[House Hearing, 111 Congress]
[From the U.S. Government Publishing Office]



                       HEARING TO REVIEW THE USDA
            ADMINISTRATION OF CONSERVATION PROGRAM CONTRACTS

=======================================================================

                                HEARING

                               BEFORE THE

                 SUBCOMMITTEE ON CONSERVATION, CREDIT,
                          ENERGY, AND RESEARCH

                                 OF THE

                        COMMITTEE ON AGRICULTURE
                        HOUSE OF REPRESENTATIVES

                     ONE HUNDRED ELEVENTH CONGRESS

                             FIRST SESSION

                               __________

                             MARCH 25, 2009

                               __________

                            Serial No. 111-3


          Printed for the use of the Committee on Agriculture
                         agriculture.house.gov





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                        COMMITTEE ON AGRICULTURE

                COLLIN C. PETERSON, Minnesota, Chairman

TIM HOLDEN, Pennsylvania,            FRANK D. LUCAS, Oklahoma, Ranking 
    Vice Chairman                    Minority Member
MIKE McINTYRE, North Carolina        BOB GOODLATTE, Virginia
LEONARD L. BOSWELL, Iowa             JERRY MORAN, Kansas
JOE BACA, California                 TIMOTHY V. JOHNSON, Illinois
DENNIS A. CARDOZA, California        SAM GRAVES, Missouri
DAVID SCOTT, Georgia                 MIKE ROGERS, Alabama
JIM MARSHALL, Georgia                STEVE KING, Iowa
STEPHANIE HERSETH SANDLIN, South     RANDY NEUGEBAUER, Texas
Dakota                               K. MICHAEL CONAWAY, Texas
HENRY CUELLAR, Texas                 JEFF FORTENBERRY, Nebraska
JIM COSTA, California                JEAN SCHMIDT, Ohio
BRAD ELLSWORTH, Indiana              ADRIAN SMITH, Nebraska
TIMOTHY J. WALZ, Minnesota           ROBERT E. LATTA, Ohio
STEVE KAGEN, Wisconsin               DAVID P. ROE, Tennessee
KURT SCHRADER, Oregon                BLAINE LUETKEMEYER, Missouri
DEBORAH L. HALVORSON, Illinois       GLENN THOMPSON, Pennsylvania
KATHLEEN A. DAHLKEMPER,              BILL CASSIDY, Louisiana
Pennsylvania                         CYNTHIA M. LUMMIS, Wyoming
ERIC J.J. MASSA, New York
BOBBY BRIGHT, Alabama
BETSY MARKEY, Colorado
FRANK KRATOVIL, Jr., Maryland
MARK H. SCHAUER, Michigan
LARRY KISSELL, North Carolina
JOHN A. BOCCIERI, Ohio
EARL POMEROY, North Dakota
TRAVIS W. CHILDERS, Mississippi
WALT MINNICK, Idaho

                                 ______

                           Professional Staff

Robert L. Larew, Chief of Staff      Nicole Scott, Minority Staff 
Andrew W. Baker, Chief Counsel       Director
April Slayton, Communications 
Director

                                  (ii)


       Subcommittee on Conservation, Credit, Energy, and Research

                   TIM HOLDEN, Pennsylvania, Chairman

STEPHANIE HERSETH SANDLIN, South     BOB GOODLATTE, Virginia, Ranking 
Dakota                               Minority Member
DEBORAH L. HALVORSON, Illinois       JERRY MORAN, Kansas
KATHLEEN A. DAHLKEMPER,              SAM GRAVES, Missouri
Pennsylvania                         MIKE ROGERS, Alabama
BETSY MARKEY, Colorado               STEVE KING, Iowa
MARK H. SCHAUER, Michigan            RANDY NEUGEBAUER, Texas
LARRY KISSELL, North Carolina        JEAN SCHMIDT, Ohio
JOHN A. BOCCIERI, Ohio               ADRIAN SMITH, Nebraska
MIKE McINTYRE, North Carolina        ROBERT E. LATTA, Ohio
JIM COSTA, California                BLAINE LUETKEMEYER, Missouri
BRAD ELLSWORTH, Indiana              GLENN THOMPSON, Pennsylvania
TIMOTHY J. WALZ, Minnesota           BILL CASSIDY, Louisiana
ERIC J.J. MASSA, New York
BOBBY BRIGHT, Alabama
FRANK KRATOVIL, Jr., Maryland
WALT MINNICK, Idaho
EARL POMEROY, North Dakota
------

               Nona Darrell, Subcommittee Staff Director

                                 (iii)


















                             C O N T E N T S

                              ----------                              
                                                                   Page
Goodlatte, Hon. Bob, a Representative in Congress from Virginia, 
  opening statement..............................................     3
    Prepared statement...........................................     3
Holden, Hon. Tim, a Representative in Congress from Pennsylvania, 
  opening statement..............................................     1
    Prepared statement...........................................     2
Peterson, Hon. Collin C., a Representative in Congress from 
  Minnesota, opening statement...................................     4
    Prepared statement...........................................     5

                               Witnesses

Stephenson, Robert, Acting Deputy Administrator for Field 
  Operations, Farm Service Agency, U.S. Department of 
  Agriculture, Washington, D.C.; accompanied by Candy Thompson, 
  Acting Deputy Administrator for Farm Programs, Farm Service 
  Agency, U.S. Department of Agriculture.........................     6
    Joint prepared statement.....................................     8
White, Dave, Chief, Natural Resources Conservation Service, U.S. 
  Department of Agriculture, Washington, D.C.....................    14
    Joint prepared statement.....................................     8
Tighe, Kathleen S., Deputy Inspector General, Office of the 
  Inspector General, U.S. Department of Agriculture, Washington, 
  D.C............................................................    30
    Prepared statement...........................................    31
Shames, Lisa, Director, Natural Resources and Environment, U.S. 
  Government Accountability Office, Washington, D.C..............    35
    Prepared statement...........................................    36
Jurich, John J., Investigator, Committee on Agriculture, U.S. 
  House of Representatives, Washington, D.C......................    47
    Prepared statement...........................................    49

                          Submitted Questions

Response to submitted questions..................................    57

 
                       HEARING TO REVIEW THE USDA
            ADMINISTRATION OF CONSERVATION PROGRAM CONTRACTS

                              ----------                              


                       WEDNESDAY, MARCH 25, 2009

                  House of Representatives,
 Subcommittee on Conservation, Credit, Energy, and 
                                          Research,
                                  Committee on Agriculture,
                                                   Washington, D.C.
    The Subcommittee met, pursuant to call, at 10:00 a.m., in 
Room 1300 of the Longworth House Office Building, Hon. Tim 
Holden [Chairman of the Subcommittee] presiding.
    Members present: Representatives Holden, Halvorson, 
Dahlkemper, Markey, Schauer, Peterson (ex officio), Boccieri, 
Massa, Minnick, Goodlatte, Moran, Pomeroy, Schmidt, Smith, 
Luetkemeyer, and Thompson.
    Staff present: Nona Darrell, Adam Durand, Tyler Jameson, 
John Konya, Robert L. Larew, Anne Simmons, April Slayton, 
Rebekah Solem, Kristin Sosanie, Patricia Barr, Tamara Hinton, 
Josh Maxwell, Pelham Straughn, and Jamie Mitchell.

   OPENING STATEMENT OF HON. TIM HOLDEN, A REPRESENTATIVE IN 
                   CONGRESS FROM PENNSYLVANIA

    The Chairman. This hearing of the Subcommittee on 
Conservation, Credit, Energy, and Research to review the USDA 
administration of conservation program contracts will come to 
order.
    I would like to welcome our witnesses to today's hearing. 
In this hearing, we hope to examine how the U.S. Department of 
Agriculture administers conservation program contracts and 
whether USDA has been a good manager. The Inspector General's 
recent audit of the Natural Resources Conservation Service 
showed that NRCS was unable to provide sufficient evidence to 
support certain transactions and account balances. The agency 
was not able to fix the problems before the audit concluded. 
The agency failed to provide proper oversight of its contracts 
and obligations, and the audit identified weaknesses in 
accounting and controls in many areas. I hope the agency can 
learn from the results and be a better manager of its funding.
    There is a question that we heard a lot in the news lately: 
where did the money go? The taxpayers are asking for 
accountability and responsibility with their dollars. I hope we 
will hear the answers to other questions as well: where are the 
problems, what needs to be fixed and why did this happen. We 
must ensure that the NRCS and FSA are effective and efficient 
in the administration of conservation programs, and also 
following through with contract obligations. We must ensure 
that contracts are completed to receive the best result for the 
environment. We must ensure that taxpayer dollars are used 
properly to receive the best outcome for the effort.
    We made substantial funding increases in the 2008 Farm Bill 
and we all worked long and hard to reauthorize and make needed 
changes to USDA programs. We know that conservation funds have 
allowed many farmers to meet environmental regulations in this 
changing industry. Conservation programs assist our farmers and 
ranchers in strengthening their environmental stewardship. We 
know that USDA has supported farmers in being good stewards of 
the land. We know that we need NRCS to be better stewards of 
the taxpayers' money.
    I am extremely interested in hearing what our witnesses say 
today. I hope we can then move forward to improve 
administration of conservation programs and ensure 
agriculture's continued role in conservation.
    [The prepared statement of Mr. Holden follows:]

  Prepared Statement of Hon. Tim Holden, a Representative in Congress 
                           from Pennsylvania
    I would like to welcome our witnesses to today's hearing. In this 
hearing, we hope to examine how the U.S. Department of Agriculture 
administers conservation program contracts, and whether USDA has been a 
good manager.
    The Inspector General's recent audit of the Natural Resources 
Conservation Service showed that NRCS was unable to provide sufficient 
evidence to support certain transactions and account balances; the 
agency was not able to fix the problems before the audit concluded. The 
agency failed to provide proper oversight of its contracts and 
obligations, and the audit identified weaknesses in accounting and 
controls in many areas.
    I hope the agency can learn from the results, and be a better 
manager of its funding.
    There's a question we've heard in the news a lot lately: Where did 
the money go? The taxpayers are asking for accountability and 
responsibility with their dollars.
    I hope we will hear the answers to other questions, as well: Where 
are the problems? What needs to be fixed? Why did this happen?
    We must ensure that NRCS and FSA are effective and efficient in the 
administration of conservation programs, and also following through 
with contract obligations. We must ensure that contracts are completed 
to receive the best result for the environment. We must ensure that 
taxpayer dollars are used properly to receive the best outcome for the 
effort.
    We made substantial funding increases in the 2008 Farm Bill, and we 
all worked long and hard to reauthorize and make needed changes to USDA 
programs.
    We know that conservation funds have allowed many farms to meet 
environmental regulations in this changing industry. Conservation 
programs assist our farmers and ranchers in strengthening their 
environmental stewardship.
    We know that USDA has supported farmers in being good stewards of 
the land. We know that we need NRCS to be better stewards of taxpayer 
money.
    I am extremely interested in hearing what our witnesses say today. 
I hope we can then move forward to improve administration of 
conservation programs, and ensure agriculture's continued role in 
conservation. Thank you for being here today.

    The Chairman. Thank you for being here today, and I now 
recognize the Ranking Member of the Subcommittee, the gentleman 
from Virginia, Mr. Goodlatte.

 OPENING STATEMENT OF HON. BOB GOODLATTE, A REPRESENTATIVE IN 
                     CONGRESS FROM VIRGINIA

    Mr. Goodlatte. Thank you, Mr. Chairman, and I would like to 
thank you for calling today's hearing to review the USDA 
administration of conservation contracts.
    Since 1985, farm bills have increased the size and 
complexity of conservation programs to meet the needs of 
individual constituencies. Today there are a number of programs 
that assist producers in being good stewards of the land. 
However, these programs can also be duplicative in nature and 
create inefficiencies. Some of the testimony we will hear today 
speaks to the fact that we have multiple programs that have 
similar or overlapping purposes. In my district, I have one 
progressive producer who in an attempt to address water quality 
and quantity needs has used six different programs on her farm: 
CRP, CREP, EQIP, GRP, WHIP, and CSP. Each one of these programs 
has its own set of rules, its own applications and its own 
rankings and evaluations. I believe we missed a great 
opportunity in the 2008 Farm Bill to streamline and simplify 
the delivery of conservation programs. That was a time to look 
at the programs as a whole to see if there were any overlapping 
missions and goals, to see if programs were working as 
effectively as they can, to see if money used for such programs 
was sent efficiently. We owe it to the producers and landowners 
to create programs that work toward on-the-ground conservation. 
We owe it to the American taxpayer to manage those programs so 
every dollar spent is accounted for and used wisely.
    Throughout today's hearing, I hope to learn more about the 
implementation of the 2008 Farm Bill. My constituents in 
Virginia continue to ask about how programs will operate in 
their final form so they can determine what practices they will 
be doing this year. It has been 8 months since the enactment of 
the farm bill and I still can't give them an answer.
    Again, I thank you, Mr. Chairman, for holding this hearing 
and I look forward to hearing the testimony from today's 
witnesses.
    [The prepared statement of Mr. Goodlatte follows:]

Prepared Statement of Hon. Bob Goodlatte, a Representative in Congress 
                             from Virginia
    Mr. Chairman, I would like to thank you for calling today's hearing 
to review the USDA administration of conservation contracts.
    Since 1985, farm bills have increased the size and complexity of 
conservation programs to meet the needs of individual constituencies. 
Today, there are a number of programs that assist producers in being 
good stewards of the land. However, these programs can also be 
duplicative in nature and create inefficiencies.
    Some of the testimony we will hear today speaks to the fact that we 
have multiple programs that have similar or overlapping purposes. In my 
district, I have one progressive producer who, in an attempt to address 
water quality and quantity needs, has used six different programs on 
her farm (CRP, CREP, EQIP, GRP, WHIP, and CSP). Each one of these 
programs has its own set of rules, its own applications, and its own 
rankings and evaluations.
    I believe we missed a great opportunity in the 2008 Farm Bill to 
streamline and simplify the delivery of conservation programs. That was 
a time to look at the programs as a whole to see if there were any 
overlapping missions and goals, to see if programs were working as 
effectively as they can, to see if money used for such programs was 
spent efficiently.
    We owe it to the producers and landowners to create programs that 
work toward on-the-ground conservation. We owe it to the American 
taxpayer to manage those programs so every dollar spent is accounted 
for and used wisely.
    Throughout today's hearing, I hope to learn more about the 
implementation of the 2008 Farm Bill. My constituents in Virginia 
continue to ask about how programs will operate in their final form so 
they can determine what practices they will be doing this year. It has 
been 8 months since the enactment of the farm bill and I still can't 
give them an answer.
    Again, thank you Mr. Chairman for holding this hearing. I look 
forward to hearing the testimony from today's witnesses.

    The Chairman. The chair thanks the gentleman and recognizes 
the Chairman of the full Committee, Mr. Peterson.

OPENING STATEMENT OF HON. COLLIN C. PETERSON, A REPRESENTATIVE 
                   IN CONGRESS FROM MINNESOTA

    Mr. Peterson. I thank the Chairman and the Ranking Member 
for their hard work in leading this Subcommittee, and thank you 
for calling today's hearing.
    Today's hearing is an important look at the effectiveness 
of the major part of USDA's mission. Today's witnesses 
conducted separate reviews and focused on different parts of 
USDA's conservation mission, yet all of them call into question 
the effectiveness of NRCS and FSA conservation program 
management. The OIG's audit conducted last year concluded that 
the NRCS lacks the proper controls in place to consistently 
monitor programs and contracts. Auditors found problems with 
obligations, state reimbursements, accruals, leases, financial 
reporting and overall lack of documentation for many contracts. 
In some cases, documentation was so poor that auditors did not 
have enough information with which to complete the audit. 
Although NRCS has begun to review their policies and procedures 
in response to this audit, we will be keeping a close eye on 
their management practices.
    A recent GAO report found that USDA lacks the necessary 
controls to provide Federal farm program payments to 
individuals who exceed income eligibility limits. However, USDA 
has recently addressed this by announcing last week that they 
would request waivers from producers, which will grant the IRS 
the authority to provide the USDA with income verification for 
program eligibility. While it is early in the process, this 
could be a step in the right direction when it comes to making 
sure that program payments go only to those who are eligible.
    With these reports in mind, I asked our Committee 
Investigator to look at Wetlands Reserve and Wildlife Habitat 
Incentive Programs project files over the past 10 years, with 
an emphasis on the largest easements and restoration agreements 
both in terms of acreage and dollar amount. I asked him to 
review the eligibility requirements both for land and for 
income, whether the land and the owners met the basic 
requirements for participation in these conservation programs. 
In many cases he found the adjusted gross income requirements 
and 12 month ownership requirements were not followed, or if 
they were, they were not properly accounted for in the program 
files. His findings also echo OIG's findings regarding poor 
documentation and tracking of contracts including annual 
monitoring of easements and restoration projects required by 
both programs. Spotty billing and accounting were also 
prevalent in many of the files. Some of the program files make 
it difficult to tell what, if any, restoration work has been 
done on many of these program sites. The lack of follow-up from 
NRCS or FSA once an easement is filed, or a restoration 
agreement is made, raises questions of what actually happens to 
the sites after the money is obligated.
    While there may not be a smoking gun of improper payments 
or outright fraud in any of these examinations, the perception 
that an agency with such an important mission cannot do its job 
effectively is not acceptable. Those of us who still have fresh 
memories of negotiating the farm bill remember the tough 
choices all of us had to make on the conservation title. That 
explains why today's hearing is so important, and why this 
Committee will make sure that those eligible for conservation 
programs will be the ones getting them.
    So I thank today's witnesses for being here and look 
forward to the testimony, and again I thank the Chairman and 
the Ranking Member for their hard work.
    [The prepared statement of Mr. Peterson follows:]

  Prepared Statement of Hon. Collin C. Peterson, a Representative in 
                        Congress from Minnesota
    Thank you, Chairman Holden for calling today's hearing and for the 
work you have done on farm and conservation programs for this 
Committee.
    Today's hearing is an important look at the effectiveness of a 
major part of USDA's mission: to assist farmers, ranchers and 
landowners with the conservation of soil, water, and other natural 
resources.
    Today's witnesses conducted separate reviews and focused on 
different parts of USDA's conservation mission. Yet all of them call 
into question the effectiveness of NRCS and FSA conservation program 
management.
    OIG's audit, conducted last year, concluded that NRCS lacks the 
proper controls in place to consistently monitor programs and 
contracts. Auditors found problems with open obligations, state 
reimbursements, accruals, leases, financial reporting, and overall lack 
of documentation for many contracts. In some cases, documentation was 
so poor that the auditors did not have enough information with which to 
complete the audit. Although NRCS has begun to review their policies 
and procedures in response to this audit, we will be keeping a close 
eye on their management practices.
    A recent GAO report found that USDA lacks the necessary controls to 
prevent Federal farm program payments to individuals who exceed income 
eligibility limits. However, USDA has recently addressed this by 
announcing last week that they will request waivers from producers 
which will grant the IRS the authority to provide the USDA with income 
verification for program eligibility. While it is early in the process, 
this could be a step in the right direction when it comes to making 
sure program payments go only to those who are eligible.
    With these reports in mind, I asked our Committee Investigator to 
look at Wetland Reserve and Wildlife Habitat Incentives Programs 
project files over the past 10 years, with an emphasis on the largest 
easements and restoration agreements, both in terms of acreage and 
dollar amount. I asked him to review eligibility requirements both for 
the land and for income--whether the land and the owners met the basic 
requirements for participation in these two conservation programs. In 
many cases, he found the adjusted gross income requirements and 12 
month ownership requirements were not followed, or if they were, they 
were not properly accounted for in the program files.
    His findings also echo OIG's regarding poor documentation and 
tracking of contracts, including annual monitoring of the easements and 
restoration projects required by both programs. Spotty billing and 
accounting were also prevalent in many of the files. Some of the 
program files make it difficult to tell what, if any, restoration work 
had been done on many of these program sites. The lack of follow-up 
from NRCS or FSA once an easement is filed or a restoration agreement 
is made raises the question of what actually happens to the sites after 
the money is obligated.
    While there may not be a smoking gun of improper payments or 
outright fraud in any of these examinations, the perception that an 
agency with such an important mission cannot do its job effectively is 
not acceptable.
    Those of us who still have fresh memories of negotiating the farm 
bill remember the tough choices all of us had to make on the 
conservation title. That explains why today's hearing is so important 
and why this Committee will make sure that only those eligible for 
conservation programs will be the ones getting them.
    I thank today's witnesses for being here and I look forward to 
their testimony. Thank you, Chairman Holden, and I yield back.

    The Chairman. The chair thanks the Chairman for his 
statement and I will remind all our Members, they are welcome 
to submit opening statements for the record.
    We will now welcome our first panel. Mr. Robert Stephenson, 
acting Deputy Administrator for Field Operations at the Farm 
Service Agency of the U.S. Department of Agriculture, and first 
of all, congratulations to Mr. Dave White for being promoted 
from acting Chief to Chief of the Natural Resources 
Conservation Service at the Department of Agriculture. We said 
that sort of changes the protocol for today's hearing but we 
look forward to a great hearing today, Mr. White. You have had 
a great career with the USDA in all regions of the country and 
in working with the Agriculture Committee in the House and the 
Senate, so we congratulate you on your promotion and look 
forward to working with you.
    Mr. Stephenson, you may start when you are ready.

         STATEMENT OF ROBERT STEPHENSON, ACTING DEPUTY
 ADMINISTRATOR FOR FIELD OPERATIONS, FARM SERVICE AGENCY, U.S. 
                   DEPARTMENT OF AGRICULTURE,
WASHINGTON, D.C.; ACCOMPANIED BY CANDY THOMPSON, ACTING DEPUTY 
  ADMINISTRATOR FOR FARM PROGRAMS, FARM SERVICE AGENCY, U.S. 
                         DEPARTMENT OF
                          AGRICULTURE

    Mr. Stephenson. Thank you, Mr. Chairman. We appreciate the 
opportunity to review the conservation programs delivered by 
the Farm Service Agency.
    In addition to conservation, FSA delivers commodity, credit 
and emergency programs for the nation's farmers and ranchers. 
Most FSA programs are delivered through a network of state and 
county offices that are located in over 2,200 rural counties. 
FSA's conservation programs include the Conservation Reserve 
Program, the Emergency Conservation Program, the Grass Roots 
Source Water Program, Voluntary Public Access and Habitat 
Incentive Program, and the Emergency Forestry Restoration 
Program. We also share with NRCS delivery of the Grassland 
Reserve Program.
    At the contract level under CRP, FSA assists farmers and 
ranchers with: enrolling the land; ensuring compliance with 
program goals and requirements; managing the contract; making 
payments and obtaining the technical assistance, which is 
generally provided by NRCS, local conservation districts or 
state and local foresters and includes practice eligibility 
determinations; conservation plan development; and practice 
certification. Chief among those agreements to provide 
technical assistance is FSA's relationship with NRCS. Since the 
Dust Bowl days of the 1930s, FSA and NRCS have been partners in 
delivering financial and technical assistance in helping to 
conserve and improve the nation's natural resources. At the 
national level, the agencies jointly work in the development of 
program policies such as CRP. The agencies also meet regularly 
to discuss resource allocation issues and ways to improve 
program performance.
    America's farmers and ranchers have made significant 
strides to lessen the impact to our nation's environment over 
the last 20 years. As of February 2009, this past February, CRP 
participants have restored more than 2 million acres of 
wetlands and installed about 2 million acres of buffers. Land 
enrolled in CRP will also reduce soil erosion by 400 million 
tons each year, and has the potential to be one of the nation's 
largest carbon sequestration programs on private lands. Last 
fall FSA issued over 900,000 checks to CRP participants. FSA 
also maintains many of the databases that are essential 
including average adjusted gross income, conservation 
compliance, and financial offset.
    In an environment of increasing public service demands, 
scrutiny and decreasing resources, FSA has improved program 
integrity and fiscal stewardship by enhancing internal 
controls, transparency and accountability in USDA's financial 
management programs. By recognizing that internal controls and 
solid financial management practices are the cornerstones, FSA 
has focused much of this effort on working to address 
weaknesses. Commitment to continuous improvement to 
strengthening internal controls and accountability has resulted 
in the achievement in seven consecutive Commodity Credit 
Corporation unqualified or clean financial statement audit 
opinions.
    Further improvements in financial integrity are planned. 
Under CRP, software to record financial obligations at the 
contract level is scheduled for release within the year.
    The recently enacted stimulus bill provided $50 million to 
assist with the stabilization and modernization of FSA's 
information technology systems. This funding will be used to 
continue essential investments to stabilize the infrastructure 
and performance of the web-based systems, and to initiate the 
modernization program to provide a modern-day IT system 
architecture supporting farm program delivery and moving away 
from the 1980s-era technologies used today.
    Geospatial Information Systems, or GIS, is an innovative 
technology that FSA and NRCS have been working with over the 
last decade to change the way the agencies manage conservation 
programs and enable more efficient management of conservation 
programs. The agencies, FSA and NRCS, have developed a 
substantial collection of computerized map assets such as the 
soil survey, aerial imagery and farm field boundaries that 
describe the agricultural activities nationwide. Integration of 
these powerful resources into everyday business processes is an 
ongoing challenge, but significant progress has been made in 
laying the foundation for implementing cost-effective and 
commonsense solutions to better support FSA conservation 
efforts and conservation program delivery.
    Conservation programs have provided notable achievements in 
both conserving and protecting our natural resources. The 
strong working relationships between FSA and NRCS have led to 
the efficient and effective delivery of conservation programs. 
The agencies will continue to work to improve the delivery of 
program services and to ensure the environmental benefits are 
achieved in a sound fiduciary manner.
    Thank you, Mr. Chairman, and we would be happy to respond 
to any questions.
    [The joint prepared statement of Mr. Stephenson and Mr. 
White follows:]

