Federal Farm Programs: USDA Needs to Strengthen Controls to	 
Prevent Improper Payments to Estates and Deceased Individuals	 
(09-JUL-07, GAO-07-818).					 
                                                                 
Farmers receive about $20 billion annually in federal farm	 
program payments, which go to individuals and "entities,"	 
including corporations, partnerships, and estates. Under certain 
conditions, estates may receive payments for the first 2 years	 
after an individual's death. For later years, the U.S. Department
of Agriculture (USDA) must determine that the estate is not being
kept open for payments. As requested, GAO evaluated the extent to
which USDA (1) follows its regulations that are intended to	 
provide reasonable assurance that farm program payments go only  
to eligible estates and (2) makes improper payments to deceased  
individuals. GAO reviewed a nonrandom sample of estates based, in
part, on the amount of payments an estate received and compared  
USDA's databases that identify payment recipients with		 
individuals the Social Security Administration listed as	 
deceased.							 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-07-818 					        
    ACCNO:   A72207						        
  TITLE:     Federal Farm Programs: USDA Needs to Strengthen Controls 
to Prevent Improper Payments to Estates and Deceased Individuals 
     DATE:   07/09/2007 
  SUBJECT:   Cost analysis					 
	     Eligibility determinations 			 
	     Erroneous payments 				 
	     Federal regulations				 
	     Financial management				 
	     Internal controls					 
	     Overpayments					 
	     Program evaluation 				 
	     SSA Death Master File				 

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GAO-07-818

   

     * [1]Results in Brief
     * [2]Background
     * [3]Because Many FSA Field Offices Do Not Systematically Determi
     * [4]Because FSA Does Not Have Appropriate Management Controls, I

          * [5]FSA Made Millions of Dollars of Farm Program Payments to Dec
          * [6]Complex Farming Operations and a Lack of Management Controls

     * [7]Conclusions
     * [8]Recommendations for Executive Action
     * [9]Agency Comments and Our Evaluation
     * [10]GAO's Comments
     * [11]GAO Contact
     * [12]Staff Acknowledgments

          * [13]Order by Mail or Phone

Report to the Ranking Member, Committee on Finance, U.S. Senate

United States Government Accountability Office

GAO

July 2007

FEDERAL FARM PROGRAMS

USDA Needs to Strengthen Controls to Prevent Improper Payments to Estates
and Deceased Individuals

GAO-07-818

Contents

Letter 1

Results in Brief 4
Background 6
Because Many FSA Field Offices Do Not Systematically Determine the
Eligibility of Estates for Farm Program Payments, FSA Cannot Be Assured
That Payments Are Proper 10
Because FSA Does Not Have Appropriate Management Controls, It Cannot Be
Assured That It Is Not Making Payments to Deceased Individuals 14
Conclusions 20
Recommendations for Executive Action 21
Agency Comments and Our Evaluation 21
Appendix I Objectives, Scope, and Methodology 24
Appendix II Comments from the U.S. Department of Agriculture 27
GAO's Comments 33
Appendix III U.S. Department of Agriculture Farm Program Payments, Fiscal
Years 1999 through 2005 36
Appendix IV U.S. Department of Agriculture Estate Eligibility Reviews, by
State, Program Years 1999 through 2005 41
Appendix V GAO Contact and Staff Acknowledgments 43
Related GAO Products 44

Tables

Table 1: Estate Eligibility Reviews, Program Years 1999 through 2005 11
Table 2: Variation in Determinations FSA Made for Selected States, Program
Years 1999 through 2005 13
Table 3: USDA Estimates of Improper Payments, Fiscal Year 2006 17
Table 4: Farm Program Payments Made to Deceased Individuals through
Entities, Program Years 1999 through 2005 19
Table 5: Variation in Reviews Conducted by FSA, by State, Program Years
1999 through 2005 42

Figure

Figure 1: Number of Years and Value of Farm Program Payments Made after
Individuals' Deaths, Fiscal Years 1999 through 2005 15

Abbreviations

EQIP Environmental Quality Incentives Program
FSA Farm Service Agency
IPIA Improper Payments Information Act of 2002
OMB Office of Management and Budget
USDA U.S. Department of Agriculture

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United States Government Accountability Office
Washington, DC 20548

July 9, 2007

The Honorable Charles E. Grassley
Ranking Member
Committee on Finance
United States Senate

Dear Senator Grassley:

Farmers receive about $20 billion annually in federal farm program
payments for crop subsidies, conservation practices, and disasters. Such
payments go to 1.7 million recipients, both individuals and "entities,"
including corporations, partnerships, and estates. Individuals may receive
farm program payments indirectly through as many as three entities.1 The
Agricultural Reconciliation Act of 1987 (1987 Act) limits payments to
individuals and entities that are "actively engaged in farming." We
reported in 2004 that because the U.S. Department of Agriculture's (USDA)
regulations ensuring that recipients are actively engaged in farming do
not specify measurable standards, they allow individuals with limited
involvement in farming to qualify for farm program payments.2 We
recommended that USDA strengthen its regulations for active engagement in
farming. Subsequently, in November 2006, we identified the need for better
oversight of farm program payments.3 Without better oversight to ensure
that farm program funds are spent as economically, efficiently, and
effectively as possible, we pointed out, USDA has little assurance that
these funds benefit the agricultural sector as intended.

From 1999 through 2005, USDA, through its Farm Service Agency (FSA), made
124 million payments totaling about $130 billion. Over $200 million of
this amount went to nearly 42,000 estates. Generally, under the 1987 Act,
once a person dies, farm program payments may continue to that person's
estate under certain conditions. However, if no estate is probated, or
once the estate is settled, the deceased person's heirs must qualify in
their own right in order to receive payments.

1Under this "three-entity rule," a person--an individual or entity--can
receive program payments through no more than three entities in which the
person holds a substantial beneficial interest. A person can receive
payments (1) as an individual and as a member of no more than two entities
or (2) through three entities and not as an individual. FSA defines a
substantial beneficial interest as 10 percent or more.

2GAO, Farm Program Payments: USDA Needs to Strengthen Regulations and
Oversight to Better Ensure Recipients Do Not Circumvent Payment
Limitations, [14]GAO-04-407 (Washington, D.C.: Apr. 30, 2004).

3GAO, Suggested Areas for Oversight for the 110th Congress,
[15]GAO-07-235R (Washington, D.C.: Nov. 17, 2006).

USDA regulations covering most farm program payments allow an estate to
receive payments for the first 2 years after the death of the individual
if the estate meets certain eligibility requirements for active engagement
in farming. That is, an estate must contribute (1) capital, land, or
equipment and (2) the personal representative or heirs of the estate must
contribute labor or management to the farming operation.4 Following the
initial 2 years, the estate will continue to be eligible for program
payments if it meets the active engagement in farming requirement and the
local field office determines that the estate is not being kept open
primarily to continue receiving program payments. Estates are commonly
kept open for longer than 2 years because of, among other things, asset
distribution and probate complications, and tax and debt obligations.
Under USDA regulations, for an estate to remain eligible for farm program
payments, FSA must annually determine that the estate is still active and
that obtaining farm program payments is not the primary reason it remains
open. FSA guidelines provide that each estate should provide documents
showing why it has not distributed its assets to its beneficiaries and why
it is still active for the current year. When property is completely
distributed from the deceased individual to his or her heirs directly or
through an estate, the payments to the individual who died must end.
However, the deceased individual's heirs may subsequently apply for
program payments in their own right and to receive payments must satisfy
the requirements for active engagement in farming.

FSA guidance directs county committee staff to annually notify individuals
and entities that they must file farm operating plans with their local
field office if they are seeking farm program payments. These plans
document the name of each recipient, the contribution each recipient makes
to the farming operation, and the share of profits and losses each
recipient will receive. The individual filing this plan certifies that, in
a timely manner, he or she will notify the local field office of any
changes in the information that could affect an eligibility determination,
such as the death of an individual in the farming operation. If timely
notification is not given, the farming operation is subject to forfeiture
of payments. Also, payments must be returned if they were based on
erroneous information or if the producer is otherwise not entitled to
them.

4Alternatively, the estate could qualify as actively engaged in farming as
a landowner if the estate receives rent or income for the use of the land
based on the land's production or the farming operation's operating
results.

You asked us to examine FSA's implementation of regulations to identify
improper payments to estates and deceased individuals. As agreed with your
office, we evaluated the extent to which FSA (1) follows its regulations
that are intended to provide reasonable assurance that farm program
payments go only to eligible estates and (2) makes improper payments to
deceased individuals.

