United StatesDepartment ofAgriculture

Office ofInspectorGeneral

No. 40

November 1998

Office ofInspector GeneralSemiannual Repo rtto CongressFY 1998—Second Half

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To file a complaint of discrimination, write USDA, Director, Office of Civil Rights, Room 326-W, Whitten Building,1400 Independence Avenue, SW, Washington, DC 20250-9410 or call (202) 720-5964 (voice or TDD). USDAis an equal opportunity provider and employer.

United States Department of AgricultureOffice of Inspector General

Washington, D.C. 20250

October 27, 1998

Honorable Dan GlickmanSecretary of AgricultureWashington, D.C. 20250

Dear Mr. Secretary:

I am pleased to submit the Office of Inspector General’s Semiannual Report to Congresssummarizing our activities for the 6-month period which ended September 30, 1998.

During this period, our audits and investigations yielded approximately $54.9 million inrecoveries, collections, restitutions, fines, claims established, administrative penalties, andcosts avoided. Management agreed to put an additional $5.3 billion to better use. We alsoidentified $36.5 million in questioned costs that cannot be recovered. Our investigationsproduced 488 indictments and 333 convictions.

We are continuing to report outstanding results in our three Presidential initiatives. Morethan 3,200 fugitive felons who were illegally receiving food stamps have been arrestedthrough Operation Talon, as of September 30, 1998. Operation "Kiddie Care" has resulted inover 50 Child and Adult Care Food Program sponsors being audited or investigated in nearlyhalf the States of the Nation. Our joint effort with the Rural Housing Service to identify andprosecute those who defrauded Rural Rental Housing projects is progressing, and weanticipate issuing a report by spring.

Once again, I extend my appreciation to you and the Deputy Secretary. I also wish to thankall the members of the House of Representatives and the Senate who have lent their support.In addition, I extend my warmest regards to the many State and local officials and lawenforcement personnel who contributed to our successes.

Sincerely,

ROGER C. VIADEROInspector General

Enclosure

Executive SummaryExecutive SummaryExecutive SummaryExecutive SummaryExecutive Summary .............................................................................................................................................1Summaries of Audit and Investigative ActivitiesSummaries of Audit and Investigative ActivitiesSummaries of Audit and Investigative ActivitiesSummaries of Audit and Investigative ActivitiesSummaries of Audit and Investigative Activities .......................................................................................................4Update of Ongoing InitiativesUpdate of Ongoing InitiativesUpdate of Ongoing InitiativesUpdate of Ongoing InitiativesUpdate of Ongoing Initiatives

Operation Talon ................................................................................................................................................5Operation “Kiddie Care” .................................................................................................................................... 6Rural Rental Housing Projects .............................................................................................................................6

Farm and Foreign Agricultural ServicesFarm and Foreign Agricultural ServicesFarm and Foreign Agricultural ServicesFarm and Foreign Agricultural ServicesFarm and Foreign Agricultural ServicesFarm Service Agency .........................................................................................................................................7Risk Management Agency ..................................................................................................................................9Foreign Agricultural Service.............................................................................................................................. 10

Food, Nutrition, and Consumer ServicesFood, Nutrition, and Consumer ServicesFood, Nutrition, and Consumer ServicesFood, Nutrition, and Consumer ServicesFood, Nutrition, and Consumer ServicesFood and Nutrition Service ............................................................................................................................... 12Food Stamp Program ....................................................................................................................................... 12Child Nutrition Programs.................................................................................................................................. 16Special Supplemental Nutrition Program for Women, Infants, and Children ................................................................ 19

Marketing and Regulatory ProgramsMarketing and Regulatory ProgramsMarketing and Regulatory ProgramsMarketing and Regulatory ProgramsMarketing and Regulatory ProgramsAgricultural Marketing Service .......................................................................................................................... 20Animal and Plant Health Inspection Service ......................................................................................................... 21

Natural Resources and EnvironmentNatural Resources and EnvironmentNatural Resources and EnvironmentNatural Resources and EnvironmentNatural Resources and EnvironmentForest Service ................................................................................................................................................ 23

Rural DevelopmentRural DevelopmentRural DevelopmentRural DevelopmentRural DevelopmentRural Housing Service ..................................................................................................................................... 27

Research, Education, and EconomicsResearch, Education, and EconomicsResearch, Education, and EconomicsResearch, Education, and EconomicsResearch, Education, and EconomicsCooperative State Research, Education, and Extension Service ................................................................................. 29

Financial, Administrative, and Information TechnologyFinancial, Administrative, and Information TechnologyFinancial, Administrative, and Information TechnologyFinancial, Administrative, and Information TechnologyFinancial, Administrative, and Information TechnologyEqual Employment Opportunity ......................................................................................................................... 30Financial Management ..................................................................................................................................... 32Information Technology ................................................................................................................................... 35Audits of Contracts ......................................................................................................................................... 35Oversight of Non-Federal Auditors ..................................................................................................................... 36

Employee Integrity InvestigationsEmployee Integrity InvestigationsEmployee Integrity InvestigationsEmployee Integrity InvestigationsEmployee Integrity Investigations ........................................................................................................................ 37Statistical DataStatistical DataStatistical DataStatistical DataStatistical Data

Audits Without Management Decision ................................................................................................................ 38Indictments and Convictions ............................................................................................................................. 54The OIG Hotline ............................................................................................................................................. 55Freedom of Information Act Activities ................................................................................................................. 56

Appendix I: Inventory of Audit Reports IssuedAppendix I: Inventory of Audit Reports IssuedAppendix I: Inventory of Audit Reports IssuedAppendix I: Inventory of Audit Reports IssuedAppendix I: Inventory of Audit Reports IssuedWith Questioned Costs and LoansWith Questioned Costs and LoansWith Questioned Costs and LoansWith Questioned Costs and LoansWith Questioned Costs and Loans ................................................................................................................... 57

Appendix II: Inventory of Audit Reports IssuedAppendix II: Inventory of Audit Reports IssuedAppendix II: Inventory of Audit Reports IssuedAppendix II: Inventory of Audit Reports IssuedAppendix II: Inventory of Audit Reports IssuedWith Recommendations That Funds Be Put to Better UseWith Recommendations That Funds Be Put to Better UseWith Recommendations That Funds Be Put to Better UseWith Recommendations That Funds Be Put to Better UseWith Recommendations That Funds Be Put to Better Use ................................................................................... 58

Appendix III: Summary of Audit Reports Released BetweenAppendix III: Summary of Audit Reports Released BetweenAppendix III: Summary of Audit Reports Released BetweenAppendix III: Summary of Audit Reports Released BetweenAppendix III: Summary of Audit Reports Released BetweenApril 1 and SeptemberÊ30, 1998April 1 and SeptemberÊ30, 1998April 1 and SeptemberÊ30, 1998April 1 and SeptemberÊ30, 1998April 1 and SeptemberÊ30, 1998 ....................................................................................................................... 59

Contents

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This is the 40th Semiannual Report issued by the Officeof Inspector General (OIG), U.S. Department ofAgriculture (USDA), pursuant to the provisions of theInspector General Act of 1978 (Public Law 95-452), asamended. This report covers the period April 1 throughSeptember 30, 1998.

In accordance with the requirements of the InspectorGeneral Act, this report describes matters relating to theDepartment’s programs and operations which occurredduring the reporting period. These include significantproblems, abuses, and deficiencies; significantrecommendations for corrective action; prior significantrecommendations unimplemented; prosecutorialreferrals; information or assistance refused; a list ofaudit reports; summary of significant reports; tables onquestioned costs and funds to be put to better use;previous audit reports unresolved; significant revisedmanagement decisions; any management decisiondisagreements; and a review of legislation andregulations.