      Joint Prepared Statement of Robert Stephenson, Acting Deputy
     Administrator for Field Operations, Farm Service Agency, U.S.
  Department of Agriculture; and Dave White, Chief, Natural Resources 
 Conservation Service, U.S. Department of Agriculture, Washington, D.C.
    Mr. Chairman and Members of the Subcommittee, we appreciate the 
opportunity to review conservation programs delivered by the U.S. 
Department of Agriculture (USDA). We are pleased to share our 
experiences in implementing the Conservation Title. We will also offer 
our observations on the changing business environment in which programs 
operate, the working relationships with our USDA conservation partners, 
and the opportunities and challenges we face in implementing the 2008 
Farm Bill.
Farm Service Agency
Background and Programs
    The Farm Service Agency (FSA) delivers conservation, commodity, 
credit, and emergency programs. Program level funding varies depending 
upon market and weather conditions and new legislation. For Fiscal 
Years (FYs) 2007 and 2008, the program level was $30.8 billion and 
$25.0 billion, respectively. We estimate the level to be $23.7 billion 
for FY 2009. FSA has a staffing level of just under 14,700 staff years 
and an annual salaries and expenses budget of about $1.5 billion.
    FSA's conservation programs include the Conservation Reserve 
Program (CRP), Emergency Conservation Program (ECP), Grass Roots Source 
Water Program (Source Water), Voluntary Public Access and Habitat 
Incentive Program (Public Access), and the Emergency Forestry 
Restoration Program. FSA also shares program delivery with the Natural 
Resources Conservation Service (NRCS) of the Grassland Reserve Program.
Implementation Model
    Most FSA programs are delivered through a network of state and 
county offices that are located in over 2,200 rural counties. Other 
programs, such as Source Water, are implemented through the National 
Rural Water Association and Public Access is implemented as grants to 
state and Tribal governments.
    At the contract level, under CRP, FSA assists farmers and ranchers 
with enrolling land, ensuring compliance with program goals and 
requirements, managing the contract, making payments, and obtaining 
technical assistance which is generally provided by NRCS or local 
conservation districts. In some cases, non-government providers may 
also offer technical assistance which includes practice eligibility 
determinations and conservation plan development.
    In delivering its conservation programs, FSA has entered into 
agreements with some of its partners to provide technical support. 
Chief among those agreements is FSA's relationship with NRCS. Since the 
1930's, FSA and NRCS employees have worked closely together to assist 
farmers and ranchers in conserving and improving our nation's natural 
resources.
    The NRCS role included developing technical standards and providing 
technical assistance. Over time, NRCS' role has expanded in the area of 
program delivery as this Committee has added a number of important 
conservation programs to the NRCS portfolio including the Environmental 
Quality Incentives Program (EQIP), Conservation Security Program, and 
Wetlands Reserve Program (WRP).
    FSA's agreement with NRCS for CRP includes providing technical 
assistance. Other government partners include USDA's Forest Service 
(FS) and Cooperative State Research, Education, and Extension Service; 
state forestry agencies, and local soil and water conservation 
districts.
    FSA, NRCS, and FS have a long history of delivering conservation 
programs to farm and ranch community. Since the Dust Bowl days of the 
1930's, FSA and NRCS have been partners in delivering conservation 
programs' financial and technical assistance. The success of our 
efforts is seen across the landscape in windbreaks, waterways, 
filterstrips, and wetlands implemented through programs such as 
conservation compliance, ACP, EQIP and CRP.
    Both agencies are committed to the delivery of conservation program 
that will ``get conservation on the ground'' in an efficient and 
effective manner. We take our fiduciary responsibilities seriously and 
want to be accountable to the public for our performance. These common 
goals require the agencies to work together and with our partners.
    At the national level, the agencies jointly work in the development 
of program policies such as CRP. The agencies meet on a regular basis 
to discuss resource allocation issues and ways to improve program 
performance. In the case of CRP, FSA administers the program but 
utilizes the strength of agencies such as NRCS and FS for providing 
technical assistance.
    NRCS and FS are recognized as leaders in developing conservation 
practice technical standards and conservation plans and providing 
conservation technical assistance. Also, soil surveys and natural 
resource and forest inventories are critical components of designing 
effective conservation programs.
    FSA has been delivering conservation programs since the 1930's. 
Since the 1980's, FSA and its partners, including NRCS, transformed the 
CRP program from primarily an erosion control program to a multi-
dimensional conservation program that now addresses water quality, 
wildlife, water quantity, threatened and endangered species, and carbon 
sequestration issues.
2008 Farm Bill Implementation
    The 2008 Farm Bill responded to a broad range of ongoing 
conservation challenges including soil erosion, wetlands conservation, 
water quality, wildlife habitat, and potential markets for sequestered 
carbon and other environmental services.
    The 2008 Farm Bill re-authorized CRP and Source Water and 
authorized, for the first time, Public Access and the Emergency 
Forestry Restoration Program.
    The CRP-related provisions will be implemented in two parts. We are 
working diligently on Part one, which includes the Farmable Wetland 
Program (i.e., aquaculture restoration, constructed wetlands, flooded 
prairie wetlands, and wetland restoration), tree thinning, and the 
conservation exception under the new Average Adjusted Gross Income 
provisions.
    The other CRP-related provisions of the 2008 Farm Bill which 
includes cropping history requirements, transition payment to beginning 
and socially disadvantaged farmers and ranchers, and routine grazing 
are scheduled to be implemented after completion of an Environmental 
Impact Statement.
    Public Access provides grants to state governments and Tribes to 
expand public access opportunities on private land and is scheduled to 
be implemented later this year.
    The Emergency Forestry Restoration Program will assist in the 
restoration of forests damaged due to natural disasters including 
replanting. An appropriation of funds is necessary to implement.
Program Accomplishments
    America's farmers and ranchers have made significantly strides to 
lessen the impact on our nation's environment over the last 20 years. 
Under all USDA conservation programs, soil erosion on cropland has been 
reduced by over 1.2 billion tons per year. As of February 2009, CRP 
participants have restored more than 2 million acres of wetlands and 
about 2 million acres of buffers. Land enrolled in CRP will also reduce 
soil erosion by 400 million tons each year and has the potential to be 
one of nation's largest carbon sequestration programs on private lands.
    During October 2008, FSA issued over 900,000 checks to CRP 
participants and most of the participants received their payment with a 
few days after they were eligible. FSA maintains many of the databases 
that are essential including Average Adjusted Gross Income, 
conservation compliance, financial offset. FSA also works extensively 
with NRCS to integrate our databases to assist them in implementing 
programs such as Environmental Quality Incentive Program, Grassland 
Reserve Program, and other programs.
Program Performance_Financial
    In an environment of increasing public service demands, scrutiny 
and decreasing resources, FSA has improved program integrity and fiscal 
stewardship by enhancing internal controls, transparency, and 
accountability in USDA's financial management programs. By recognizing 
that strong internal controls and solid financial management practices 
are the cornerstones of effective Federal stewardship, FSA has focused 
much of this effort on working to address weaknesses.
    By developing and implementing corrective action plans that ensured 
a correct measurement of improper paperwork and improper payments, FSA 
was able to reduce its improper payments reported from $2.9 billion 
(11.2 percent) to $187 million (1.3 percent) between FYs 2006 and 2008. 
In addition, commitment to continuous improvement to strengthening 
internal controls and accountability has resulted in the achievement in 
seven consecutive Commodity Credit Corporation (CCC) unqualified or 
``clean'' financial statement audit opinions, testimony that the CCC's 
financial statement data is reliable, accurate, and complete.
    FSA continues to work on improving our financial controls for our 
program. From FY 2006 through FY 2008, we conducted reviews under the 
Improper Payments Information Act (IPIA) to determine the potential 
extent of improper payments and ways to improve our business process.
    These statistical surveys indicated that the error rate for 
improper payments for CRP was 3.53 percent for FY 2006 which was 
reduced to 1.25 percent for FY 2008. For CRP and other programs, this 
reduction was achieved through an aggressive commitment by the Agency 
which included: (1) direct senior management involvement; (2) agency-
wide training; (3) increased accountability at levels; (4) development 
and use of checklists; (5) enhanced program eligibility verification; 
(6) elimination of automatic rollover of eligibility determinations; 
(7) improved documentation control; (8) a comprehensive re-examination 
of payment files; and (9) increased internal controls and external 
audits.
Future Outlook
    Further improvements in financial integrity are planned. Under CRP, 
software to record financial obligations at the contract level is 
scheduled for release within the year.
    The recently enacted Stimulus Bill provided $50 million to assist 
with the stabilization and modernization of FSA's Information 
Technology systems. This funding will be used to continue essential 
investments to stabilize the infrastructure and performance of the web-
based systems and to initiate the modernization program to provide a 
modern-day IT system architecture supporting Farm Program delivery and 
moving away from the 1980's era technologies used today.
    We also have ongoing efforts to: (1) improve data quality and 
develop a data warehouse; (2) improve the governance and the quality of 
user requirements; and (3) to improve and standardize common business 
process. These efforts all require significant staff and financial 
resources.
    Geospatial Information Systems (GIS) is an innovative technology 
that FSA and NRCS have been working with over the last decade to change 
the way the agencies manage conservation programs. GIS provides an 
intuitive solution for managing, visualizing, and understanding land 
information that enables more efficient management of conservation 
programs.
    FSA and NRCS have acquired and developed a substantial collection 
of computerized map assets such as soil survey, aerial imagery (NAIP), 
farm field boundaries (Common Land Unit that describes the agricultural 
activities nationwide), and others that are used both internal to USDA 
and are available to the wide range of customers via data centers and 
data warehouses.
    Integration of these powerful resources into everyday business 
processes is an ongoing challenge to the agencies but significant 
progress has been made in laying the foundation for implementing cost-
effective and common sense solutions to better support FSA conservation 
efforts and conservation program delivery. GIS has the capability to 
support and enable better decision-making and effective solutions to 
the wide range of conservation issues that FSA faces in the coming 
years.
    While environmental indicators clearly show progress in resource 
conservation is being made, many challenges remain and new issues 
continue to emerge. For example, excess nutrients impair water quality 
in many rivers, streams, and lakes, and hypoxia is a significant 
problem in the Gulf of Mexico, Chesapeake Bay, and other waters. In 
addition, conflicts over water availability for agriculture, 
environmental, and urban use are increasing as water demands increase. 
As one of the largest water users, agriculture has a vital interest in 
securing water quality and quantity. Conservation is bringing about 
important achievements, but more can be done, particularly for wetland 
and aquatic systems.
    In the near term, CRP contracts enrolling about 3.9 million acres 
are scheduled to expire on September 30, 2009. Taking into account the 
reduced enrollment authority of 32.0 million acres and ongoing 
enrollment for continuous signup practices, there is some room under 
the cap to enroll more acres, though there is insufficient authority to 
re-enroll all of these acres. The lost conservation benefit could 
result in increases in water and air pollution and could exacerbate 
recovery of the Lesser Prairie Chicken in the southern Great Plains.
Natural Resources Conservation Service
Conservation Investments and Trends
    Before getting into the operational mechanics of the NRCS 
conservation programs, I would like to take just a moment to put the 
Federal investment in agricultural conservation programs into 
perspective. Consider for a moment the following trends in conservation 
program investments just in the past 12 years:

   In 1996, many of the conservation programs that are so 
        familiar today were just in their infancy. Congress created and 
        authorized EQIP at $200 million per year, but it was regularly 
        limited to nearly $170 million per year.

   In 1996, new programs such as the Farm and Ranch Lands 
        Protection Program (FRPP) and Wildlife Habitat Incentives 
        Program (WHIP) were funded at $35 million and $50 million total 
        over the life of that farm bill.

   From the 1996 to 2002 Farm Bills, conservation program 
        investments were increased by more than $17 billion over the 
        previous baseline of spending, with programs such as EQIP 
        receiving over a billion in annual spending. FRPP and WHIP 
        greatly expanded in scope and ambitious new programs such as 
        the Conservation Security Program were created.

   The 2008 Farm Bill continued this support with an additional 
        increase of more than $4 billion over the previous baseline.

   Today, NRCS implements more than 20 conservation programs 
        and initiatives, with an annual budget of more than $3 billion.
2008 Accomplishments
    The significant investments made by this Subcommittee in farm bill 
conservation programs, combined with the complete range of conservation 
authorities and initiatives are generating impressive results. USDA 
appreciates the ongoing support of this Subcommittee to ensure that 
farmers and ranchers have the financial and technical resources they 
need to realize their conservation goals. Consider for a moment the 
conservation accomplishments from last year:

   During FY 2008, NRCS employees helped develop conservation 
        plans covering more than 42 million acres of privately owned 
        farm, ranch, and forestland. We also assisted producers and 
        other land managers to voluntarily implement conservation 
        practices on nearly 50 million acres. These actions on private 
        lands yield public benefits we all enjoy in the form of cleaner 
        and more abundant water, cleaner air, improved wildlife habitat 
        and healthier soils.

   NRCS provided more than $2 billion in financial assistance 
        to landowners and communities to encourage participation in 
        programs such as EQIP, WHIP, CSP, FRPP and others, resulting in 
        tens of thousands of cost share and incentive contracts and 
        easements.

   Volunteers contributed over 810,000 hours to NRCS efforts--
        valued at over $15 million. The agency also expanded 
        conservation implementation capacity through the certification 
        and re-certification of several hundred Technical Service 
        Providers.

   Beyond delivering planning and technical assistance, NRCS 
        influenced the acceleration and adoption of new technologies, 
        standards and approaches through Conservation Innovation Grants 
        and our National Technology Support Centers.

   The NRCS Snow Survey and Water Supply Forecasting program 
        issued 12,500 water supply forecasts and we mapped or updated 
        soil surveys for over 35 million acres.
Cumulative Results
    Looking at the implementation of conservation programs just since 
the beginning of this decade, NRCS has worked with farmers, ranchers, 
and landowners to:

   Apply conservation plans and systems on 328 million acres.

   Apply conservation practices through the Environmental 
        Quality Incentives Program (EQIP) on 145 million acres.

   Enter into nearly 313,000 (EQIP) contracts.

   Create or restore wetlands on 2.7 million acres.

   Apply comprehensive nutrient management plans on almost 40 
        million acres.

   Develop new or updated soil maps on 260 million acres.

   Deploy a new Web Soil Survey Program with more than 3.5 
        million website visits by the public.

    These accomplishments are a testament to the continued trust and 
relationship that we maintain at the local level with farmers, 
ranchers, Conservation Districts, and other partners. As we initiate 
implementation of the 2008 Farm Bill, with its increased investment in 
conservation programs, NRCS looks forward building on these 
accomplishments.
Growing Conservation and Some Growing Pains_the NRCS Financial Audit
    While the results of conservation programs and investments have 
reshaped the landscape, it is clear that just getting conservation on 
the ground is not the full measure of program success. With the change 
in the scope of conservation programs and expenditures, it has come a 
realization that we need to better assess and maintain excellence in 
accounting procedures and execution, and to ensure that our 
recordkeeping systems are robust.
    In FY 2008, NRCS contracted with an external audit firm to conduct 
our first stand-alone financial audit, under the supervision of the 
USDA Office of Inspector General and the USDA Office of the Chief 
Financial Officer. At the end of the FY 2008 audit, the auditors issued 
a disclaimer of opinion. The auditors found problems with the accuracy 
and completeness of the FY 2008 financial information. In some measure, 
this was due to inadequate recordkeeping in NRCS offices. During the 
timeframe of the audit period, NRCS was unable to provide the auditors 
adequate support to verify our financial information as presented for 
FY 2008. In other words, we could not prove the validity of our 
numbers.
    The auditors found five material weaknesses: accounting and 
controls for (1) undelivered orders, (2) unfilled customer orders, (3) 
accrued expenses, (4) property, plant and equipment, and (5) controls 
over financial reporting. They also identified deficiencies in our 
internal controls over purchase and fleet card transactions, and the 
general controls environment for our information systems.
    NRCS understands the seriousness of these findings and is moving 
aggressively to correct them. When informed of the auditors' 
preliminary findings, NRCS began developing a corrective action plan 
and initiated a massive undertaking--a review of over 160,000 open 
obligations. To our knowledge, a review of this size and scope is 
unprecedented in the Federal Government. The agency developed and 
delivered training to over 330 NRCS personnel in mid-November, 2008 and 
continues to aggressively review open obligations. So far NRCS has 
deobligated over $1.3 billion since the review started in FY 2007. To 
help prevent this from reoccurring, NRCS now mandates that all line 
officers formally certify on a quarterly basis the accuracy, 
reliability, and completeness of information in 21 separate areas of 
financial management.
    During this file-by-file, transaction-by-transaction evaluation, we 
learned a great deal about our existing contracts, easements, and other 
open obligations. As a result of the audit and our aggressive approach, 
we have outlined a comprehensive corrective action plan necessary to 
establish a firm foundation for going forward. NRCS is analyzing and 
rewriting policy and procedures for program, administrative, and 
financial aspects of our business to ensure that all responsible 
parties understand what is required. In addition, we have begun an 
initiative to redesign and streamline our business processes. I am 
confident this initiative will lead to the development of new 
strategies for delivering conservation assistance that are more 
efficient and effective.
    The external auditor is currently performing a special review of 
corrective actions taken to date for the FY 2008 audit. The results of 
this review will be available in April. In addition, the audit firm has 
started work on the FY 2009 financial audit. Our goal is to have a 
clean audit in the near future.
Clarifying the Term, ``Deobligation of Funds''
    Prior to the stand-alone audit, a limited scope review in FY 2007 
showed a high number of fund deobligations within our agricultural 
conservation programs. Deobligation of funding occurs when funding that 
was previously obligated--either through a contract or agreement--is 
released because of cancellation, termination, modification or spending 
adjustments.
    A key point to remember is that whenever funds are deobligated, 
they are not lost to the taxpayer nor are the funds necessarily lost to 
a prospective farmer or rancher. Funds deobligated in our discretionary 
programs--Conservation Technical Assistance, Emergency Watershed 
Protection, Watershed Rehabilitation, for example--are generally 
shifted to other priority projects within the respective program. Funds 
deobligated in mandatory farm bill programs, if not used for contract 
modifications or cost overruns, are eventually returned to the 
Treasury.
    There are a number of reasons why funds may be deobligated out of 
contracts. These reasons vary across the diverse suite of programs 
delivered by NRCS. Some deobligations historically have occurred 
because of how NRCS delivered its programs. Here are some examples:

    (1) A WHIP contract included a plan for a field border, including 
        the number of acres and the costs associated with creating the 
        border. Both the number of acres and the costs were estimates 
        at the time of obligation. Two years later, when the producer 
        went to install the field border, the costs both came in less 
        than estimated. The excess funding in the contract resulted in 
        a deobligation of the difference between the estimate and the 
        actual cost.

    (2) For a WRP contract, restoration costs were estimated based on a 
        preliminary restoration plan. When the wetland restoration was 
        actually completed some time later, it was found that the 
        restoration costs were overestimated, leading to deobligation 
        of some funds.

    Deobligations also routinely occur because of noncompliance caused 
by the sale or transfer of property, changes in agricultural 
operations, death or serious illness of participants, natural 
disasters, bankruptcies, and personal hardships. These factors cannot 
be anticipated at the time a contract is signed. Here are a few 
examples:

   EQIP contracts can be up to 10 years in length. A producer 
        signed up in year 1 with a commitment to install a grassed 
        waterway in year 5 of the contract. Funding was obligated for 
        all of the practices in the contract at the time the contract 
        was signed at the beginning of year 1. In year 3, the producer 
        passed away and the family decided to sell the farm. The funds 
        for the grassed waterway had to be deobligated.

   In 2004, a producer signed a contract that included an 
        animal waste structure to be built in 2006. After Hurricane 
        Katrina, the cost of construction materials skyrocketed. The 
        producer was unable to afford his or her share of the cost to 
        build the structure in 2006, and the funds were deobligated.

    Again, deobligations due to these types of producer noncompliance 
cannot be anticipated at the time a contract is signed. We have a keen 
interest in answering the question--what is an acceptable rate of 
deobligation for the types of programs NRCS administers? A 2005 
Economic Research Service analysis estimated that the average annual 
exit rate for farms is nine to ten percent per year. Our latest 
estimated exit rate for EQIP contracts is thirteen percent annually. 
The constantly shifting mosaic of conditions in the agricultural 
economy and industry as a whole and at the individual farm scale 
indicates that some level of deobligation is expected. That is not to 
say, however, that NRCS is not committed to reducing deobligations. We 
have embarked on a number of efforts to do just that, to reduce to the 
greatest extent possible the number and amount of deobligations due to 
NRCS business practices and program policies.
    A key point to remember is that farm bill conservation program 
contracts are distinctive agreements. These contracts are a product of 
an individual farmer or rancher voluntarily offering his or her own 
financial resources toward a benefit not just for themselves but for 
the public writ large. NRCS manages hundreds of thousands of 
conservation program contracts. It is inevitable that, with some 
frequency, a producer's personal or financial situation will change 
over the lifetime of a contract. Our objective is to ensure that 
farmers can be good conservation stewards while maintaining 
productivity and profitability. Cancellation of conservation projects 
are a reality and, given the emerging economic climate, may increase in 
the near term.
Moving Forward
    Looking ahead, we believe we are better positioned to handle the 
issues raised by the audit and fund deobligation statistics. Starting 2 
years ago, NRCS began developing a number of new business tools and 
practices that will improve our financial management controls. This 
fall, we will introduce a business tool that will integrate easement 
contracts into our financial management system. Currently, we are 
reviewing every policy document produced by the agency to find ways to 
improve program delivery, tighten financial controls, and reduce fund 
deobligations. In 2008, the agency implemented a new WRP business model 
that will result in improved payment controls and fewer deobligations. 
Two other program policy changes--payment schedules and a payment 
inflation index--should also help reduce future deobligations. Finally, 
as I mentioned earlier, we have launched an initiative to establish a 
new vision for delivering our programs and carrying out the agency's 
core activities--conservation planning and the application of 
conservation practices--through a new business model and modernized 
workforce.
    The audit has been a positive experience for NRCS in that it 
pointed out ways that the agency can achieve a higher standard in 
implementation of its programs. The issues that the audit raised are 
solvable and we have taken aggressive action to immediately address the 
deficiencies and weaknesses in our financial system. However, we 
recognize that these issues will not be solved overnight. Our 
corrective action plan details actions that will be implemented over 
the next year and beyond. NRCS leadership is evaluating options to 
address accounting expertise across the Agency and issuing strengthened 
policies and procedures governing business and financial management 
processes. In February 2009, the USDA Office of Inspector General 
concurred, without exception, to our planned actions.
    We believe we are on the right track to be better equipped for 
success in financial management for the future. NRCS has evolved 
greatly over the last 2 years in our understanding of proper accounting 
for our financial resources. We have embraced the financial audit as a 
way to improve achieving our mission and stewardship of taxpayer 
assets. I want to reinforce that the audit did not show any instances 
of funds being misused or improper payments. We recognize that there 
are three critical aspects of the situation: human capital, processes, 
and systems. Our planned remedies to the problems revealed by the audit 
will address each of these critical areas.
Conclusion
    Conservation programs have provided notable achievements in both 
conserving and protecting our natural resources. However, several 
existing and emerging environmental challenges will require needed 
attention. Efficient and effective delivery of USDA conservation 
programs could not occur without a strong working relationship between 
FSA and NRCS. The agencies will continue to work to improve the 
delivery of program services and to ensure the environmental benefits 
are achieved in a sound fiduciary manner. We thank the Chairman and 
Members of the Subcommittee and would be happy to respond to any 
questions that Members might have.

    The Chairman. Thank you, Mr. Stephenson.
    Mr. White.

STATEMENT OF DAVE WHITE, CHIEF, NATURAL RESOURCES CONSERVATION 
                  SERVICE, U.S. DEPARTMENT OF
                 AGRICULTURE, WASHINGTON, D.C.