To address these issues, we reviewed USDA's regulations, FSA's guidelines,
and other management controls for implementing the provisions of the 1987
Act. We also spoke with FSA officials in headquarters, state offices, and
local field offices who are responsible for ensuring that (1) estates are
properly reviewed for eligibility and (2) payments are not made to
deceased individuals. To evaluate FSA's application of regulations and
guidance and to assess the overall effectiveness of its review process for
deciding whether estates are eligible to receive farm program payments, we
reviewed a nonrandom sample of estate eligibility determinations. To
identify estates for our nonrandom sample, we obtained and analyzed FSA's
computer databases for information on payment recipients from 1999 through
2005. The databases contained detailed information on payment
recipients--including Social Security numbers, payment amounts, the status
of recipients as individuals or members of entities, recipients' ownership
interests in entities, types of entities receiving payments, and
additional organizational details. The data showed 2,841 estates that had
received payments for more than 2 years between 1999 and 2005, thus
requiring FSA to conduct a determination of eligibility. Of these, we
examined 181 estates in 26 states and 142 counties. These estates included
the 162 (i.e., 162 of 2,841) that received over $100,000 in farm program
payments from 1999 through 2005. They also included the 16 estates (i.e.,
16 of 2,841) that (1) had received between $50,000 and $100,000 in farm
program payments during this period and (2) had at least one member
receiving payments through three other entities. Lastly, they included the
three estates (i.e., 3 of 2,841) that had at least one member who appeared
to be receiving payments through seven or more other entities. For each
estate selected, we obtained files from FSA field offices. These files
ideally would have included the following information to facilitate FSA's
determinations: letters testamentary from a probate court, minutes of the
FSA county committee meeting that approved eligibility,5 explanation
letters or documentation for the reason the estate remained active beyond
2 years, farm operating plans, and payment history. However, because the
documentation required for probated estates varies by jurisdiction, we
could not easily determine whether improper payments had been made to
estates. Furthermore, even in cases in which FSA had not done the required
annual determinations, or when relevant documentation was missing or
incomplete in the estate file, we could not determine whether improper
payments were made without examining each case in depth.

In examining the extent to which FSA makes improper payments to deceased
individuals after the date of their death, we matched the payment
recipients in FSA's databases with individuals that the Social Security
Administration has identified as deceased in its Death Master File. The
data match showed the number and dollar amount of payments FSA provided to
deceased individuals, either directly or indirectly through entities, from
1999 through 2005. We attributed payments made indirectly to individuals
based on each individual's ownership share in the entity.

We conducted our review from June 2006 through May 2007 in accordance with
generally accepted government auditing standards, which included an
assessment of data reliability and internal controls. Appendix I contains
more detailed information on our scope and methodology.

Results in Brief

FSA made farm program payments to estates more than 2 years after
recipients have died without determining whether the estates were being
kept open primarily for the purpose of receiving these payments, as its
regulations require. As a result, FSA cannot be assured that farm program
payments made to these estates are proper. We identified weaknesses in
FSA's eligibility determinations for 142 of the 181 estates we reviewed.
In particular, from 1999 through 2005, FSA did not conduct eligibility
determinations for 73, or 40 percent, of the 181 estates in our sample.
Sixteen of these 73 estates had each received more than $200,000 in farm
program payments, and 4 had each received more than $500,000. For the
remaining 108 estates, we identified several shortcomings with FSA's
determinations. Specifically, FSA did not make an annual eligibility
determination for every year in which it provided payments, as regulations
require. From 1999 through 2005, 69 of the 108 estates did not receive
determinations for every year in which they received payments, and some
FSA field offices approved groups of estates for payments without
reviewing each estate individually. Moreover, documentation supporting the
determinations was often either nonexistent or vague. For example, 20 of
the determinations had no documented explanation for why the estate
remained active. In other cases, FSA approved eligibility based on
insufficient explanations for why the estate remained open--such as the
heirs stating that they wanted to keep it open on the advice of a lawyer
or an accountant without specifying the reasons why. We also found that
although the minutes of FSA county committee meetings indicated approval
of payments to estates, the associated files did not contain critical
documents that might validate why the estates were still active for
reasons other than to obtain farm program payments. According to FSA field
officials, many eligibility determinations were either not done or not
done thoroughly, in part because of a lack of sufficient personnel and
time, as well as competing priorities for carrying out farm programs.

5FSA county committees are made up of three to five farmers, elected by
other farmers, to oversee the local operation of FSA programs, including
eligibility determinations.

FSA cannot be assured that millions of dollars in farm payments it made
are proper because FSA does not have management controls, such as computer
matching, to verify that it is not making payments to deceased
individuals. Instead, according to the FSA field officials, FSA relies on
self-certifications by farming operations that the information provided is
accurate and that the operations will inform FSA of any changes, including
the death of an operation's member. From 1999 through 2005, FSA paid $1.1
billion in farm program payments in the names of 172,801 deceased
individuals (either as an individual or as a member of an entity). Of this
amount, 40 percent went to individuals who had been dead for 3 or more
years, and 19 percent went to individuals who had been dead for 7 or more
years. Furthermore, complex farming operations consisting of multiple
entities increase the risk of improper payments to deceased individuals.
Farm program payments made to deceased individuals indirectly--that is, as
members of entities--represent a disproportionately high share of
post-death payments. We found that these payments to deceased individuals
through entities accounted for $648 million--or 58 percent of the $1.1
billion in payments made to all deceased individuals from 1999 through
2005--whereas payments to all individuals through entities accounted for
only 27 percent of all farm program payments. In one case, FSA paid a
member of an entity who has been deceased since 1995 over $400,000 in farm
program payments from 1999 through 2005.

We are making a number of recommendations to the Secretary of Agriculture
for improving FSA's ability to prevent improper payments to estates and
deceased individuals. Specifically, we are recommending that FSA ensure
that its field offices conduct all annual estate eligibility
determinations as required, implement management controls to verify that
individuals receiving farm program payments have not died, and determine
if program payments have been made to deceased individuals or to entities
that failed to disclose the death of a member and if so, recover the
appropriate amounts. In addition, we have referred the cases of improper
payments we identify in this report to USDA's Office of Inspector General
for further investigation.

We provided FSA with a draft of this report for review and comment. FSA
agreed with our recommendations and already has begun to take actions to
implement them. However, FSA did not agree with our use of the term
"improper payments" in the report. The agency stated that the payments we
describe do not meet the definition of improper payments under the
Improper Payments Information Act of 2002 (IPIA).6 We disagree. We believe
the payments we highlight in three examples in the report do meet the
definition of improper payments under IPIA. Furthermore, in these cases,
officials in FSA's field offices agreed with our findings and told us they
intend to recover the payments. For the remaining farm program payments
identified in the report, we continue to believe that the potential exists
for improper payments because of the lack of FSA management controls and
the complexity of some of the farming operations involved. Our detailed
response to USDA's comments appears at the end of this letter and
following USDA's written comments in appendix II.

Background

FSA provides benefits through various programs of the Farm Security and
Rural Investment Act of 2002.7 Appendix III provides a listing of USDA
farm programs and payments made from 1999 through 2005. The three-entity
rule applies to certain USDA payments, including direct and
counter-cyclical payments; loan deficiency payments and marketing loan
gains, under the Marketing Assistance Loan Program; and Conservation
Reserve Program payments.

6Pub. L. No. 107-300, 116 Stat. 2350 (2002).

7Pub. L. No. 107-171, 116 Stat. 134.

           o Direct and Counter-Cyclical Payments Program provides two types
           of payments to producers of covered commodity crops, including
           corn, cotton, rice, soybeans, and wheat. Direct payments (formerly
           known as production flexibility contract payments) are tied to a
           fixed payment rate for each commodity crop and do not depend on
           current production or current market prices. Instead, direct
           payments are based on the farm's historical acreage and yields.
           Counter-cyclical payments provide price-dependent benefits for
           covered commodities whenever the effective price for the commodity
           is less than a pre-determined price (called the target price).
           Counter-cyclical payments are based on a farm's historical acreage
           and yields, and are not tied to the current production of the
           covered commodity.
           o Marketing Assistance Loan Program (formerly known as the
           Commodity Loan Program) provides benefits to producers of covered
           commodity crops when market prices are low. Specifically, the
           federal government accepts harvested crops as collateral for
           interest-bearing loans (marketing assistance loans) that are due
           in 9 months. When market prices drop below the loan rate (the loan
           price per pound or bushel), the government allows farmers to repay
           the loan at a lower rate and retain ownership of their commodity
           for eventual sale. The difference between the loan rate and the
           lower repayment rate is called the marketing assistance loan gain.
           In lieu of repaying the loan, farmers may forfeit their crops to
           the government when the loan matures and keep the loan principal.
           In addition, farmers who do not have marketing assistance loans
           can receive a benefit when prices are low--the loan deficiency
           payment--that is equal to the marketing assistance loan gain that
           the farmer would have received if the farmer had a loan. Finally,
           farmers can purchase commodity certificates that allow them to
           redeem their marketing assistance loan at a lower repayment rate
           and immediately reclaim their commodities under loan. The
           difference between the loan rate and the lower repayment rate is
           called the commodity certificate gain.
           o Conservation Reserve Program provides annual rental payments and
           cost-share assistance to producers to help them safeguard
           environmentally sensitive land. Producers must contractually agree
           to retire their land from agricultural purposes and keep it in
           approved conserving uses for 10 to 15 years.