Monetary Results

During this reporting period, we issued 108 audit andevaluation reports and reached management decisionson 82. Based on this work, management officialsagreed to recover $12.1 million and to put an additional$5.3 billion to better use.

We also issued 421 reports of investigation during thisperiod. Our investigative efforts resulted in488 indictments, 333 convictions, and approximately$42.8 million in recoveries, fines, restitutions,administrative penalties, claims established, and costavoidance.

Ongoing Initiatives

Operation Talon continues to show success inapprehending fugitives from justice, many of themviolent offenders; Operation “Kiddie Care” has detectedfraud committed by additional Child and Adult CareFood Program (CACFP) sponsors around the country;and a joint effort with the Rural Housing Service (RHS)to identify those who defrauded Rural Rental Housing(RRH) projects is progressing.

Executive Summary

Operation Talon has been expanded to include a total of34 metropolitan areas in 23 States, and an additional760 fugitives have been arrested, bringing the total to3,206 arrests as of September 30, 1998. As ofSeptember 11, 1998, 53 sponsors in 23 States werebeing audited or investigated as a result of Operation“Kiddie Care.” One ongoing investigation in Ohio hasso far identified at least 9 persons who conspired to setup more than 40 false providers, resulting in thesubmission of false claims for reimbursements totalingapproximately $1.1 million. We anticipate issuing areport on the joint initiative concerning RRH by thespring of 1999.

Investigative Efforts

In Idaho, a honey producer is awaiting sentencing afterhe pled guilty to submitting false statements to the FarmService Agency (FSA) in order to obtain over $6 millionin loans and subsidy payments as part of a loan-kitingscheme whereby he increased his purported honeyproduction each year in order to obtain sufficient fundsfrom FSA to repay previous debts. By the time hisscheme was discovered, he owed FSA over $3 millionand had no funds or honey with which to repay FSA.

We cracked multimillion-dollar food stamp traffickingcases in several States during this reporting period.Twenty-four individuals have been arrested in thesouthern district of New York on an estimated$60 million food stamp fraud and money launderingconspiracy. During a 2-year investigation inPhiladelphia, Pennsylvania, an elaborate scheme wasuncovered involving $15 million of food stamp traffickingand money laundering. Also in Philadelphia, the ownerof four retail stores pled guilty to fraudulently purchasingapproximately $5.4 million in food stamps andlaundering $4.8 million in funds. In Georgia, a grocerwas ordered to pay over $3.9 million in restitution afterhe pled guilty to charges of money laundering andredemption of illegally received food stamps. He wasalso sentenced to serve 5 years in prison. As partialpayment of his restitution, he agreed to forfeit his8,000-square-foot home, five other parcels of realestate, and two vehicles.

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We previously reported that a San Diego-based foodprocessing company and its president/owner pled guiltyto charges of submitting false claims to USDA in relationto the substitution of Mexican strawberries for U.S.domestic strawberries in the USDA National SchoolLunch Program. The president/owner has since beensentenced to 10 months in prison and has been fined$13,000. The company has been ordered to pay$200,000 in fines; $150,000 in restitution to USDA; and$1,300 in court penalties. In addition, the company hasagreed to a $1.3 million civil settlement.

In Oregon, six individuals are awaiting sentencing afterthey pled guilty to charges of theft for their part in aconspiracy to fraudulently acquire and sell dogs tomedical research facilities. Our investigation disclosedthat a USDA-licensed dog dealer and her associateseither stole dogs or obtained them under falsepretenses. Over a 15-month period, they illegallyobtained over 100 dogs in this manner.

After we received confidential information from a privatesector contractor, our 18-month investigation developedevidence showing that two Natural ResourcesConservation Service (NRCS) employees who wereresponsible for managing Emergency WatershedProtection Program (EWPP) contracts accepted cashbribes from a contractor in exchange for specialconsiderations in obtaining EWPP contracts. A thirdemployee arranged for a contractor doing business withNRCS to perform construction work on personallyowned land, the cost for which was then improperlybilled to USDA. The three employees entered guiltypleas. One employee was fined and placed onprobation, and resigned from NRCS. The other twoemployees are currently on indefinite suspension; theystated in their plea bargains that they would resign fromtheir positions and are awaiting sentencing.

Audit Efforts

This reporting period we found that, of 80 emergencyloans reviewed in 6 key States, 33 borrowers receivedboth catastrophic risk protection (CAT) or NoninsuredCrop Disaster Assistance Program (NAP) payments andemergency loan assistance for the same crop lossesbecause program personnel were unaware that suchduplicate payments were prohibited. We also foundproblems with false certifications, misinformation, anderrors computing loan amounts.

In January 1997, FSA implemented two programs toprovide assistance to endangered livestock caught inthe blizzards and cold weather in the upper GreatPlains. Because the two programs ran concurrentlywith different cost-share rates, some producersimproperly received assistance for supplemental feedpurchases under the wrong program, which allowed theproducers to receive 100 percent of the feed costcompared to the 30-percent cost-share. We also foundthat producers in 23 contiguous counties in four States(Iowa, Montana, Nebraska, and Wyoming) adjoining thedeclared disaster areas in North Dakota and SouthDakota received over $2.5 million in unauthorizedprogram benefits.

We found that reinsurance companies’ quality controlsystems were lacking. We attributed this to inadequatestandard reinsurance agreements, in part, because theagreements did not contain provisions to ensure that thesystems were properly established. As a result,program officials cannot rely on reinsured companies’quality control review systems to assure effectiveimplementation and administration of crop insuranceprograms.

The Agricultural Marketing Service (AMS) and theNational Fluid Milk Processor Promotion Board need toimprove their oversight and controls over Fluid MilkPromotion Program activities to ensure thatassessments on fluid milk products are used inaccordance with the Fluid Milk Promotion Act. Ourreview identified problems with the board’smanagement structure, contracts that were awardedwithout competition to procure services, payments thatexceeded contract limits, a lack of enforcement ofcontract terms, and instances where the board had nottaken title to or possession of assets procured withprogram funds. AMS did not agree to suspend theboard’s activities as we had recommended. However, itagreed to institute improvements and is working with theFluid Milk Board to strengthen management controls.

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Our audit identified a serious breakdown of controls inall phases of the Humboldt-Toiyabe National Forest landadjustment program in Nevada. Forest Service (FS)management allowed private parties to exert undueinfluence over the direction and outcome of almost alllarge-value land exchanges at the forest. Wequestioned accomplished and proposed land exchangetransactions for 7,029 acres of Federal and non-Federallands, valued at $27.9 million. In response to our audit,both the FS Chief and the Under Secretary for NaturalResources and Environment have taken immediateactions to implement needed controls in this area.

Also in Nevada, FS is in jeopardy of losing managementcontrol over lands recently acquired for $38 million. Weidentified a serious problem relating to the treatment ofbuilding improvements in a land exchange transactioninvolving a 46-acre parcel on Lake Tahoe known asZephyr Cove. To preclude further deterioration of FS’control of the Zephyr Cove lands, it is imperative that FSimmediately take aggressive action to assert itsownership of the property.

In another audit, we found that FS did not effectivelymanage grant agreements totaling about $11.9 million($7.8 million in Federal grant funds plus about$4.1 million in required matching funds) to the eightnonprofit organizations (NPO’s) that we reviewed. Theagency agreed with the findings and recommendationsand initiated corrective action.