    Mr. White. Greetings, Mr. Chairman, Members of the 
Subcommittee. It is an honor to be here to discuss with you 
some of the conservation activities of the Natural Resources 
Conservation Service.
    You said it well, Mr. Holden, Mr. Peterson, and mentioned 
it as well, Mr. Goodlatte: There has been a substantial and an 
incredible increase in funding for conservation across our 
nation, particularly since the 2002 Farm Bill, and these things 
are transforming our landscape. In my written testimony, I talk 
a lot about acres and number of plans and stuff like that and I 
am not going to visit with you about that. In your packet you 
should have some color photographs. They show before and afters 
of what the land looked like before the conservation practices 
and what they look like now. You will see stuff from Chesapeake 
Bay, from the West, from the South. I am not going to belabor 
it but I would like to draw your attention to the cover 
picture, which is of two little, baby, girl bear cubs. This is 
the Louisiana black bear. It is the only black bear species on 
the threatened and endangered list. In 2007, these two little 
cubs were born in Mississippi. They were the first Louisiana 
black bears born in the delta of Mississippi in something like 
40 years, and they were born on a WRP-restored site.
    But while these programs are helping to reshape America, 
transform our landscape, just getting conservation on the 
ground is not enough. With the increased resources we have 
increased demands, particularly in the financial category, and 
Mr. Peterson, when you were taking about WRP and you said it is 
not acceptable, I agree with you: it is not acceptable and we 
are going to fix it, sir.
    In 2008, and this is what brings me here today, we had our 
first full stand-alone audit as an agency. We have been in 
business since 1933. And when we sent out the RFP, the request 
for proposals, the company that won it was KPMG. This is one of 
the best auditing firms in the nation. For our first-ever 
audit, we brought in the A-Team and they found nine 
deficiencies. Mr. Peterson mentioned some of them. Five of them 
were material weaknesses. And as a result, the audit conclusion 
was a disclaimer. They couldn't come to a conclusion. There 
wasn't enough documentation. They couldn't reach a final 
number. I would emphasize again that they did not find any 
misuse of funds or improper payments, and I have been told that 
other agencies when they have this first stand-alone it is 
something like a 3 to 5 year journey to get there. Some 
agencies have taken over a decade. So that was November 2008. 
December 2008, we went and undertook one of the most massive 
open-obligation reviews ever. We looked at 160,000 open 
obligations. We created a web-based tool that was transparent 
that allowed us to monitor so we could see real-time action in 
that. We also looked at our leases, the capitalized and the 
operating leases. Mr. Goodlatte, I know you mentioned the 
deobligations, we deobligated something like $241 million in 
that effort. On deobligations, let us talk a little bit about 
that. They occur for a variety of reasons. Producers often 
request contract cancellations, resulting in deobligations. 
Their financial situation changes. Their life changes. We have 
disasters like Hurricane Katrina. There are processes internal 
to NRCS, activities that cause them that we have since 
corrected, particularly in the Wetlands Reserve Program.
    Our goal, Mr. Chairman, we know we have problems. We want 
to fix those problems. We want to be absolutely stellar in how 
we operate these programs. Let me just give you a few of the 
steps we are taking. We now require quarterly financial 
certifications from our State Conservationists and our leaders 
at headquarters. We have put a stand-alone financial 
measurement in everyone's performance appraisal. We have 
developed a corrective action plan that tracks those nine 
deficiencies that KPMG found. We sent it up here the other day 
but those nine deficiencies are outlined, what actions we are 
going to take, what we have taken. This was submitted to the 
Office of Inspector General on January 30. They accepted it 
without comment, without any changes, which I was told was 
pretty unusual, and we are in progress with that. The key thing 
we need to do, and I know we have an auditor, a CPA here, so I 
am a little bit nervous; what we need to do is to establish 
that agreed-to baseline number so we can move to getting that 
clean audit.
    We have some problems, Mr. Chairman. I agree with that, but 
I hope you will also agree that they are fixable and we are on 
the road to fixing them. Mr. Chairman, I have been in 
agriculture for a long time and I know that things grow best in 
the sunshine. I am going to commit to you that we are going to 
be open, we are going to be honest with you and the Members of 
this Subcommittee and full Committee, and we are going to be 
transparent as we go about fixing this thing. You can see the 
pictures, how we are transforming the landscape. Our challenge 
now is to bring our paperwork stuff up to snuff.
    Thank you. I look forward to any questions.
    [The joint prepared statement of Mr. Stephenson and Mr. 
White is located on p. 8:]
    The Chairman. Thank you, Mr. White.
    The chair would remind Members that they will be recognized 
for questioning in order of seniority for Members who were here 
at the start of the hearing. After that, Members will be 
recognized in order of arrival.
    I will ask our panelists if they could explain in more 
detail how your agencies share information. Do you use the same 
computer system and how does the flow of information between 
the agencies work?
    Mr. Stephenson. Thank you, Mr. Chairman. Information flow 
comes from a number of different ways. We do have automated 
processes that include name and address files, it includes a 
lot of subsidiary information such as the average adjusted 
gross income, conservation compliance, financial offset. On a 
local level where they have access to that data, we also still 
have to transfer some data manually. For CRP, for example, FSA 
will generally take the offer even though NRCS is sometimes the 
first contact, depending upon who is there to speak with the 
farmer. After we take the initial information, NRCS will do 
some initial eligibility work from a technical perspective, and 
then that information is passed back to us to go ahead and 
process the contract.
    The Chairman. Mr. White?
    Mr. White. Thank you, Mr. Chairman. Bob pretty much said it 
all. There are critical intersections between us and probably 
one of the greatest is the adjusted gross income. We are 
completely reliant on FSA and our ProTracts system, which is 
our main web-based tool that we do our contracting in. It goes 
into the FSA system to find the adjusted gross income, to look 
at producer eligibility, so there is a lot of cooperation 
between us. At NRCS, we also maintain this thing called the 
Office Information Profile (OIP). It is the list of offices. We 
do that for the Department. But there are many, many areas that 
we work together and share data across the agencies.
    The Chairman. The GAO report indicates that they found 
$49.4 billion went to ineligible individuals and that six 
percent of that was in conservation payments. Can you explain 
the roles of each of your agencies in determining payment 
eligibility for the adjusted gross income test?
    Mr. White. I can address part of that. There was an audit 
that found that there was some duplication of payments between 
the Conservation Security Program (CSP), EQIP, and the Wildlife 
Habitat Incentives Program (WHIP). We have put in place in our 
ProTracts system a check that will go back and forth between 
those programs to make sure that there aren't duplicate 
payments. Now, we do rely on the adjusted gross income from the 
database that is maintained by FSA.
    The Chairman. Mr. Stephenson?
    Mr. Stephenson. Mr. Chairman, a colleague of mine actually 
is versed in the data that is collected with the adjusted gross 
income which she can answer.
    The Chairman. Absolutely.
    Ms. Thompson. Good morning. My name is Candy Thompson. I am 
the acting Deputy Administrator for Farm Programs in FSA. 
Currently, producers when they come into the county office or 
the service center, they fill out a form 926, which collects 
information. They certify to their adjusted gross income. As 
you know, the farm bill provided three different adjusted gross 
income provisions, $1 million for conservation, and there are 
three questions on that form, the $500,000 for non-farm, the 
$750,000 for farm income and then the $1 million for 
conservation, and that information is collected and entered 
into the subsidiary files.
    The Chairman. Thank you.
    Mr. White, you mentioned steps that you are taking for 
improvement at the agency. Can you assure the Subcommittee that 
the implementation of the 2008 Farm Bill conservation programs 
will be smooth and on time?
    Mr. White. I think only a madman would make that assurance. 
I can assure you we are going to do your darnedest to make sure 
they run smoothly. We will cooperate with our agencies. We are 
putting into effect the electronic computerized systems that 
will help us do that, sir.
    The Chairman. Thank you.
    The gentleman from Virginia, the Ranking Member, Mr. 
Goodlatte.
    Mr. Goodlatte. Thank you, Mr. Chairman.
    Let me direct this question to both of you. In the 
Government Accountability Office's October 2008 report 
referencing payments to participants who exceed the adjusted 
gross income, there was a recommendation that the USDA work 
with the IRS to develop a method to determine whether all 
recipients of farm program payments meet income eligibility 
requirements. Last week the USDA published a proposal in the 
Federal Register that would require all applicants of farm 
programs to sign a waiver allowing the Internal Revenue Service 
to release tax information to FSA. I want to ask each of you if 
you believe that this proposal includes applicants of 
conservation programs.
    Ms. Thompson. That press release that went out on the data-
sharing efforts with IRS addresses all of the adjusted gross 
income requirements.
    Mr. Goodlatte. Including conservation programs?
    Ms. Thompson. Including conservation.
    Mr. Goodlatte. So under what authority are you acting for 
Title II programs? And let me just add, we certainly did not 
discuss anything like this and I don't know that it was the 
intent of the Congress. Why are you requiring all applicants 
for these programs to do something, sign a waiver of very 
personal information that I am sure many people are not going 
to be very happy about at all to do something that Congress did 
not express any intention to have you do that?
    Ms. Thompson. In the farm bill, it did have a provision for 
enforcement of the adjusted gross income provision, and we are 
working to enforce these provisions and ensure that only 
eligible persons receive the payments. By teaming with the IRS 
through this data-sharing effort, we hope to identify producers 
who may exceed the statutory provisions, but we don't intend to 
obtain tax information from the IRS, just more of an indication 
from the IRS that producers may have exceeded these AGI 
provisions.
    Mr. Goodlatte. Do you intend to run that check on every 
single applicant for the programs?
    Ms. Thompson. The intent is to start with our programs 
where we collect the AGI form for and ask them to sign this 
waiver form to enable the IRS to look at the data for us.
    Mr. Goodlatte. Will this delay the applicant's processing 
of their application for farm payment programs? I know that 
when we have had these issues in other areas where one 
government agency has to seek information from another, there 
is sometimes very lengthy delays in getting the information.
    Ms. Thompson. It is not our intent to delay the payments. 
We are working with the IRS on this provision right now and we 
do not have all the details worked out, but it is not our 
intent to delay the payments.
    Mr. Goodlatte. Let me switch subjects to another one that I 
did mention in my opening statement, and that is the concern of 
some of my constituents, some of whom had personal experience 
with this, interested in knowing about the status of these 
conservation programs. I wonder if you can give us a timeline 
when the 2008 Farm Bill conservation programs will be fully 
implemented. Let us start with you, Mr. Stephenson, and go to 
Mr. White.
    Mr. Stephenson. For the Conservation Reserve Program, we 
are going to be implementing in two parts. Part one hopefully 
will be implemented this spring and part two will be 
implemented after completion of the environmental impact 
statement. That is probably going to be some time next year, 
the first half of the year hopefully. The Voluntary Public 
Access Program is in the queue. It is $50 million for states 
and tribes for public access. It is in the queue. It is 
probably going to be this summer. The Emergency Forest 
Restoration Program is an appropriated program and we need 
funds to be made available so we can do the NEPA work before we 
will be able to implement that program.
    Mr. Goodlatte. Mr. White, and by the way I want to also 
extend my congratulations to you being named the official head 
of the agency and we have always enjoyed working with you and 
look forward to continuing to do that.
    Mr. White. Thanks, Mr. Goodlatte. Mr. Holden mentioned the 
rules changes, now that I am permanent, you can pummel away. 
The rules cover a lot of different programs here. By the time 
January 20 had occurred, most of them had been published as 
interim final rules. Post that, we had to pull a couple of them 
back to make a technical correction. There had to be a 
technical corrections in EQIP and Wildlife Habitat Incentives 
Program, and those have since been reissued and it dealt with 
the payments on joint tenants. The rules as initially published 
had said that a husband and wife would be treated as one entity 
instead of two and we had to make it conform with the rules. So 
there were some corrections, but those rules are back out now 
for public comment. And we took advantage of the re-publishing 
to also ask for comment on how these could be used for climate 
change within the statutory authorities. I know that is of 
interest to this Committee and we will share those comments 
when we get them. There is one that is going to go out probably 
this week on procedures for the State Technical Advisory 
Committees, and then there are three others that are back in 
USDA for internal clearance. One is the Wetlands Reserve 
Program, then we have the Farmland Protection Program and the 
Grassland Reserve Program. Farmland Protection Program, 
Grassland Reserve Program, we have resolved our internal 
differences. I think they will go out pretty quick. Wetlands 
Reserve Program, I am meeting with the Office of General 
Counsel this afternoon to discuss some of our differences. The 
last big one is the Conservation Stewardship Program. It is an 
internal clearance at USDA. We hope to publish it in April, Mr. 
Goodlatte. We are on track to have the sign-ups, do everything 
in June, hopefully July, enter into the contracts August, 
September to have full implementation of all the programs in 
the 2008 Farm Bill, sir.
    Mr. Goodlatte. Thank you very much, and Mr. Chairman, thank 
you.
    The Chairman. The chair thanks the gentleman and recognizes 
the Chairman of the full Committee, Mr. Peterson.
    Mr. Peterson. Thank you.
    Just to follow up a little bit, as I understand this 
process with the IRS, first of all, producers already have to 
sign this waiver so that is not something new. As I understand 
how this is going to work, maybe you can confirm this, that the 
IRS is going to run the people that get these payments and if 
they are in the range of $500,000 or $750,000 or a million, 
depending on what their situation is, then that is going to be 
just given back to you, that these people potentially are in 
this range and then you are going to follow up and get 
verification. So that is kind of how it is going to work. They 
are not going to be getting any information from the IRS. They 
are just giving them the names so the IRS can run them against 
their tax returns to see if their adjusted gross income is 
close to $500,000 or to $750,000 or whatever it is, and then if 
it is, then they will send the names back and then they look 
into it further. So I don't think it is a very intrusive thing 
that they are doing. I think it makes sense and hopefully it 
will resolve this issue so we are not embarrassed by getting 
another report that comes out that says we are not doing what 
we should be doing.
    The other question I have regarding these payments is how 
are you going to track the payments to comply with these new 
direct attribution rules and is the FSA computer system set up 
to do this?
    Ms. Thompson. You are correct about how the data-sharing 
effort will work with IRS, and on the direct attribution, we 
are working to implement those provisions on both the old 
system, on the system 36, and also on our web-based 
applications. It will track it back to the person that has 
signed up through either our 902 form, which is our payment 
eligibility and limitation form, or the 901, which shows the 
members' IDs of that entity, if it is an entity who is 
participating in the programs, and the payments will be 
attributed to that individual ID number.
    Mr. Peterson. Thank you.
    Mr. White, what directions were State Conservationists 
offices given in regard to their ability to waive the previous 
1 year land ownership requirement for WRP, and did anybody in 
the national office keep track of how many waivers were taking 
place?
    Mr. White. You know, sir, the waivers were in policy and if 
you felt that it met certain criteria, and I can't recall those 
right now, but you could issue a waiver, and that was on the 12 
month ownership rule at that time. I do not know if those 
waivers were tracked at headquarters or not.
    Mr. Peterson. Do you have anybody keeping track of how many 
waivers are going on?
    Mr. White. Well, I will now.
    Mr. Peterson. Fair enough. Mr. White, could you be able to 
tell the Committee how much mandatory farm bill conservation 
spending was returned to the Treasury because of contracts that 
weren't completed?
    Mr. White. In the last 3 years we have deobligated about 
$1.3 billion total. I think since 2002 we have deobligated 
about $19 billion in both discretionary and mandatory. We have 
deobligated about $1.3 billion, but not all of that has been 
returned to the Treasury. If you had an 2007 EQIP contract and 
for some reason it was cancelled, and say it was $10,000, that 
$10,000 would go back into the 2007 EQIP pot. If Mr. Goodlatte 
needed funds for certain reasons, they could draw from that. So 
until those Treasury symbols expire, they are available for 
other farmers depending on the year, but at some point in time 
they will go back. But, as far as how much we have actually 
sent back to Treasury, I will have to get you that, sir.
    Mr. Peterson. Well, if you could get that information, I 
would appreciate it.
    Mr. Chairman, I yield back.
    The Chairman. The chair thanks the Chairman.
    The gentleman from Missouri, Mr. Luetkemeyer.
    Mr. Luetkemeyer. Thank you, Mr. Chairman.
    I guess this question is for Mr. White. I am kind of 
curious. We had an overpayment here of about $49 million. What 
are the plans to recover that, if any?
    Mr. White. The $40 million----
    Mr. Luetkemeyer. Forty-nine million dollars, is that 
correct, from 2003 to 2006, overpayments of that amount. Are 
there plans to recover that or withhold future payments from 
those individuals who received checks through overpayments of 
funds?
    Mr. White. Right. Is this from the GAO report?
    Mr. Luetkemeyer. Yes.
    Mr. White. And this was overpayments in conservation?
    Mr. Luetkemeyer. Right.
    Mr. White. Okay. I think of that, and I am a bit unclear, 
sir, of that $49 million, it was like $6 million in 
conservation, and I don't know, was that related to the AI--I 
always mess this up. I am saying AIG. It is AGI.
    Mr. Luetkemeyer. AGI. Yes.
    Mr. White. It is not the other one.
    Mr. Luetkemeyer. We still have financial troubles here, 
don't we?
    Mr. White. Yes, we do, sir. Let us hope we never get like 
that. Of the $49 million, there was $6 million in NRCS and I 
will have to go back and find out exactly what the process is 
right now. What we have done in the past when we found 
overpayments is, we worked with the producer to get that 
funding back. In areas like the Conservation Security Program 
where you would get funding over a set period of years, say we 
find out you got paid too much in year 1, well, we can reduce 
year 2, year 3 and we can even out the payments without having 
to collect a lot of money from the producer, assuming it is not 
a scheme or device or something like that. But we will get back 
to you, sir.
    Mr. Luetkemeyer. Also along that line, I know there has 
been previous discussion with regards to verifying income and 
using IRS to initially do that. Do we not require just a page 
off a tax return to verify income?
    Ms. Thompson. For adjusted gross income verification, right 
now it is a certification that we take from the producer. They 
can provide tax information, or they can have a certification 
from a CPA or another third party approved by the Secretary to 
also provide that certification as to their AGI.
    Mr. Luetkemeyer. Is there a sharing of this information 
between different programs?
    Ms. Thompson. Yes. We have one AGI process that all the 
programs use.
    Mr. Luetkemeyer. So in other words, if the farmer--because 
Mr. Goodlatte a while ago made mention of one of his 
constituents had six or seven different programs that she was 
accessing. All those would be able to take from that initial 
file, whatever information is presented and shared among all 
those programs?
    Ms. Thompson. That is correct.
    Mr. Luetkemeyer. Then why do we have a problem with income 
verification?
    Ms. Thompson. It is a certification from the producer on an 
annual basis, so I don't think we have a problem with it. The 
GAO did this data mining with IRS and identified these possible 
ineligible payments from producers who may have exceeded the 
AGI provisions. In the past we have taken either the producer's 
certification or if they were pulled for spot check, then we 
would look for additional documentation.
    Mr. Luetkemeyer. Well, if we are already verifying for it, 
why do we need to go back to the IRS for some additional 
information? Am I missing something here?
    Ms. Thompson. We take a certification from the producer and 
so this is an effort to verify that certification.
    Mr. Luetkemeyer. Okay. The certification from the producer 
is not a tax return?
    Ms. Thompson. No, it is a form.
    Mr. Luetkemeyer. It is a form that he can sign and he 
doesn't necessarily have to tell the truth on it. Is that what 
you just said?
    Ms. Thompson. Basically, yes.
    Mr. Luetkemeyer. Okay. So why then aren't we getting the 
tax return? You are going back to the IRS instead of getting 
the copy of the tax return.
    Ms. Thompson. I think there is a concern with us getting 
tax data from the IRS, and I am not sure that the Tax Code 
would allow us to get the tax information. This is a way to 
work with the IRS, for the IRS to look at the tax information 
and then provide to us whether or not the producer may have 
exceeded that AGI.
    Mr. Luetkemeyer. Doesn't Farm Services also deal with some 
credit?
    Ms. Thompson. Right, the farm loans.
    Mr. Luetkemeyer. And don't you get income tax information 
from the individual who you loan money to there?
    Ms. Thompson. Probably, but on a smaller scale. I mean, on 
the Direct and Countercyclical Payment Program, we have about 
1.7 million producers.
    Mr. Luetkemeyer. I yield back the balance of my time, Mr. 
Chairman.
    The Chairman. The chair thanks the gentleman and recognizes 
the gentleman from New York, Mr. Massa.
    Mr. Massa. Thank you, Mr. Chairman, and Mr. White, as a 
freshman Member of this Committee, I must express to you that 
your candor is very, very welcome. Thank you very much, and 
thank you for what your personnel in the field do in the many, 
many farms in my district. This is a question away from 
finances, but as I have traveled in the last 3 or 4 months 
throughout the farms, there has been a great appreciation for 
what the field personnel do where the rubber hit the roads. 
But, there is also a significant concern as we see the 
retirement of an awful lot of individuals that have been doing 
this for 25 to 30 years, and the difficulty in recruiting new 
personnel who are knowledgeable to take their place. Could you 
please comment as it pertains to your organizations what kind 
of recruiting efforts need to be held, and do you see this as a 
problem as I see it as a problem?
    Mr. White. Absolutely. We are an aging workforce. You know, 
my 15 minutes are going to be up pretty soon and then hopefully 
I am going to be on a beach somewhere. But I am not there yet. 
We do have a human capital strategy. We know the number, as 
this bulge, the Baby Boomers, move through all our 
organizations, and we trying to aggressively find ways to have 
younger people or newer employees come into the system. We are 
very aware of it, very cognizant of it. Could I also talk a 
little bit about, when you talk about the people in the field 
offices?
    Mr. Massa. Please.
    Mr. White. They are the ones that are on the sharp edge of 
the sword. That is where we have to implement these programs. I 
started there carrying a surveying rod for a technician 30-some 
years ago, and I still love and respect those people. We are 
trying to look at our organizational structure right now, not 
so much as what does headquarters look like and then flow down, 
but what do those people on the sharp edge of the sword, what 
do they need. Can we develop a direct line of sight from that 
district person all the way to the Office of the Chief and 
structure ourselves where we meet their needs, as you move up 
the organization, we can get more in the field, and we do a 
better job.
    Mr. Massa. I appreciate that. That is exactly the feedback 
I am hearing from the farmers with whom I am traveling over the 
winter months. I would like to know if you would be willing to 
accept an invitation to come to my district so I can introduce 
you to some of those people out in the field, and I can satisfy 
myself that that direct line of sight is in fact being 
connected. Would you be open to that invitation?
    Mr. White. Do they serve value-added barley products there?
    Mr. Massa. Yes, we do, but more importantly, we serve 
value-added vinting products.
    Mr. White. I am not afraid, sir. I am there.
    Mr. Massa. Again, thank you very much.
    Mr. White. Thank you, Mr. Massa.
    The Chairman. The chair thanks the gentleman and recognizes 
the gentleman from Pennsylvania, Mr. Thompson.
    Mr. Thompson. Thank you, Mr. Chairman.
    My first question actually is for Mr. Stephenson. You 
mentioned in your testimony that some expiring CRP acres will 
not be able to be reenrolled due to the reduced enrollment 
authority of 32 million acres. Are any of these expiring acres 
suitable for crop production?
    Mr. Stephenson. Well, yes, I suppose certainly some of them 
are, and when it comes to the expiration of those contracts, we 
will work with those producers and NRCS will work with those 
producers if they want to return it to crop production. It does 
depend on each individual contract and the location of that 
land, what types of crops and how they could be cropped, but 
certainly some of it could be returned to crops. That is 
correct.
    Mr. Thompson. Just a follow-up then. With the current 
struggle to meet the RFS mandate and also provide an adequate 
and affordable feed supply, shouldn't we focus on enrolling our 
more environmentally sensitive land and bringing out suitable 
cropland for production?
    Mr. Stephenson. We have tried to make great strides in CRP 
in the past 20-plus years now to convert it from essentially a 
supply control program to a multidimensional environmental 
program that focuses on water quality, wildlife, soil erosion, 
now carbon sequestration, and air quality. We have attempted in 
the past to restrict, as much as we can, prime farmland from 
being enrolled in CRP because that land should be cropped. 
There are some overlaps because no matter the acre, they all 
provide environmental benefit of some type, especially around 
streams, for example. So we have endeavored to move in that 
direction. We understand those demands and we want to work with 
those demands as these contracts expire and as we remake the 
program. One of the issues we are going to be focusing on over 
the next year is soliciting public input on the future 
direction of CRP and how it should go, given all the demands 
for land for production, for biomass, for energy, and for 
conservation.
    Mr. Thompson. I am certainly encouraged at getting our 
farmers as part of that, obviously the key stakeholders there. 
Kind of following that line of unintended consequences, you 
talk about trying to prevent certain things from happening. A 
lot of my district is actually a very rural district in 
Pennsylvania, and I have a question regarding the CREP. Some of 
the farmers in my district are relying on CREP as a form of 
retirement because the current reimbursement rate under the 
program really is significantly higher than the open market 
value in rural Pennsylvania. Where there are certainly positive 
benefits from CREP, there is no doubt about that, I am 
convinced of that, I really do have concerns that one of the 
unintended consequences is that farms are not easily passed 
along from generation to generation because of that. Have there 
been any efforts to address this situation, from either 
panelist, please?
    Mr. Stephenson. I am a little confused as to the question 
about transferring property to heirs, to family?
    Mr. Thompson. Right, with the CREP program providing 
incentives obviously to take it out of production and hence, 
because of the reimbursement rates, kind of trumps the 
incentive to pass the farms along in a productive state so that 
we are continuing to sustain farming through the generations.
    Mr. Stephenson. We do need to be mindful of that, I agree. 
When we negotiate CREP agreements with state governments, we 
endeavor to focus on the environmental need of the state and 
ensure that it is an important environmental need to the nation 
as well. The state throws in some extra money and we usually 
end up with effective payment rates a little bit higher than 
market level or some higher than market levels. Really, I don't 
think our intent under CREP is for that to be a retirement 
program. Generally, although not exclusively, but, generally, 
our hope is we are focusing on smaller acreages. That said, we 
also have a 25 percent cropland enrollment limit by county for 
the program as well. We would certainly like to work with you 
on that issue to kind of better understand it and follow up if 
we could.
    Mr. Thompson. Thank you, Mr. Chairman.
    The Chairman. The chair thanks the gentleman. The Chairman 
will ask Members for their indulgence here, but Mr. Pomeroy has 
a problem in North Dakota that he has to attend to. I would 
like to recognize him out of order at this time. Mr. Pomeroy.
    Mr. Pomeroy. I thank the Chairman. We have all kinds of 
problems in North Dakota. I do want to verify with NRCS what 
Chairman Peterson verified with Minnesota. Is there an 
emergency reserve being established to deal with such relief as 
the program administers to inundated areas like is now 
occurring in the Red River? We are also getting flooding from 
ice jams in the Missouri at the present time.
    Mr. White. Mr. Pomeroy, Godspeed as you go back.
    Mr. Pomeroy. Thank you.
    Mr. White. I wanted to let you know that the program we 
operate, the Emergency Watershed Protection Program, which 
helps clean up afterwards, we have already established two 
accounts, one with Minnesota, one with North Dakota, $500,000 
each, so if they need to do something tonight at midnight or 
over the weekend, they can do it. They have the money, they 
have the authority. And the other thing, Mr. Pomeroy, is if 
they need more, pick up the phone. The second thing is, we are 
currently conducting a floodplain easement signup across the 
nation. We have $145 million in Recovery Act funding for that, 
and because of what is happening in Minnesota and North Dakota, 
there are some other areas where Members have asked, we are 
going to extend that floodplain easement signup for 2 weeks if 
individuals were interested in that. So, yes, sir, I will 
confirm that.
    Mr. Pomeroy. Thank you, and thanks for that extension. I am 
really not in a position to even evaluate whether we might be 
talking about a further extension, but at the moment we have 
high water. We will worry about cleanup tomorrow.
    Mr. White. You are doing triage right now.
    Mr. Pomeroy. Correct. Thank you very much.
    Mr. Chairman, thank you.
    The Chairman. The chair thanks the gentleman.
    The gentleman from Minnesota, Mr. Schauer.
    Mr. Schauer. I pass.
    The Chairman. The gentleman passes. The gentlewoman from 
Colorado, Ms. Markey.
    Ms. Markey. I hope you haven't covered this but over the 
course of the audit, the NRCS had to cancel some contracts, I 
understand, because the landowner was getting paid for work not 
done. If that is so, can you tell me the extent of that number 
of any contracts that had to be cancelled?
    Mr. White. Thank you, Ms. Markey. I appreciate it. 
Deobligations occur for a variety of reasons with producers, 
health, financial. If you don't mind, I brought some samples 
just to give you an idea. This is from Texas. ``I am requesting 
termination of the last practice in my contract. Due to the 
loss of my husband, I can no longer financially be able to 
continue the contract. I hate to not complete what my husband 
started but with all these increases in expenses, I need to 
find different avenues.'' We have one from Colorado. This is a 
couple that says, ``When we were originally awarded the 
contract, we were in the middle of the growing season and we 
decided to do it in the fall. Then Katrina hit. Everything we 
needed for our project went to double or more of the prices we 
had obtained. The supply of pipe was just not there. This was 
followed by 3 years of drought and water shortage, which caused 
us financial problems, and this year was the final blow to our 
plan when Vince became ill and we were unable to do the work 
ourselves. There is no money in place to be able to hire the 
work done.'' The last one: ``I am writing on behalf of my 
mother. Several things have happened. My brother and partner 
died. My aunt, who owned part of the place, also passed away. 
Furthermore, on March 12, 2006, fire burned 99 percent of this 
place, leaving it unusable. Because of this, we are forced to 
sell our cattle herd at a huge discount.'' Those are the kind 
of letters that I got as a State Conservationist in Montana, 
that my colleagues around the nation get, and how could I not 
sign to cancel those contracts? We are not going to 
investigate, did her husband really pass away or things like 
that. These are human stories and they are all here, Ms. 
Markey, and there are real reasons why we deobligated some of 
these contracts. ERS data shows that there is about a ten 
percent quit rate in farming every year. Our EQIP data has 
shown a 13 percent contract cancellation rate. So are we in the 
ballpark? I don't know. But I saw it in Montana when Katrina 
hit. The price, anything with steel or pipe in it just doubled 
or tripled. Our producers can't afford it. We are not--this is 
different. We are not sending them money. We are helping them 
pay the cost. They are putting in money to establish these 
conservation practices that those photos show. It is a joint 
effort, and when our partners have difficulty, we need to be 
compassionate and we need to understand their needs, ma'am.
    Ms. Markey. Thank you.
    The Chairman. Does the gentlewoman yield back?
    Ms. Markey. Yes, I yield back.
    The Chairman. The gentleman from Kansas, Mr. Moran.
    Mr. Moran. Mr. Chairman, thank you very much. Just a couple 
of questions, probably directed at FSA. The proposal of having 
farmers sign a waiver for IRS information, I have concerns with 
that. One of them is the value of that information to USDA in 
the sense that an IRS form, a tax form shows adjusted gross 
income. It doesn't differentiate that the more important issue 
from an FSA or USDA point of view, which is non-farm adjusted 
gross income versus farm adjusted gross income. So just getting 
a line on a tax return that says adjusted gross income is 
insufficient amount of evidence one way or another about 
whether or not a farmer qualifies. Any thoughts about that?
    Ms. Thompson. I think we agree with you on that. It isn't a 
simple calculation for the adjusted gross income provisions. So 
we are working on a formula in looking at the tax return, for 
IRS to look at the tax return, not only the adjusted gross 
income but any schedules that are associated with that to give 
an indication that their non-farm income exceeds the $500,000, 
and then they would provide that ID number back to Farm Service 
Agency for us to contact the producer for additional follow-up.
    Mr. Moran. And that follow-up occurs at what level? Is the 
county committee going to be involved in examining a 
neighboring farmer's return?
    Ms. Thompson. Our intent is to handle it at a centralized 
level, but we are not sure yet of the volume, and so the intent 
is to try to handle it at a more centralized level, a national 
level.
    Mr. Moran. I have concerns about having it handled at the 
local level because the privacy invasion is even greater, but 
at a centralized level, which may mean national, a farmer may 
be called upon to come to that centralized location, long 
distance, time, effort, in order to explain his or her tax 
return. I hope you all take a second look at what you are 
proposing to do, and thank you for your answer.
    In regard to CRP, one of the most common conversations that 
I have with landowners when I am home is, ``Moran, are they 
going to have a signup this year?'' It is a question that 
farmers, landowners need answers to. We have a huge number of 
acres that will come out of the program this year. Some of 
those acres probably could be farmed. Others probably should 
not be, and September is rapidly approaching. We need answers 
from USDA about CRP intentions.
    Mr. Stephenson. Mr. Moran, we do not intend on having a 
general signup this year. We do intend on having a general 
signup next year. There are about 4 million acres of land 
coming due, contracts expiring this fall, and they could return 
to production. If their land is eligible for continuous signup, 
they can reenroll the land under a continuous signup contract. 
They can do that.
    Mr. Moran. Have you reached the conclusion that you now 
have to go through a NEPA process before you can do a CRP 
signup?
    Mr. Stephenson. We know that before we can issue the final 
rule to implement much of the program that, yes, we will need 
to do an environmental impact statement on CRP.
    Mr. Moran. Which is a new development in the process?
    Mr. Stephenson. Actually we did an environmental impact 
statement after the 2002 Farm Bill before we issued the final 
rule, and since the beginning of the program before the 2002 
Farm Bill back to the beginning of the program, we did an 
environmental assessment before we issued the rule.
    Mr. Moran. But now the change is that every signup will be 
preceded by an environmental evaluation?
    Mr. Stephenson. No, sir, it is going to be by farm bill.
    Mr. Moran. By farm bill?
    Mr. Stephenson. Yes.
    Mr. Moran. Thank you, Mr. Chairman.
    The Chairman. The chair thanks the gentleman.
    The gentleman from Michigan.
    Mr. Schauer. Thank you, Mr. Chairman, and I appreciate the 
opportunity to learn as a new Member about the conservation 
programs. It is great to have both of you here. I am from 
Michigan, the only Member from the Michigan delegation on the 
Agriculture Committee, a very important sector in our economy. 
Michigan has the second most diverse agricultural economy in 
the country. I am sure you know that, and thanks to your 
programs for helping us grow. Everything I think about here as 
a Member of Congress is, how can we help create jobs. We are 
scrutinizing the conservation program contracts, but I wonder 
if you can talk about this topic within the context of how can 
we help fuel our agricultural economy, and if you want to talk 
about states that are particularly hurting with high 
unemployment rates, that would be fine with me.
    Mr. Stephenson. You are correct. The farm bill generally 
provides quite a bit of money locally and there is a multiplier 
effect for that money. Take CRP for an example: We make both 
annual and cost-year payments with that. We are quite confident 
that seed is bought. They may need to at least do maintenance 
or buy some small equipment for CRP and the rest of their 
operation. All that is bought locally. We know in some cases in 
CRP there is a recreational benefit, public viewing as well as 
hunting. Hunters come in, they spend money, stay in lodging and 
maybe even pay the CRP participant. Also, just more broadly in 
the farm bill, the commodity title pays out lots of money a 
year locally. Our farm loan programs make loans locally. Under 
the stimulus bill, the farm loan programs are also providing 
money throughout, about $168 million, we have already obligated 
with stimulus money under our farm loan programs. So that is 
probably the FSA part.
    Mr. White. I am ready. There is a program. It is called 
IMPLAN. It is a computerized program. It was developed by the 
Forest Service and University of Minnesota, I believe, and you 
can actually figure out the multiplier effect that Bob was 
talking about. In Montana every year, we would figure out how 
much money was spent on conservation in the various programs 
and we would actually issue news releases by county on what 
that meant to the people who lived there because there is a 
direct relationship. If you buy a fencepost, somebody has to 
sell it, somebody has to transport it, somebody has to put it 
up. So a lot of this turns over a great deal. Specifically on 
the Recovery Act funding, we changed our policy. I mentioned 
earlier when Mr. Pomeroy was here on the floodplain easements, 
part of the purpose of that funding is to increase the 
workforce, and what we have done is upgrade the restoration 
requirements of those floodplain easements. We don't want to 
just buy it and set it and forget it like the ``Showtime 
Rotisserie,'' but we want to actively restore the hydrology, 
restore native plants, knock the dikes out and that is all 
going to create jobs. We have the Watershed Rehabilitation 
Program. We have $50 million in that. That is all going to be 
locally contracted jobs to repair those old dams. Your Ranking 
Member, Mr. Lucas, has one of the highest populations of those 
dams in the state as does Texas, so that is going to be jobs 
there. We are very cognizant. There is a huge spillover impact. 
I will tell you what I will do is, I will go back and see if we 
have the IMPLAN data for Michigan and see if we can't provide 
you specifically what the NRCS, those programs are doing.
    Mr. Schauer. That would be great. Thank you very much.
    Thank you, Mr. Chairman.
    The Chairman. The chair thanks the gentleman.
    Mr. Stephenson, you mentioned use of the Geospatial 
Information System as a useful tool for managing and 
understanding land information that enables more efficient 
management of conservation programs. Can you elaborate on how 
you use this technology? Is it available to everyone? Do they 
pay for it? And how will you spend the recent appropriation of 
$24 million?
    Mr. Stephenson. I will start with describing GIS and maybe 
I can have some help about how we are going to the spend the 
$24 million. We use Geospatial Information System technology 
to--let me back up. We maintain farm field data history, land 
use data throughout the country, however many farms in the 
country there are and 300 or so million acres. We are in a 
process now of digitizing all that information, putting it on a 
layer, a GIS layer, for example. Then program people like Dave 
White or myself under CRP, we will be able go read that data 
and it will help us target what programs--maybe we don't need 
as much acreage, maybe we can do a better job of targeting the 
right acreage when we enroll programs. It can also help us with 
compliance work as far as programs are concerned. We have not 
yet finished the digitization of all that land nationally. With 
luck, I believe it will be done by the end of the year, but it 
is a long process and so there are some states because of 
Katrina in 2005 are a little behind schedule. One thing we have 
done in CRP with the GIS is, when we implemented in 2006 the 
Emergency Forestry Conservation Reserve Program for the 2005 
hurricanes, we did it using GIS as much we could in that area 
and we did it on a web-based program. More recently in the past 
year or so, we have rolled out web-based continuous signup for 
CRP that also uses GIS. I do not believe that data is yet 
available publicly even though I suspect we are going to have 
to address that sometime in the future.
    The $50 million on the stimulus is not going to be used for 
GIS, but we are going to be using with 2009 money $24 million 
to support--I need to give you some more information.
    The Chairman. I have several other questions and some 
suggestions, and maybe I will just submit them to you and you 
could respond back to the Subcommittee as quickly as possible. 
But just one, and if you can't answer this, I understand it, 
but you just said $50 million in the stimulus you are not going 
to use. Do you know what you are going to use it for?
    Mr. Stephenson. It is going to be used for stabilization of 
the system and perhaps modernization of our automated system. I 
did not mean to suggest that it was going to necessarily all be 
used for GIS.
    The Chairman. Like I said, sir, I have several more 
questions and suggestions. I will submit them to you and if you 
can get back to us as soon as possible.
    Mr. White?
    Mr. White. I would like to talk about GIS because we have 
upgraded our capabilities. We do cooperate a lot with FSA, but 
one key thing and it directly relates to what Ms. Markey was 
saying. I gave her deobligations from a personal producer 
standpoint but there are other reasons for that as well, like 
when we would do an EQIP contract. We use a program called 
ToolKit and we will have the map from the common land unit from 
FSA and say we were going to put a fence. Well, in the past we 
would say well, that looks like about 1,000 feet. We would 
estimate it. With GIS now, we can go in there and we know it is 
963.5 feet, and that means our contracts are more accurate and 
we are less likely to overestimate or underestimate when we put 
those conservation plans together. That is one of the great 
things that GIS is doing for us.
    The Chairman. Thank you.
    Do any Members have any follow-up questions?
    Mr. Moran. Mr. Chairman, Mr. Goodlatte had a question that 
I would appreciate----
    The Chairman. The chair recognizes the gentleman from 
Kansas.
    Mr. Moran. Thank you, Mr. Chairman.
    Mr. Peterson of the Committee contended that producers have 
had to sign a waiver before the 2008 Farm Bill to release 
information to the IRS. Is that accurate, and what is that 
waiver and is it mandatory?
    Ms. Thompson. Beginning with this year with the signup for 
the 2009 direct and countercyclical payments, there is a new 
adjusted gross income form that producers are signing that does 
have a statement on there that the producer agrees to allow 
Farm Service Agency to contact IRS to verify the AGI 
information.
    Mr. Moran. And that comes about with giving USDA 
authority--let me say that differently. I am sorry. In what way 
did Congress give USDA authority in regard to that waiver?
    Ms. Thompson. The way we are reading it, it is part of the 
enforcement provision on the adjusted gross income.
    Mr. Moran. From the previous farm bill?
    Ms. Thompson. No, this was under the 2008 Farm Bill.
    Mr. Moran. So any authority that you have to require a 
farmer to grant the waiver for access to information in your 
opinion comes from the 2008 Farm Bill?
    Ms. Thompson. Right, and I am not sure about the previous 
farm bill. I would have to check on that.
    Mr. Moran. If you would, thank you.
    Ms. Thompson. Thank you.
    Mr. Moran. Thank you, Mr. Chairman.
    The Chairman. I thank the gentleman. Any other follow-up 
questions?
    The chair thanks the panel for their testimony and looks 
forward to working with you.
    We will now call up our second panel. Ms. Kathleen Tighe, 
Deputy Inspector General, Office of Inspector General, U.S. 
Department of Agriculture; Ms. Lisa Shames, Director of Natural 
Resources and Environment, U.S. Government Accountability 
Office; and Mr. John Jurich, Investigator for the Agriculture 
Committee, U.S. House of Representatives.
    Ms. Tighe, you may proceed when you are ready.