           Most farmers receive farm program payments directly from FSA as an
           individual operator. However, some farmers use legal entities to
           organize their farming operations to reduce their exposure to
           financial liabilities or estate taxes or, in some cases, to
           increase their potential for farm benefits. Some of the more
           common ways farmers organize their operations include the
           following:

           o Corporations have a separate legal existence from their owners;
           that is, the corporation, rather than the owners, is ordinarily
           responsible for farm business debts and can be sued. As a result,
           some individuals may incorporate their farm to protect their
           personal assets.
           o General partnerships are a simple arrangement of two or more
           partners--individuals or entities--that do business together.
           Partners are personally liable for their own conduct and for the
           conduct of those under their direct supervision, as well as for
           negligence, wrongful acts, and misconduct of other partners and
           partnership employees. Partners are also personally liable for the
           partnership's commercial obligations, such as loans or taxes.
           o Joint ventures are two or more individuals who pool resources
           and share profits or losses. Joint ventures have no legal
           existence independent of their owners. Members in a joint venture
           are personally liable for the farm's debts.
           o Limited partnerships are an arrangement of two or more partners
           whose liability for partnership financial obligations is only as
           great as the amount of their investment. A limited partnership
           must have at least one general partner who manages the farm
           business and who is fully liable for partnership financial
           obligations to be considered eligible for farm program payments.
           o Trusts (irrevocable and revocable) are arrangements generally
           used in estate planning that provide for the management and
           distribution of property. A revocable trust is amendable by the
           grantor during his or her lifetime who may also be the trustee and
           beneficiary. An irrevocable trust is an arrangement in which the
           grantor departs with ownership and control of property.
           o Other types of entities that may qualify for farm program
           payments under payment limitation rules include a limited
           liability company--a hybrid form of a business entity with the
           limited liability feature of a corporation and the income tax
           treatment of a general partnership; a charitable organization; and
           a state or political subdivision.

           FSA is responsible for ensuring that recipients meet payment
           eligibility criteria and do not receive payments that exceed the
           established limitations. It carries out this responsibility
           through its headquarters office, 50 state offices, and over 2,300
           field offices.

           IPIA requires the heads of federal agencies to annually review all
           programs and activities that they administer, identify those that
           may be susceptible to significant improper payments, and estimate
           and report on the annual amount of improper payments in those
           programs and activities. IPIA defines an improper payment as any
           payment that should not have been made or that was made in an
           incorrect amount, including any payment to an ineligible
           recipient.

           OMB defines significant improper payments as payments in any
           particular program that exceed both 2.5 percent of total program
           payments and $10 million annually. If a program's estimated
           improper payments exceed $10 million in a year, IPIA and related
           OMB guidance requires agencies to prepare and implement a plan to
           reduce improper payments and report actions taken. Agencies are
           required to report this information, among other things, annually
           in their Performance and Accountability Reports. Specifically, OMB
           guidance requires agencies to report on (1) the causes of improper
           payments and corrective actions, (2) the steps the agency has
           undertaken to ensure that agency managers are held accountable for
           reducing and recovering erroneous payments, along with a realistic
           timetable, and (3) any statutory or regulatory barriers that may
           limit the agency's corrective actions in reducing improper
           payments. In November 2006, we reported that federal agencies,
           including USDA, need to improve their reporting of improper
           payments under IPIA by better identifying programs susceptible to
           improper payments and improving statistical sampling methodologies
           to estimate improper payments made.8
			  
8GAO, Improper Payments: Agencies' Fiscal Year 2005 Reporting under the
Improper Payments Information Act Remains Incomplete, [39]GAO-07-92
(Washington, D.C.: Nov. 14, 2006).

           Because Many FSA Field Offices Do Not Systematically Determine
			  the Eligibility of Estates for Farm Program Payments, FSA Cannot
			  Be Assured That Payments Are Proper

           While there are legitimate reasons for keeping estates open, we
           found that FSA field offices do not systematically determine the
           eligibility of all estates that have been kept open for more than
           2 years, as regulations require, and when they do conduct
           eligibility determinations, the quality of the determinations
           varies. Without performing annual determinations, an essential
           management control, FSA cannot identify estates being kept open
           primarily for the purpose of receiving these payments and be
           assured that the payments are proper.

           We identified weaknesses in FSA's eligibility determinations for
           142 of the 181 estates we reviewed. In particular, FSA did not
           conduct any program eligibility determinations for 73, or 40
           percent, of estates that required a determination from 1999
           through 2005. Because FSA did not conduct the required
           determinations, the extent to which estates remained open for
           reasons other than for obtaining program payments is not known.
           Sixteen of these 73 estates received more than $200,000 in farm
           program payments and 4 received more than $500,000 during this
           period. In addition, 22 of the 73 estates had received no
           eligibility determinations during the 7-year period we reviewed,
           and these estates had been open and receiving payments for more
           than 10 years. In one case, we found that the estate has been open
           since 1973. The following provides examples of estates that
           received farm program payments but were not reviewed for
           eligibility by FSA:

           o A North Dakota estate received farm program payments totaling
           $741,000 from 1999 through 2003, but FSA did not conduct the
           required determinations.

           o An Alabama estate received payments totaling $567,000 from 1999
           through 2005, but FSA did not conduct the required determinations.
           In this case, the estate has been open since 1981.
           o Two estates in Georgia, open since 1989 and 1996, respectively,
           received payments totaling more than $330,000 each, from 1999
           through 2005. Neither estate received the required determinations
           for any of the years we reviewed.
           o An estate in New Mexico, open since 1991, received $320,000 from
           1999 through 2005, but it did not receive any of the required
           determinations.

           According to FSA field officials, many determinations were either
           not done or not done thoroughly, in part because of a lack of
           sufficient personnel and time, as well as competing priorities for
           carrying out farm programs. However, FSA's failure to conduct
           appropriate eligibility determinations means that it has no
           assurance that it is not making farm program payments to estates
           that have been kept open primarily to receive these payments.

           Even when FSA field offices determined estates' eligibility for
           continued farm program payments, they did not always do so
           consistently. For the remaining 108 estates, 39 had eligibility
           determinations every year that a determination was required, while
           69 had determinations at least once between 1999 and 2005, but not
           with the frequency required by regulations. Table 1 shows the
           number of years for which estates in our sample were required to
           have annual eligibility determinations compared with the number of
           years that FSA actually conducted determinations. The dark shaded
           numbers highlight the number of estates that received all the
           required annual eligibility determinations for the years that the
           estate received farm program payments--a total of 39 estates.

           Table 1: Estate Eligibility Reviews, Program Years 1999 through
           2005
			  
                              Number of years FSA should have conducted
                              eligibility reviews
Number of years FSA                                                        
actually conducted                                                         
eligibility determinations     1     2     3     4     5     6    7  Total 
                                                  Estates
None                          19    14     7     6     5     9   13     73 
1                             10     7     2     4     6     6    4     39 
2                                   10     0     2     1     4    6     23 
3                                          9     1     4     2    1     17 
4                                                2     3     3    4     12 
5                                                      5     3    3     11 
6                                                            1    3      4 
7                                                                 2      2 
Total                         29    31    18    15    24    28   36    181 
             Signifies the number of estates that received all required
             determinations--a total of 39 estates.
             Signifies the number of estates that received at least one, but
             not all annual determinations--a total of 69 estates.

           Source: GAO's analysis of FSA's data.

           Note: Cells are left blank for years an eligibility determination
           was not required.

           As the table shows, the longer an estate was kept open, the fewer
           determinations it received. For example, only 2 of the 36 estates
           requiring a determination every year over the 7-year period
           received all seven required determinations.

           According to FSA guidelines, an estate should provide evidence
           that it is still making required reports to the court to be
           eligible for farm program payments. However, we found that FSA
           sometimes approved eligibility for payments when the estate had
           provided insufficient information--that is, information that was
           either nonexistent or vague. For example, in 20 of the 108
           determinations, the minutes of FSA county committee meetings
           indicated approval of eligibility for payments to estates, but the
           associated files did not contain any documents that explained why
           the estate remained active. FSA also approved eligibility on the
           basis of insufficient explanations for keeping the estate open. In
           five cases, executors explained that they did not want to close
           the estate but did not explain why. In a sixth case, documentation
           stated that the estate was remaining active upon the advice of its
           lawyers and accountants, but did not explain why.

           Furthermore, some FSA field offices approved program payments to
           groups of estates that were kept open after 2 years without any
           apparent review. In one case in Georgia, minutes of an FSA county
           committee meeting listed 107 estates as eligible for payments by
           stating that the county committee approved all estates open over 2
           years. Two of the estates on this list of 107 were part of the
           sample that we reviewed in detail. In addition, another 10 estates
           in our sample, from nine different FSA field offices, were also
           approved for payments without any indication that even a cursory
           review had been conducted.

           Additionally, the extent to which FSA field offices make
           eligibility determinations varies from state to state, which
           suggests that FSA is not consistently implementing its eligibility
           rules. Overall, FSA field offices in 16 of the 26 states we
           reviewed made less than one-half of the required determinations of
           their estates. For example, in Alabama and in Georgia, FSA field
           offices made only 22 percent and 31 percent of the required
           determinations for estates, respectively, compared with FSA field
           offices in Kansas and Texas, which made 62 percent and 87 percent
           of the required determinations, respectively. Table 2 shows, for
           the 181 estates in our sample, the variation in FSA's conduct of
           eligibility reviews from 1999 through 2005 in states that had five
           or more estates to examine. Appendix IV shows the extent to which
           FSA conducted estate eligibility determinations in each state in
           our review.

           Table 2: Variation in Determinations FSA Made for Selected States,
           Program Years 1999 through 2005
			  
                       Number of estates requiring Number of estates  Percent 
State                            determinations          reviewed reviewed 
Alabama                                       9                 2     22.2 
Arkansas                                     12                 8     66.7 
Georgia                                      16                 5     31.3 
Illinois                                     20                13     65.0 
Kansas                                       13                 8     61.5 
Texas                                        63                55     87.3 
Washington                                    8                 3     37.5 
Total                                       141                94     66.7 

           Source: GAO's analysis of FSA's data.

           Note: This table presents the states in our sample that had at
           least five estates to review from 1999 through 2005.