Our current review of the operations of USDA’s Office ofCivil Rights (CR) disclosed that the backlog ofcomplaints of civil rights violations, although reduced,still stands at 616 cases as of September 11, 1998. CRhas not attained the efficiency it needs to systematicallyreduce the case load, few of the deficiencies previouslynoted have been corrected, and the office is still indisarray. We concluded that the Secretary needs totransfer resolution of the backlog to a complaintsresolution task force and that the Secretary shouldcreate an Assistant Secretary of Civil Rights withsubcabinet-level status.

We disclaimed an opinion on the FY 1997 financialstatements of the Department (consolidated) and FS.The Food and Nutrition Service (FNS) and the RuralDevelopment mission area received qualified opinions,while the Commodity Credit Corporation (CCC) and theRural Telephone Bank (RTB) received unqualifiedopinions for their FY 1997 financial statements. Ourdisclaimer of opinion on the Department’s financialstatements was due largely to the numerous materialinternal control weaknesses at the Office of the ChiefFinancial Officer (OCFO)/National Finance Center(NFC) which we have previously reported. We wereunable to express an opinion on FS financial statementsfor FY 1997 because of the absence of an integratedgeneral ledger and supporting subsidiary records, alongwith significant financial systems weaknesses.

We reported that the Department is progressing with the“Year 2000” conversion project. However, the Office ofthe Chief Information Officer’s (OCIO) reported numberof compliant systems overstated the Department’sactual progress. OCIO officials agreed with our findingsand have implemented corrective actions, and ourreview work is continuing.

Reports on the Internet

A number of the entries in this report can be found intheir entirety on our website on the World Wide Web atwww.usda.gov/oig . These entries include thoseaddressing Operation “Kiddie Care” (Interim Report)(page 16 in this report), school meal programs in theDistrict of Columbia (page 19), the Fluid Milk PromotionProgram (page 20), the Humboldt-Toiyabe NationalForest land adjustment (page 23), the Zephyr Cove landexchange transaction (page 24), FS grants to NPO’s(page 25), the CR report (page 30), and the FY 1997financial statements for USDA (page 32), FS (page 33),and FNS (page 33).

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Reports Issue d ................................................................................................................................................. 108Audits Performed by OIG ............................................................................... 59Evaluations Performed by OIG ....................................................................... 18Audits Performed Under the Single Audit Act ................................................. 24Audits Performed by Others ........................................................................... 7

Management Decisions MadeNumber of Reports ........................................................................................................................................ 82Number of Recommendations ....................................................................................................................... 511

Total Dollar Impact (Millions ) .......................................................................................................................... $5,392.0Questioned/Unsupported Costs ............................................................................................. $48.6ab

Recommended for Recovery .......................................................................... $12.1Not Recommended for Recovery ................................................................... $36.5

Funds To Be Put to Better Use .............................................................................................. $5,343.4

aThese were the amounts the auditees agreed to at the time of management decision.bThe recoveries realized could change as the auditees implement the agreed-upon corrective action plan and seek recovery of amounts recordedas debts due the Department.

Summary of Investigative Activities

Reports Issued ................................................................................................................................................... 421Cases Opened ................................................................................................................................................... 388Cases Closed ..................................................................................................................................................... 454Cases Referred for Prosecution ......................................................................................................................... 308

Impact of InvestigationsIndictments .................................................................................................................................................... 488Convictions .................................................................................................................................................... 333a

Searches ........................................................................................................................................................ 134Arrests ........................................................................................................................................................... 1,012b

Total Dollar Impact (Millions ) .......................................................................................................................... $42.8Recoveries/Collections .......................................................................................................... 3.4c

Restitutions ............................................................................................................................ 20.8d

Fines ...................................................................................................................................... 12.5e

Claims Established ................................................................................................................ 1.1f

Administrative Penalties ........................................................................................................ 0.2g

Cost Avoidance ...................................................................................................................... 4.8h

Administrative Sanctions Employees ...................................................................................................................................................... 36 Businesses/Persons........................................................................................................................................ 1,628

aIncludes convictions and pretrial diversions. Also, the period of time to obtain court action on an indictment varies widely; therefore, the333 convictions do not necessarily relate to the 488 indictments.

bIncludes 760 Operation Talon arrests and 252 arrests not related to Operation Talon.cIncludes money received by USDA or other Government agencies as a result of OIG investigations.dRestitutions are court-ordered repayments of money lost through a crime or program abuse.eFines are court-ordered penalties.f Claims established are agency demands for repayment of USDA benefits.gThis category includes monetary fines or penalties authorized by law and imposed through an administrative process as a result of OIG findings.hThis category consists of loans or benefits not granted as the result of an OIG investigation.

Summary of Audit Activities

5

Last reporting period, we began three major operationsthat were endorsed as Presidential Initiatives.Operation Talon continues to show success inapprehending fugitives from justice, many of themviolent offenders; Operation “Kiddie Care” has detectedfraud committed by additional Child and Adult CareFood Program (CACFP) sponsors around the country;and a joint effort with the Rural Housing Service (RHS)to identify those who defrauded Rural Rental Housing(RRH) projects is progressing.

Operatio n Talon Shows Conti nued SuccessApprehending Fugitives From Justice

In our last Semiannual Report to Congress, we reportedthe progress of Operation Talon, a nationwide initiativedesigned to locate and apprehend fugitives who arecurrent or former food stamp recipients. At that time,Operation Talon had resulted in the arrest of2,446 fugitive felons. Since then, Operation Talonhas been expanded to include a total of 34 metropolitanareas in 23 States, and an additional 760 fugitives havebeen arrested, bringing the total to 3,206 arrests as ofSeptember 30, 1998.

Update of Ongoing Initiatives

We also previously reported on a White House pressconference in which Vice President Gore announcedthe results of Operation Talon to the Nation. Followingthis announcement, we sent a copy of our OperationTalon report to the Governors of all 50 States, andU.S. Trust Territories, advising them of the success ofthe operation and urging them to consider similaractions in their States. As a result, we have receivedresponses from several Governors throughout thecountry extolling the operation and advising us of theirinterest in similar activities in their States.

Recent arrest operations in the Commonwealth ofVirginia, resulting in 140 fugitives being arrested,culminated in a press conference in Richmond duringwhich the Superintendent of the State Policecomplimented this joint operation. Again, OperationTalon allowed the sharing of information between Stateagencies and law enforcement, and the cooperativeeffort between Federal, State, and local lawenforcement agencies.

OIG is currently working closely with law enforcementagencies on Operation Talon in several other States.Computer matches and arrests are ongoing in selectlocations, while large-scale arrest operations arescheduled for other metropolitan areas. Figure 1 showsthe crimes committed by felons apprehended inOperation Talon, as of September 30, 1998.

Figure 1Crimes Committed by Felons Apprehended in Operatio n Talon

Offense Total Arrests Offense Total Arrests

Murder 13 Kidnapping 8

Attempted Murder 9 Assault 147

Child Molestation 14 Robbery 103

Rape 9 Drugs 823

Attempted Rape 2 Other 2,078

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Presidential Initiative in C ACFP Conti nues WithOperation “Kiddie Care”

In the last Semiannual Report to Congress, we reportedon the status of Operation “Kiddie Care,” our nationalPresidential Initiative to identify, audit, investigate,remove from CACFP if necessary, and prosecutesponsoring organizations (sponsors) abusing thisimportant USDA feeding program. As of September 11,1998, 53 sponsors in 23 States were being audited orinvestigated. See page 16 for a complete summary ofour most recent results.

