax return files and 163 files with accountant/attorney income records from 18 state FSA offices selected as a representative sample.

While there were errors, GAO points out that the number of errors when compared to the number of program participants, taking 2010 for example, was less than 1%.

The GAO says errors identified will soon be corrected as FSA and NRCS are responsible for recovering any improper payments. In May, 2012, FSA began the process of recovering about $143 million in overpayments made in 2009 and 2010. NRCS is expected to begin collecting overpayments by September, 2013.

Room for improvement

As the latest report represented an update from a previous audit, the GAO says it's just as important now to make previous recommendations are being taken into consideration and accuracy is advancing.

"As nationwide fiscal pressures continue, and farm incomes remain high, it is crucial to ensure that limited taxpayer dollars are spent to support only eligible farm and conservation program participants," GAO concluded.

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However, GAO said FSA offices haven't always followed statutory guidance, and reviews of participants' required documents vary in quality. Without better reviews or guidance from state offices, local errors could continue. And, GAO admits that while the income caps stipulated in the 2008 farm bill remain in effect, it is difficult to accurately classify farm income and non-farm income when reviewing tax returns, leading to a variety of errors.

"Without simplification of these provisions, this difficulty—and the resulting errors—are likely to persist, along with payments to some ineligible participants," GAO said.

Changes ahead?

As the September 2013 expiration of the 2008 Farm Bill extension nears, legislators this summer have been concerned with reforming the programs in per recent farm bill discussions. Both the Senate and House 2013 Farm Bills each include provisions to apply a single limit on individual adjusted gross income for a majority of farm programs, which the GAO says could also decrease the number of total program participants.

For the House, the AGI limit is $950,000, while the Senate proposed an AGI limit of $750,000. Though both proposals have been approved independently, the House and Senate have not yet considered the measure in conference committee.

The Senate's farm bill also included a provision that would reduce subsidies for crop insurance premiums by 15 percentage points for participants with average adjusted gross income over $750,000.

Read the GAO's full report and a letter to Sen. Stabenow: Farm Programs: Additional Steps Needed to Help Prevent Payments to Participants Whose Incomes Exceed Limits.