           Under the three-entity rule, individuals receiving program
           payments may not hold a substantial beneficial interest in more
           than two entities also receiving payments. However, because a
           beneficiary of an Arkansas estate we reviewed received farm
           program payments through the estate in 2005, as well as through
           three other entities, the beneficiary was able to receive payments
           beyond what the three-entity rule would have allowed. FSA was
           unaware of this situation until we brought it to officials'
           attention, and FSA has begun taking steps to recover any improper
           payments. Had FSA conducted any eligibility determinations for
           this estate during the period, it might have determined that the
           estate was not eligible for these payments, preventing the
           beneficiary from receiving what amounted to a payment through a
           fourth entity.

           We informed FSA of the problems we uncovered during the course of
           our review. According to FSA field officials, a lack of sufficient
           personnel and time, and competing priorities for carrying out farm
           programs explain, in part, why many determinations were either not
           conducted or not conducted thoroughly. Nevertheless, officials
           told us that they would investigate these cases for potential
           receipt of improper payments and would start collection
           proceedings if they found improper payments.
			  
			  Because FSA Does Not Have Appropriate Management Controls, It
			  Cannot Be Assured That It Is Not Making Payments to Deceased
			  Individuals

           FSA cannot be assured that millions of dollars in farm program
           payments it made to thousands of deceased individuals from fiscal
           years 1999 through 2005 were proper because FSA does not have
           appropriate management controls, such as computer matching, to
           verify that it is not making payments to deceased individuals. For
           example, FSA is not matching recipients listed in its payment
           database with individuals listed as deceased in the Social
           Security Administration's Death Master File. In addition, complex
           farming operations, such as corporations or general partnerships
           with embedded entities, make it difficult for FSA to prevent
           improper payments to deceased individuals. At present, FSA relies
           on farming operations to advise the agency of any change in the
           operation, including the death of a member that would affect
           payments made to the operation.
			  
			  FSA Made Millions of Dollars of Farm Program Payments to Deceased
			  Individuals from Fiscal Years 1999 through 2005

           From fiscal years 1999 through 2005, FSA paid $1.1 billion in farm
           program payments to 172,801 deceased individuals--either as
           individuals or as members of entities, according to our matching
           of FSA's payment databases with the Social Security
           Administration's Death Master File. Of the $1.1 billion in farm
           payments, 40 percent went to individuals who had been dead for 3
           or more years, and 19 percent went to individuals who had been
           dead for 7 or more years. Figure 1 shows the number of years in
           which FSA made farm program payments after an individual had died
           and the value of those payments. As the figure shows, for example,
           FSA provided $210 million in farm program payments to deceased
           individuals 7 or more years after their date of death.

           Figure 1: Number of Years and Value of Farm Program Payments Made
           after Individuals' Deaths, Fiscal Years 1999 through 2005

           Note: Farm program payments made through entities are based on
           program year data.

           aIncludes payments made 1 day after death to 1 year after death.

           Three cases illustrate how FSA's lack of management controls can
           result in improper payments to deceased individuals. In the first
           case, FSA provided more than $400,000 in farm program payments
           from 1999 through 2005 to an Illinois farming operation on the
           basis of the ownership interest of an individual who had died in
           1995.9 According to FSA's records, the farming operation consisted
           of about 1,900 cropland acres producing mostly corn and soybeans.
           It was organized as a corporation with four shareholders, with the
           deceased individual owning a 40.3-percent interest in the entity.
           Nonetheless, we found that the deceased individual had resided in
           Florida. Another member of this farming operation, who resided in
           Illinois and had signature authority for the operation, updated
           the operating plan most recently in 2004 but failed to notify FSA
           of the individual's death. The farming operation therefore
           continued to qualify for farm program payments on behalf of the
           deceased individual. As noted earlier, FSA requires farming
           operations to certify that they will notify FSA of any change in
           their operation and to provide true and correct information.
           According to USDA regulations, failure to do so may result in
           forfeiture of payments and an assessment of a penalty. FSA
           recognized this problem in December 2006 when the children of the
           deceased individual contacted the FSA field office to obtain
           signature authority for the operation. FSA has begun proceedings
           to collect the improper payments.
			  
9In addition, before the period of our review the operation received farm
program payments on behalf of the deceased individual from 1995 through
1998.

           In the second case, FSA provided more than $200,000 in farm
           program payments from 1999 through 2002 to an Indiana farming
           operation on the basis of the ownership interest of an individual
           who had died in 1993. According to FSA's records, the farming
           operation was a corporation, and the deceased individual held
           100-percent ownership interest in the entity. The corporation
           operated farms in two counties, but upon the death of the
           individual, the corporation failed to notify the FSA field office
           in either county of the death. The corporation therefore continued
           to receive farm program payments on behalf of the deceased
           individual until 2002, when it filed a new farm operating plan
           with FSA that no longer included the deceased individual as a
           member. When we brought this case to the attention of FSA
           officials, they were unaware that the individual had died in 1993
           and acknowledged that FSA provided improper payments to the
           farming operation from 1993 through 2002. According to agency
           officials, they intend to take action against the farming
           operation to recover the improper payments.

           In the third case, FSA provided about $260,000 in farm program
           payments from 1999 through 2006 to a corporation on the basis of
           the ownership interest of an individual who had died in 1993.
           According to FSA records, the farming operation had 14
           shareholders, with the deceased individual holding a 14-percent
           interest. We found that another member of this farming operation,
           who had signature authority for the operation, updated the farm's
           operating plan in 2004 but failed to notify FSA of the death of
           this member who we found had resided in a metropolitan area
           several hundred miles from the farm. The farming operation
           therefore continued to receive farm program payments on behalf of
           the deceased individual. FSA was unaware that the individual had
           died in 1993, but said it would investigate and if improper
           payments were made it would take action against the farming
           operation to recover the payments.

           USDA recognizes that its farm programs have management control
           weaknesses, making them vulnerable to significant improper
           payments. In its FY 2006 Performance and Accountability Report to
           OMB, USDA reported that poor management controls led to improper
           payments to some farmers, in part because of incorrect or missing
           paperwork.10 In addition, as part of its reporting of improper
           payments information, USDA identified six FSA programs susceptible
           to significant risk of improper payments with estimated improper
           payments totaling over $2.8 billion in fiscal year 2006, as shown
           in table 3.

           Table 3: USDA Estimates of Improper Payments, Fiscal Year 2006
			  
Dollars in millions                                                        
                                           Estimated improper Average percent 
Program                                           payments      error rate 
Direct and Counter-Cyclical Payments                  $424            4.96 
Program                                                                    
Conservation Reserve Program                            64            3.53 
Disaster assistance programsa                          291           12.30 
Noninsured Assistance Programb                          25           22.94 
Loan deficiency payments provided under                                    
the Marketing Assistance Loan Program                  443            9.25 
Other benefits provided under the                                          
Marketing Assistance Loan Program                    1,611           20.26 
Total/average                                       $2,858           11.17 

           Source: USDA's FY 2006 Performance and Accountability Report.

           Note: USDA's estimates include improper payments made to deceased
           individuals but USDA does not separate these payments from other
           improper payments.

           aDisaster assistance payments are direct federal payments to crop
           producers when either planting is prevented or crop yields are
           abnormally low because of adverse weather and related conditions.

           bThe Noninsured Assistance Program provides financial assistance
           to producers of non-insured crops when low yields, loss of
           inventory, or prevented planting occur due to natural disasters.
           Assistance is limited to crops not eligible for coverage under the
           federal crop insurance program.
			  
10See U.S. Department of Agriculture, FY 2006 Performance and
Accountability Report (Washington, D.C.: Nov. 15, 2006).

           Complex Farming Operations and a Lack of Management Controls Raise
			  the Potential for Improper Payments to Deceased Individuals

           Farm program payments made to deceased individuals
           indirectly--that is, as members of farming entities--represent a
           disproportionately high share of post-death payments.
           Specifically, payments to deceased individuals through entities
           accounted for $648 million--or 58 percent of the $1.1 billion in
           payments made to all deceased individuals from 1999 through 2005.
           However, payments to individuals through entities accounted for
           $35.6 billion--or 27 percent of the $130 billion in farm program
           payments FSA provided from 1999 through 2005. Similarly, we
           identified 39,834 of the 172,801 deceased individuals as receiving
           farm program payments through entities when we compared FSA's
           databases with the Social Security Administration's Death Master
           File.

           The complex nature of some types of farming entities, in
           particular, corporations and general partnerships, increases the
           potential for improper payments. For example, a significant
           portion of farm program payments went to deceased individuals who
           were members of corporations and general partnerships. Deceased
           individuals identified as members of corporations and general
           partnerships received nearly three-quarters of the $648 million
           that went to deceased individuals in all entities. The remaining
           one-quarter of payments went to deceased individuals of other
           types of entities, including estates, joint ventures, limited
           partnerships, and trusts. With regard to the number of deceased
           individuals who received farm program payments through entities,
           they were most often members of corporations and general
           partnerships. Specifically, of the 39,834 deceased individuals who
           received farm program payments through entities, about 57 percent
           were listed in FSA's databases as members of corporations or
           general partnerships. Table 4 shows the number and percent of farm
           program payments FSA made to deceased individuals through entities
           from 1999 through 2005.