RRH Projects Continu e To Be High-Risk Operations

OIG audits and investigations performed over the pastseveral years have repeatedly identified fraud byprogram borrowers and management agents. Tocombat this abuse, OIG and RHS undertook a jointeffort in March 1998 to identify those who defraudedprojects and, whenever possible, to prosecute themcriminally. We anticipate issuing a report on thisPresidential Initiative by the spring of 1999.

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Farm and Foreign Agricultural Services

FARM SERVICE AGENCY (FSA)

For fiscal year (FY) 1998, FSA estimates expendituresof approximately $1 billion in salaries and expenses andhas budget authority of $102.4 million for theAgricultural Credit Insurance Fund Program Accountand $2 million for State mediation grants. TheCommodity Credit Corporation (CCC), a Governmentcorporation, funds all other program operations, withestimated FY 1998 outlays of $8.6 billion, and CCCmade $5.3 billion in commodity loans during FY 1997.As of September 30, 1997, approximately112,000 borrowers owed FSA $11.8 billion for farmprogram loans, and FSA had guaranteed more than$6.5 billion in farm program loans made by privatelenders to more than 40,000 borrowers.

Family Partnershi p Violated Payment Limitation andEligibility Provisions

Our review disclosed that a family partnership(consisting of a father, mother, and their two adult sons)did not carry out its 1991 through 1993 farmingoperations as reported to FSA. As a result, themembers of the partnership would not be consideredseparate persons for 1991, 1992, and 1993 and wouldnot be considered to be actively engaged in farming for1992 and 1993. We recommended that FSA determinewhether, as indicated, the family group adopted ascheme or device to evade wool and mohair paymentlimitations and, if so, recover overpayments of$2.4 million.

Review of Noninsured C rop Disaster AssistanceProgram (NAP) Shows Overpayments

We reviewed 1996 crop-year program payments inCalifornia, Florida, Georgia, and Oklahoma, where$26.9 million (out of $45.9 million nationwide) in benefitswas paid as of July 31, 1997. We found hidden orinaccurate reporting of production and the use ofincorrect yields to compute payments for 23 of the98 cases (23 percent, valued at $2.4 million) reviewed.We also found that the process for determining theactual amount of loss could allow producers to obtainunwarranted program benefits because reportedinformation (based on estimates and adjustments) usedto determine the loss could not be verified. This was amajor problem in Oklahoma, particularly for seededwheat forage. For other crops included in our review

(strawberries, cherries, and onions), the actualproduction was based on information reported by theproducer. However, many fruits and vegetables,including strawberries, often involve roadside sales,which are not verifiable and, thus, cannot be used toquantify actual production.

We recommended that $411,000 in overpayments becollected in the four States. FSA has taken action tocollect the overpayments if relief was not granted underappropriate relief provisions.

FSA Paid Duplicate Benefits for Crop Losses

Of 80 emergency loans reviewed in 6 key States,33 borrowers received both catastrophic risk protection(CAT) or Noninsured Crop Disaster Assistance Program(NAP) payments and emergency loan assistance for thesame crop losses. This occurred because FSA FarmLoan Program State and county personnel wereunaware that NAP and CAT laws and regulationsprohibited producers who elected to receive NAP orCAT benefits from obtaining other USDA benefits for thesame losses. As a result, the borrowers received CATand NAP payments totaling $803,000 and emergencyloan assistance totaling $3.7 million for the samelosses.

FSA’s internal controls did not prevent or detect falsecertifications and/or misinformation provided byemergency loan borrowers and errors made by FSApersonnel computing maximum emergency loanamounts. As a result, excess loan funds totaling over$1 million were disbursed for numerous emergencyloans, and some borrowers may have been eligible toreceive additional loan funds totaling over $155,000.

For 38 of the 67 loans fully reviewed (13 had a limitedreview), borrowers falsely certified or misreportedyields, acreages, and/or insurance compensation toFSA or could not document reported data. As a result ofthe false or inaccurate information, we identifiedoverloaned amounts totaling $871,000 and underloanedamounts totaling almost $116,000. We referred loansinvolving false certifications in Oklahoma to the U.S.attorney, who has initiated civil lawsuits against sevenborrowers and the individual who packaged the loansfor five of the borrowers.

Also, FSA personnel made errors computing maximumloan amounts for 32 of the 80 loans reviewed. At least14 loans were overstated by $245,000, and at least 8were understated by almost $40,000.

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We recommended that the FSA national office instructeach State to review all emergency loans made sincethe inception of NAP and CAT to determine ifunauthorized multiple benefits were issued and requirethe borrowers to refund the questioned amounts.Further, FSA should amend agency procedures toclarify that the law prohibits borrowers from receivingduplicate emergency benefits on the same crop losses,specifically NAP or CAT payments and emergency loanassistance. We also made several recommendations tostrengthen program controls. In the reports to Stateoffices, we recommended that the identified overloanedamounts be recovered and that borrowers be affordedthe opportunity to apply for the underloaned amounts.

County Office Operations Mismanaged

FSA identified, and OIG corroborated, widespreaderrors and irregularities in virtually every FSA programadministered by Reeves County, Texas. For example,farm reconstitutions were performed unnecessarily andimproperly; credits and certifications were givenimproperly; crop yields were established and increasedimproperly; and numerous problems with contracts anddocuments were identified.

Also, one county committee member had no farming orranching interests in Reeves County, and anothermember was part of a partnership that was improperlypaid over $50,000 because the partnership did not meetcash-rent tenant rules. In addition, a producer who wasdelinquent over $400,000 on his FSA farm loans wasallowed to transfer his farming interests to his daughterand son to avoid administrative offset of programpayments totaling over $350,000.

We attributed these irregularities to the willingness ofcounty office staff, including the County ExecutiveDirector and county committee, to accommodateproducer requests and to disregard FSA rules andprocedures in order to maximize Government benefitsto county producers. Also, a lack of State officefollowup on prior county office reviews contributed to theproblems in Reeves County since issues identified inpast reviews were not adequately or timely corrected.

We recommended that FSA take immediate action toassure that FSA programs in Reeves County areadministered in accordance with regulations andoperating procedures and complete a corrective actionplan to remedy the identified errors.

Emergency Assistance to P roduce rs in the UpperGreat Plains

In January 1997, FSA implemented two programs toprovide assistance to endangered livestock caught inthe blizzards and cold weather in the upper GreatPlains. The Emergency Feed Grain Donation Program(EFGDP) provided 100-percent cost-share assistance tolivestock producers for snow removal and/or feed if theirlivestock was in immediate danger of perishing and theydid not have access to their normal feed supplies. TheFoundation Livestock Relief Program (FLRP) provided30-percent cost-share assistance for producers in theseareas who needed feed to enhance the diet offoundation livestock (breeding stock) weakened by thesevere winter weather.

Severe weather took its toll on livestock in South Dakotaduring the winter of 1996-1997. Photo courtesy of FSA.

Because the two programs ran concurrently withdifferent cost-share rates, some producers improperlyreceived assistance for supplemental feed purchasesunder EFGDP instead of FLRP. This allowed theproducers to receive 100 percent of the feed costcompared to the 30-percent cost-share. In addition, wefound that producers were paid EFGDP benefits forexcessive snow removal costs during the additional15-day extension period and for snow removal whenthey had access to normal feed supplies.

