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Commodity Payment Limitations – Weak System, Weak Report

June 29, 2012

On Thursday, June 28, USDA’s Office of Inspector General (OIG) issued a report on the Farm Service Agency’s (FSA’s) implementation of the 2008 Farm Bill commodity program payment limitation provisions.  The 2008 Farm Bill severely weakened payment limits by increasing the amount of subsidies any one farm can receive and removing limits altogether in the case of marketing loan benefits, but also instituted a reform known as “direct attribution” of payments.  Under direct attributions, payments received by a wide variety of business entities (partnerships, joint ventures, and corporations of various kinds) are intended to be tracked back to the actual natural persons who are the subsidy beneficiaries in relation to their ownership interests.  The 2008 Farm Bill also requires that changes to farming operations that increase the number of persons receiving subsidies be legitimate changes, not changes to simply increase government payments.  These measures in the 2008 Farm Bill were credited as producing as significant budget savings when the bill was passed.

The OIG audit, in fact, did not actually happen.  To do its work, OIG needed to review FSA data on farming operations that increased the number of subsidy recipients in response to the 2008 changes.  According to OIG, “we were unable to test the controls for compliance and answer our objective because FSA’s data were not sufficiently reliable for us to identify the universe of farming operations that had an increase in the number of payment limitations….Therefore, we were unable to accomplish the audit objective and thus terminated the audit.”

FSA agreed with OIG that the FSA database is not sufficiently reliable to identify farming operations with increases in the number of persons for payment limitations.  FSA noted, however, that it has “internal controls” in place to review increases in the number of subsidy recipients per farm that include filing a new farm operating plan with FSA.  Those internal controls, however, are not recorded in a data base.  Hence, according to OIG, it could not perform any testing on the internal controls as part of the audit.

OIG, to its credit, did persist and ask FSA to search for the first two year’s worth of data on farms whose total payments were reduced because of increases in the number of subsidy recipients on a particular farm.  FSA found only 17 cases nationwide (in 22 counties, as some were multi-county farms) over those first two years of implementing the 2008 changes that may have had payments reduced due to those changes.  After contacting all 22 county offices and reviewing their records, OIG found only one instance in the entire country in which payments were reduced due to a determination by the FSA county office that the change in the farming operation was not substantive.

Bottomline?  It is impossible to know whether the 2008 change to direct attribution of payments had its intended effect or not.  Neither FSA nor OIG is able to tell, beyond the single farm from among the not credible miniscule list provided by FSA.  Based on the information at hand, it would be impossible to tell whether the budget savings projected in 2008 came true or not, though based on the information at hand, one would have to guess they were not.

Any good news here?  Maybe.  FSA’s response to OIG states that its new web-based system will improve its ability to track payments and thus do a more credible job of implementing direct attribution of payments.  One would hope this new system will be audited immediately by OIG to determine if the improvements are effective, though there is no signal in the current report to indicate that a new audit will take place.

More good news on the way?  Quite possibly.  The Senate-passed 2012 Farm Bill contains far-reaching payment limitation reform.  The bill would place a $50,000 per farm cap on payments and a $75,000 per farm cap on marketing loan benefits.  It would also close the long-abused management loophole that allows multiple investors in farm to receive subsidies without actually doing any farm work and only minimal management activities.  These changes, in combination with direct attribution, would for the first time give USDA the tools they need to successfully enforce payment limitations.

The House begins its consideration of the 2012 Farm Bill on July 11 in the House Agriculture Committee begins its debate and markup.

Categories: Farm Bill

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