           Table 4: Farm Program Payments Made to Deceased Individuals
           through Entities, Program Years 1999 through 2005
			  
Dollars in millions                                                        
                                                    Payments to deceased
                         Deceased individuals           individuals
Entity type              Number    Percent           Total         Percent 
Corporationsa            14,197       35.6          $321.5            49.6 
Estates                   2,262        5.7             8.2             1.3 
General partnerships      8,575       21.5           136.7            21.1 
Irrevocable trusts        4,377       11.0            35.7             5.5 
Joint ventures            2,073        5.2            19.4             3.0 
Limited partnerships      2,391        6.0            30.7             4.7 
Revocable trusts          3,866        9.7            28.8             4.4 
Otherb                    2,093        5.3            67.1            10.4 
Total                    39,834      100.0          $648.1           100.0 

           Source: GAO's analysis of FSA's data.

           aIncludes limited liability companies.

           bIncludes charitable organizations, individuals operating as a
           small business, and individuals receiving payments through more
           than one entity.

           As we reported in 2004, some farming operations may reorganize to
           overcome payment limits to maximize their program benefits.11
           Large farming operations are often structured as corporations or
           general partnerships with other entities embedded within these
           entities. Deceased individuals are sometimes members of these
           embedded entities. For example, as shown in table 4, 8,575
           deceased individuals received payments through general
           partnerships from 1999 through 2005. Of these, 687 received farm
           program payments because they were members of one or more entities
           that were embedded in the general partnership. Generally, these
           partnerships are consistent with the 1987 Act, as amended, whereby
           an individual can qualify for up to three payments by being a
           member of three entities within one general partnership.
           Furthermore, of the 172,801 deceased individuals identified as
           receiving farm program payments, 5,081 received more than one
           payment because (1) they were a member of more than one entity, or
           (2) they received payments as an individual and were a member of
           an entity.
			  
11 [40]GAO-04-407 .			  

           According to FSA field officials, complex farming operations, such
           as corporations and general partnerships with embedded entities,
           make it difficult for FSA to prevent making improper payments to
           deceased individuals. In particular, in many large farming
           operations, one individual often holds signature authority for the
           entire farming operation, which may include multiple members or
           entities. This individual may be the only contact FSA has with the
           operation; therefore, FSA cannot always know that each member of
           the operation is represented accurately to FSA by the signing
           individual for several reasons. First, it relies on the farming
           operation to self-certify that the information provided is
           accurate and that the operation will inform FSA of any operating
           plan changes, which would include the death of an operation's
           member. Such notification would provide USDA with current
           information to determine the eligibility of the entity to receive
           the payments. Second, FSA has no management controls, such as
           computer matching of its payment files with the Social Security
           Administration's Death Master File, to verify that an ongoing
           farming operation has failed to report the death of a member.
			  
			  Conclusions

           FSA has a formidable task--ensuring that billions of dollars in
           program payments are made only to estates and individuals that are
           eligible to receive them. Our review, however, demonstrates that
           FSA field offices do not always conduct the necessary annual
           determinations to ensure that estates are eligible to receive farm
           program payments. FSA's performance of these determinations for
           estates that have been kept open for more than 2 years could serve
           as an effective deterrent to making improper program payments.
           However, these determinations can only be a deterrent if they are
           consistently and thoroughly conducted. As we have found, some FSA
           field offices have failed to conduct eligibility determinations or
           have not conducted them consistently and documented the results of
           their determinations.

           FSA has relied on farming operations to report the death of a
           member whose ownership interest makes the operation eligible for
           program payments. However, it appears that some individuals who
           certify program eligibility forms for farming operations are
           either not taking seriously their obligation to notify FSA of the
           death of a member of the operation or are deliberately withholding
           this information to maximize their receipt of farm program
           payments. Our matching of FSA's farm payment database with the
           Social Security Administration's Death Master File indicates that
           FSA's reliance is misplaced, in at least some instances. We
           previously reported that we found examples of farming operations
           where recipients may circumvent the payment limits by organizing
           large farming operations to maximize program payments. The complex
           nature of these entities--such as entities embedded within other
           entities--increases the potential that deceased individuals will
           receive farm program payments because the status of these
           individuals is not easy for FSA to ascertain. Currently, FSA does
           not have effective management controls to verify that an
           individual receiving farm program payments, either directly or
           indirectly through an entity, is still alive. The lack of these
           controls increases the risk of improper payments being made over
           time.

           The shortcomings we have identified underscore the need for
           improved oversight of federal farm programs. Such oversight can
           help to ensure that program funds are spent as economically,
           efficiently, and effectively as possible, and that they benefit
           those engaged in farming as intended.
			  
			  Recommendations for Executive Action

           To provide reasonable assurance that FSA does not make improper
           payments to estates and deceased individuals, we recommend that
           the Secretary of Agriculture direct the Administrator of the Farm
           Service Agency to

                        o instruct FSA field offices to conduct all annual
                        estate eligibility determinations as required;
                        o implement management controls, such as matching
                        payment files with the Social Security
                        Administration's Death Master File, to verify that an
                        individual receiving farm program payments has not
                        died; and
                        o determine if improper program payments have been
                        made to deceased individuals or to entities that
                        failed to disclose the death of a member, and if so,
                        recover the appropriate amounts.

           In addition, we have referred the cases we identify in this report
           to USDA's Office of Inspector General for further investigation.
			  
			  Agency Comments and Our Evaluation

           We provided FSA with a draft of this report for review and
           comment. FSA agreed with our recommendations and already has begun
           to take action to implement them. For example, FSA has issued a
           notice (Notice PL-158, May 31, 2007) to its field offices
           emphasizing the current payment eligibility rules, procedures, and
           review requirements for payments with respect to deceased
           individuals and estates. This directive instructs these offices to
           review the eligibility of all estates that have been open for more
           than 2 years and requested 2007 farm program benefits.
           Furthermore, according to FSA, it is currently working with the
           Social Security Administration to obtain access to the Death
           Master File of deceased individuals. FSA intends to develop a
           process for matching its payment data against the Death Master
           File on at least an annual basis. According to FSA, it will then
           have a reliable means for identifying deceased individuals who may
           also be payment recipients. In addition, once implemented, FSA
           will no longer have to depend on the farming operation to notify
           the agency of an individual's death.

           Despite its concurrence with our recommendations, FSA did not
           agree with our use of the term "improper payments" in this report.
           FSA suggested that we revise the report to refer to the payments
           as at most "questionable" in view of current eligibility
           regulations, rather than improper. Specifically, the agency stated
           that the payments we describe do not meet the definition of
           improper payments under IPIA. We disagree. We believe three cases
           we highlight in examples in the report do meet the definition of
           improper payments under IPIA. IPIA defines improper payments as
           any payment that should not have been made or that was made in an
           incorrect amount (including overpayments and underpayments) under
           statutory, contractual, administrative, or other legally
           applicable requirements. This definition would include any payment
           made to an ineligible recipient either directly or through an
           entity. Our examples are consistent with this definition.
           Furthermore, officials in FSA's field offices agreed with our
           findings and told us they intend to recover the payments. For the
           remaining farm program payments identified in the report, we
           continue to believe that the potential exists for improper
           payments because of the lack of FSA management controls and the
           complexity of some of the farming operations involved. Under
           current circumstances, FSA cannot be assured that millions of
           dollars in farm program payments are going to those who met
           eligibility requirements and thus should have received these
           payments.

           FSA's written comments are presented in appendix II. FSA also
           provided us with suggested technical corrections, which we have
           incorporated into this report, as appropriate.

           As arranged with your office, unless you publicly announce its
           contents earlier, we plan no further distribution of this report
           until 30 days from its issue date. At that time, we will send
           copies of this report to appropriate congressional committees; the
           Secretary of Agriculture; the Director, OMB; and other interested
           parties. In addition, this report will be available at no charge
           on GAO's Web site at [16]http://www.gao.gov .

           If you or your staff have any questions about this report, please
           contact me at (202) 512-3841 or [17][email protected] . Contact
           points for our Offices of Congressional Relations and Public
           Affairs may be found on the last page of this report. Key
           contributors to this report are listed in appendix V.

           Sincerely yours,

           Lisa Shames
			  Director, Natural Resources and Environment
			  
			  Appendix I: Objectives, Scope, and Methodology

           At the request of the Ranking Member of the Senate Committee on
           Finance, we reviewed the Farm Service Agency's (FSA)
           implementation of payment eligibility provisions to identify
           improper payments to estates and deceased individuals.
           Specifically, we evaluated the extent to which FSA (1) follows its
           regulations that are intended to provide reasonable assurance that
           farm program payments go only to eligible estates and (2) makes
           improper payments to deceased individuals.

           To determine how well FSA field offices carry out rules that
           prohibit payments to ineligible recipients, we reviewed guidance
           that FSA field offices use to determine farm program payment
           eligibility, including relevant statutes and regulations and
           agency policy, including the FSA Handbook on Payment Limitations,
           1-PL (Revision 1). We reviewed relevant studies prepared by the
           U.S. Department of Agriculture's (USDA) Office of Inspector
           General and the Congressional Research Service, as well as our own
           past reports. We also reviewed USDA's FY 2006 Performance and
           Accountability Report to understand its assessment of internal
           controls for its farm programs. In addition, we spoke with FSA
           officials in headquarters, state offices, and local field offices
           who are responsible for ensuring that (1) estates are properly
           reviewed for eligibility and (2) payments are not made to deceased
           individuals.