We also found that producers in contiguous counties infour States (Iowa, Montana, Nebraska, and Wyoming)adjoining the declared disaster areas in North Dakotaand South Dakota were improperly authorized toreceive FLRP payments. FSA provided producers in

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23 counties with over $2.5 million in unauthorizedprogram benefits.

We recommended FSA strengthen its oversight role incertain areas and require the county offices to act onthe cases where excessive EFGDP and FLRPpayments were issued. In addition, we recommendedthat FSA implement controls to help ensure that disasterassistance is limited to areas identified in futurePresidential disaster declarations.

FSA believed existing controls have generally proved tobe adequate. However, due to the complexity andresulting difficulty of administering emergency anddisaster programs, procedures to improve programoversight—including the performance of application,approval, and payment reviews—have beenincorporated into other similar programs. FSA agreed toissue instructions to initiate recovery of overpayments,subject to the finality rule. FSA believes it actedproperly by suspending further authorizations ofcontiguous counties when it became aware of theproblem.

Father, Son, and Neph ew Plead Guilty to Co nvertingMortgaged Grai n To Develo p Truck Stop

In North Dakota, a father, son, and nephew pled guiltyto converting $279,800 worth of mortgaged grain. Thethree men used the proceeds to develop an interstatetruck stop which they operated near the Canadianborder. Each was sentenced to 5 years’ probation, andthey were ordered to pay restitution totaling nearly$218,400.

Farmer Sentenced for Collateral Conversion

A Texas farmer who failed to pay FSA with proceeds hereceived from his crop insurance was sentenced inFederal court to serve 5 months in prison, followed by5 months of community confinement, and to pay over$80,000 in restitution to FSA. FSA financed his farmingoperation, but the farmer used the insurance proceedsto pay his losses from speculating in the commodityfutures market.

Prominent Farmer Agrees to $300,000 CivilSettlement

A prominent California agricultural producer—who wasalso a businessman, community leader, andWashington, D.C., “insider”—agreed to a civil settlement

of $300,000 after an OIG investigation. Investigatorsuncovered a triple-escrow scheme used by the producerin 1992 to divert $56,000 of profit from the sale ofproperty mortgaged to the former Farmers HomeAdministration (FmHA) to one of his business entities.The producer, who was on national committeespertaining to the General Agreement on Tariffs andTrade and the North American Free Trade Agreement,defaulted on $7.1 million in FmHA emergency loansmade to his farming operation in 1978. From 1979through 1993, the producer systematically disposed of2,865 acres of farm land, deeded to FmHA as collateralfor the emergency loans, through numerousquestionable real estate transactions.

Honey Producer Guilty of Loan-Kiting Scheme

In Idaho, a honey producer is awaiting sentencing afterhe pled guilty to submitting false statements to FSA inorder to obtain over $6 million in loans and subsidypayments. The producer concocted a “kiting” schemewhereby he increased his purported honey productioneach year in order to obtain sufficient funds from FSA torepay previous debts. The producer created fictitiouschecks from a nonexistent honey company in order toconvince FSA that he was actually selling honey eachyear, when, in fact, he produced almost no honey. Bythe time his scheme was discovered, he owed FSA over$3 million and had no funds or honey with which torepay FSA. The producer’s wife entered a pretrialdiversion program as a result of her participation in thescheme.

RISK MANAGEMENT AGENCY (RMA)

RMA supervises the Federal Crop InsuranceCorporation (FCIC) and oversees all programsauthorized under the Federal Crop Insurance Act. FCICis a wholly owned Government corporation that offerssubsidized, multiple-peril crop insurance through aprivate delivery system by means of reinsuredcompanies. These are private insurance companiesthat perform the insurance marketing, distribution,servicing, training, quality control, and loss adjustmentfunctions in return for a percentage reimbursement ofthe premiums. RMA’s programs are estimated at$1.8 billion in premiums (about $950 million of whichis in the form of premium subsidy), $2.1 billion inindemnities, $275 million in delivery expenses, and$64 million in administrative and operating expensesfor FY 1999.

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Reinsurance Companies’ Quality Control SystemsLacking

RMA delivers multiple-peril crop insurance programsthrough standard reinsurance agreements with privateinsurance companies. Under the agreements, thecompanies are required to develop quality control plansthat are consistent with the agency’s policies andprocedures and that help safeguard against waste, loss,unauthorized use, and misappropriation.

We reviewed the quality control processes at 2 of19 reinsured companies operating with 1995agreements. We found that the companies’ qualitycontrol systems generally complied with the agreementsbut did not effectively improve program delivery, ensureprogram integrity, or measure and report on programperformance. We identified three overall managementcontrol weaknesses: Insufficient data collection,maintenance, and reporting requirements; ineffectiveoversight of quality control operations by RMA; andineffective controls over potential conflicts of interest.

We attributed these conditions to inadequate standardreinsurance agreements, in part, because theagreements did not contain provisions to ensure that thesystems were properly established. As a result,program officials cannot rely on reinsured companies’quality control review systems to assure effectiveimplementation and administration of crop insuranceprograms.

We recommended the agency consult with cropinsurance organizations and experts and useappropriate professional and ethical standards todevelop a strategy for evaluating the effectiveness ofquality control and related reporting functions. We alsorecommended the agency require the companies tocalculate annual error rates, retain records necessary toevaluate quality control processes, adopt proceduralrequirements without modification, and establish moreeffective controls to prevent and detect potentialconflicts of interest. These controls particularly need todeal with conflicting sales and claims adjustmentoperations and dual supervisory responsibilities oversales, claims adjustments, and quality control activities.We believe our findings represent material controlweaknesses which adversely affect the integrity of cropinsurance programs.

The agency concurred with our recommendations toimprove the reinsured companies’ quality controlprocesses. However, the agency did not agree with ourfindings and recommendations regarding the adequacyof management controls for preventing and detectingpotential conflicts of interest.

Nonirrigated C rop Insuranc e Yields Se t Too Highand Practices No t Viable

This audit was prompted by a hotline complaint allegingthat crop-year 1998 extra long staple (ELS) cottontransitional-yields (t-yields) for crop insurance purposeswere set unusually high by RMA officials for the Texascounties of Glasscock, Midland, Reagan, and Upton.We found that the t-yields (estimated yields based onhistorical averages) for nonirrigated ELS cotton were setexceptionally high for these counties, which could resultin a potential excess loss of about $12 million. A similarsituation occurred with nonirrigated popcorn in the RioGrande Valley of Texas where high t-yields resulted inindemnities totaling about $5.5 million for 1997. Also,nonirrigated dent corn t-yields for 1998 were setsignificantly high and could result in losses of between$2.2 million and $2.8 million in Tom Green County,Texas.

We concluded such nonirrigated practices were notviable in the cited counties. Officials in the countiesstated that these were not locally accepted practices,because more water is required than the countiesreceive in rainfall. Also, the growing season in the fourTexas counties is too short for ELS cotton to properlymature.

We recommended that RMA discontinue coverage fornonirrigated practices for ELS cotton in the four countiesnamed in the original complaint, popcorn in the RioGrande Valley of Texas, and dent corn in Tom GreenCounty, Texas, effective for crop-year 1999. RMAagreed to discontinue such coverage effective withcrop-year 1999.