   STATEMENT OF KATHLEEN S. TIGHE, DEPUTY INSPECTOR GENERAL, 
             OFFICE OF THE INSPECTOR GENERAL, U.S.
          DEPARTMENT OF AGRICULTURE, WASHINGTON, D.C.

    Ms. Tighe. Thank you very much, Mr. Chairman, Members of 
the Subcommittee. Thank you for asking us here to address the 
Natural Resources Conservation Service's administration and 
management of its programs.
    As part of our oversight responsibilities, we have 
conducted a variety of work in this area including both 
financial statement audits and audits of NRCS's and FSA's 
program operations. The Chief Financial Officers Act mandated 
that the Office of Inspector General perform audits of the 
Department's financial statements. We have conducted the audit 
of the Department's consolidated financial statements and 
stand-alone audits of FNS, RD, Forest Service and CCC. For the 
other agencies including FSA, we selected transactions from 
them in the universe we look at for purposes of the 
consolidated financial statement.
    In Fiscal Year 2007, our financial audit responsibilities 
were expanded to include a separate audit of NRCS's financial 
statements. For Fiscal Year 2008, NRCS, in conjunction with us, 
contracted with KPMG for a full financial statement audit. That 
audit was the first attempt to audit NRCS's transactions 
comprehensively. KPMG found that NRCS could not support its 
transactions and account balances due to a wide range of 
documentation problems including lack of evidence supporting 
obligations such as accrued expenses, undelivered orders and 
unfilled customer orders. We found these problems occurred 
mainly because NRCS lacked Federal financial accounting 
experience or expertise. Until 2004, NRCS had relied on FSA 
employees to help account for its transactions and had not 
developed a staff of accounting professionals.
    As to the NRCS program operations, I would like to talk 
about a couple of recent audits we have done in the Wetlands 
Reserve Program. The Wetlands Reserve Program has been the 
subject of three different audits over the last several years. 
Our first audit dealt with how NRCS compensated owners for land 
that would be used for conservation. Legally, NRCS was required 
to limit landowner compensation to the difference between the 
fair market value of the land before and after the conservation 
easement. NRCS assumed the land subject to these easements had 
little or no remaining market value. However, our review found 
that the market value can be substantial. As a result, we 
estimated that NRCS could have potentially saved the program 
more than $159 million for the 5 year period we looked at.
    Our second audit report found that ongoing problems of 
coordination between NRCS and FSA resulted in producers 
receiving farming subsidies for lands that should have been 
retired. When producers participate in the Wetlands Reserve 
Program, they must inform FSA that they have reduced the arable 
land they are farming by the number of acres now being 
dedicated to conservation. In our review, we found cases in 
which landowners had not notified FSA and continued receiving 
farm subsidy payments for land where the conservation easements 
had been purchased by the government. We also found a handful 
of cases involving the grassland reserve easements where NRCS 
in fact had done the notifications but FSA hadn't made the 
adjustments to the crop base.
    Our third report noted problems with how NRCS monitored 
landowners' overall compliance with conservation programs. We 
found that five of the six state offices we reviewed did not 
annually monitor nearly 90 percent of our sample of 153 
easements. We also found possible noncompliance issues on 
approximately 40 percent of the easements we did visit.
    We are currently completing a review of NRCS's 
implementation of its Dam Rehabilitation Program. Congress 
appropriated approximately $160 million for Fiscal Years 2002 
through 2007 for purposes of assessing and rehabilitating our 
aging system of flood control structures. We found, however, 
that NRCS had not assessed for rehabilitation 79 percent of the 
dams categorized as high hazard. In our preliminary discussions 
with senior NRCS officials, they acknowledged the need to 
expeditiously complete these assessments.
    We appreciate the cooperation and the assistance of NRCS 
and FSA during our oversight reviews, and I am happy to answer 
any questions.
    [The prepared statement of Ms. Tighe follows:]

  Prepared Statement of Kathleen S. Tighe, Deputy Inspector General, 
   Office of the Inspector General, U.S. Department of Agriculture, 
                            Washington, D.C.
    Good morning, Mr. Chairman and Members of the Subcommittee. Thank 
you for inviting me to appear before you today to address the Natural 
Resource Conservation Service's (NRCS) administration and management of 
its programs.
    As the oversight agency of the U.S. Department of Agriculture 
(USDA), the Office of Inspector General (OIG) works to ensure that the 
Department's programs are delivered as efficiently and as effectively 
as possible and to prevent fraud, waste, and abuse in USDA's programs 
and operations. As part of overseeing NRCS, we have conducted a variety 
of recent audit work, including financial statement audits and audits 
of NRCS' program operations. We appreciate the agency's cooperation and 
assistance during these oversight reviews, and we note the good work 
being done by NRCS personnel across the country. I will begin my 
remarks by addressing NRCS' efforts to adequately account for the tax 
dollars it receives and spends.
Financial Statement Audits
    The Chief Financial Officers Act of 1990 mandated that OIG perform 
financial statement audits of the Department's financial statements. In 
Fiscal Year 2007, OIG's financial audit responsibilities were expanded 
to include a separate audit of NRCS' financial statements. For Fiscal 
Year 2008, NRCS, in conjunction with OIG, contracted for an NRCS 
financial statement audit. The contractor, KPMG, conducted the audit 
with OIG serving as the Contracting Officer's Technical Representative 
to oversee and monitor the contract. For Fiscal Year 2008, KPMG was 
unable to provide an opinion on NRCS' financial statements because the 
agency could not document or support its transactions and account 
balances.
    To understand how NRCS arrived at this point, some background is 
necessary. Prior to 2004, NRCS and the Farm Service Agency (FSA) shared 
responsibility for farm programs. As part of this arrangement between 
the two agencies, NRCS provided the technical assistance producers 
required, and FSA administered the programs, including providing the 
financial accounting. Since the Chief Financial Officers Act of 1990 
did not require a separate financial statement audit of NRCS, OIG did 
not issue a separate opinion on the agency's financial statements. 
Instead, NRCS' transactions were included in the universe from which we 
selected transactions for the consolidated financial statement audit.
    The Farm Security and Rural Investment Act of 2002 changed this 
arrangement by making NRCS fully responsible for administering its own 
farm programs, including the necessary financial accounting. Full 
responsibility switched to NRCS with the start of Fiscal Year 2004, 
which meant that NRCS employees were now preparing the transactions we 
sampled in our consolidated financial statements.
    Beginning in Fiscal Year 2007, the Office of Management and Budget 
(OMB) required a separate financial statement audit of NRCS. In this 
requirement's first year, the agency contracted to perform a review of 
several accounts instead of a comprehensive audit. OIG monitored the 
contractor's work by attending meetings, reviewing audit evidence, and 
reviewing and approving deliverables. The contractor issued a report 
noting that NRCS' accounting departed from generally accepted 
accounting principles. These accounting problems were caused by NRCS 
overstating unpaid and undelivered orders, needing better accounting 
controls, and lacking complete supporting documentation. After the 
review, NRCS embarked on a project to improve its records in 
preparation for the Fiscal Year 2008 financial statement audit.
    The 2008 financial statement audit was the first attempt to audit 
NRCS' transactions comprehensively. The independent certified public 
accounting firm contracted to perform this work--KPMG--was unable to 
provide an opinion because NRCS could not support its transactions and 
account balances. There were a wide range of documentation problems, 
including a lack of evidence supporting obligations such as accrued 
expenses, undelivered orders, and unfilled customer orders. For 
example, KPMG found a number of accrued expenses (which are expenses 
that are incurred during 1 fiscal year, but paid later) that either 
lacked support or lacked support that matched the expense. In addition, 
KPMG also found deficiencies in how NRCS accounted for leases and 
easements.
    These problems occurred because NRCS lacked Federal financial 
accounting expertise. Until 2004, NRCS had relied on FSA employees to 
help account for its transactions, and had not cultivated a staff of 
accounting professionals. Part of this problem also has to do with how 
NRCS understands its mission within USDA. Many NRCS officials perceive 
their primary role as providing technical and scientific assistance to 
producers. Training employees to correctly account for its activities 
was not the agency's first priority.
    NRCS has taken steps to address the deficiencies disclosed in the 
2008 financial audit. To reach a correct statement of the agency's 
balances as of September 30, 2008, NRCS has:

   Trained over 300 NRCS employees concerning financial 
        accounting principles in the areas that were identified as 
        deficiencies in the Fiscal Year 2008 audit.

   Developed an automated tool to assist these employees as 
        they validate and correct balances for specific general ledger 
        accounts.

   Performed quality assurance reviews of the clean-up efforts 
        performed by the states to address issues identified in the 
        audit.

   Required the Deputy Chiefs and State Conservationists to 
        attest that their financial information is complete, accurate, 
        and reliable.

    Based on the results of this clean-up effort, NRCS will adjust its 
financial statements to what it believes are the correct balances for 
the fiscal year ending September 30, 2008. NRCS believes these ending 
balances will serve as the foundation for an improved Fiscal Year 2009 
financial statement.
    Beginning last month, NRCS engaged the services of KPMG to evaluate 
the effectiveness of its efforts to clean up its financial statements. 
While it would be premature to anticipate the results of KPMG's 
evaluation, NRCS believes that its clean-up efforts will enable the 
agency to achieve an unqualified opinion on future financial statement 
audits, which KPMG will also be performing.
Wetlands Reserve Program (WRP): Financial Accounting
    As an illustration of how NRCS' financial accounting and its 
program operations are interrelated, I would like to discuss one of our 
recent audits of NRCS' Wetlands Reserve Program (WRP).\1\ WRP is a 
voluntary program that offers landowners technical and financial 
support to restore, enhance, and protect qualified wetlands on their 
property. By the end of Fiscal Year 2008, over 2 million acres were 
enrolled in WRP under approximately 9,400 easements and 1,200 
restoration agreements. As of October 15, 2008, NRCS had obligated 
approximately $150 million in WRP funds for Fiscal Year 2008.
---------------------------------------------------------------------------
    \1\ ``WRP--Wetlands Restoration and Compliance,'' Audit Report 
10099-4-SF, dated August 25, 2008.
---------------------------------------------------------------------------
    Early in our review of WRP payments, we found that NRCS was 
obligating expired funds--the agency was using funds that had been 
authorized under the 1996 Farm Bill after that bill had been superseded 
by the 2002 Farm Bill. We found over 1,400 WRP contracts, totaling 
almost $74 million, that had been obligated using expired WRP funds.
    NRCS' financial management officials allowed these expired funds to 
be used because they had mistakenly assumed that 1996 Farm Bill funds--
like the 1990 Farm Bill funds--were ``no-year funds'' and, therefore, 
were available for obligation in subsequent fiscal years. We 
recommended that NRCS adjust its financial accounts to correct for 
these improper obligations, and the agency took corrective action to 
resolve this problem.
NRCS Program Management
    Turning from NRCS' efforts to account for the funds it receives and 
spends, I would like to comment now on a number of audits concerning 
NRCS' program operations that OIG has already issued, or will soon 
issue.
    WRP has been the subject of three different audit reports.\2\ OIG's 
first audit dealt with how NRCS compensated owners for land that would 
be used for conservation. Under the WRP statute, NRCS was required to 
limit landowner compensation to the difference between the fair market 
value of the land before the WRP conservation easement and the fair 
market value of the land after the WRP easement (also known as the 
``residual value'').\3\ NRCS assumed that lands subject to WRP 
easements had little or no remaining market value; therefore, the 
agency issued instructions to establish a residual value of zero. 
However, we found that the residual value can be substantial. As a 
result, we estimated that NRCS could have potentially saved the program 
more than $159 million from 1999 to 2003. In response to our 
recommendation, NRCS modified its WRP appraisal methodology to 
recognize the residual value of easement-encumbered lands.\4\
---------------------------------------------------------------------------
    \2\ ``WRP--Wetlands Restoration and Compliance,'' Audit Report 
10099-4-SF, dated August 25, 2008; ``Compensation for Easements,'' 
Audit Report 10099-3-SF, dated August 2005; and ``Crop Bases on Lands 
with Conservation Easements--State of California,'' Audit Report 50099-
11-SF, dated August 2007.
    \3\ Residual value is the value of the land with the conservation 
easement restrictions, which may include the landowner's continued 
control of access to the land; the right to allow hunting and fishing; 
and the pursuit of other undeveloped recreational uses, provided such 
uses do not impact other prohibitions listed in the warranty easement 
deed.
    \4\ ``Compensation for Easements,'' Audit Report 10099-3-SF, dated 
August 2005.
---------------------------------------------------------------------------
    When producers participate in WRP, they must inform FSA that they 
have reduced the arable land they are farming by the number of acres 
now being dedicated to conservation. This step is important because it 
decreases the farm subsidy the producer receives from FSA. We found 
cases in which landowners had not notified FSA and continued receiving 
improper farm subsidy payments for land where conservation easements 
had been purchased by the government.\5\ This issue formed the basis of 
our second audit report on WRP, which found that ongoing problems of 
coordination between NRCS and FSA resulted in producers receiving 
farming subsidies for land they should have retired.\6\ \7\
---------------------------------------------------------------------------
    \5\ We also found similar problems in NRCS' Emergency Watershed 
Protection Program and FSA's Grassland Reserve Program easements.
    \6\ ``Crop Bases on Lands with Conservation Easements--State of 
California,'' Audit Report 50099-11-SF, dated August 2007.
    \7\ In this report, we audited easements only in California, but 
NRCS took corrective action nationwide.
---------------------------------------------------------------------------
    Our third report on WRP noted problems with how NRCS monitored 
landowners' compliance with WRP conservation provisions.\8\ During our 
audit of activities from 2003 to 2005, we found that five NRCS state 
offices did not annually monitor nearly 90 percent of our sample of 153 
WRP easements. We found possible noncompliance issues on approximately 
40 percent of the easement sites we inspected. With the number of 
easements increasing and field staff decreasing, NRCS has fewer 
resources to monitor its easements for compliance with program 
requirements. To correct this problem, NRCS agreed to develop a risk-
based monitoring system to optimize its monitoring resources.
---------------------------------------------------------------------------
    \8\ ``WRP--Wetlands Restoration and Compliance,'' Audit Report 
10099-4-SF, dated August 25, 2008.
---------------------------------------------------------------------------
    OIG also has completed, or will soon complete, audits on other 
aspects of NRCS' program operations. For instance, we are currently 
performing an audit of the Conservation Security Program, intended to 
evaluate the adequacy of NRCS' controls over the program and to review 
participant and land eligibility.
    We are also completing a review of NRCS' implementation of its dam 
rehabilitation program.\9\ Recognizing the threat to public safety 
posed by the aging system of flood control structures, Congress 
appropriated approximately $160 million from Fiscal Years 2002 to 2007 
for the purpose of assessing and rehabilitating these dams. We found, 
however, that NRCS has not always rehabilitated the dams that pose the 
greatest risk to public safety. Instead, 7 years after the program was 
initiated, NRCS has not assessed 1,345 of 1,711 (79 percent) high 
hazard dams for rehabilitation and has spent $10.1 million (of the $160 
million) to rehabilitate lower priority dams--dams where failures would 
be unlikely to result in the loss of human life. NRCS' efforts to 
implement the dam rehabilitation program have been hindered because the 
agency does not own the dams and lacks direct regulatory authority over 
dam owners. However, NRCS has not always established cooperative 
relationships with the state agencies responsible for overseeing dams. 
These state agencies can, if the need arises, compel owners to repair a 
dangerous structure. In our preliminary discussions with senior NRCS 
officials, they acknowledged the need to expeditiously complete 
assessment of high hazard dams. They also stated that the additional 
funding provided under the American Recovery and Reinvestment Act of 
2009 will help accomplish this goal.
---------------------------------------------------------------------------
    \9\ ``Rehabilitation of Flood Control Dams,'' Audit Report 10601-1-
At. The report is not yet released.
---------------------------------------------------------------------------
The American Recovery and Reinvestment Act of 2009 (Recovery Act)
    Our review of the dam rehabilitation program is especially timely 
because the Recovery Act appropriated an additional $50 million for 
rehabilitating dams. In a recent meeting with senior NRCS officials, 
they agreed that our draft report will help them develop ``best 
practices'' as the agency prepares to expend the additional funding. We 
plan to do a followup review of this program later this fiscal year or 
early next fiscal year, which will provide NRCS an opportunity to 
demonstrate how it has responded to our recommendations as it spends 
this stimulus money.
    The Recovery Act also appropriated to NRCS an additional $290 
million, which NRCS distributed by allocating $145 million for 
floodplain easements and $145 million for watershed operations. The 
Department recently announced that it will release the full $145 
million to restore floodplains and protect an estimated 60,000 acres 
through the floodplain easement component of its Emergency Watershed 
Protection Program (EWP). Since signups for the easements will end on 
March 27, we have already staffed an audit team to review this 
additional funding. In the first phase of this review, we will evaluate 
the adequacy of NRCS' management controls over easements in EWP, given 
the control weaknesses we found in the processing of easements under 
WRP. In the second phase of our review, we intend to verify the 
eligibility of the participants and whether funds were expended 
properly.
    We plan to apply a similar approach and methodology to our planned 
review of the $145 million allocated for watershed operations projects. 
In its announcement on March 9, 2009, the Department stated that it 
would be releasing $80 million of the amount that week. The funding 
will be provided to sponsoring local organizations, which will operate 
projects intended to protect watersheds, and promote flood mitigation 
and water quality improvements.
    Mr. Chairman and Members of the Subcommittee, I would like to 
conclude by thanking the Subcommittee for the opportunity to present 
OIG's recent work on these issues. I am happy to answer any questions 
you may have.