           We obtained and analyzed FSA's computer databases for information
           on payment recipients from 1999 through 2005. These databases
           included FSA's Producer Payment Reporting System, Commodity
           Certificate file, and Permitted Entity file. The databases contain
           detailed information on payment recipients: Social Security
           numbers, payment amounts, the status of recipients as individuals
           or members of entities, their ownership interest in entities,
           types of entity, and additional organizational details. The
           databases also contain information on payments made under USDA's
           farm programs, including the Direct and Counter-Cyclical Payments
           Program, Marketing Assistance Loan Program, Conservation Reserve
           Program, and Environmental Quality Incentives Program. We also
           compiled data on farm program benefits provided through
           cooperative marketing associations.1 Because our analysis covered
           the years 1999 through 2005, it also included farm payments from
           programs authorized before the Farm Security and Rural Investment
           Act of 2002, such as production flexibility contract payments
           authorized under the Agriculture Market Transition Act and market
           loss assistance payments and crop disaster assistance payments
           authorized under various ad hoc legislation. Appendix III provides
           a list of USDA farm programs we reviewed.
			  
1USDA provides benefits under the Marketing Assistance Loan Program
through cooperative marketing associations, an alternative delivery
system. Cooperative marketing associations obtain benefits on behalf of
their members who deliver a commodity to the cooperative for marketing on
a "pool" basis. Benefits, as well as marketing proceeds, are then
allocated to members according to their share of the commodity in the
pool. 7 C.F.R. pt. 1425.

           To evaluate FSA's application of regulations and guidance to
           assess the overall effectiveness of its review process for
           deciding whether estates are eligible to receive farm program
           payments, we reviewed a nonrandom sample of estate eligibility
           determinations. To identify estates for our review, we analyzed
           FSA's databases. The data showed that 2,841 estates had received
           payments for more than 2 years between 1999 and 2005, thus
           requiring FSA to conduct a determination of eligibility. Of these,
           we examined 181 estates in 26 states and 142 counties. These
           estates included the 162 (i.e., 162 of 2,841) that received over
           $100,000 in farm program payments during this period. We also
           selected the 16 estates (i.e., 16 of 2,841) that (1) had received
           between $50,000 and $100,000 in farm program payments during this
           period and (2) had at least one member receiving payments through
           three other entities, which could indicate circumvention of the
           three-entity rule. Lastly, we selected the three estates (i.e., 3
           of 2,841) that had at least one member receiving payments through
           seven or more other entities.

           For each estate selected, we reviewed case file documents to
           verify the basis for FSA field offices' decisions to grant
           eligibility. Specifically, we obtained and reviewed files from FSA
           field offices that ideally would have included the following
           information to facilitate FSA's determinations: letters
           testamentary from a probate court, minutes of the FSA county
           committee meeting that approved eligibility, explanation letters
           or documentation for the reason the estate remained active beyond
           2 years, farm operating plans, and payment history. States and
           counties vary widely in the amount and type of documentation they
           require for probated estates. Consequently, we could not easily
           determine whether improper payments were made to estates.
           Furthermore, even in cases in which FSA had not done the required
           annual determinations, or when relevant documentation was missing
           or incomplete in the estate file, we could not determine whether
           improper payments were made without examining each case in depth.

           To evaluate the extent to which FSA makes improper payments to
           deceased individuals, we compared recipients of farm program
           payments in FSA's computer databases with individuals whose Social
           Security numbers were listed in the Social Security
           Administration's Death Master File, to identify post-death program
           payments for individuals who were deceased. The Death Master File
           contains information such as the name and Social Security numbers
           of deceased individuals in the United States. We assessed the
           reliability of FSA's data by (1) performing electronic testing of
           required data elements, (2) reviewing existing information about
           the data and the system that produced them, and (3) interviewing
           agency officials knowledgeable about the data. We determined that
           the data were sufficiently reliable for the purposes of our
           review. Although we did not assess the reliability of the Social
           Security Administration's Death Master File, it is the most
           comprehensive list of death information available in the federal
           government and is generally used by other government agencies and
           researchers.

           Using FSA's databases, we identified the 2.9 million individuals
           who received payments, either directly or indirectly through an
           entity, from 1999 through 2005. Payments were attributed to
           members of an entity by apportioning the payments according to
           each member's percentage share of that entity.2 Using these Social
           Security numbers, we then compared these individuals with
           individuals listed in the Social Security Administration's Death
           Master File to determine the extent to which deceased individuals
           may have received improper payments. The data match showed the
           number and dollar amount of payments FSA provided to deceased
           individuals from 1999 through 2005. To gain an understanding of
           circumstances behind seemingly improper payments, we obtained
           relevant documents from FSA, including farm operating plans and
           acreage reports, for selected cases.

           We conducted our review between June 2006 and May 2007 in
           accordance with generally accepted government auditing standards.
			  
2Because cooperative marketing associations, loan servicing agents, and
designated marketing associations only began reporting program benefits
provided to their members to USDA in 2007, we were unable to attribute
these benefits to individuals.

           Appendix II: Comments from the U.S. Department of Agriculture

Note: GAO comments supplementing those in the report text appear at the
end of this appendix.

See comment 1.

See comment 1.

See comment 2.

See comment 5.

See comment 4.

See comment 3.

See comment 1.

See comment 6.

GAO's Comments

                        1. We believe the payments we highlight in three
                        examples in the report meet the definition of
                        improper payments under IPIA. IPIA defines improper
                        payments as any payment that should not have been
                        made or that was made in an incorrect amount
                        (including overpayments and underpayments) under
                        statutory, contractual, administrative, or other
                        legally applicable requirements. This definition
                        would include any payment made to an ineligible
                        recipient either directly or through an entity. Our
                        examples are consistent with this definition.
                        Furthermore, officials in FSA's field offices agreed
                        with our findings and told us they intend to recover
                        the payments. For the remaining farm program payments
                        identified in the report, we continue to believe that
                        the potential exists for improper payments because of
                        the lack of FSA management controls and the
                        complexity of some of the farming operations
                        involved. Under current circumstances, FSA cannot be
                        assured that millions of dollars in farm program
                        payments are going to those who met eligibility
                        requirements and thus should have received these
                        payments.
                        2. For each of the three examples discussed in the
                        report, we verified the accuracy of information in
                        FSA's payment system and discussed the estate with
                        the FSA field office where the estate was located.
                        Because the field offices have this information, we
                        do not understand why FSA does not believe the report
                        provided sufficient information to investigate these
                        cases further.
                        3. We would expect FSA field offices to have
                        appropriate documents to verify acceptable reasons
                        for keeping the estate open. These files could have
                        included the following information to facilitate
                        FSA's determinations: letters testamentary from a
                        probate court, minutes of the FSA county committee
                        meeting that approved eligibility, explanation
                        letters or documentation for the reason the estate
                        remained active beyond 2 years, and farm operating
                        plans. However, when annual determinations were not
                        done or relevant documentation was missing or
                        incomplete in the files, we could not determine with
                        certainty whether improper payments were made to
                        estates. As we discuss on page 4 of this report, the
                        wide variation in state and county documentation
                        required for probated estates made it difficult for
                        us to make eligibility determinations. We continue to
                        believe that the failure of FSA's field offices to
                        conduct annual determinations of eligibility
                        increases the risk of improper payments being made
                        over time.
                        4. FSA implies that because the $1.1 billion in farm
                        program payments paid to deceased individuals during
                        1999 through 2005 amounts to only 8/10 of 1 percent
                        of the total payments made during this period, the
                        amount is negligible. We disagree--a billion dollars
                        is not a negligible sum. In addition, this amount
                        represents only payments made to deceased individuals
                        during this specific period; it does not capture
                        payments made to deceased individuals before and
                        after this period. FSA is obligated to ensure that
                        program funds are spent as economically, efficiently,
                        and effectively as possible. The nation's current
                        deficit and growing long-term fiscal challenges
                        reinforce the importance of this obligation.
                        Implementing management controls, such as matching
                        payment files with the Social Security
                        Administration's Death Master File, to verify that an
                        individual receiving farm program payments has not
                        died is a simple, cost-effective means to achieve
                        this end.
                        5. FSA is correct that counter-cyclical payments may
                        be made for up to 3 years after an individual has
                        died. However, according to our analysis, only $46.5
                        million (4.2 percent) of the $1.1 billion in payments
                        made to deceased individuals from 1999 through 2005
                        were counter-cyclical payments made for the same
                        program year as the year in which the individual
                        died. Furthermore, a farming operation is subject to
                        forfeiture of payments, including counter-cyclical
                        payments, if it has not notified FSA of a change in
                        the farming operation, such as the death of an
                        individual who receives payments as a member of that
                        operation. Many deceased individuals who received
                        counter-cyclical payments during this period also
                        received payments under other programs for which FSA
                        should have been notified of the change in the
                        farming operation. However, the fact that an
                        individual was identified as deceased in our computer
                        matching indicates FSA was not informed that a change
                        in the farm operation had occurred, suggesting that
                        the farming operation was not eligible to receive any
                        of the payments, including the counter-cyclical
                        payments.
                        6. As noted in the report, the source for information
                        in table 3 (p. 17) is USDA's FY 2006 Performance and
                        Accountability Report. The improper payments and the
                        percent error rate for each program in table 3 are
                        USDA's estimates. We acknowledge that improper
                        payments made under the Noninsured Assistance Program
                        are not exclusively the result of payments made to
                        deceased individuals.