FOREIGN AGRICULTURAL SERVICE (FAS)

FAS represents the interests of U.S. farmers and thefood and agricultural sector abroad. It also collects,analyzes, and disseminates information about globalsupply and demand, trade trends, and emerging marketopportunities. FAS seeks improved market access for

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U.S. products and implements programs designed tobuild new markets and to maintain the competitiveposition of U.S. products in the global marketplace.FAS also carries out food aid and market-relatedtechnical assistance programs and helps increaseincome and food availability in developing nations bymobilizing expertise for agriculturally led economicgrowth.

Foreign Agriculture Posts Nee d To IncreaseMonitoring of Complianc e With Trade Agreements

Between January 1993 and January 1996, theU.S. Government concluded more than 180 tradeagreements with other nations, many with agriculturalprovisions. In 1996, congressional leaders expressedconcerns about the monitoring of these accords toensure our trading partners abide by the terms andprovisions of the agreements. Our evaluation disclosedseveral weaknesses.

• Greater awareness and monitoring of tradeagreements were needed by many FAS foreignposts. Nineteen of the forty-eight posts respondingto our questionnaire, whose host countries aremembers of the World Trade Organization, reportedthey did not monitor their host countries’ compliancewith trade agreements.

• Twenty-six agricultural trade agreements and tradeagreements with agricultural provisions concludedsince 1987 were not reported to the U.S. Departmentof State and to Congress as required by law. Thisresponsibility rested with the agency entering into theagreement, generally the Office of the U.S. TradeRepresentative. FAS lacked procedures to ensurethat responsible agencies sent copies of theagreements in question to the U.S. Department ofState.

• FAS lacked a central archive of agricultural tradeagreements in force between the United States andforeign trading partners. This inhibits FAS’ ability toprovide final copies of trade agreements, sideagreements, and negotiating histories toDepartmental officials and U.S. companies interestedin foreign market opportunities.

We made recommendations regarding monitoringcompliance with trade agreement provisions, reportingnew agreements to the U.S. Department of State andthe Congress, and establishing a central archive ofagricultural trade agreements. FAS is seeking anadvisory opinion from the Office of the General Counselconcerning its legal obligations under the Case-ZablockiAct to notify the U.S. Department of State concerningthe agricultural treaties.

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Food, Nutrition, and Consumer Services

FOOD AND NUTRITION SERVICE (FNS)

FNS administers the Department’s food assistanceprograms, which include the Food Stamp Program(FSP); the Child Nutrition Programs (CNP); the SpecialSupplemental Nutrition Program for Women, Infants,and Children (WIC); and the Food Donation Programs.These programs are designed to provide people in needwith a more nutritious diet, improve the eating habits ofthe Nation’s children, and stabilize farm prices throughthe purchase and distribution of surplus food. FNS’funding for FY 1998 is approximately $35 billion. ThreeFNS programs receive the bulk of this funding: FSP($22 billion), CNP ($9 billion), and WIC ($4 billion).

FOOD STAMP PROGRAM (FSP)

Monitoring of the Elect ronic Benefit s Transfer (EBT)System Continues

Currently, 35 States and the District of Columbia useEBT systems to deliver FSP benefits. Twenty-two of thesystems have been implemented statewide, and anadditional 10 States, plus the District of Columbia, are inthe process of expanding statewide. FNS estimatesthat over 50 percent of all FSP benefits will be issuedvia EBT by the end of 1998.

This period, we began EBT system audits in five Statesand have completed work in two—Alabama andOklahoma. We have also begun work involving thereconciliation process at one of the large EBTprocessors and will report on the results of that reviewin the next reporting period.

We continue to chair a President’s Council on Integrityand Efficiency working group composed of Federal,State, and public accounting representatives who aredeveloping standard procedures for audits of EBTservice provider operations. The working groupdeveloped draft audit guidelines that were disseminatedto interested parties in June 1998 for comment. Weenvision that public accounting firms will use the guideto complete an annual audit of EBT service providers.We anticipate the guide will be available for use in 1999.

Alabama

Due to the rapid deployment of the EBT system inAlabama, the State was forced to focus its efforts onimplementation problems rather than on thedevelopment of management controls to oversee long-term operations of the system. We identified thefollowing areas where additional controls are needed.

• The State did not reconcile the $385 million annualfood stamp benefit authorizations its systemcontractor posted in the central computer filesagainst the State’s Master Issuance AuthorizationFile to ensure the propriety of all transactions.

• The FNS field office did not timely research andcorrect weekly exception reports listing $612,000 ofinvalid and unauthorized transactions processed by52 retailers between April and December 1997.

• The recipient benefit accounts were vulnerable tounauthorized transactions at one chain retailer with124 stores statewide because account numbers wereincluded on receipts.

• The controls over EBT transactions at group homesand treatment centers were inadequate to preventunauthorized uses of FSP benefits.

We made recommendations to improve fiscal andoperational controls over the system and its operations.FNS generally concurred with our recommendationswith the exception of actions pertaining to unauthorizedretailer transactions.

Oklahoma

Overall, the Oklahoma EBT system had sufficientcontrols and procedures to ensure timely availability ofFSP benefits to program participants, butdocumentation for the EBT operating proceduresneeded strengthening. Reconciliation procedures andcontrols over returned EBT cards and dormant accountsneeded to be properly documented. In addition, PrivacyAct data was subject to compromise, EBT systemaccess controls needed strengthening, and there wasno provision for an independent audit of the system.

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We recommended that FNS direct the Oklahoma Stateagency to prepare written operating procedures inregard to the reconciliation process, accounting forreturned EBT cards, and the handling of dormantaccounts. We also recommended that Oklahomarequire the EBT contractor to implement procedures tobrief/debrief employees on their responsibility tomaintain the privacy and confidentiality of sensitiveUSDA data. In addition, we recommended thatOklahoma institute further system security measuresand ensure that an independent review of the EBTsystem is conducted.

FNS agreed with the audit recommendations andinitiated corrective action.

Over $2.7 Million Questioned in Ohio Food StampEmpl oyment an d Training (E&T) P rogram

The E&T program provides funds to train food stamprecipients to find work. FNS approves each State’sE&T plan and reimburses the State for the costs ofadministering the program. FNS provides a100-percent grant for the program and a 50-percentcopayment for any program-related costs in excessof the grant amount.

Our review at the Ohio Department of Human Servicesfound that county-level officials did not obtain localmatching funds, bringing into question $2.5 million paidto Ohio in FY’s 1995 and 1996. Lack of controlsallowed the State’s computer system to count foodstamp work registrants each time they enrolled, therebyincreasing the State’s work registrant count and callinginto question over $400,000 paid to Ohio for the 1997grant year. In addition, the State agency lacked controlsover the reporting of its E&T pass-through andadministrative costs, and it was unable to support over$750,000 in county administrative costs for FY’s 1995and 1996. However, due to accounting errors and lackof coordination between State fiscal officials, we foundthe State agency submitted inaccurate and unsupportedclaims that resulted in a net underclaim of $188,000.

This audit has led to an ongoing OIG investigationregarding suspicious behavior by county officials andsubcontractors in Akron, Ohio. Investigations by otherFederal agencies have uncovered illegal activities insimilar cases.

We recommended that FNS recover the questionedcosts from the State and require the State agency todiscontinue the pass-through system unless it canensure proper oversight, issue a State directiverequiring that costs claimed for reimbursement bebased on actual costs incurred in operating the E&Tprogram, and implement additional State-levelaccounting procedures to ensure that all claims forreimbursement are accurate and adequately supported.FNS has agreed to implement all the recommendationsand to bill the State for the overpayments. In January1998, FNS instructed Ohio to terminate the pass-through system that had allowed it to obtain $2.5 millionin unmatched Federal funds.