    The Chairman. Thank you, Ms. Tighe.
    Ms. Shames.

          STATEMENT OF LISA SHAMES, DIRECTOR, NATURAL
           RESOURCES AND ENVIRONMENT, U.S. GOVERNMENT
            ACCOUNTABILITY OFFICE, WASHINGTON, D.C.

    Ms. Shames. Mr. Chairman and Members of the Subcommittee, I 
am pleased to be here today to discuss our work on USDA's 
management of its conservation programs. As you know, these 
programs provide billions of dollars in assistance each year. 
That is why their efficient and effective management can 
enhance the stewardship of our natural resources.
    My testimony will discuss findings from past GAO reports. 
Specifically, we found duplicate payments under CSP, EQIP funds 
not linked to environmental purposes, and farm program payments 
made to individuals who exceeded the income limit. In response 
to these findings and our recommendations, USDA has taken a 
number of actions intended to improve its management of these 
programs. Overall, these actions appear promising but we have 
not evaluated their effectiveness.
    First, regarding CSP duplicate payments, both legislative 
and regulatory measures are designed to reduce the potential 
for duplication between CSP and other conservation programs. 
For example, both the 2002 and 2008 Farm Bills explicitly 
prohibit CSP payments for activities that can be funded under 
other conservation programs. Also, NRCS regulations establish 
higher minimum eligibility standards for CSP. Despite these 
measures, our analysis found duplicate payments. In one case, a 
producer received a CSP payment of over $9,000 and an EQIP 
payment of nearly $800 on the same parcel of land for the same 
conservation action. In response to our recommendations, NRCS 
said it had updated software to compare CSP applications and 
existing contracts, issued a bulletin describing measures to 
preclude duplicate payments, and indicated it would require 
applicants to identify any payments received under another 
conservation program. Subsequently, NRCS told us that it had 
identified 760 potential or actual duplicate payments totaling 
nearly $1 million and has taken appropriate action to preclude 
or recover these payments.
    Regarding EQIP funds, we reported that the general 
financial assistance formula which accounts for about \2/3\ of 
funding to the states did not clearly link to the program's 
purpose of optimizing environmental benefits. Specifically, the 
formula did not have a documented rationale for its factors and 
weights. Small differences in the weight can significantly 
affect the amount of funding a state receives by $6.5 million. 
We also reported that the formula used questionable and 
outdated data. Positively, at the time of our review, we found 
NRCS had begun to develop performance targets and measures to 
assess environmental changes resulting from EQIP practices. We 
noted that this information could help direct funds towards 
areas of the country that needed the most improvement. In 
response to our recommendations, NRCS modified the factors and 
weights, updated some data sources and described how factors in 
the formula linked to a number of performance measures.
    Regarding the integrity of farm program payments, we 
reported that about $49 million in farm payments were made to 
about 2,700 potentially ineligible individuals between Fiscal 
Years 2003 and 2006. Of the $49 million, $14 million was from 
CRP payments and $3 million from EQIP. We found that FSA does 
not test for income. Instead, FSA tests compliance by looking 
at how much a farm received in payments in the previous year 
and whether it experienced a change in ownership, among other 
things.
    The need for management controls will remain critical. The 
2008 Farm Bill lowered the income eligibility caps, thus the 
number of individuals whose adjusted gross income exceeds the 
caps is likely to rise to as many as 23,000, according to our 
analysis, and increases the risk that USDA could make improper 
payments and our analysis shows that that could be as high as 
$90 million.
    USDA agreed with our recommendations that FSA work with IRS 
to develop a way to determine whether payment recipients meet 
eligibility requirements. Last week USDA announced that 
recipients would be required to sign a form that grants IRS 
authority to provide income information to USDA so that it can 
verify it.
    In conclusion, USDA conservation programs can play an 
invaluable role in encouraging farmers to act as stewards of 
the nation's natural resources. On a positive note, USDA has 
taken a number of actions to address our findings. 
Nevertheless, while these actions appear promising, continued 
oversight is especially critical in light of the nation's 
current fiscal challenges.
    Mr. Chairman, this concludes my prepared statement and I 
would be pleased to answer any questions that you or Members of 
the Subcommittee may have.
    [The prepared statement of Ms. Shames follows:]

  Prepared Statement of Lisa Shames, Director, Natural Resources and 
  Environment, U.S. Government Accountability Office, Washington, D.C.
Improved Management Controls Can Enhance Effectiveness of Key 
        Conservation Programs
Highlights
    Highlights of GAO-09-528T (http://www.gao.gov/new.items/
d09528t.pdf), testimony before the Subcommittee on Conservation, 
Credit, Energy, and Research, House Committee on Agriculture.
Why GAO Did This Study
    The U.S. Department of Agriculture (USDA) administers conservation 
programs, such as the Conservation Stewardship Program (CSP, formerly 
the Conservation Security Program) and the Environmental Quality 
Incentives Program (EQIP), to help farmers reduce soil erosion, enhance 
water supply and quality, and increase wildlife habitat, among other 
things.
    This testimony is based on GAO reports on CSP and EQIP, each issued 
in 2006, and a 2008 report on farm program payments. It discusses (1) 
the potential for duplicate payments between CSP and other conservation 
programs, (2) USDA's process for allocating EQIP funds to the states to 
optimize environmental benefits, and (3) USDA's management controls 
over farm program payments.
What GAO Recommends
    Among other things, GAO recommended that USDA (1) develop a 
comprehensive process to preclude and identify duplicate payments 
between CSP and other conservation programs, (2) take steps to improve 
the EQIP general financial assistance formula, and (3) work with the 
Internal Revenue Service (IRS) to develop a method for determining 
whether all recipients of farm program payments meet income eligibility 
requirements. USDA agreed with these recommendations and has taken 
actions to implement them, but GAO has not assessed the effectiveness 
of these actions.
    View GAO-09-528T or key components. For more information, contact 
Lisa Shames at [Redacted], [Redacted].
What GAO Found
    While legislative and regulatory measures are in place to reduce 
the possibility of duplicate payments, the potential still exists 
because CSP and other USDA conservation programs may be used to finance 
similar conservation activities. GAO previously reported that USDA did 
not have a comprehensive process to preclude or identify such duplicate 
payments, and GAO found a number of instances of duplicate payments. 
USDA was unaware of this duplication. However, USDA has since updated 
its contracting software to identify potential duplication and issued 
written guidance to its field offices outlining measures to preclude 
duplicate payments. As a result, USDA said that it has identified about 
760 examples of potential or actual duplicate payments since Fiscal 
Year 2004 totaling about $1 million, and has taken action to preclude 
or recover these payments, as appropriate.
    GAO previously reported that USDA's process for allocating EQIP 
funds was not clearly linked to the program's purpose of optimizing 
environmental benefits. Therefore, USDA may not have directed funds to 
states with the most significant environmental concerns arising from 
agricultural production. To allocate most EQIP funds, USDA uses a 
general financial assistance formula that consists of 31 factors and 
weights. However, USDA did not have a documented rationale for how each 
factor contributes to accomplishing the program's purpose; some of the 
formula's data was questionable or outdated; and the funding allocation 
process was not linked to USDA's long-term performance measures. For 
Fiscal Year 2009, USDA has issued updated guidance for this formula 
that appears to address a number of these elements.
    GAO reported that USDA does not have adequate management controls 
in place to verify that farm program payments, including those for 
conservation programs, are made only to individuals who do not exceed 
income eligibility caps. As a result, USDA cannot be assured that 
millions of dollars in farm payments are proper. GAO found that $49.4 
million in farm payments were made to about 2,700 potentially 
ineligible individuals between Fiscal Years 2003 and 2006. About six 
percent of this amount was for EQIP payments; 29 percent was for the 
Conservation Reserve Program, a program that pays farmers to retire 
environmentally-sensitive cropland. The need for management controls 
will remain critical, since recent legislation lowered the income 
eligibility caps and makes the number of individuals whose income 
exceeds these caps likely to rise. In March 2009, USDA announced that 
it has begun working with IRS to ensure that high-income individuals 
and entities who request farm payments meet income limits as set forth 
in law, and that once this verification system is fully operational, it 
should identify inappropriate payments before they are disbursed. As 
GAO has previously reported, ensuring the integrity and equity of farm 
programs is a key area needing enhanced Congressional oversight. Such 
oversight can help ensure that conservation programs benefit the 
agricultural sector as intended and protect rural areas from land 
degradation, diminished water and air quality, and loss of wildlife 
habitat.

    Mr. Chairman and Members of the Subcommittee:

    I am pleased to be here today to discuss our work on the U.S. 
Department of Agriculture's (USDA) management of its conservation 
programs designed to help farmers be better stewards of our natural 
resources. Under these programs, primarily the Conservation Stewardship 
Program (CSP, formerly the Conservation Security Program) and the 
Environmental Quality Incentives Program (EQIP), USDA and producers 
(farmers and ranchers) enter into contracts to implement practices to 
reduce soil erosion, enhance water supply and quality, and increase 
wildlife habitat, among other things. These conservation programs are 
administered by USDA's Natural Resources Conservation Service (NRCS). 
Another USDA agency, the Farm Service Agency (FSA), is responsible for 
ensuring that only individuals who meet certain eligibility criteria 
receive Federal farm program payments, including payments for many 
conservation programs.
    As you know, farmers and ranchers own or manage about 940 million 
acres, or about half of the continental United States' land area, and 
thus they are among the most important stewards of our soil, water, and 
wildlife habitat. USDA's conservation programs, which provide billions 
of dollars in assistance each year, are a key resource in promoting 
this environmental stewardship. Therefore, it is essential that they be 
managed effectively and efficiently and that they be adequately 
overseen to assure that payments are provided only to eligible 
individuals. We are eager to assist the 111th Congress in meeting its 
oversight agenda. To that end, we have recommended that ensuring the 
integrity and equity of the farm programs is a key area needing 
Congressional oversight.\1\
---------------------------------------------------------------------------
    \1\ GAO, Suggested Areas for Oversight for the 110th Congress, GAO-
07-235R (http://www.gao.gov/new.items/d07235r.pdf) (Washington, D.C.: 
Nov. 17, 2006).
---------------------------------------------------------------------------
    My testimony today is based on our reports on CSP, EQIP, and 
Federal farm program payments.\2\ I will focus on three primary issues 
discussed in these reports: (1) the potential for duplicate payments 
under CSP and other USDA conservation programs for similar conservation 
activities, (2) NRCS's process for allocating EQIP funds to the states 
to optimize environmental benefits, and (3) FSA's efforts to ensure the 
integrity of farm program payments, including payments for 
conservation. To perform this work, we reviewed relevant statutory 
provisions, NRCS, FSA, and other USDA regulations, program 
documentation, guidelines for implementing EQIP and CSP, and guidance 
for making farm program payments. We also analyzed data on farm program 
payments, producer income, and funding allocated to the states under 
EQIP and to priority watersheds under the Conservation Security 
Program. In addition, we spoke with officials at NRCS, FSA, other USDA 
offices, and the Internal Revenue Service (IRS). We conducted our work 
in accordance with generally accepted government auditing standards.
---------------------------------------------------------------------------
    \2\ GAO, Conservation Security Program: Despite Cost Controls, 
Improved USDA Management Is Needed to Ensure Proper Payments and Reduce 
Duplication with Other Programs, GAO-06-312 (http://www.gao.gov/
new.items/d06312.pdf) (Washington, D.C.: Apr. 28, 2006). GAO, 
Agricultural Conservation: USDA Should Improve Its Process for 
Allocating Funds to States for the Environmental Quality Incentives 
Program, GAO-06-969 (http://www.gao.gov/new.items/d06969.pdf) 
(Washington, D.C.: Sept. 22, 2006). GAO, Federal Farm Programs: USDA 
Needs to Strengthen Controls to Prevent Payments to Individuals Who 
Exceed Income Eligibility Limits, GAO-09-67 (http://www.gao.gov/
new.items/d0967.pdf) (Washington, D.C.: Oct. 24, 2008). Copies of the 
Highlights pages for these reports are attached to this statement.
---------------------------------------------------------------------------
    In summary, USDA has taken a number of actions to address our 
recommendations to improve its management of these conservation 
programs and the integrity of farm program payments. Specifically:

   Regarding CSP, we reported that duplicate payments had 
        occurred despite legislative and regulatory measures that were 
        to reduce the potential for duplication between CSP and other 
        programs. We recommended that NRCS develop a process to 
        preclude further duplicate payments as well as to identify and 
        recover past duplicate payments. In response, NRCS updated its 
        contracting software to identify potential duplication and 
        issued written guidance to its field offices in October 2006 
        outlining measures to preclude duplicate payments. As a result, 
        NRCS reportedly has identified 760 examples of potential or 
        actual duplicate payments since Fiscal Year 2004 totaling 
        nearly $1 million, and has taken action to preclude or recover 
        these payments, as appropriate.

   Regarding EQIP, we reported that NRCS's formula for 
        allocating financial assistance, which accounts for most of the 
        funding provided to the states, does not link to the program's 
        purpose of optimizing environmental benefits. We recommended 
        that NRCS ensure that the rationale for the formula's factors 
        and weights used to determine the state allocations is 
        documented and linked to program priorities, and that data 
        sources used in the formula are accurate and current. We also 
        recommended that NRCS use information from long-term 
        performance measures to further revise the formula to ensure 
        funds are directed to areas of highest priority. In response, 
        in January 2009, NRCS issued updated guidance for its EQIP 
        funding allocation formula that appears to address a number of 
        the elements raised in our recommendation.

   Regarding the integrity of farm program payments, we 
        reported that USDA cannot be certain that millions of dollars 
        in farm program payments, including conservation payments, it 
        made are proper because it does not have management controls to 
        verify that payments are made only to individuals who did not 
        exceed income eligibility caps. We recommended that FSA work 
        with IRS to develop a method for determining whether all 
        recipients of farm payments meet income eligibility criteria. 
        In response, USDA announced last week that it has begun working 
        with IRS to ensure that high-income individuals and entities 
        who request farm program payments meet income limits as set 
        forth in law. According to USDA, once this verification system 
        is fully operational, it should identify inappropriate payments 
        before they are disbursed.

    While these are positive steps, we have not evaluated their 
effectiveness. In the latter two cases, the agency actions to implement 
our recommendations are so recent that there is little or no basis yet 
to do this evaluation.
Legislative and Regulatory Measures Reduce the Potential for 
        Duplication Between CSP and Other Programs, but Duplicate 
        Payments Have Occurred
    EQIP provides assistance to farmers and ranchers to take new 
actions aimed at addressing identified conservation problems. CSP 
rewards farmers and ranchers who already meet very high standards of 
conservation and environmental management in their operations. Farm 
bill provisions and NRCS regulations are designed to reduce the 
potential for duplication between CSP and other USDA conservation 
programs, such as EQIP. For example, the Farm Security and Rural 
Investment Act of 2002 (2002 Farm Bill) and the Food, Conservation, and 
Energy Act of 2008 (2008 Farm Bill): \3\
---------------------------------------------------------------------------
    \3\ The Conservation Security Program was originally authorized in 
the 2002 Farm Bill and included measures to reduce the potential for 
duplication with other USDA conservation programs. Similar measures are 
also included in the Conservation Stewardship Program authorized in the 
2008 Farm Bill.

   provide that CSP may reward producers for maintaining 
        conservation practices that they have already undertaken, 
        whereas other programs generally provide assistance to 
        encourage producers to take new actions to address conservation 
        problems on working lands or to idle or retire environmentally 
---------------------------------------------------------------------------
        sensitive land from agricultural production; and

   explicitly prohibit (1) duplicate payments under CSP and 
        other conservation programs for the same practice on the same 
        land and (2) CSP payments for certain activities that can be 
        funded under other conservation programs, such as the 
        construction or maintenance of animal waste storage or 
        treatment facilities.

    USDA has also issued CSP regulations that can prevent duplicate 
payments between CSP and other conservation programs. For example, the 
regulations:

   establish higher minimum eligibility standards for CSP than 
        for other programs, which help to differentiate the applicant 
        pool for CSP from the potential applicants for these other 
        programs; and

   encourage CSP participants to implement conservation 
        actions, known as enhancements, to achieve a level of treatment 
        that generally exceeds the level required by other USDA 
        conservation programs.

    Despite these legislative and regulatory measures, we reported in 
2006 that the potential for duplicate payments still existed because of 
similarities in conservation actions financed through CSP and other 
programs. At that time, we found that duplicate payments had occurred. 
Our analysis of Fiscal Year 2004 payments data showed 72 producers who 
received payments under CSP and EQIP that appeared to be for similar 
conservation actions. Of these, we examined 11 cases in detail and 
found duplicate payments had occurred eight times. For example, four of 
these duplicate payments were made to producers who received a CSP 
enhancement payment and an EQIP payment for conservation actions that 
appeared to be similar. In one of these cases, a producer received a 
CSP pest management enhancement payment of $9,160 and an EQIP payment 
of $795 on the same parcel of land for the same conservation action--
conservation crop rotation.
    NRCS state officials agreed that the payments made in these four 
cases were duplicates. They stated that they were unaware that such 
duplication was occurring and that they would inform their district 
offices of it. At the time of our report, NRCS headquarters officials 
stated that the agency lacked a comprehensive process to either 
preclude duplicate payments or identify them after a contract has been 
awarded. Instead, these officials said, as a guard against potential 
duplication, NRCS relied on the institutional knowledge of its field 
staff and the records they keep.
    NRCS has the authority to recover duplicate payments. Under a CSP 
contract, as required in the 2002 and 2008 Farm Bills, a producer 
agrees that if the producer violates any term or condition of the 
contract, the producer is to refund payments and forfeit all rights to 
receive payments or is to refund or accept adjustments to payments, 
depending on whether the Secretary of Agriculture determines that 
termination of the contract and return of payments is or is not 
warranted, respectively.
    Duplicate payments reduce program effectiveness and, because of 
limited funding, may result in some producers not receiving program 
benefits for which they are otherwise eligible. For these reasons, we 
recommended that the Secretary of Agriculture direct the Chief of NRCS 
to develop processes to review (1) CSP contract applications to ensure 
that CSP payments, if awarded, would not duplicate payments made by 
other USDA conservation programs and (2) existing CSP contracts to 
identify cases where CSP payments duplicate payments made under other 
programs and take action to recover appropriate amounts and to ensure 
that these duplicate payments are not repeated in Fiscal Year 2006 and 
beyond.
    Regarding the first recommendation, in July 2006, NRCS said it had 
created an automated system within its contracting software to conduct 
a comparison between new CSP applications and existing contracts for 
other conservation programs to reveal potential duplication. In 
addition, in October 2006, NRCS issued a national bulletin to its field 
staff describing measures needed to preclude duplicate payments. 
According to the bulletin, NRCS conducted a comparison between existing 
contracts for several conservation programs, including EQIP, and Fiscal 
Year 2006 CSP applications to identify potential duplication. This 
comparison found 81 potential duplicate payments for conservation 
practices. NRCS said it adjusted the CSP applications to prevent these 
duplicate payments. Furthermore, NRCS indicated that starting with the 
Fiscal Year 2006 CSP sign-up, it would require applicants to complete a 
form that asks an applicant to identify any payments the applicant 
receives under another conservation program on any of the land being 
offered for enrollment in CSP. While these actions are positive steps, 
we have not assessed their effectiveness.
    Regarding the second recommendation, NRCS indicated it would use 
its contracting software to compare existing CSP contracts with 
existing contracts for EQIP and other conservation programs. 
Specifically, according to NRCS's national bulletin, its field offices 
are to compare CSP contract enhancement activities with the practices 
financed under other conservation program contracts to determine 
whether duplicate payments are planned in Fiscal Year 2007 and beyond, 
or if duplicate payments occurred during Fiscal Years 2004 through 
2006. NRCS said that all identified duplicate payments would be dealt 
with according to the NRCS contracting manual. According to NRCS 
officials, the agency did not have a CSP sign-up in 2007, so there were 
no new applications that year. In 2008, NRCS received about 2,300 CSP 
applications, but agency officials said they did not have information 
on potential duplicate payments. For 2004 to 2006, NRCS officials said 
the agency found 371 duplicate payments between CSP and EQIP totaling 
about $420,000. These officials did not have information on the amount 
of these payments recovered, but noted that they represented less than 
one percent of total CSP payments made during these years. Furthermore, 
NRCS officials stated the agency found 389 scheduled payments totaling 
about $520,000 under these programs that would have been duplicates. 
NRCS was able to preclude these payments from being made.
NRCS's Process for Allocating EQIP Funds to the States Does Not Link to 
        the Program's Purpose of Optimizing Environmental Benefits
    In 2006, we reported that NRCS's process for providing EQIP funds 
to the states is not clearly linked to the program's purpose of 
optimizing environmental benefits. Specifically, we found that NRCS's 
general financial assistance formula, which accounts for approximately 
\2/3\ of funding provided to the states, did not have a documented 
rationale for each of the formula's factors and weights, which are used 
to determine the allocation of funds to the states to address 
environmental issues. In addition, the formula sometimes relied on 
questionable and outdated data. As a result, NRCS may not have been 
directing EQIP funds to states with the most significant environmental 
concerns arising from agricultural production.
    More specifically, in Fiscal Year 2006, approximately 65 percent of 
EQIP funds were allocated using a general financial assistance formula. 
This formula contained 31 factors related to the availability of 
natural resources and the presence of environmental concerns, such as 
acres of wetlands and at-risk species habitat, pesticide and nitrogen 
runoff, and the ratio of commercial fertilizers to cropland. NRCS 
assigns each of the formula's factors a weight. Factors with the 
highest weights included acres of highly erodible cropland, acres of 
fair and poor rangeland, the quantity of livestock, and the quantity of 
animal waste generated.
    At the time of our report, NRCS had periodically modified factors 
and weights to emphasize different national priorities, such as in 
Fiscal Year 2004, following the passage of the 2002 Farm Bill. However, 
NRCS had not documented the basis for its decisions on the formula 
factors and weights or explained how they achieve the program's purpose 
of optimizing environmental benefits. Thus, it was not always clear 
whether the formula's factors and weights directed funds to the states 
as effectively as possible.
    Small differences in the weights can shift the amount of financial 
assistance directed at a particular concern. For example, in 2006, if 
the weight of any of the 31 factors had increased by one percent, $6.5 
million would have been shifted at the expense of one or more other 
factors. The potential for the weights to significantly affect the 
amount of funding a state receives underscores the importance of having 
a well-founded rationale for assigning them.
    We also reported that weaknesses in the financial assistance 
formula were compounded by NRCS's use of questionable and outdated 
data. First, five of the 29 data sources in the financial assistance 
formula were used more than once for separate factors. Using the same 
data for multiple factors may result in more emphasis being placed on 
certain environmental concerns than intended. Second, NRCS could not 
confirm the source of data used in ten factors in the formula; as such, 
we could not determine the accuracy of the data, verify how NRCS 
generated the data, or fully understand the basis on which the agency 
allocates funding. Third, NRCS did not use the most current data for 
six factors in the formula.
    Finally, we reported that NRCS had begun to develop more long-term, 
outcome-oriented performance measures to assess changes to the 
environment resulting from EQIP practices as part of its 2005 strategic 
planning effort. These measures included such things as reducing 
sediment runoff from farms, improving soil conditions on working 
cropland, and increasing water conservation. NRCS also included 
proposed targets for each measure to be achieved by 2010, such as 
reducing sediment runoff by 18.5 million tons annually. At the time of 
our report, NRCS told us it had developed baselines for these 
performance measures, and planned to assess and report on them once 
computer models and other data collection methods that estimate 
environmental change were completed.
    Although we did not assess the comprehensiveness of the EQIP 
performance measures, the additional information they provide about the 
results of EQIP outcomes should allow NRCS to better gauge program 
performance. As a next step, such information could also help the 
agency refine its process for allocating funds to the states through 
its general financial assistance formula by directing funds toward 
practices that address unrealized performance targets and areas of the 
country that need the most improvement. The Chief of NRCS's 
Environmental Improvement Programs Branch agreed that information about 
program performance might eventually be linked to the EQIP funding 
allocation process. However, at the time of our report, the agency did 
not have plans to make this linkage.
    Because of our concerns about the general financial assistance 
formula, we recommended that NRCS ensure its rationale for the factors 
and weights was documented and addressed program priorities, and the 
data sources used in the formula were accurate and current. We also 
recommended that the Secretary of Agriculture direct NRCS to continue 
to analyze current and newly developed long-term performance measures 
for EQIP and use this information to make further revisions to the 
financial assistance formula to ensure funds are directed to areas of 
highest priority.
    Since our report, NRCS has made progress in implementing our 
recommendations by modifying its financial assistance formula for the 
Fiscal Year 2009 EQIP state allocation. In 2007, an outside consultant 
hired by NRCS concluded that NRCS should take a number of steps to 
improve its conservation program formulae, including improving their 
analytical soundness, making the process more transparent, and 
integrating performance information into the formulae. NRCS reviewed 
the EQIP formula and made changes prior to its 2009 allocation, 
including modifying the factors and weights, and updating some data 
sources. NRCS also described how factors in the formula relate to a 
number of EQIP and NRCS performance measures. While NRCS's actions are 
positive steps, we have not assessed whether they fully address our 
recommendations.
Additional USDA Management Controls Could Provide More Assurance of 
        Conservation Program Integrity
    Additional management controls by USDA's FSA could provide more 
assurance of the conservation programs' integrity by ensuring 
conservation payments are awarded only to individuals who meet income 
eligibility requirements.\4\ In October 2008 we reported that USDA 
cannot be certain that millions of dollars in farm program payments it 
made are proper, because it does not have management controls, such as 
reviewing an appropriate sample of recipients' tax returns, to verify 
that payments were made only to individuals who did not exceed the 
income eligibility caps. We determined that $49.4 million in farm 
payments were made to about 2,700 potentially ineligible individuals 
between Fiscal Year 2003 and Fiscal Year 2006. These recipients 
included a founder and former executive of an insurance company, an 
individual with ownership interest in a professional sports franchise, 
a top executive of a major financial services company, a former 
executive of a technology company, and individuals residing outside the 
United States.
---------------------------------------------------------------------------
    \4\ Although these limits changed in the 2008 Farm Bill, under the 
2002 Farm Bill, an individual or entity with an average adjusted gross 
income (AGI) of over $2.5 million, over the previous 3 tax years 
immediately preceding the applicable crop year, was ineligible for farm 
program payments unless at least 75 percent or more of the average AGI 
was farm income, defined as income from farming, ranching, or forestry 
operations. The AGI provision of the 2002 Farm Bill covered crop years 
2003 through 2008 and applied to most farm program payments, including 
those for crop subsidy payments (e.g., fixed payments based on 
historical production, known as direct payments, and price support 
payments), conservation practices, and disasters.
---------------------------------------------------------------------------
    As shown in figure 1, about six percent of the $49.4 million was 
for EQIP payments and 29 percent was for the Conservation Reserve 
Program. Payments made under the ``other programs'' category included 
payments made for other NRCS conservation programs, such as CSP, the 
Grassland Reserve Program, Wetlands Reserve Program, and Wildlife 
Habitat Incentives Program.