           [This page left intentionally blank]
			  
Appendix III: U.S. Department of Agriculture Farm Program Payments, Fiscal
Years 1999 through 2005

Program or payment name                  1999           2000          2001 
Agricultural Conservation         $11,224,860     $4,196,928    $1,607,309 
Program                                                                    
Agricultural Management                     0              0             0 
Assistance Program                                                         
American Indian Livestock Feed      3,896,452      6,874,391     6,014,801 
Programa                                                                   
Apple and potato market loss                0              0    95,091,083 
assistance programs                                                        
Bioenergy Program                           0              0     5,067,405 
Commodity certificate exchange     96,857,101    585,199,671 1,940,401,941 
gainsb                                                                     
Conservation Reserve Program    1,434,374,194  1,474,944,804 1,622,326,378 
Conservation Security Program               0              0             0 
Cottonseed Payment Program                  0     77,626,725    81,379,925 
Counter-cyclical payments                   0              0             0 
Crop disaster programsc         1,953,245,280  1,231,657,343 1,837,359,477 
Dairy Market Loss Assistance      209,163,014    122,485,277   673,654,064 
Programd                                                                   
Direct payments                             0              0             0 
Emergency Conservation Program     37,035,860     60,549,402    34,827,766 
Emergency Livestock Feed          269,490,514    188,118,895   427,206,152 
Assistance Program                                                         
Emerging Markets Program                    0              0             0 
Environmental Quality              92,062,452     95,202,256    92,128,786 
Incentives Programe                                                        
Grasslands Reserve Program                  0              0             0 
Grassroots Source Water                     0              0             0 
Protection Program                                                         
Hard white wheat incentive                                                 
payments                                    0              0             0 
Karnal bunt fungus compensation                                            
payments                            1,426,124      1,392,898       103,083 
Klamath Basin water payments                0              0             0 
Lamb Meat Adjustment Assistance                                            
Programf                                    0      2,516,681    18,692,049 
Livestock Compensation Programg     3,985,184     22,963,155    44,476,583 
Loan deficiency paymentsh       3,468,059,489  6,376,810,238 5,467,029,107 
Market Access Program                       0        183,731    63,001,400 
Market loss assistance payments 2,811,228,359 10,924,186,869 4,645,364,213 
Marketing loan gains            1,487,290,059  1,051,012,216   721,295,170 
Milk Income Loss Contract                                                  
payments                                    0              0             0 
Milk Income Loss Transition                                                
Program                                     0              0             0 
Noninsured Assistance Programi     52,408,755     36,300,893    60,432,706 
Oilseed Payment Programj                    0    459,927,711   920,885,679 
Peanut Marketing Assistance                                                
Program                                     0     55,049,077   117,841,300 
Peanut Quota Buy-out Program                0              0             0 

            2002          2003          2004          2005          Total 
        $779,327     $(20,257)     $(22,175)        $(777)    $17,765,214 
       2,931,841     3,549,373     1,364,417       950,169      8,795,800 
       2,186,408             0             0       473,247     19,445,300 
          19,043   166,512,140       153,593             0    261,775,859 
      60,703,365   148,137,098   150,436,473    99,076,283    463,420,623 
     929,629,241   308,736,262 1,456,993,125 1,223,575,959  6,541,393,299 
1,778,628,324 1,755,206,253 1,796,767,076 1,788,444,977 11,650,692,007 
               0             0             0   281,127,805    281,127,805 
               0    49,834,565        14,588             0    208,855,803 
               0 1,745,225,805   803,461,729 2,799,538,213  5,348,225,747 
     235,365,230 1,869,337,985   748,830,900 2,806,953,550 10,682,749,765 
       1,722,115     1,204,615       598,526       337,566  1,009,165,178 
               0 4,149,832,019 5,289,289,888 5,235,904,151 14,675,026,058 
      30,195,494    44,760,627    22,177,233    56,918,356    286,464,739 
       (129,387)      (33,187)   100,330,773    69,684,832  1,054,668,592 
       2,509,523     1,608,478             0             0      4,118,002 
     109,147,456   164,913,676   288,867,512   297,598,069  1,139,920,207 
               0             0     1,348,981     2,767,584      4,116,565 
               0             0             0     3,191,760      3,191,760 
               0             0     9,023,427     3,166,216     12,189,643 
       6,197,098     3,022,159             0             0     12,141,362 
          25,430             0             0             0         25,430 
      27,863,580    17,586,607     5,395,203    14,247,253     86,301,374 
     110,399,054 1,203,311,592     (467,556)     (108,096)  1,384,559,915 
5,287,046,329   666,486,952   573,886,091 3,870,181,854 25,709,500,060 
      99,345,621    95,485,882   124,004,633    33,542,876    415,564,144 
       1,157,868     (470,359)     (779,398)     (755,675) 18,379,931,878 
     636,104,440   190,745,265   114,559,845   321,066,062  4,522,073,056 
          61,339 1,220,761,113   220,703,438     7,006,604  1,448,532,494 
          51,485   559,861,054     6,844,214     1,931,887    568,688,641 
     179,507,950   237,573,300   122,717,376   107,826,455    796,767,434 
         194,199      (20,557)         5,541       (2,905)  1,380,989,667 
          29,959             0             0             0    172,920,335 
               0 1,220,317,818    24,989,195    22,302,136  1,267,609,149 

Program or payment name               1999            2000            2001 
Production flexibility       5,477,740,513   5,059,047,323   4,101,650,681 
contract payments                                                          
Small Hog Operation            119,796,535       3,427,613           1,360 
Payment Program                                                            
Soil and Water                           0               0           2,790 
Agricultural Assistance                                                    
Program                                                                    
Sugarcane Payment Programk               0               0     105,677,357 
Tobacco Disaster                         0       2,697,221     470,849,679 
Assistance Programl                                                        
Tobacco Buyout Program                   0               0               0 
Trade Adjustment                         0               0               0 
Assistance for Farmers                                                     
Tree Assistance Program          6,641,204       2,008,117         530,970 
Wetlands Reserve Program               939           4,710      15,610,939 
Wildlife Habitat                         0               0               0 
Incentives Program                                                         
Wool & Mohair Market Loss          (4,975)           (300)      45,336,483 
Assistance Program                                                         
Other programsm                  5,962,635       6,131,614     191,939,583 
Total                      $17,541,884,547 $27,850,515,460 $23,807,786,218 

           2002            2003            2004            2005            Total 
  3,971,755,013   (292,942,256)     (8,252,201)     (2,005,089)   18,306,993,984 
        (5,000)               0               0               0      123,220,508 
      4,574,638       2,694,734       1,859,399       1,133,091       10,264,651 
     88,452,205               0      55,800,000         (1,569)      249,927,993 
      5,924,085         (1,668)           (532)           (261)      479,468,524 
              0      51,122,236           5,033            (80)       51,127,189 
              0               0       9,739,427      14,669,796       24,409,222 
       (10,767)           (524)       1,739,917       3,547,835       14,456,752 
     19,040,526      21,572,999      18,094,066       9,163,339       83,487,518 
              0               0               0       8,406,507        8,406,507 
        358,574        (76,838)         (8,136)         (1,153)       45,603,655 
     15,430,977      17,092,297       1,483,445       1,744,112      239,784,665 
$13,607,192,583 $15,622,927,258 $11,941,955,066 $19,083,602,940 $129,455,864,072 

           Source: GAO's analysis of FSA's and Natural Resources Conservation
           Service's data.

           Notes: For commodity certificate exchange gains and payments made
           under the Marketing Assistance Loan Program through cooperative
           marketing associations, we used program year data. Totals may not
           add due to rounding. Negative payments represent receivables due
           to over-disbursements and other payment anomalies in a prior year.

           aIncludes the American Indian Livestock Assistance Program.

           bIncludes cotton user marketing certificate gains.

           cIncludes the Apple & Potato Quality Loss Program, Sugar Beet
           Disaster Program, Quality Loss Program, Crop Loss Disaster
           Assistance Program, Florida Nursery Losses Program, Florida
           Hurricane Charley Disaster Program, Disaster Reserve Flood
           Compensation Program, Florida Hurricane Nursery Disaster Program,
           Florida Hurricane Vegetable Disaster Program, Multi-Year Crop Loss
           Disaster Assistance Program, North Carolina Crop Hurricane Damage
           Program, Nursery Losses In Florida Program, and Single Year Crop
           Loss Disaster Assistance Program, as well as Disaster Supplemental
           Appropriation payments, Crop Disaster North Carolina payments,
           Crop Disaster Virginia payments, and 1999 Citrus Losses In
           California.

           dIncludes the Dairy Indemnity Program, Dairy Options Pilot
           Program, and Dairy Production Disaster Assistance Program.

           eIncludes the Interim Environmental Quality Incentives Program
           (EQIP) For Colorado River Salinity Control Program, Interim EQIP
           For Great Plains Conservation Program, as well as Automated
           Conservation Program Environmental Long Term payments, and Interim
           EQIP Annual Agreement for Agricultural Conservation Program
           payments.

           fIncludes the Ewe Lamb Replacement and Retention Program.

           gIncludes the Livestock Assistance Program, Livestock Indemnity
           Program, Avian Influenza Indemnity Program, Cattle Feed Program,
           Pasture Flood Compensation Program, and Pasture Recovery Program.

           hIncludes "loan deficiency payment-like" grazing payments for
           wheat, barley, oats, and triticale.

           iIncludes supplemental appropriations for the Noninsured
           Assistance Program.

           jIncludes supplemental appropriations for the Oilseed Payment
           Program.

           kIncludes the Sugar Payment-In-Kind Diversion Program.

           lIncludes the Tobacco Loss Assistance Program and the Supplement
           Tobacco Loss Assistance Program.

           mIncludes the Yakima Basin Water Program, Flood Compensation
           Program for Harney County Oregon, Fresh Market Peaches Program,
           Idaho Oust Program, Livestock Compensation Program- Grants For
           Catfish Producers, Limited California Cooperative Insolvency
           Program, New Mexico Tebuthiuron Application Losses Program, New
           York Onion Producers Program, Potato Diversion Program, Poultry
           Enteritis Mortality Syndrome Program, Seed Corn Purchase
           Containing CRY9C Protein Program, Specialty Crops-Base State
           Grants Program, Specialty Crops-Value Of Production Program, and
           State Commodity Assistance Program, as well as Consent Decree
           payments and Interest Penalty payments.
			  