Multimillion-Dollar Food Stam p Traffi cking CasesCracked in Several States

• Twenty-four individuals have been arrested in thesouthern district of New York on an estimated$60 million food stamp fraud and money launderingconspiracy. This investigation was conducted by OIGin cooperation with the Federal Bureau ofInvestigation (FBI) over the past 2 years. Informationobtained from undercover operations, physicalsurveillance, and extensive documentary evidencerevealed that tens of millions of dollars worth of foodstamps were fraudulently redeemed by thoseinvolved in the conspiracy who owned or operatednumerous grocery stores in Manhattan, Brooklyn,and the Bronx. This investigation is continuing withadditional arrests and indictments anticipated in boththe southern and eastern districts of New York.

• During a 2-year investigation in Philadelphia,Pennsylvania, an elaborate scheme was uncoveredinvolving $15 million of food stamp trafficking andmoney laundering. Our investigation determined thattwo owners of a wholesale warehouse hiredindividuals to open grocery stores which wereauthorized to participate in FSP. The bogus grocerystores carried very little inventory, and some did noteven have cash registers. The stores remained inbusiness for approximately 11 months, and thenclosed to avoid detection. Over the past 5 years, sixbogus grocery stores were opened for the purpose ofillegally redeeming trafficked food stamps. Ourinvestigation also focused on 14 takeout restaurantsin Philadelphia which sold their food stamps to thebogus grocery stores.

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As a result of the investigation, the two owners of thewholesale warehouse and three of the bogus grocerystore owners were indicted on Federal charges. Anarrest warrant was issued for another owner of abogus grocery store, and an additional owner, whowas a fugitive, turned himself in to Federal authoritiesand was indicted. Assets of approximately $183,900were seized through asset forfeiture. In addition, fiveof the six owners/employees of six takeoutrestaurants either pled guilty or were found guilty offood stamp trafficking. The owners/employees ofseven other takeout restaurants were arrested afterbeing indicted by the Philadelphia district attorney’soffice. The investigation is continuing with additionalcharges expected. This investigation was conductedjointly with the U.S. Secret Service.

• Also in Philadelphia, the owner of four retail storespled guilty to fraudulently purchasing approximately$5.4 million in food stamps and laundering$4.8 million in funds. Sentencing is pending. Theinvestigation revealed that, during the first 10 days ofeach month from 1992 through 1997, the subjectillegally acquired food stamps from street traffickers(known as “runners”), who purchased the foodstamps from recipients as they left the food stampdistribution centers. The investigation wasconducted jointly with the FBI.

• In Georgia, a grocer was ordered to pay over$3.9 million in restitution after he pled guilty tocharges of money laundering and redemption ofillegally received food stamps. He was alsosentenced to serve 5 years in prison, followed by3 years of supervised release, and 200 hours ofcommunity service. As partial payment of hisrestitution, he agreed to forfeit his 8,000-square-foothome, five other parcels of real estate, and twovehicles.

The grocer, who had previously been disqualifiedfrom FSP, notified FNS that he was selling his storeto a second individual, later identified as his sister.FNS authorized the sister to accept food stamps attwo locations. The grocer actually continued tooperate both stores and, during the investigation,purchased $6,050 in food stamps from undercoveroperatives for $3,450 in cash. Subsequentinvestigation established that the grocer frequentlymade three or four deposits of food stamps each day,averaging approximately $3,000 per deposit, and

immediately withdrew a corresponding amount ofcash each time. Although his food stores were smalland poorly stocked, he redeemed as many foodstamps as a chain grocery, approximately$4.5 million over a 4-year period.

The investigation was conducted jointly with theInternal Revenue Service (IRS), the local sheriff’soffice, and the FBI.

Convictions Obtained for EBT Fraud

• After a jury trial, two employees of a retail grocerystore in Baltimore, Maryland, were found guilty oftrafficking approximately $400,000 in EBT benefits.One employee was sentenced to 10 months inprison, and the other received 1 year. During pleanegotiations, the owner of the store sent the assistantU.S. attorney a letter which appeared suicidal innature. While attempting to locate the owner, wefound that he had fled the United States to avoidprosecution. He is currently a fugitive in Nigeria, andefforts are being made through Interpol (InternationalCriminal Police Organization) to have the ownerreturned to the United States for prosecution. TheU.S. Customs Service assisted in the fugitiveinvestigation of the owner.

• The owners of two retail grocery stores in Baltimore,Maryland, received prison sentences of 2 years and18 months, respectively; were fined a total of$10,000; and were ordered to pay restitution of$400,000 to USDA. The two stores are estimated tohave trafficked between $700,000 and $1 million infood stamps from 1993 through 1997. As part of hisplea agreement, one store owner, who had filed falsetax returns, conveyed to the Government all interestin his business and business property. One of thecases was conducted jointly with the CriminalInvestigations Division, IRS. Both stores have beenpermanently disqualified from FSP.

Prominent P hysician and Hi s Wife Plead Guilty toWelfare Fraud

In Beltsville, Maryland, a prominent physician and hiswife pled guilty to fraud charges for having collectedapproximately $120,000 in fraudulent welfare benefitsfrom State and Federal agencies from 1993 through1997. These benefits included food stamps, Aid forDependent Children, general welfare, and educational

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grants. The wife used two different Social Securitynumbers to perpetrate the fraud: one to collect monthlybenefits from welfare agencies and the other for taxpurposes to report substantial family income. Thehusband, a noted neonatal physician making $300,000per year, and three of their children assisted by applyingfor and obtaining portions of the illegal benefits. Thiscase was worked together with OIG’s for the U.S.Department of Education and the Social SecurityAdministration. Sentencing is pending.

Criminal Defense Lawyer and Community RelationsBoard Member Plead Guilt y, Await Sentencing

A well-known Cleveland, Ohio, criminal defenseattorney (who was also a former county prosecutor)pled guilty in Federal court to aiding and abetting aformer member of the Cleveland Mayor’s CommunityRelations Board in illegal food stamp trafficking. Theboard member, who pled guilty to trafficking, hadpreviously been authorized as an FSP retailer but wasnot authorized at the time. The attorney had previouslyrepresented criminal defendants and civil plaintiffs inFSP-related Federal and State court cases.

A former Cleveland grocer, who had pled guilty in 1987and in 1995 for $2.5 million in illegal redemptions undera false store ownership, cooperated in an undercovercapacity. He attempted to purchase a restaurant fromthe attorney which the board member was to manageand eventually co-own. A portion of the purchase pricewas to be paid legally and be reportable to regulatoryagencies, while another part was to be paid “under thetable” using food stamps. The board member unlawfullyacquired and transferred $12,000 in food stamps fromthe informant for an unrecorded “credit” by the attorneyagainst the restaurant’s purchase price.

Both defendants are awaiting sentencing. This casewas worked jointly with the FBI.

Former Congressional Aide Sentenced

A South Bend, Indiana, grocer, who was formerly acongressional aide, was sentenced to a prison term of11 years 3 months and ordered to make more than$26,000 in restitution after his guilty pleas to redemptionof illegally received food stamps and money laundering.As reported previously, our investigation disclosed that,from January 1988 through July 1993, the owner

redeemed approximately $1.35 million in food stamps,while his reported food sales for the same period wereless than $400,000. The owner admitted he had beenillegally purchasing food stamps for cash since hisrelease from prison on an unrelated charge in October1991.