    According to FSA officials, a number of factors--such as resource 
constraints that hamper its ability to examine complex tax and 
financial information and lack of authority to access and use IRS tax 
filer data for such purposes--contribute to its inability to verify 
that each individual who received farm program payments was eligible. 
We also found, however, that the sample FSA draws to check recipient 
eligibility does not test for income eligibility; instead, FSA reviews 
compliance with eligibility requirements other than income, such as how 
much a farming operation received in farm program payments in the 
previous year and whether it experienced a change in ownership. FSA 
therefore cannot ensure that only individuals who meet the income 
eligibility caps are receiving farm payments.
    Without better management controls, USDA cannot be assured that 
millions of dollars in farm program payments, including conservation 
payments, are proper. This need for management controls will remain 
critical, since the 2008 Farm Bill lowered the income eligibility caps. 
This change makes the number of individuals whose adjusted gross income 
exceeds the caps likely to rise, which increases the risk that USDA 
could make improper payments to more individuals.
    To ensure greater program integrity, we recommended that the 
Secretary of Agriculture direct FSA to work with IRS to develop a 
method for determining whether all recipients of farm program payments 
meet income eligibility requirements, and, if the Secretary finds that 
USDA does not have authority to obtain information from IRS, request 
the authority it would need from Congress. USDA agreed with our 
recommendations and, in a March 19, 2009, news release, the agency 
announced that it would work with IRS to ensure that high-income 
individuals and entities who request USDA payments meet income limits 
set forth in the 2008 Farm Bill. Specifically, in order to be eligible 
for USDA payments all recipients will be required to sign a separate 
form that grants IRS authority to provide income information to USDA 
for verification purposes. According to USDA, once this verification 
system is fully operational, it should identify inappropriate payments 
before they are disbursed.
Conclusions
    In conclusion, USDA conservation programs can play an invaluable 
role in encouraging farmers and ranchers to act as stewards of the 
nation's natural resources. However, the weaknesses we previously 
identified in the management of CSP and EQIP funds, as well as our 
concerns with controls related to farm program payments more generally, 
could undermine the effectiveness of USDA conservation programs. On a 
positive note, in response to our recommendations, USDA has taken a 
number of promising actions to eliminate duplicate payments between CSP 
and other programs, refine the EQIP allocation formula by updating its 
factors, weights, and data sources and, in some cases, identifying how 
the factors relate to long-term performance measures, and strengthen 
management controls over farm program payments. While these actions are 
positive, continued oversight of these programs, such as today's 
hearing, helps ensure funds are spent as economically, efficiently, and 
effectively as possible and benefit the agricultural sector as 
intended. Such oversight is especially critical in light of the 
nation's current deficit and growing long-term fiscal challenges.
    Mr. Chairman, this concludes my prepared statement. I would be 
pleased to respond to any questions that you or other Members of the 
Subcommittee may have.
Contacts and Staff Acknowledgements
    Contact points for our Offices of Congressional Relations and 
Public Affairs may be found on the last page of this statement. For 
further information about this testimony, please contact Lisa Shames, 
Director, Natural Resources and Environment, [Redacted] or [Redacted]. 
Key contributors to this statement were James R. Jones, Jr., Assistant 
Director; Thomas M. Cook, Assistant Director; Kevin S. Bray; Gary T. 
Brown; Paige M. Gilbreath; Leslie V. Mahagan; and Carol Herrnstadt 
Shulman.
                              Attachment 1
Conservation Security Program
Despite Cost Controls, Improved USDA Management Is Needed to Ensure 
        Proper Payments and Reduce Duplication with Other Programs
Highlights
    Highlights of GAO-06-312 (http://www.gao.gov/new.items/d06312.pdf), 
a report to the Chairman, Committee on Appropriations, U.S. Senate.
Why GAO Did This Study
    The Conservation Security Program (CSP)--called for in the 2002 
Farm Bill and administered by the U.S. Department of Agriculture's 
(USDA) Natural Resources Conservation Service (NRCS)--provides 
financial assistance to producers to reward past conservation actions 
and to encourage further conservation stewardship. CSP payments may be 
made for structural or land management practices, such as strip 
cropping to reduce erosion. CSP has raised concerns among some 
stakeholders because CSP cost estimates generally have increased since 
the 2002 Farm Bill's enactment. For example, the Congressional Budget 
Office's estimate increased from $2 billion in 2002 to $8.9 billion in 
2004.
    GAO determined (1) why CSP cost estimates generally increased; (2) 
what authority USDA has to control costs and what cost control measures 
exist; and (3) what measures exist to prevent duplication between CSP 
and other USDA conservation programs and what duplication, if any, has 
occurred.
What GAO Recommends
    GAO recommends, in part, that NRCS review its state offices' 
wildlife habitat assessment criteria and develop a process to preclude 
and identify duplicate payments. NRCS generally agreed with GAO's 
findings and recommendations.
    www.gao.gov/cgi-bin/getrpt?GAO-06-312.
    To view the full product, including the scope and methodology, 
click on the link above. For more information, contact Robert A. 
Robinson at [Redacted] or [Redacted].
What GAO Found
    Various factors explain why estimates of CSP costs generally 
increased since the 2002 Farm Bill's enactment. Of most importance, 
little information was available regarding how this program would be 
implemented at the time of its inception in 2002. As more information 
became available, cost estimates rose. In addition, the time frames on 
which the estimates were based changed. While the initial estimates 
covered years in which the program was expected to be nonoperational or 
minimally operational, subsequent estimates did not include these 
years.
    The farm bill provides USDA general authority to control CSP costs, 
including authority to establish criteria that enable it to control 
program participation and payments and, therefore, CSP costs. For 
example, NRCS restricts participation by limiting program enrollment 
each year to producers in specified, priority watersheds. NRCS also has 
established certain CSP payment limits at levels below the maximum 
allowed by the statute. However, efforts to control CSP spending could 
be improved by addressing weaknesses in internal controls and 
inconsistencies in the wildlife habitat assessment criteria that NRCS 
state offices use, in part, to determine producer eligibility for the 
highest CSP payment level. Inconsistencies in these criteria also may 
reduce CSP's conservation benefits.
    The farm bill prohibits duplicate payments for the same practice on 
the same land made through CSP and another USDA conservation program. 
Various other farm bill provisions also reduce the potential for 
duplication. For example, as called for under the farm bill, CSP may 
reward producers for conservation actions they have already taken, 
whereas other programs generally provide assistance to encourage new 
actions or to idle or retire environmentally sensitive land from 
production. In addition, CSP regulations establish higher minimum 
eligibility requirements for CSP than for other programs. However, 
despite these legislative and regulatory provisions, the possibility 
that producers can receive duplicate payments remains because of 
similarities in the conservation actions financed through these 
programs. In addition, NRCS does not have a comprehensive process to 
preclude or identify such duplicate payments. In reviewing NRCS's 
payments data, GAO found a number of examples of duplicate payments.


        Note: Strip cropping means growing row crops, forages, or small 
        grains in equal width strips.
                              Attachment 2
Agricultural Conservation
USDA Should Improve Its Process for Allocating Funds to States for the 
        Environmental Quality Incentives Program
Highlights
    Highlights of GAO-06-969 (http://www.gao.gov/new.items/d06969.pdf), 
a report to the Ranking Democratic Member, Committee on Agriculture, 
Nutrition, and Forestry, U.S. Senate.
Why GAO Did This Study
    The Environmental Quality Incentives Program (EQIP) assists 
agricultural producers who install conservation practices, such as 
planting vegetation along streams and installing waste storage 
facilities, to address impairments to water, air, and soil caused by 
agriculture or to conserve water. EQIP is a voluntary program managed 
by the U.S. Department of Agriculture's (USDA) Natural Resources 
Conservation Service (NRCS). NRCS allocates about $1 billion in 
financial and technical assistance funds to states annually. About $650 
million of the funds are allocated through a general financial 
assistance formula.
    As requested, GAO reviewed whether USDA's process for allocating 
EQIP funds to states is consistent with the program's purposes and 
whether USDA has developed outcome-based measures to monitor program 
performance. To address these issues, GAO, in part, examined the 
factors and weights in the general financial assistance formula.
What GAO Recommends
    GAO recommends, among other things, that NRCS document its 
rationale for the factors and weights in its general financial 
assistance formula and use current and accurate data. USDA agreed with 
GAO that the formula needed review. USDA did not agree with GAO's view 
that NRCS's funding process does not clearly link to EQIP's purpose of 
optimizing environmental benefits. It believes that the funding process 
clearly links to EQIP's purpose, but it has not documented the link.
    www.gao.gov/cgi-bin/getrpt?GAO-06-969.
    To view the full product, including the scope and methodology, 
click on the link above. For more information, contact Daniel Bertoni 
at [Redacted] or [Redacted].
What GAO Found
    NRCS's process for providing EQIP funds to states is not clearly 
linked to the program's purpose of optimizing environmental benefits; 
as such, NRCS may not be directing funds to states with the most 
significant environmental concerns arising from agricultural 
production. To allocate most EQIP funds, NRCS uses a general financial 
assistance formula that consists of 31 factors, including such measures 
as acres of cropland, miles of impaired rivers and streams, and acres 
of specialty cropland. However, this formula has several weaknesses. In 
particular, while the 31 factors in the financial assistance formula 
and the weights associated with each factor give the formula an 
appearance of precision, NRCS does not have a specific, documented 
rationale for (1) why it included each factor in the formula, (2) how 
it assigns and adjusts the weight for each factor, and (3) how each 
factor contributes to accomplishing the program's purpose of optimizing 
environmental benefits. Factors and weights are important because a 
small adjustment can shift the amount of funding allocated to each 
state on the basis of that factor and, ultimately, the amount of money 
each state receives. For example, in 2006, a one percent increase in 
the weight of any factor would have resulted in $6.5 million more 
allocated on the basis of that factor and a reduction of one percent in 
money allocated for other factors. In addition to weaknesses in 
documenting the design of the formula, some data NRCS uses in the 
formula to make financial decisions are questionable or outdated. For 
example, the formula does not use the most recent data available for 
six of the 31 factors, including commercial fertilizers applied to 
cropland. As a result, any recent changes in a state's agricultural or 
environmental status are not reflected in the funding for these 
factors. During the course of GAO's review, NRCS announced plans to 
reassess its EQIP financial assistance formula.
    NRCS recently developed a set of long-term, outcome-based 
performance measures to assess changes to the environment resulting 
from EQIP practices. The agency is also in the process of developing 
computer models and other data collection methods that will allow it to 
assess these measures. Thus, over time, NRCS should ultimately have 
more complete information on which to gauge program performance and 
better direct EQIP funds to areas of the country that need the most 
improvement.
                              Attachment 3
Federal Farm Programs
USDA Needs to Strengthen Controls to Prevent Payments to Individuals 
        Who Exceed Income Eligibility Limits
Highlights
    Highlights of GAO-09-67 (http://www.gao.gov/new.items/d0967.pdf), a 
report to the Ranking Member, Committee on Finance, U.S. Senate.
Why GAO Did This Study
    Farmers receive about $16 billion annually in Federal farm program 
payments. These payments go to about two million recipients, both 
individuals and entities. GAO previously has reported that the U.S. 
Department of Agriculture (USDA) did not consistently ensure that these 
payments went only to those who meet eligibility requirements.
    GAO was asked to evaluate (1) how effectively USDA implemented 2002 
Farm Bill provisions prohibiting payments to individuals or entities 
whose income exceeded $2.5 million and who derived less than 75 percent 
of that income from farming, ranching, or forestry operations, (2) the 
potential impact of the 2008 Farm Bill's income eligibility provisions 
on individuals who receive farm payments, and (3) the distribution of 
income of these individuals compared with all 2006 tax filers. GAO 
compared USDA data on individuals receiving payments with the latest 
available Internal Revenue Service (IRS) data on these individuals.
What GAO Recommends
    GAO recommends that USDA work with IRS to develop a system for 
verifying the income eligibility for all recipients of farm program 
payments. If USDA determines that it needs authority to work with IRS, 
it should seek this authority from Congress, as appropriate. In 
commenting on a draft of this report, USDA agreed with these 
recommendations but disputed some of the findings. GAO believes that 
the report is fair and accurate.
    To view the full product, including the scope and methodology, 
click on GAO-09-67 (http://www.gao.gov/new.items/d0967.pdf). For more 
information, contact Lisa Shames at [Redacted] or [Redacted].
What GAO Found
    USDA does not have management controls, such as reviewing an 
appropriate sample of recipients' tax returns, to verify that payments 
are made only to individuals who do not exceed income eligibility caps 
and therefore cannot be assured that millions of dollars in farm 
program payments it made are proper. GAO found that of the 1.8 million 
individuals receiving farm payments from 2003 through 2006, 2,702 had 
an average adjusted gross income (AGI) that exceeded $2.5 million and 
derived less than 75 percent of their income from farming, ranching, or 
forestry operations, thereby making them potentially ineligible for 
farm payments. Nevertheless, USDA paid over $49 million to these 
individuals. According to USDA officials, a number of factors--such as 
resource constraints that hamper its ability to examine complex tax and 
financial information as well as a lack of authority to obtain and use 
IRS tax filer data for such purposes--contribute to the department's 
inability to verify that each individual who receives farm program 
payments complies with income eligibility provisions. However, USDA 
does not routinely sample individuals receiving farm payments to test 
for income eligibility; instead, its annual sample selected for review 
is based primarily on compliance with eligibility requirements other 
than income. The 2008 Farm Bill directs USDA to use statistical methods 
to target those individuals most likely to exceed income eligibility 
caps.
    The 2008 Farm Bill will increase the number of individuals likely 
to exceed the income eligibility caps. That is, with lower income 
eligibility caps under the 2008 Farm Bill, the number of individuals 
whose AGI exceeds the caps will rise, increasing the risk that USDA 
will make improper payments to more individuals. For example, had the 
new farm bill been in effect in 2006, as many as 23,506 individuals who 
received farm program payments would likely have been ineligible for 
crop subsidy and disaster assistance payments totaling as much as $90 
million.
    Compared with all tax filers, individuals who participated in farm 
programs in 2006 are more likely to have higher incomes. For example, 
as shown in the figure below, 12 of every 1,000 individuals receiving 
farm program payments reported AGI between $500,000 and $1 million 
compared with about four of all tax filers who reported income at this 
level.



    The Chairman. Thank you, Ms. Shames.
    Mr. Jurich.

    STATEMENT OF JOHN J. JURICH, INVESTIGATOR, COMMITTEE ON 
  AGRICULTURE, U.S. HOUSE OF REPRESENTATIVES, WASHINGTON, D.C.

    Mr. Jurich. Thank you. Chairman Holden, Members of the 
Committee, my name is John Jurich and I work as an Investigator 
for the House Agriculture Committee. I am pleased to testify 
before you this morning about a review of conservation programs 
that was performed this past year. The review is still in 
progress and the findings are of an interim category.
    The review entailed examination of more than 100 Wetlands 
Reserve Program and Wildlife Habitat Incentives Program project 
files from 20 states along with interviews of senior program 
managers in Washington, D.C., and St. Paul, Minnesota. These 
projects spanned a timeframe of about 10 years from 1998 until 
last year, 2008, and were focused primarily on the larger 
easements and restoration agreements in the program both in 
dollar amount and acreage. The files that were examined 
represented payments and restoration costs totaling over $150 
million.
    The primary focus of the review was to examine program 
eligibility requirements, whether the land as well as the 
landowners met the basic requirements for participation in WRP 
and WHIP. Briefly stated, the results of the review disclosed 
that NRCS was very careful to demonstrate the eligibility of 
the land with various wetland requirements, as well as 
establishing legal ownership of the land, clear title and the 
absence of any encumbrances. However, the agency was often in 
poor compliance with AGI requirements set in the 2002 Farm 
Bill. NRCS also routinely ignored or excused its noncompliance 
with 12 month ownership requirement of earlier legislation.
    With respect to AGI compliance, the files demonstrated the 
general failure of the agency personnel either to request the 
required financial checks, or to adequately document that such 
checks had been performed. The initial set of state files that 
were reviewed contained 63 easements or long-term agreements 
executed between 2003 and 2008. Of the 63 files, only eight 
contained either signed certifications or database printouts 
documenting program eligibility. A second set of files 
comprising 35 Minnesota contracts contained just three examples 
of AGI eligibility documentation. Both the national office in 
Washington and Minnesota State office in St. Paul sought 
additional certifications and printouts for some of the missing 
documents, but in many instances the certifications had not 
been requested by NRCS at the time of application and were 
missing from the FSA program database.
    The program management also calls into question the 
effectiveness of the 12 month ownership requirement. A number 
of conservation and wildlife protection partner organizations, 
both governmental and non-governmental, worked out mutual 
understandings with landowners and NRCS to acquire private land 
along with the WRP easements. These agreements were made 
sometimes with and sometimes without waivers of the 12 month 
ownership requirement by State Conservationists. The partners 
purchased properties from private landowners at the same time 
as NRCS placed easements on the land, or shortly before the 
easements were filed. Legal agreements among the parties in 
many instances made clear that the easement funds from NRCS 
were part and parcel of down payments for land acquisition by 
the partners without which the agreements would be voided. 
Irrespective of the waivers, the acquisitions appeared to be an 
end run around the 12 month ownership requirement. In many of 
these cases, the conservation partner was enrolling the land in 
a preexisting refuge, a water storage area of a wildlife 
district. NRCS in these instances simply became a cash cow, 
enabling the partner organizations to acquire private lands at 
discount prices. In some of the instances, there was 
simultaneous closing. The land was sold from the private 
landowner to the partner organization at the same time that 
NRCS placed the easement on the land. In these instances, there 
was not 12 months of ownership. The agency was lucky if there 
was 12 minutes.
    Additional program management issues such as project 
implementation, billing and regular project oversight were also 
raised during this review. NRCS was generally quick to schedule 
and pay for the cost of appraisals, land surveys and title work 
of projects, but it appeared somewhat sluggish in beginning the 
actual restoration work. Some WRP projects had anywhere from 18 
months to a 2 year lag between the filing of the easement or 
long-term agreement and the start of restoration work. A few 
projects, according to the file documentation, underwent no 
restoration work whatsoever. I will comment briefly on some of 
the more egregious examples. The NRCS signed a long-term cost-
share agreement with one of the water districts down in south 
Florida. The cost-share agreement for more than $1 million was 
signed in 2003. In 2004, nothing was done. In 2005, 2006, 2007, 
nothing was done. In 2008, NRCS and the partner organization, 
the water district, basically agreed to disagree. They decided 
they couldn't come together and get a common restoration plan 
and the agreement was cancelled. For 5 or 6 years then you had 
$1 million in program funds sitting on the books and 
obligations, and nothing being done with the money.
    Billing for restoration work was also at times severely 
delayed. This happened often in larger contracts with partner 
organizations, but in some cases applied to contracts with 
individual landowners. Some of these billings and payments 
reached into six figures and were submitted up to a year or 
more after the restoration work in question had begun. Such 
delays defeat any kind of real oversight over the performance 
of the work and the accuracy of the amount being billed.
    The monitoring of restoration projects was uneven and 
appeared to follow no set plan. The regulations required annual 
reviews with at least one actual site visit every 3 years until 
the conservation practices were established. Some states 
completed annual status reviews both during and after 
restoration. Other states did little, if anything, to evaluate 
program compliance once the easements were filed and 
restoration work had begun. In these instances, it is not 
difficult to understand why OIG went out a couple of years ago 
and found 40 percent of the easements they visited in 
noncompliance with one or more of the easement restrictions.
    The program files, as I mentioned, were very uneven in 
terms of documentation. Only a handful of agency offices noted 
the completion of restoration work in the project files. A few 
states did an excellent job in documenting the files, most 
notably, Indiana, Nebraska and Louisiana. The state office in 
Minnesota also had excellent files. However, many other states 
did not, and absent from many of the states files were the 
normal documentation of financial eligibility, highly erodable 
land determinations, site monitoring, cultural and historical 
site reviews.
    I appreciate the opportunity to discuss the results of this 
review with you and look forward to any of your questions. 
Thank you.
    [The prepared statement of Mr. Jurich follows:]

   Prepared Statement of John J. Jurich, Investigator, Committee on 
      Agriculture, U.S. House of Representatives, Washington, D.C.
    Subcommittee Chairman Holden, Ranking Member Goodlatte, and Members 
of the Subcommittee, I am pleased to testify before you today about the 
review of two Federal conservation programs that was performed this 
past year.
    This review entailed an examination of more than 100 Wetlands 
Reserve Program (WRP) and Wildlife Habitat Incentives Program (WHIP) 
project files from twenty states, along with interviews of senior 
program managers in Washington, D.C., and St. Paul, Minnesota.
    These projects spanned a time frame of 10 years, from 1998 to 2008, 
and were focused primarily on the larger easements and restoration 
agreements in the program, both in dollar amount and acreage. The files 
that were examined represented easement payments and restoration costs 
totaling over $150 million.
    The primary focus of the review was to examine program eligibility 
requirements--whether the land as well as the landowners met the basic 
requirements for participation in WRP and WHIP. Briefly stated, the 
results of the review disclosed that the Natural Resources Conservation 
Service (NRCS) was very careful to demonstrate the eligibility of the 
land with various wetlands requirements, as well as establishing the 
ownership of the land as a legal possession. However, the agency was 
often in poor compliance with the adjusted gross income (AGI) 
requirements set in the 2002 Farm Bill. NRCS also routinely ignored, or 
excused its non-compliance with, the twelve month ownership requirement 
of earlier legislation.
    The file review also demonstrated problems with the timely 
attention to restoration activities once an easement had been filed or 
a restoration plan had been agreed to. Both the actual startup work and 
the subsequent submission of billings or invoices by participants and 
contractors were often delayed. Finally, the files were frequently 
lacking documentation of the annual monitoring of the easements and 
restoration projects required by both programs.
    With respect to AGI compliance, the files demonstrated a general 
failure of agency personnel, either to request the required financial 
checks, or to adequately document that such checks had been performed. 
The initial set of state files that were reviewed contained sixty-three 
easements or long-term agreements executed between 2003 and 2008. Of 
these sixty-three files, only eight contained either signed 
certifications or SCIMS database printouts documenting program 
eligibility. A second set of files, comprising thirty-five Minnesota 
contracts, contained just three examples of AGI eligibility 
documentation. Both the national office in Washington and the Minnesota 
State office in St. Paul sought additional certifications and printouts 
for some of the missing documents. But in many instances, the 
certifications had not been requested by NRCS at the time of 
application. The certifications were not only missing from agency files 
but never entered into the FSA program database.
    The program management also calls into question the effectiveness 
of the twelve month ownership requirement. A number of conservation and 
wildlife protection partner organizations, both governmental and non-
governmental, worked out mutual understandings with landowners and NRCS 
to acquire private land along with WRP easements. These agreements were 
made sometimes with and sometimes without waivers of the twelve month 
ownership requirement by the state conservationists. The partners 
purchased properties from the private landowners at the same time as 
NRCS placed easements on the land or shortly before the easements were 
filed. Legal agreements among the parties in many instances made clear 
that the easement funds from NRCS were part and parcel of down payments 
for the land acquisitions by the partners without which the agreements 
would be voided.
    Irrespective of the waivers, the acquisitions appeared to be an end 
run around the 12 month waiting requirement. In many of these cases, 
the conservation partner was enrolling the land in a pre-existing 
refuge, water storage area, or wildlife district. NRCS, in these 
instances, simply became a cash cow enabling partner organizations to 
acquire private lands at discount prices.
    Additional program management issues, such as project 
implementation, billing, and regular project oversight, were also 
raised during this review. While NRCS was generally quick to schedule 
and pay for the costs of appraisals, land surveys, and title work of 
projects, it appeared somewhat sluggish in beginning the actual 
restoration work. Some WRP projects had anywhere from an 18 month to 2 
year lag between the date of easement or long term agreement and the 
start of restoration work. A few projects, according to the file 
documentation, underwent no restoration work whatsoever.
    In a few instances, the agency wholly deferred the management and 
oversight of restoration work and easement sites to certain partner 
organizations, such as the U.S. Fish & Wildlife Service, state 
conservation agencies, and others. In these cases, it was impossible to 
tell if any restoration work had been done at all. If NRCS has no 
intention of overseeing a WRP conservation easement to ensure 
compliance with program requirements, then it should not be filing one.
    Billings for restoration work were also at times severely delayed. 
This happened often in large contracts with partner organizations, but 
in some cases applied to contracts with individual landowners. Some of 
these billings and payments reached into six figures and were submitted 
up to a year or more after the restoration work in question had begun. 
Such delays defeat any kind of real oversight over the performance of 
the restoration work and the accuracy of the amounts being billed.
    The monitoring of restoration projects was uneven and appeared to 
follow no set plan. The regulations required annual reviews with at 
least one actual site visit every 3 years until the conservation 
practices were established. Some states completed annual status 
reviews, both during and after restoration. Other states did little, if 
anything, to evaluate program compliance once the easements were filed 
and restoration work had begun.
    The program files were also uneven in terms of documentation. Only 
a handful of agency offices noted the completion of restoration work in 
the project files. A few states did an excellent job in documenting the 
files, most notably Indiana, Nebraska, and Louisiana. Many other 
states, however, did not. Absent from many of the state files were 
documentation of financial eligibility, highly erodible land 
determinations; site monitoring; and the cultural and historical site 
reviews.
    Occasionally absent were other required forms such as the program 
applications, conservation plans, schedules of operation, cost 
estimates, certificates of ownership and possession, hazardous 
substance and environmental reviews, or compatible use agreements. Some 
files lacked even the basic contractual agreements between the 
landowners and the government, the easements, or the long term 
restoration contracts.
    I appreciate the opportunity to discuss the results of the review 
of these conservation programs and look forward to answering any of 
your questions.
    Thank you.