			  Appendix IV: U.S. Department of Agriculture Estate Eligibility
			  Reviews, by State, Program Years 1999 through 2005

           Table 5 shows the variation by state in FSA's conduct of
           eligibility determinations from 1999 through 2005 for the 181
           estates in our sample. Not all states are represented because we
           chose estates based on criteria other than location. Our sample of
           181 estates included the 162 that received over $100,000 in farm
           program payments during this period. We also selected the 16
           estates that (1) received between $50,000 and $100,000 in farm
           program payments during this period and (2) had at least one
           member receiving payments through three other entities, which
           could indicate circumvention of the three-entity rule.1 In
           addition, we selected the three estates that had at least one
           member receiving payments through seven or more other entities.
			  
1Under the "three-entity rule," a person--an individual or entity--can
receive program payments through no more than three entities in which the
person holds a substantial beneficial interest. A person can receive
payments (1) as an individual and as a member of no more than two entities
or (2) through three entities and not as an individual. FSA defines a
substantial beneficial interest as 10 percent or more.

           Table 5: Variation in Reviews Conducted by FSA, by State, Program
           Years 1999 through 2005
                         Number of estates Number of estates       Percent of 
State                  requiring review          reviewed estates reviewed 
Alabama                               9                 2             22.2 
Arizona                               1                 0                0 
Arkansas                             12                 8             66.7 
California                            1                 0                0 
Colorado                              2                 2            100.0 
Georgia                              16                 5             31.3 
Illinois                             20                13             65.0 
Iowa                                  1                 1            100.0 
Indiana                               4                 2             50.0 
Kansas                               13                 8             61.5 
Kentucky                              2                 0                0 
Louisiana                             3                 1             33.3 
Minnesota                             1                 0                0 
Mississippi                           3                 0                0 
Missouri                              1                 0                0 
Montana                               4                 1             25.0 
North Carolina                        1                 0                0 
North Dakota                          4                 3             75.0 
Nebraska                              4                 1             25.0 
New Mexico                            1                 0                0 
Oklahoma                              2                 2            100.0 
Oregon                                2                 0                0 
South Carolina                        1                 0                0 
South Dakota                          2                 1             50.0 
Texas                                63                55             87.3 
Washington                            8                 3             37.5 
Total                               181               108             59.7 

           Source: GAO's analysis of FSA's data.
			  
           Appendix V: GAO Contact and Staff Acknowledgments	
			  
			  GAO Contact		  

           Lisa Shames (202) 512-3841 or [18][email protected]
			  
			  Staff Acknowledgments

           In addition to the individual named above, James R. Jones, Jr.,
           Assistant Director; Hamid E. Ali; Kevin S. Bray; Thomas M. Cook;
           Stephanie K. Fain; Ronald E. Maxon, Jr.; Jennifer R. Popovic; and
           Carol Herrnstadt Shulman made key contributions to this report.
			  
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           Farm Program Payments: USDA Needs to Strengthen Regulations and
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           Strategies to Manage Improper Payments: Learning From Public and
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           Farm Programs: Changes to the Marketing Assistance Loan Program
           Have Had Little Impact on Payments. [30]GAO-01-964 . Washington,
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           Farm Programs: Information on Recipients of Federal Payments.
           [31]GAO-01-606 . Washington, D.C.: June 15, 2001.

           Financial Management: Billions in Improper Payments Continue to
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(360718)

[41]www.gao.gov/cgi-bin/getrpt?GAO-07-818 .

To view the full product, including the scope
and methodology, click on the link above.

For more information, contact Lisa Shames at (202) 512-3841 or
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Highlights of [42]GAO-07-818 , a report to the Ranking Member, Committee
on Finance, U.S. Senate

July 2007

FEDERAL FARM PROGRAMS

USDA Needs to Strengthen Controls to Prevent Improper Payments to Estates
and Deceased Individuals

Farmers receive about $20 billion annually in federal farm program
payments, which go to individuals and "entities," including corporations,
partnerships, and estates. Under certain conditions, estates may receive
payments for the first 2 years after an individual's death. For later
years, the U.S. Department of Agriculture (USDA) must determine that the
estate is not being kept open for payments.

As requested, GAO evaluated the extent to which USDA (1) follows its
regulations that are intended to provide reasonable assurance that farm
program payments go only to eligible estates and (2) makes improper
payments to deceased individuals. GAO reviewed a nonrandom sample of
estates based, in part, on the amount of payments an estate received and
compared USDA's databases that identify payment recipients with
individuals the Social Security Administration listed as deceased.

[43]What GAO Recommends

GAO recommends that USDA conduct all required annual estate eligibility
determinations, implement management controls to verify that an individual
receiving program payments has not died, and determine if these payments
have been made to deceased individuals or to entities that failed to
disclose the death of a member, and if so, recover the appropriate
amounts. USDA agreed with these recommendations and has begun actions to
implement them.

USDA has made farm payments to estates more than 2 years after recipients
died, without determining, as its regulations require, whether the estates
were kept open to receive these payments. As a result, USDA cannot be
assured that farm payments are not going to estates kept open primarily to
obtain these payments. From 1999 through 2005, USDA did not conduct any
eligibility determinations for 73, or 40 percent, of the 181 estates GAO
reviewed. Sixteen of these 73 estates had each received more than $200,000
in farm payments, and 4 had each received more than $500,000. Also, for
the 108 reviews USDA did conduct, GAO identified shortcomings. For
example, from 1999 through 2005, 69 of the 108 estates did not receive
annual reviews for every year of payments received, and some USDA field
offices approved groups of estates for payments without reviewing each
estate. Furthermore, 20 estates that USDA approved for payment eligibility
had no documented explanation for keeping the estate open.

USDA cannot be assured that millions of dollars in farm payments are
proper. It does not have management controls to verify that it is not
making payments to deceased individuals. For 1999 through 2005, USDA paid
$1.1 billion in farm payments in the names of 172,801 deceased individuals
(either as an individual recipient or as a member of an entity). Of this
total, 40 percent went to those who had been dead for 3 or more years, and
19 percent to those dead for 7 or more years. Most of these payments were
made to deceased individuals indirectly (i.e., as members of farming
entities). For example, over one-half of the $1.1 billion payments went
through entities from 1999 through 2005. In one case, USDA paid a member
of an entity--deceased since 1995--over $400,000 in payments for 1999
through 2005. USDA relies on the farming operation's self-certification
that the information provided is accurate and that the operation will
inform USDA of any changes, such as the death of a member. Such
notification would provide USDA with current information to determine the
eligibility of the entity to receive the payments. The complex nature of
some farming operations--such as entities embedded within other
entities--can make it difficult for USDA to avoid making payments to
deceased individuals.

Number of Deceased Individuals Receiving Farm Payments through Entities,
1999-2005

References

Visible links
  14. http://www.gao.gov/cgi-bin/getrpt?GAO-04-407
  15. http://www.gao.gov/cgi-bin/getrpt?GAO-07-235R
  16. http://www.gao.gov/
  17. mailto:[email protected]
  18. mailto:[email protected]
  19. http://www.gao.gov/cgi-bin/getrpt?GAO-07-635T
  20. http://www.gao.gov/cgi-bin/getrpt?GAO-07-254T
  21. http://www.gao.gov/cgi-bin/getrpt?GAO-07-92
  22. http://www.gao.gov/cgi-bin/getrpt?GAO-06-581T
  23. http://www.gao.gov/cgi-bin/getrpt?GAO-06-482T
  24. http://www.gao.gov/cgi-bin/getrpt?GAO-05-907T
  25. http://www.gao.gov/cgi-bin/getrpt?GAO-05-605T
  26. http://www.gao.gov/cgi-bin/getrpt?GAO-05-417
  27. http://www.gao.gov/cgi-bin/getrpt?GAO-04-861T
  28. http://www.gao.gov/cgi-bin/getrpt?GAO-04-407
  29. http://www.gao.gov/cgi-bin/getrpt?GAO-02-69G
  30. http://www.gao.gov/cgi-bin/getrpt?GAO-01-964
  31. http://www.gao.gov/cgi-bin/getrpt?GAO-01-606
  32. http://www.gao.gov/cgi-bin/getrpt?GAO-01-44
  33. http://www.gao.gov/
  34. http://www.gao.gov/
  35. http://www.gao.gov/fraudnet/fraudnet.htm
  36. mailto:[email protected]
  37. mailto:[email protected]
  38. mailto:[email protected]
  39. http://www.gao.gov/cgi-bin/getrpt?GAO-07-92
  40. http://www.gao.gov/cgi-bin/getrpt?GAO-04-407
  41. http://www.gao.gov/cgi-bin/getrpt?GAO-07-818
  42. http://www.gao.gov/cgi-bin/getrpt?GAO-07-818
*** End of document. ***