USDA Making Improper Payments to Already Wealthy Farmers, GAO Audit Says

A U.S. Department of Agriculture program is allowing farmers, some with household incomes of more than $1 million per year, to not only be subsidized, but receive improper payments because of poor monitoring of income limits.

The Government Accountability Office released a report that found that USDA does not have adequate monitoring for payment programs from the Farm Services Agency state offices and Natural Resources Conservation Service which “varied in quality” for determining the income eligibility of participants in the conservation program

The income eligibility is already quite high, the GAO report says. So the improper payments are on top of payments what are properly going to wealthy farmers.

“Under present limits, participants are not eligible to receive some farm payments if their average adjusted gross nonfarm income exceeds $500,000; another type of farm payment if their average adjusted gross farm income exceeds $750,000; and conservation payments if their average adjusted gross nonfarm income exceeds $1 million, unless at least 66.66 percent of their average adjusted gross income is average adjusted gross farm income,” the GAO report explains.

“Because these income limits apply to individuals, under certain conditions, a husband and wife could collectively earn up to $1 million in average adjusted gross nonfarm income and $1.5 million in average adjusted gross farm income and be eligible for most farm payments, or up to $2 million in average adjusted gross nonfarm income and be eligible for conservation payments," it adds.

But the watchdog agency found that state FSA offices may have allowed more farmers to participate than were eligible.

“As nationwide fiscal pressures continue, and farm incomes remain high, it is crucial to ensure that limited taxpayer dollars are spent to support only eligible farm and conservation program participants,” the GAO says. “FSA has taken significant steps to ensure that program payments go only to participants whose incomes do not exceed statutory limits.”

The GAO didn't estimate a total amount of improper payments, but said, “FSA state offices may have made some erroneous determinations of participants’ eligibility or ineligibility, resulting in some potentially improper payments to ineligible participants whose incomes exceeded the limits.”

Photo taken August 19, 2013 shows cattle standing in a field near Tioga, North Dakota. (Credit: AFP/Getty Images)

It reported that “files from some state offices were routinely missing some of the documentation specified in FSA’s handbook.”

It said that 39 of the 41 tax return files reviewed from the Indiana, Kansas, and Missouri state FSA offices were missing important information to prove eligibility. Meanwhile, eight of the nine files the GAO reviewed from the Louisiana FSA state offices were missing critical information.

“Without all the specified documents—including the printout showing the eligibility determination in FSA’s database—FSA cannot be assured that all of its state offices’ determinations of participants’ eligibility are correct and accurately recorded,” the report says.

In California, the GAO found nine of the 11 tax returns files had errors from the FSA review. In Indiana, 10 of the 11 files reviewed had errors. This could all lead to impropper payments. The report goes on to give examples of improper payments without always identifying individuals or states.

“In another file involving a farming corporation under review, FSA state officials properly classified income from the corporation’s farm operation as farm income in 2 of the 3 years under review but classified income from the same source erroneously as nonfarm income in the third year,” the report says. “As a result, the corporation received about $40,000 in 2010 farm payments that it should not have.”

It continued talking about Indiana, where tax information was incorrectly reviewed.

“As a result, these individuals received payments in 2009 and 2010, totaling about $56,000, which they would not have received if state officials had based their determinations on the income reported in participants’ tax returns, as called for in the handbook,” the report says.

The GAO further states, “FSA state officials in several states told us they felt ill-prepared to review tax returns because they are not accountants or tax preparers, and the 2008 Farm Bill’s statutory limits further complicate the task.”

The report states that the 2008 Farm Bill provisions requiring a distinction between farm and nonfarm income make it difficult for agency officials to verify if participants’ incomes exceed the limits without making errors.

But even when the FSA offices said the information was reviewed by attorneys and accountants, it was still not sufficient. The audit found that six of the 15 statements from attorneys and accountants in California and 15 of the 24 statements from attorneys and accountants in Indiana were missing key elements that could lead to overpayments.

“Missing elements included income amounts and averages for all the relevant years, the names of the IRS schedules and line numbers where farm income was reported on tax returns, and a detailed explanation of why a participant’s income did not exceed limits when information on tax returns indicated otherwise,” the GAO said.

Progress is being made, the report says.

“In May 2012, FSA started to recover about $143 million in overpayments made to its participants in 2009 and 2010, but the NRCS has not identified the amount of overpayments made or begun recovering payments it made to ineligible participants, because it had to first update project management software in February 2013,” the GAO said.

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