    The Chairman. Thank you, Mr. Jurich. First of all, how long 
have you been working for the Committee?
    Mr. Jurich. Eight years.
    The Chairman. Well, you must be doing your job down at the 
Department out in the field, because I don't believe we ever 
met before.
    Mr. Jurich. They don't let me in the Longworth Building. I 
am over in the Ford Building.
    The Chairman. Mr. Jurich, during your investigation with 
field staff, where do you think the breakdown in communication 
occurred? Does the field staff not have enough guidance from 
the Department or is there just not enough staff to get the job 
done well?
    Mr. Jurich. I think that they have the proper guidance from 
the headquarters staff. I think that the implementation at the 
state and the district level is catch as catch can. Some of 
them follow the guidance, others don't. The files were very, 
very, very uneven. You had a couple of states where you had 
everything that you would want to see in the file. In other 
states, you were hard pressed to understand what had happened.
    The Chairman. So you gave some egregious examples of using 
the NRCS as a cash cow. I wonder if you had any more that you 
wanted to add besides the one you mentioned, and more 
importantly, what are the penalties for the actors? Are there 
criminal penalties, civil penalties? What do we do, just say 
don't do that again?
    Mr. Jurich. Exactly. I am not sure if there would be any 
kind of civil or criminal remedy. The Florida water districts 
were the more egregious examples. There was 10s, if not 20s of 
millions of dollars basically entered into these joint 
agreements with them, and it appeared to me that the water 
districts had a different agenda than NRCS. The water districts 
wanted to use the land basically for economical purposes, 
whereas, of course, NRCS was interested in the conservation 
impacts of the land. Consequently, when you look at what 
happened afterwards, the water districts wanted to continue 
grazing on the upland portions of the land. They wanted to 
continue haying. They wanted to continue also in some instances 
rentals for farming. And you could see where NRCS was hard 
pressed to say no. In some instances they issued compatible use 
authorizations. In other instances they simply noted the 
violation in the site reviews and did virtually nothing about 
it.
    The Chairman. Ms. Shames and Ms. Tighe, is there an audit 
for FSA conservation programs and how do we ensure the issues 
we are confronting with NRCS are not occurring right now at 
FSA?
    Ms. Shames. Mr. Chairman, we have not done the work so at 
this point we can't say. We can't speak to how FSA has been 
implementing the AGI provision, and what I can say is that 
given the new farm bill requirements and the lower eligibility 
limit, that it is going to put even further pressure to ensure 
that there is AGI compliance.
    The Chairman. Ms. Tighe?
    Ms. Tighe. I can tell you that we are in the final stages 
of doing a review of CSP. I can tell you just generally that we 
have found issues in terms of eligibility and at the point the 
audit should be out, I would say in the next month or so, and 
we will be able to come up and talk a little more in detail on 
it at that point. We are in the beginning stages of doing an 
audit ourselves on AGI. We had started it when GAO was sort of 
looking at it, and we are looking at it from a different sort 
of viewpoint. We are looking at it for purposes of looking at 
NRCS's controls over AGI.
    The Chairman. And I don't know if either one of you can 
explain the audit process at USDA. Why did NRCS have to do 
their own audit? I guess it was the last farm bill. How does 
this compare to the process at FSA or other USDA agencies?
    Ms. Tighe. The process differs a little. FSA is included in 
our consolidated financial statement as was NRCS up until a few 
years ago when OMB essentially mandated that they have a stand-
alone audit. So that is why, and that process began in a very 
brief way in 2007 where we reviewed, or KPMG reviewed, a few 
line items on the financial statements. The first full-blown 
stand-alone audit was 2008.
    The Chairman. Why did OMB do that? Why did they determine 
that?
    Ms. Tighe. I am assuming they had concerns over NRCS's 
financial reporting that caused them to want to have that.
    The Chairman. Thank you.
    The gentleman from Pennsylvania, Mr. Thompson.
    Mr. Thompson. Thank you, Mr. Chairman.
    Actually this question is for all the panel to respond to. 
You know, each of you testified to accounting errors or program 
documentation errors by the NRCS. Are these mistakes out of the 
ordinary compared to other agencies such as FSA?
    Ms. Tighe. I will go ahead and take that. The issue with 
NRCS--is because they weren't used to doing this themselves and 
didn't have financial expertise, they weren't doing it all that 
well. We do have an order of magnitude different than, say, 
FSA, who does have accounting professionals doing the work at 
the local levels where they need to have it done. We found 
significant number--I mean, we have talked about deobligations 
and what those are. In the 2007 review, there was hundreds of 
millions of dollars in deobligations. I mean, things weren't 
being done very well. Now, they are certainly working on it and 
we have every reason to think, as Mr. White said, that the 
problem can be fixed but they still have a way to go.
    Mr. Thompson. Any other panelists have thoughts or opinions 
on that?
    Mr. Jurich. I am familiar with the investigative files of 
OIG both as an agent and as a supervisor, and you would not see 
in an OIG file that kind of incomplete documentation.
    Mr. Thompson. Thank you. In terms of follow-up, the amounts 
that are reflected as to resources or preparation: Of the 
recommendations that came out of these investigations, are 
there organizational and structural changes to the agencies as 
not to address the current problems that obviously need to be 
addressed that you have kind of drilled down and found, but to 
prevent going forward this type of waste of resources?
    Ms. Shames. We have made the specific recommendations that 
could improve the programs as they were being implemented. We 
do keep track of these recommendations to see the extent of 
actions that have been taken, and as I said in my short 
statement, they are promising, these initial steps, but it 
would require GAO to do further audit work to really test the 
effectiveness of them. After 4 years, our feeling is, if an 
agency hasn't implemented our recommendations, we basically 
write them off. If they are not done in 4 years, our experience 
is that they are just not done.
    Mr. Thompson. So to date then with the findings, your 
opinions are, has NRCS taken the proper measures to correct the 
issues?
    Ms. Tighe. I think as to the financial statements, yes, I 
mean, they correctly stated we did look at their action plan 
and thought it looked good. Now, it is too early to say whether 
it is ultimately going to be effective. I mean, the financial 
statement work for this year is just underway, and I think that 
although KPMG has been asked to look at the corrected 
procedures, which we will fold that into their current audit 
work, I don't think we know at this point whether it is going 
to be effective.
    Mr. Thompson. During your audits and investigation, did 
anyone find what they viewed as corrupt behavior or anything 
other than administrative error?
    Ms. Tighe. We did not.
    Ms. Shames. Nor did we.
    Mr. Jurich. No, sir.
    Mr. Thompson. Very good. Mr. Chairman, I will yield back my 
time.
    The Chairman. The chair thanks the gentleman and recognizes 
the gentlewoman from Illinois, Mrs. Halvorson.
    Mrs. Halvorson. Thank you, Mr. Chairman.
    Thank you, panelists, for being here. I have a very rural 
district in Illinois, and I feel very strongly about the fact 
that my farmers and farming is a risky business. I also think 
that proper conservation is also necessary for good 
environmental stewardship. However, from what I am hearing, is 
that there has been a lot of duplication and maybe people are 
receiving payment for doing both. When there is talk from the 
Administration that they want to cut some of these safety net 
subsidies, I guess is what they are calling them, I have stood 
strong with my farmers saying that we are not going to do that. 
When people are ruining the system by collecting probably 
duplicative payments, I think the problems are coming from the 
Department or organizations within the Department that aren't 
talking to each other. What could somebody give us as some of 
the suggestions on how to coordinate so that we are not 
duplicating services, and what could possibly fix the problems, 
if there are any? From what I am hearing, there may be, so I 
don't know who wants to answer that one.
    Ms. Tighe. I can certainly speak initially on it. It is 
certainly one of our concerns within USDA as a whole that the 
different agencies don't communicate effectively. That is one 
of our management challenges that we report to you all every 
year. That has been a consistent one for a while. In the 
context of these conservation programs, some of our audits have 
pointed to problems certainly where NRCS needed to give 
information on the fact that a conservation easement was 
effected to FSA, and that ensures then that producer isn't 
getting paid for subsidy payments, when in fact they are 
getting paid conservation payments. So we need good 
communication. It is still a work in progress in many respects 
for NRCS and FSA both, but all of our reports that we do in 
some fashion make recommendations to try to make improvements 
in that.
    Mrs. Halvorson. But what are your suggestions? I mean, it 
is a work progress, I mean, but how do we get there? I mean, is 
it better IT, it is----
    Ms. Tighe. Well, some of it is certainly better IT systems. 
I think that is a good and logical thing to work on. And there 
was some discussion in Mr. White's testimony about some of the 
work they have done along those lines to automate certain 
things, and that is all good.
    Mrs. Halvorson. Thank you.
    I yield back.
    The Chairman. The Ranking Member, Mr. Goodlatte.
    Mr. Goodlatte. Thank you, Mr. Chairman.
    Let me ask all the panelists if they can comment on the 
conflict between trying to make NRCS programs work region by 
region, state by state, and having to administer a national 
program. They take pride is making programs work to fit the 
different conservation priorities of different regions or 
different states. Do you believe there is an inherent conflict 
in having a decentralized culture while trying to uniformly 
administer a national program?
    Ms. Tighe. Well, I think there certainly can be a conflict 
in that area. You know, you want to have, in certain cases 
national priorities set. If I can move briefly out of the 
conservation area into the dam audit we just did, it was our 
view that having national priorities instead of local actions 
would have ensured that these high-risk dams were in fact being 
targeted. But without that, I think you need--I do understand 
what you say. You need to have sort of local input, but there 
are certain cases where you really have to look nationally.
    Mr. Goodlatte. Thank you.
    Ms. Shames. We certainly saw in the EQIP program that there 
was not a link to national priorities, and in those instances, 
there is a risk that perhaps monies could be spent in an 
environment area that has greater need of those funds. That is 
why we found it was so important that these factors and weights 
be based on accurate data, current data, and also that there be 
a discussion why there are these factors and why there are 
these weights. So, that there is a better understanding and 
improved transparency in terms of where the funds are going to 
ensure that they are truly optimizing those environmental areas 
of greatest need.
    Mr. Goodlatte. Thank you.
    Mr. Jurich?
    Mr. Jurich. There was an extreme difference between the 
conservation practices that were being installed down in the 
Everglades versus the prairie pothole region up in Minnesota 
and North Dakota. I don't see how you can do it at a national 
level. You have to have state and local input.
    Mr. Goodlatte. Do you find that there is a cultural problem 
with NRCS officials who are suited to provide technical 
assistance, but may have difficulty providing program 
administration? And if so, can this be corrected without hiring 
additional administrative employees?
    Ms. Tighe. Well, we certainly found that when you are 
relying on people with scientific and technical expertise to do 
other sorts of functions, I mean, we certainly found a problem 
with the financial statements because accounting expertise is 
not something you can usually train a more science-oriented 
person to have. I mean, you need a lot of training to do that 
and a degree in accounting and some experience in that area. I 
think that probably goes over to some of the other 
administrative sort of functions, procurement and some other 
things that I don't think you can avoid hiring that expertise.
    Mr. Goodlatte. Ms. Shames?
    Ms. Shames. While we did not look at the culture 
specifically at NRCS, I should note that human capital is a 
government-wide issue to make sure that we do have the right 
expertise with the right skills to make sure that the sort of 
deficiencies that we have all reported don't happen.
    Mr. Goodlatte. Thank you.
    Mr. Jurich?
    Mr. Jurich. In Minnesota, the state office had a financial 
wizard there who basically controlled the payment of expenses 
for the conservation practices, and what I saw there was very, 
very, very good controls over not only the--well, over the 
payment of the conservation practices and it was sadly missing 
from many of the other states. I think they need financial 
expertise at the state level more than anything else.
    Mr. Goodlatte. Thank you.
    Thank you, Mr. Chairman.
    The Chairman. I thank the Ranking Member.
    The gentlewoman from Pennsylvania, Mrs. Dahlkemper.
    Mrs. Dahlkemper. Thank you, Mr. Chairman.
    Mr. Jurich, you indicate that in some cases the NRCS 
deferred management to other government agencies. Are you 
saying that the NRCS contracted out to the U.S. Fish and 
Wildlife Service and others, and if so, did they get any money 
for this?
    Mr. Jurich. There was no contract but there was an 
agreement between NRCS and the Fish and Wildlife Service where 
NRCS basically allowed Fish and Wildlife Service to take over 
the total management of the easement and they were not going to 
have any part and parcel of it thereafter. My question in that 
instance, why even have payment for the easement if you are not 
going to supervise the easement guidelines.
    Mrs. Dahlkemper. And so was there any----
    Mr. Jurich. There was no payment. There was no payment with 
a Memorandum of Understanding between the two agencies.
    Mrs. Dahlkemper. Okay. Also, your investigation covered 
projects that spanned from 1998 to 2008, and over this 
timeframe did you see any trends in the documentation oversight 
of projects that would be helpful for the Committee?
    Mr. Jurich. The trend was to improve. The WHIP contracts 
that I looked at were much better than the earlier WRP 
contracts, so the states started to do a better job in 
assembling and documenting things that they should be doing 
normally.
    Mrs. Dahlkemper. Any suggestions going forward here for us?
    Mr. Jurich. I am waiting for the second round of files from 
NRCS. When I get those, I will be prepared to give you a 
recommendation.
    Mrs. Dahlkemper. Thank you very much.
    The Chairman. The chair thanks our witnesses. Under the 
rules of the Committee, the record of today's hearing will 
remain open for 10 calendar days to receive additional material 
and supplementary written responses from the witnesses to any 
questions posed by a Member.
    This hearing of the Subcommittee on Conservation, Credit, 
Energy, and Research is adjourned.
    [Whereupon, at 12:00 p.m., the Subcommittee was adjourned.]
    [Material submitted for inclusion in the record follows:]
      
                          Submitted Questions
Response from Robert Stephenson, Acting Deputy Administrator for Field 
        Operations, Farm Service Agency; and Dave White, Chief, Natural 
        Resources Conservation Service, U.S. Department of Agriculture
    Question 1. Can you please explain how the agencies work together 
in administering conservation programs? Please outline exactly what 
each agency does.
    Answer.

    Conservation Reserve Program and Emergency Conservation Program 

    At the national, state, and local levels, FSA and NRCS meet 
regularly to discuss program needs and plan future actions. FSA is 
generally responsible for all program facets and it arranges for 
technical assistance which is generally provided by NRCS, and to a 
lesser degree state foresters and local conservation districts. NRCS 
uses FSA data in Adjusted Gross Income (AGI) determinations. The 
agencies also share the Service Center Information Management System 
(SCIMS) database to obtain producer information.
    FSA's tasks include making policy determinations at the program and 
producer levels including the obligation of funding and making 
payments. NRCS and other providers of technical assistance, apply CRP 
practice standards, make or recommend technical determinations, develop 
the conservation plans, and perform any necessary follow-up through the 
term of the contract.

    Grassland Reserve Program 

    FSA and NRCS jointly administer the GRP. Generally, NRCS is 
responsible for the administration of easements and FSA is responsible 
for rental contracts. NRCS also provides the technical assistance and 
FSA issues payments.

    Voluntary Public Access and Habitat Improvement Program

    FSA implements this grant program to states and Tribes.

    Grass Roots Source Water Program

    FSA implements this grant program through State Rural Water 
Associations.

    Conservation Compliance 

    FSA provides enforcement of the conservation compliance provisions 
by determining whether persons are eligible for USDA program benefits. 
NRCS makes technical determinations under highly erodible land and 
wetland conservation compliance provisions. FSA maintains records and 
provide reports related to conservation compliance activities. FSA 
county committees may hear appeals on individual cases.

    Question 2. Is there anything in your rules that requires the 
adjusted gross income limitation to be verified in order for payments 
to be issued?
    Answer. Section 1400.502 of the payment limitation regulations (7 
CFR Part 1400) provides that, to comply with the average adjusted gross 
income limitation, a person or legal entity, including all interest 
holders in a legal entity, general partnership, or joint venture, must 
provide annually, as required by CCC, ``authorization for CCC to obtain 
tax data from the Internal Revenue Service for purposes of verification 
of compliance [with the average AGI limitations].''

    Question 3. Although not addressed in GAO's testimony today, GAO 
reported in September 2007 that farm support programs and conservation 
programs may be working at cross-purposes. For example, the farm 
support programs may be encouraging conversion of grasslands, such as 
pasture, range, and native prairie, to cropland by reducing a 
landowner's financial risk, while some conservation programs, such as 
the Conservation Reserve Program, pay farmers to take cropland out of 
production and establish a perennial vegetation cover--usually 
grasses--on this land. What steps has USDA taken to reconcile this 
contradiction?
    Answer. For cropland to be eligible for enrollment in CRP, the land 
must be cropped 4 of the 6 years from 1996 to 2001. This prevents 
producers from tilling native sod and later enrolling in CRP. Though 
the 2008 Farm Bill updated this to say that the land must be cropped 4 
of 6 years preceding the date of the 2008 Farm Bill enactment, FSA must 
complete a revised Environmental Impact Statement on CRP prior to 
implementing this change
    2008 Farm Bill Section 12020 ``Crop Production on Native Sod'' also 
addresses the cross-purpose question. This section prohibits the 
agricultural producers from receiving crop insurance benefits and 
noninsured crop assistance on native sod acreage during the first 5 
years of tilling native sod for annual crop production in Prairie 
Pothole National Priority Areas with the election of the governor of 
the respective state.
    Native sod is defined as land on which the plant cover is composed 
principally of native grasses, grass-like plants, forbs, or shrubs 
suitable for grazing or browsing; and that has never been tilled for 
the production of an annual crop as of the date of enactment.
    In addition, to better determine the extent to which farm programs 
(e.g., crop insurance) and conservation programs (e.g., CRP) may be 
working at cross purposes, the Administrator of the Economic Research 
Service, the Administrator of the Farm Service Agency, and the Chief of 
the Natural Resources Conservation Service have developed a 2 year 
research plan that was forwarded to the Secretary in November 2008. The 
first part of the study includes a description of whether and where 
grassland conversions are taking place; the second part involves 
determining what the causes are of any such conversions. ERS is 
starting to do modeling for the plan based on 2003 NRI data and is 
awaiting the availability of 2007 NRI data necessary to complete the 
analysis.
Response from Dave White, Chief, Natural Resources Conservation 
        Service, U.S. Department of Agriculture
    Question 1. What actions have been taken to address the OIG 
Financial Audit? Is it now complete? If not, when will the information 
be made available?
    Answer. The financial audit is an annual requirement now that the 
agency has been designated as a stand-alone entity by Office of 
Management and Budget (OMB). Up through Fiscal Year (FY) 2007, the NRCS 
financial information was part of the USDA consolidated audit. In FY 
2008, NRCS underwent its first stand-alone audit, where an independent 
auditor conducted a separate audit of NRCS financial information. As a 
result, a disclaimer of opinion was issued.
    Immediately following the issuance of the audit report, NRCS 
initiated aggressive action to address the deficiencies which included 
five material weaknesses:

   Amounts for obligations were not recorded in the accounting 
        system for some goods and services ordered by the agency. In 
        some instances, obligations could not be supported; orders of 
        goods or services NRCS furnished for other government agencies 
        on a reimbursable basis (unfilled customer orders);

   expenses that NRCS incurred but had not yet paid (accrued 
        expenses);

   NRCS' knowledge of how much property owned and its total 
        value (accounting for property, plant and equipment);

   financial reporting to provide reliable information to the 
        President, the Congress, and the public.

    Auditors also found two significant deficiencies (general controls 
over the information technology environment, and a lack of controls 
over purchase and fleet card transactions), and areas of non-compliance 
with accounting standards, financial systems requirements, and proper 
use of the U.S. Standard General Ledger for recording financial 
transactions. In addition, auditors determined that NRCS does not 
obligate all transactions required by appropriations law and does not 
substantially comply with the Federal Financial Management Improvement 
Act of 1996.
    Two specific actions were taken to address issues with the FY 2008 
ending balances. we hope they will improve our preparedness for the FY 
2009. First, we developed a comprehensive Corrective Action Plan, 
approved by USDA OIG, that included a comprehensive review to determine 
the correct balance of obligations and accruals as reported in the 
beginning balance. Agency personnel completed this review of over 
160,000 transactions and certified to its accuracy as of December 31, 
2008. Second, we used the results of the obligation review along with 
additional work on reimbursable agreements and accounting for leases to 
prepare draft restatement of the beginning balances for FY 2009 for the 
auditors. An independent audit firm is currently reviewing our proposed 
revised beginning balances, with results expected in mid-May.
    Additional corrective actions, including the development of 
financial policies and procedures, requirements for review and 
certification of financial information, training, changes in business 
processes, and the strengthening of internal controls are underway. 
Progress is reported monthly to the USDA Office of Inspector General.
    In addition to the work on the beginning balances, independent 
auditors have begun the FY 2009 financial audit. The FY 2009 audit will 
be completed in October 2009, followed closely by issuance of the audit 
report and conclusions in November 2009.

    Question 2. After the audit, NRCS sent employees out to survey the 
contracts. Are you able to tell us what you found during that period?
    Answer. Beginning on December 1, 2008, NRCS dispatched a team of 
oversight specialists to 19 states and six other NRCS entities to 
review and evaluate the corrections made during the open obligations 
review. Over a 3 week period, the team reviewed 865 open obligation 
samples where determinations were considered complete by twenty 
different states and other entities such as our Centers. The team 
identified deficiencies in the samples, mainly due to insufficient file 
and contract documentation and monitoring, as well as misinterpretation 
of review questions and procedures. The team reviewed samples for 
validity of obligations and the proper execution of accruals. As a 
result of the review, additional clarification was provided to the 
states to reduce the overall deficiency rate. Our evaluation teams are 
continuing to carry out quality assurance reviews throughout the year.

    Question 3. A key point of the audit was that NRCS had a problem 
with open obligations. How much money was left open and/or unspent?
    Answer. The issue is not with NRCS' ability to obligate funds, but 
rather its ability to obligate funds in a way that results in 
accomplishing effective conservation. Though NRCS has a high initial 
rate of fund obligation--for example, at the end of Fiscal Year 2008, 
the agency had only $17 million of FY 2008 Farm Bill funds unobligated 
( an obligation rate of more than 99 percent of apportioned funds)--
NRCS has deobligated over $1.4 billion since the open obligation review 
began in 2007. Most of the issues surrounding open obligations occur 
subsequent to the initial obligations. Some of these are due to issues 
outside of NRCS control and some small level of deobligations is 
inevitable. However, NRCS recognizes that this level of deobligation is 
clearly unacceptable and that many deobligations were a result of 
faulty program implementation. As a result, NRCS is taking aggressive 
action by analyzing and rewriting policy and procedures for program, 
administrative, and financial aspects of our business to ensure that 
all responsible parties understand what is required. In addition, we 
have begun an initiative to redesign and streamline our business 
processes.

    Question 4. Would you say NRCS has been a good manager of the 
conservation programs?
    Answer. NRCS is proud of what it has accomplished with the 
significant increases in funding and new authorities provided by 
Congress since the 1996 Farm Bill. From the 1996 to 2002 Farm Bills, 
conservation program investments were increased by more than $17 
billion over the previous baseline of spending, with programs such as 
EQIP receiving over a billion dollars in annual spending. NRCS has 
worked with farmers, ranchers and other private landowners to develop 
and implement approximately 313,000 EQIP contracts, applying 
conservation practices on 145 million acres. More than 2 million acres 
have been enrolled in the Wetlands Reserve Program. NRCS also manages 
more than 10,000 individual easements.
    But while the results of conservation program investments have 
reshaped the landscape, we know that just getting conservation on the 
ground is not the full measure of program success. NRCS recognizes that 
we need to put as much effort in financial management as we do in 
conservation planning and conservation practice implementation. To that 
end, we have made great strides and improvements in financial and 
programmatic controls in recent years, including improvements to our 
ProTracts contracting system, development of the Practice Payment 
Schedule, and development of the soon-to-be-released Easement Business 
Tool. These changes and others institute financial controls and 
business practices that respond directly to audit findings and 
strengthen NRCS' financial management going forward.

    Question 5. When did NRCS know they had problems with tracking and 
documenting contacts? Was there steps taken to improve this prior to 
the 2008 audit? If so, how or why was this audit unable to be 
completed?
    Answer. Soon after implementation of the 2002 Farm Bill, NRCS 
recognized that the paper-based system used to manage our cost-share 
programs was inadequate for properly tracking and managing conservation 
contracts. At that point, we designed and implemented our ProTracts 
contracting system, which manages contracts for EQIP, WHIP, AMA, and 
CSP. Because ProTracts interfaces with FSA's program eligibility tool 
and USDA's financial accountability systems, we have been able to 
nearly eliminate improper payments as reflected in our reporting under 
the Improper Payments Improvement Act. In the near future, the USDA 
Office of Inspector General (OIG) will release an audit on the 
Conservation Security Program (CSP). The potential for improper 
payments in CSP is one of the issues being looked at by the OIG.. We 
are currently developing a software tool similar to ProTracts, to be 
rolled out this fall, for our easement programs.
    ProTracts, despite its many virtues, was not a broad-based panacea 
for all problems associated with our financial management system. In FY 
2007, the Office of Management and Budget (OMB) expressed concern 
regarding our open obligations and deobligations, especially with 
regard to NRCS easement programs, which were being reported to OMB on a 
quarterly basis. As a result, we contracted with an independent audit 
firm to perform a review of NRCS obligations. The audit firm issued a 
report in FY 2007, citing issues with open obligations and recording 
amounts payable for delivered orders not yet paid. NRCS initiated 
several corrective actions in FY 2007.
    Despite these actions, however, and following significant work 
conducted by the independent audit firm in FY 2008, the auditors were 
unable to express an opinion on NRCS' consolidated financial 
statements. This is called a ``disclaimer'', and it means that the 
supporting documentation provided by NRCS was nonexistent or did not 
satisfy audit standards and that the auditors could not determine 
whether NRCS' statements of its FY 2008 financial information were 
accurate and complete.

    Question 6. Do you feel confident NRCS can implement the proper 
internal controls to ensure the next audit can and will be complete?
    Answer. Yes, we believe that over time we will satisfy the audit 
requirements. The goal of the agency is to position itself to be 
``audit ready.'' To achieve this goal, NRCS has taken aggressive action 
to address the deficiencies and weaknesses disclosed in the financial 
audit. We submitted a Corrective Action Plan to the USDA Office of the 
Inspector General (OIG), which approved all actions and timelines we 
have planned to correct the reported weaknesses and deficiencies. NRCS' 
goal is that the results of our proposed corrective actions, which 
include updates, communication, training, and monitoring of updated 
policy, procedures, and processes, will help position the agency for 
future audits.

    Question 7. Another key component of the financial audit was that 
the financial reporting and documentation was bad. Given this, are you 
confident improper payments have not been made?
    Answer. NRCS performs testing and analysis in compliance with the 
Improper Payments Act and OMB Circular A-123 Appendix B. The documented 
rate of improper payments for Fiscal Years 2006, 2007 and 2008 on our 
farm bill programs was 0.22%, 0.47% and 0.00% respectively. We are also 
anticipating the release of an audit on the Conservation Security 
Program in the near future which may address improper payments in that 
program.

    Question 8. Over the course of the audit, has NRCS had to cancel 
some contracts because the landowner was getting paid for work not 
done? If so, how many?
    Answer. The audit firm did not find any evidence of this type of 
improper payment. Our policy, processes, and tools are designed to 
prevent this. Before payments are made to a contract holder, the 
conservation practices are certified by a qualified NRCS employee to 
ensure they meet our technical standards and specifications. This 
certification is necessary before our ProTracts contracting system will 
process a payment.

    Question 9. What direction were State Conservationists given in 
regard to their ability to waive the previous 1 year land ownership 
requirement for WRP? Did anyone at the national office keep track of 
how many waivers were taking place? If no, why not and do you plan to 
track them in the future?
    Answer. The WRP Policy Manual is the document that provides 
direction to State Conservationists and their staff in all aspects of 
program implementation. The manual in effect for the implementation of 
the 2002 Farm Bill stated the following with regard to landowner 
eligibility:

          To be eligible for easements, an applicant must have:
          Owned the land for 12 months before submitting an 
        application, unless:

     the land was acquired by will or succession as a result of 
            the death of the previous owner,

     ownership changed due to foreclosure on the land and the 
            owner exercises a right of redemption from the mortgage 
            holder in accordance with state law, or

     the State Conservationist determines the new owner did not 
            acquire the land for the express purpose of placing it in 
            WRP.

          Note: Persons who acquire land after an eligible application 
        to participate has been accepted by NRCS but before the 
        easement is recorded may participate in WRP if a transfer 
        agreement is completed between the seller and buyer and the 
        State Conservationist agrees to work with the new landowner. 
        Transfer agreements include NRCS-LTP-152 or other private 
        agreements.

     clear title to the land and be able to provide consent or 
            subordination agreements from each holder of a security 
            interest in the land, and

     a recorded right of way that provides access to the 
            easement area from a public road.

    The national office did not keep track of the number of waivers 
granted by State Conservationists to the 2002 Farm Bill's 1 year land 
ownership requirement.
    The new WRP Policy Manual currently being developed to implement 
the 2008 Farm Bill is more explicit. It states the following:

          To be eligible to enroll land in a permanent or 30 year 
        easement in WRP, the land must have been owned by the applicant 
        for at least the 7 years prior to application. A waiver to this 
        requirement may only be granted by the Chief. The Chief will 
        evaluate each application taking into consideration the 
        following:

      1. Whether the land was acquired by will or succession as a 
            result of the previous landowner; or

      2. the ownership change occurred due to foreclosure on the land 
            and the owner of the land immediately before the 
            foreclosure exercises a right of redemption from the 
            mortgage holder in accordance with state law; or

      3. the landowner provides adequate assurances that the land was 
            not acquired for the express purpose of enrolling it in 
            WRP. The Chief's determination of adequate assurances shall 
            consider the management of the property since it was 
            purchased, documentation provided by the Landowner, or any 
            personal or financial circumstances of the Landowner at the 
            time of application. The following conditions constitute 
            examples of adequate assurances for consideration of a 
            waiver:

        a. Change in ownership was due to retirement of the current 
            landowner
              and the land will remain in the family; or

        b. Land has been owned and operated for production of food or 
            fiber by the
              current landowner, application would only enroll a 
            portion of the land
              owned by the applicant, and the remainder of the land 
            will continue to be
              operated by the current landowner for the production of 
            food or fiber; includ-
              ing forest production lands; or

        c. Land is in joint ownership and one or more of the owners is 
            buying out
              one or more of the other owners; or

        d. Lands adjacent to an existing easement or pending easement 
            application
              that are essential to the successful restoration of that 
            easement; or

        e. Other special circumstances such as impact to threatened and 
            endangered
              species or other critical environmental protection.

    The Manual now gives a clear description of adequate assurances 
that must be provided by the landowner to request a waiver from the 
Chief. In the future, the Agency will track all requests for waivers 
whether granted or not.

    Question 10. On page 10 of your testimony you mentioned a new WRP 
business model that will result in improved payment controls and fewer 
deobligations. What is the business model, and why do you think it will 
offer improvements?
    Answer. The new WRP business model describes the actions in the WRP 
contracting process from the initial application, through easement 
acquisition, restoration and easement monitoring, management and 
enforcement. The new business process moves the preliminary title 
searches and hazardous records search forward in the process, right 
after the application is filed. This will eliminate the fallout of 
projects because of the discovery of undisclosed hazardous materials or 
encumbrances on the title that would prevent NRCS from restoring and 
managing the easement at the least expense to the taxpayer. We 
anticipate that this action will also help reduce WRP deobligations.
    The new business process also moves the point at which the funds 
are obligated. In the previous model, the obligation of restoration 
funds occurred at the same time as the acquisition. In the new model, 
the obligation of restoration occurs after the development of final 
restoration plans. Previously, restoration funds were obligated early 
in the process based on a very preliminary restoration plan. Obligating 
restoration funds after the development of the final restoration plan 
will help ensure there is a well documented need for every obligation. 
We anticipate this will help reduce the amount of WRP deobligations.

    Question 11. Your testimony outlines several initiatives to reduce 
the rate of deobligations, does NRCS have target for an acceptable rate 
of deobligations?
    Answer. NRCS does not have an established acceptable rate of 
deobligations. We are implementing business practices and financial 
controls to reduce to the greatest extent possible the type of 
deobligations due to NRCS contract management or program policies. Many 
deobligations, however, occur because of change of land ownership, 
death, hardship, economic changes, climate, and/or natural disasters. 
The extent of this type of deobligation will vary. The Economic 
Research Service has estimated that the average annual exit rate for 
farms is nine to ten percent per year. The estimated cancellation rate 
for EQIP contracts has been approximately thirteen percent annually.

    Question 12. The 2008 Farm Bill includes several provisions in farm 
and conservation programs to assist beginning and socially 
disadvantaged farmers and ranchers. Understanding that contracts with 
beginning and socially disadvantaged farmers may have a higher rate of 
deobligation, do you think that NRCS has the flexibility to reobligate 
these funds for beginning and socially disadvantaged farmers and 
ranchers in the case of a deobligation?
    Answer. Any deobligations that occur in the current year of the 
obligation for beginning and socially disadvantaged farmers and 
ranchers can only be re-obligated into new contracts for beginning and 
socially disadvantaged farmers and ranchers in that same year. These 
are annual funds and obligation can only occur within the same year as 
the original obligation. Use of available funds in expired years is 
limited to items such as within scope modifications and cost overruns.

    Question 13. In some of the testimony that follows, there is a lot 
of discussion about the length of time it takes to start restoration 
work on WRP and then whether the landowner lives up to the terms of the 
easement. Given that this was an issue even before the financial audit, 
how is the agency trying to ensure that the taxpayers get what they're 
paying for in terms of the expected conservation benefits?
    Answer. NRCS has a number of initiatives in place to redesign and 
streamline our business process. The new Easement Business Tool to be 
released this fall will improve the efficiency and effectiveness with 
which we manage the more than 10,000 easements currently in our 
portfolio. Many of the processes that currently have to be done by hand 
will be fully automated. In addition, the tool will store in one 
virtual location all the documents, maps and data related to an 
easement. It also will provide real time access to this information for 
properly trained and authorized NRCS personnel. It will ensure 
monitoring is completed on a timely basis, and by being linked to the 
Agency's financial and procurement systems it will speed up acquisition 
and restoration and ensure fund accountability.

    Question 14. Can you elaborate on how the day-to-day operations 
have changed for NRCS field office staff since the audit?
    Answer. The audit has created a much greater awareness among all 
NRCS employees about the importance of financial management and 
contracting policies and procedures designed for our conservation 
programs. Proper implementation of these policies and procedures has 
been emphasized through training, additional guidance, quality reviews, 
and the quarterly review of open obligations. Additionally, many NRCS 
State Offices have instituted a second-level review process in which 
any contract modifications completed by the field office for a 
participant's contract are reviewed at the next higher administrative 
level for approval.
    To emphasize the importance of the issues raised by the financial 
audit, a stand alone performance element addressing these issues has 
been added to the employee evaluations for state and national leaders 
for FY 2009.

    Question 15. Are you able to tell the Committee how much mandatory 
farm bill conservation spending was returned to the Treasury because of 
contracts that weren't completed?
    Answer. Since the 2002 Farm Bill, $301,426,814.43 in farm bill 
funds have been cancelled and are to be returned to the Treasury. These 
funds were cancelled because their period of availability expired and 
are no longer available for any purpose.
Questions Submitted by Hon. Betsy Markey, a Representative in Congress 
        from Colorado
Response from Dave White, Chief, Natural Resources Conservation 
        Service, U.S. Department of Agriculture
    Question 1. During the NRCS audit process, how many contracts did 
NRCS cancel with producers because restoration was not taking place? 
What is the rate of deobligations?
    Answer. Cancellation of WRP contracts because restoration was not 
taking place was not a significant contributor to our deobligations. A 
significant amount of WRP deobligations occurred because of business 
practices that have since been modified. Between Fiscal Years 2002 and 
2008, out of a total of nearly $1.7 billion obligated in WRP contracts, 
just over $250 million has been deobligated.

    Conservation Security Program (CSP)

    Question 2. How does NRCS verify the accuracy of the information 
provided by CSP applicants and contract holders, including information 
on other program payments they may be receiving on land being offered 
for CSP enrollment, to ensure that CSP payments are made in accordance 
with program rules?
    Answer. NRCS implemented policy during the Fiscal Year 2008 CSP 
sign-up requiring documentation of self-assessment verifications for 
all FY 2008 CSP. A field visit was required to verify all information 
and situations described on the self-assessment and benchmark condition 
inventory for 100 percent of the FY 2008 CSP contracts. A discrepancy 
in the contract because of no fault of the participant could be 
remedied by the participant by correcting the deficiency within a 
reasonable period of time.
    For Fiscal Year 2008, NRCS created an automated internal control 
system within our Programs Contracting System (ProTracts) contracting 
software. This system alerts users to check all applicants with CSP 
applications against contract databases for WHIP, AMA, and EQIP. This 
system was designed to uncover potential areas of overlapping practices 
and prevent duplicate payments from occurring.

    Question 3. GAO has testified that NRCS identified about $420,000 
in actual duplicate payments between CSP and EQIP, but that NRCS 
headquarters does not have information on how much of this money was 
recovered. What are the steps to recover duplicate payments? And, if 
NRCS headquarters does not track recovered amounts, how does it ensure 
that the field offices have followed through to make these recoveries?
    Answer. The steps to recover duplicate payments are outlined in 
national NRCS policy. When the State Conservationist initiates a cost 
recovery, NRCS must notify the participant in writing. If the 
participant fails to make all payments to NRCS within the requested 
timeframe, the receivables account will be transferred to claims 
status. After the requested timeframe has expired, the original demand 
letter will become the basis for a bill. State Conservationists and 
Directors of the Caribbean and Pacific Islands Areas have been directed 
to recover the costs of duplicate payments made to program 
participants.
    NRCS has instituted policies, procedures, and automated systems to 
limit to the greatest extent possible future duplicative payments. NRCS 
State Offices do have the capability to track recovery activities, but 
an automated national tracking system is not currently available.

    Question 4. NRCS received about 2,300 CSP applications in Fiscal 
Year 2008. Of these, how many potential duplicate payments did you find 
and what actions were taken to preclude these payments from being made?
    Answer. For Fiscal Year 2008, NRCS created an automated internal 
control system within our ProTracts contracting software. This system 
alerts users to check all applicants with CSP applications against 
contract databases for WHIP, AMA, and EQIP. This system was designed to 
uncover potential areas of overlapping practices and prevent duplicate 
payments from occurring.

    Question 5. What is the status of USDA efforts to develop 
implementing regulations for the Conservation Stewardship Program 
(formerly the Conservation Security Program)? Will there be a sign-up 
in Fiscal Year 2009 for this new program? Are there any new measures 
planned in this program to preclude the potential for duplicate 
payments?
    Answer. The interim final rule for the new Conservation Stewardship 
Program is currently in the Executive Branch clearance process. NRCS 
will continue to use the internal controls implemented in the fall of 
2006 as a result of the GAO audit to ensure that duplicate payments do 
not occur.

    Environmental Quality Incentives Program (EQIP)

    Question 6. Regarding the Fiscal Year 2009 program, GAO's testified 
that NRCS has made some progress in documenting how funding formula 
factors contribute to accomplishing program goals, updating data 
sources, and describing how formula factors relate to long-term 
performance measures. What additional steps does NRCS plan to take in 
the 2010 program to further this progress?
    Answer. Since Fiscal Year (FY) 2006, the Natural Resources 
Conservation Service (NRCS) has utilized allocation models for its 
conservation programs. These program-specific allocation models are 
designed to have a natural resource objective foundation that is 
consistent with each program's statutory purpose. They reflect national 
program priorities in a state-specific manner and are transparent and 
the resulting allocations are reproducible. Also, program allocation 
models are designed to improve the relationship between fund 
distribution and conservation needs, and thus create an opportunity to 
build programs in all states where there is a corresponding 
conservation need regardless of historical program activity. NRCS 
recently undertook a comprehensive review of all allocation models, 
which resulted in substantial changes and improvements. Some of these 
improvements are described below:

   Optimizing Factors--NRCS has changed the number of factors 
        in the allocation formulae to increase transparency and 
        understanding and to better address Program priorities and 
        Legislative intent. Redundant factors were removed and more 
        relevant factors were added.

   Outcome Based Performance--Using the GAO EQIP audit as a 
        guide and considering external recommendations, NRCS has 
        incorporated outcome-based performance measures where possible 
        in allocation formulae. As new data on environmental outcomes 
        becomes available, it will be evaluated for inclusion in 
        program formulae.

   Consistency--NRCS has worked to ensure consistency in 
        formulae for like programs by using the same factors and data 
        to represent similar resource conservation needs.

   Enhanced State Specificity--NRCS has incorporated state 
        specific data, including Activity Based Cost (ABC) data, to 
        capture differences in state Technical Assistance requirements 
        in some factors.

   Cost of Programs Model--NRCS has incorporated new data from 
        the Cost of Programs Model to determine Financial and Technical 
        Assistance proportional requirements for mandatory programs.

   Data Definitions and Sources--NRCS has worked to ensure the 
        most appropriate and current validated data, with common and 
        agreed upon definitions, are the basis of our allocation 
        formulae.

   Improved Documentation--In an effort to increase 
        transparency and facilitate understanding of our allocation 
        formulae, NRCS has worked to improve the explanations of our 
        formulae and methodologies for FY 2009.

   Factor Weighting Methodology--To increase transparency, NRCS 
        has utilized ``Paired Comparison,'' a scientifically based 
        methodology, as part of the process to determine Program 
        formula factor weights.

    In 2007, NRCS contracted with World Perspectives, Inc. to conduct 
an independent evaluation of its allocation formulae. The report 
stated:

        ``In a broader context, it should be noted that all Federal 
        agencies are facing increasing demands for information about 
        how they measure performance, how they allocate funds, and how 
        they assure accountability. We talked with a number of other 
        agencies and found a consistency of effort at better 
        rationalizing actions in these areas, though we did not find 
        any effort as comprehensive as that being undertaken by the 
        NRCS.''

    NRCS will continually examine its conservation program models and 
seek additional improvements. NRCS program allocation formulae, their 
factors, and data sources are all posted on the NRCS website at http://
www.nrcs.usda.gov/programs/.

    Question 7. What specific long-term, outcome-oriented performance 
measures has NRCS established for EQIP, and how has the agencies 
funding allocation process been linked to these measures?
    Answer. following long-term performance measures have been 
established for EQIP:

   Working cropland with improved soil condition.

   Potential sediment delivery from agricultural operations 
        reduced.

   Potential nitrogen delivery from agricultural operations 
        reduced.

   Water conservation: Improve irrigation water use efficiency.

   Grassland condition, health, and productivity improved.

   Habitat for at-risk species improved.

    The national EQIP allocation formula is based on natural resource 
needs (e.g., cropland eroding above the tolerable limit, irrigated 
cropland, livestock animal units, grazing land, impaired streams, and 
at-risk species) that are consistent with EQIP national priorities and 
the statutory purpose of the program. These same priorities are 
reflected in the annual and long-term performance measures developed 
for EQIP.
Response from Robert Stephenson, Acting Deputy Administrator for Field 
        Operations, Farm Service Agency, U.S. Department of Agriculture
    National Agricultural Imagery Program (NAIP)

    Question 1. For the future, how crucial do you see Geospatial 
Information Systems built on programs like NAIP for conducting either 
conservation programs under NRCS or farm, programs under FSA? I see it 
becoming an essential tool for doing business. Do you agree?
    Answer. NAIP is currently a critical component of an effective GIS 
because it provides the up-to-date imagery that is the base data layer 
used by all applications. It will become an increasingly essential 
business tool as GIS is more fully integrated into daily business 
operations and decision making processes. Further, imagery is the base 
reference layer in almost any GIS, USDA or government-wide; the 
benefits are felt well past FSA and USDA.

    Question 2. You mention the use of geospatial information system as 
a useful tool for managing and understanding land information that 
enables more efficient management of conservation programs. Can you 
elaborate on how you use this technology? Is it available to everyone? 
And how will you spend the recent appropriations of $24M?
    Answer. GIS supports daily business operations, decision making and 
problem solving, and display of geographic resources. It is used for a 
host of program administration activities, including farm record 
maintenance, crop reporting, compliance and crop monitoring activities, 
conservation practice planning and management, and disaster response 
and recovery.
    GIS technology has been made available to USDA Service Center 
agencies through enterprise hardware and software purchases and through 
the IT Budgets of USDA agencies. Base imagery is acquired through FSA's 
NAIP and distributed via the USDA Geospatial Data Gateway to USDA 
agencies as well as to other Federal, state and local agencies and the 
public.
    NAIP is becoming the de facto standard base imagery for other 
Federal agencies as well as state and local governments. A standard 
base image helps ensure that data sets developed and maintained by USDA 
agencies registers geographically and temporally with data sets from 
other Departments and agencies. This increases the return on investment 
for USDA by facilitating data sharing and collaboration with other 
agencies.
    In addition, NAIP and other unrestricted geospatial data collected 
and maintained by USDA, such as Soils and the Common Land Unit, is 
being made available through public facing web services that can be 
accessed and viewed through web browsers and/or free GIS applications 
that can be downloaded from commercial and public sites.
    The FY 2009 Omnibus Appropriations report language directed FSA to 
apply $24 million to NAIP; in addition to any partnership funding that 
is received. Because FSA finances NAIP out of the agency's salaries and 
expenses allocation, implementing this direction may impact FSA's 
ability to meet other needs and discretionary funding requirements.

    Question 3. Again, for the future, I understand you supply these 
images free of charge to the public and other Federal agencies, 
including many large private firms like Google Earth and universities, 
totaling tens of thousands of internet downloads each year. How much of 
NAIP's total budget is paid for by these outside users? Do you have 
legal authority to charge outside users for downloading these images?
    Answer. It has been an FSA policy decision to make versions of 
compressed mosaics of individual county wide imagery available to the 
public at no charge through download. Larger, uncompressed copies of 
the imagery are available to the public on media at reproduction cost.
    NAIP partners receive copies of the imagery as part of the 
partnership agreement and many host websites that make the imagery 
available to the public free of charge. In addition, because the 
imagery is in the public domain, other non-partner sites also host this 
imagery. While FSA has authority to charge fees for recovering 
reproduction costs for the imagery, including downloads, this nominal 
fee will only recover reproduction costs and will not generate 
additional funds for acquisition purposes.
    None of the NAIP budget is paid for by public users discussed 
above. FSA does not have legal authority to recover anything beyond 
reproduction and processing costs associated with dissemination of the 
data.

    Question 4. Is it important to obtain a line-item statutory 
authorization for the NAIP program for the future, to assure that its 
funding become stable and does not compete for operating appropriations 
within the Farm Service Agency?
    Answer. Yes. While NAIP has been an example of successful inter-
governmental partnerships and effective program management, the 
``roller-coaster''-style funding pattern that has been the norm since 
the program began has constrained the program's full potential. With 
stable funding through a line item statutory authorization that did not 
compete with operating appropriations, FSA would be able to focus on 
continued program improvements rather than on program survival. This 
would also facilitate the ability to establish additional Federal, 
state and local partnerships because acquisition plans would be 
predictable, allowing partners to budget for partnership contributions. 
Stabilizing the program in this manner would also assist contractors 
involved in NAIP to secure funding to make capital investments and 
improve efficiency, creating a win-win situation for both the 
government and industry.
    Current funding supports NAIP acquisition for the continental U.S. 
on a 3 year cycle. This represents minimum requirements for FSA, if not 
other agencies. There is ample evidence from user surveys and 
requirements studies that indicate acquisition on an annual cycle would 
produce additional value.

    FSA on income eligibility determinations

    Question 5. USDA's March 19, 2009, News Release describes USDA 
plans for income verification system that includes obtaining income 
information from IRS. How does USDA envision such a system will 
operate?
    Answer. The specifics of the system are still being developed. 
However, it is envisioned that, for a high percentage of participants, 
IRS will be able to verify that the average AGI limitations have not 
been exceeded. USDA does not plan on obtaining actual tax returns or 
specific income information from IRS, routinely. We anticipate that IRS 
can provide an indication whether the average AGI limitation may have 
been exceeded. In those cases, additional information may be requested 
from the producer to ensure that the average AGI limitation has not 
been exceeded.

    Question 6. Given the complex definitions and multiple caps for 
farm and nonfarm income in the 2008 Farm Bill, who will actually 
conduct the income eligibility determinations for individuals and 
entities applying for Federal farm program payments?
    Answer. USDA will make the actual determinations.

    Question 7. In its testimony and related report, GAO said that 
about $49.4 million in farm payments were made to about 2,700 
potentially ineligible individuals between Fiscal Year 2003 and Fiscal 
Year 2006. What plans does USDA have to further investigate these 
individuals and seek recovery of any improper payments?
    Answer. GAO did not identify these ``potentially ineligible'' 
individuals. We are currently working on trying to identify these 
individuals and will seek recovery of any improper payments.

    Question 8. Although not addressed in GAO's testimony today, GAO 
reported in July 2007 that about $1.1 billion in farm program payments, 
including conservation payments, were made in the names of nearly 
173,000 deceased individuals during the period, Fiscal Year 1999 
through Fiscal Year 2005. What specific steps has USDA taken to 
identify payments made to deceased individuals, determine whether these 
payments are improper, and, if improper, recover these funds? How much 
as been recovered to date?
    Answer. FSA implemented a data-matching process between program 
payment recipients and the Social Security Administration's Death 
Master File. The process identifies any payments issued to an 
individual after the date of death as reported to the Social Security 
Administration. Reports are generated on a quarterly basis. State FSA 
offices were instructed to initiate collection of any amounts 
determined to be an improper payment. We do not have information 
available on what amounts have actually been recovered to date. 
However, a FSA review of FY 2007 payments issued to individuals 
identified as deceased found that 98.1 percent of the payments were 
properly issued.

    Question 3. Is there a land ownership requirement for acreage being 
enrolled in the Conservation Reserve Program?
    Answer. Generally, an owner is ineligible to offer land for 
enrollment in CRP unless the land was owned or operated for at least 12 
months. An exception may be authorized if the land was acquired, 
through death, or certain foreclosures and the new owner did not 
acquire the land for the express purpose of enrolling the land in CRP.

                                  
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