Store Owner Flees Countr y, Manager Arrested AfterIndictment

The owner of a downtown Minneapolis, Minnesota,convenience store fled the United States to Egypt afterbeing indicted on food stamp trafficking, moneylaundering, and conspiracy charges. The investigationdetermined that food stamps benefits totaling nearly$400,000 were bought for cash by the owner and hisemployees while in operation for less than 2 years. Inaddition, evidence obtained from several searchwarrants showed the illegal proceeds were wire-transferred to the owner’s bank account in Egypt.

The store itself, acting through an unindicted co-owner,pled guilty to related charges. The former manager hadfled Minnesota prior to trial but was located and arrestedin New York City and returned to Minnesota where hepled guilty. He was sentenced to prison prior todeportation. Efforts are being made through the U.S.Department of Justice to have the owner returned to theUnited States for prosecution.

Grocers Use Traffi cked Food Stamp s To RepayPersonal Debt

Two Nevada grocery store owners were sentenced toserve 15 to 27 months in prison and were ordered topay a total of $210,000 in fines and restitution after theypled guilty to conspiracy related to the illegal purchaseof food stamps. Our investigation disclosed that thegrocers purchased food stamps in Nevada and thensold the food stamps to an owner of a produce businessin southern California for 90 to 95 cents on the dollar.During a 5-month period, the produce business ownerwrote a total of 16 checks to the 2 grocers for more than$107,000. Witness statements disclosed that theprimary motive of the food stamp trafficking was torepay a 10-year-old debt incurred by the two grocers tothe produce business owner. Following an earlier OIGinvestigation, the owner of the produce business wasconvicted and sentenced to Federal prison, where he iscurrently serving time.

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Armed Career Criminal Co nvicted , AssociateIndicted

In St. Louis, Missouri, a man who once bragged that hehad received food stamp benefits in 37 different falsenames was convicted by a Federal jury of being anarmed career criminal and illegally possessing ahandgun. Sentencing is pending. When arrested withthe handgun, the man used one of the false names asidentification to law enforcement authorities. The manand at least five associates obtained at least $27,000 inillegal food stamp benefits and thousands of dollarsworth of other items through related credit card fraud.

The man’s former associate has also been indicted formaking false statements to obtain food stamp benefits.The associate used a fake Missouri Department ofCorrections inmate identification card when she appliedfor food stamps using a false name. The ruse was thatshe had just been released from prison, was homeless,and needed food stamps.

This was a joint investigation with the Division of LegalServices, Missouri Department of Social Services; theU.S. Postal Inspection Service; the Bureau of Alcohol,Tobacco, and Firearms; the Social SecurityAdministration OIG; the St. Louis, Missouri, PoliceDepartment; and the Jennings, Missouri, PoliceDepartment. The investigation continues.

Postal Employee Pleads Guilty to Theft of FoodStamps

In Des Moines, Iowa, a U.S. Postal Service employeepled guilty to two felony counts of theft from the mailfollowing a 1-year investigation conducted in concertwith the U.S. Postal Inspection Service. Sentencing ispending. Extensive surveillance conducted fromFebruary 1997 through February 1998 disclosed thatthe employee, while working at the general mail facility,absconded with $27,160 worth of food stamps frommonthly issuance mailings and $80,000 in cash from aregistered mail bag.

Owners of “Rolling Stores” Sentenced to Prison

• A Dallas, Texas, man who operated a “rolling store”(a vehicle used to sell merchandise to customers)pled guilty to a scheme whereby he personallypurchased about $10,000 in food stamps at adiscount from recipients and, for a percentage,

redeemed over $1 million in food stamps for otherswho had illegally purchased the food stamps fromrecipients. He was sentenced in Federal court to18 months’ imprisonment and fined $10,000.

• In Georgia, an individual who had claimed to operatea “rolling store” but who actually used his food stampauthorization solely to redeem over $200,000 inillegally purchased food stamps, pled guilty tocharges of food stamp trafficking and submitting falsestatements to the Government. The investigationbegan after an OIG audit of rolling store operationsfound that the individual lacked business records andthat he had made bank deposits of food stampsobtained from a second individual, who has sincebeen convicted of illegally purchasing food stamps.When asked to show his produce truck to FNS, theindividual borrowed a truck and represented it as hisown. He was sentenced to serve 5 months in prison,5 months in home detention, 300 hours of communityservice, and 3 years of supervised release and to pay$217,300 in restitution to FNS.

CHILD NUTRITION PROGRAMS (CNP)

Presidential Initiative in the Child and Adult CareFood P rogram (C ACFP) Continue s With Operation“Kiddie Care”

In the last Semiannual Report to Congress, we reportedon the status of our national Presidential Initiative toidentify, audit, investigate, remove from CACFP ifnecessary, and prosecute sponsoring organizations(sponsors) abusing this important USDA feedingprogram. This initiative, named Operation “KiddieCare,” has focused on the work of sponsors whoadminister the program in day care homes and centersand disburse Government payments to those child carefacilities.

“Sweeps” by OIG auditors and investigators with theassistance of FNS and State agency personnel sincethe fall of 1997 have been well targeted. Of the original12 sponsors we reviewed, 11 were found to be seriouslydeficient in their administration of the program; of these11, 5 were terminated initially from the program. In oneof the five cases, the termination was overturned onappeal, but the sponsor did not continue participation.Four of the terminated sponsors were investigated forfraud, and four employees of one sponsor weresentenced to prison.

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As of September 11, 1998, 53 sponsors in 23 Stateswere being audited or investigated.

• In Ohio, nine persons, including the director of thesponsoring organization operating a local child andadult care food program, entered guilty pleas toconspiracy to submit false claims for issuing and/orreceiving reimbursement payments for in-home daycare providers who did not exist or did not havechildren in the home. This ongoing investigation hasso far identified at least 9 persons who conspired toset up more than 40 false providers, resulting in thesubmission of false claims for reimbursementstotaling approximately $1.1 million. The scheme hadbeen going on since about 1988. This investigationcontinues, and additional prosecutions areanticipated. The investigation was worked jointly withthe U.S. Postal Inspection Service.

• Three former employees of a California CACFPnonprofit child care sponsor are awaiting sentencingafter pleading guilty to mail fraud in connection with ascheme to defraud CACFP of over $110,000. Ourinvestigation disclosed that the employees devised ascheme whereby they submitted false claims,through the sponsor, for day care home providerswho were no longer participating in CACFP.

As part of their plea agreements, the employeeshave agreed to testify against the two owners of thesponsoring organization, who were also charged withdefrauding CACFP of approximately $142,000 andthe California State Preschool Program ofapproximately $200,000. The owners’ schemeinvolved the submission of false claims for expensesassociated with CACFP. The owners were alsocharged with committing perjury to the grand jury andobstruction of justice for threatening Governmentwitnesses.

As a result of the investigation, the sponsoringorganization was terminated from participation inCACFP and the State Preschool Program.

• In Tennessee, the former sponsor official of 69 daycare homes was sentenced to serve 9 years2 months in prison and ordered to pay restitution of$127,400 after being convicted at trial on 59 countsfor mail fraud, making false statements, and moneylaundering. The official inflated the number ofchildren enrolled and the number of meals claimed,

paid the day care homes the correct amount, andthen issued a second check in the sponsor’s namefor the inflated amount. Our investigation, conductedjointly with the IRS and FBI, disclosed false claimstotaling approximately $127,000 for meals andsnacks over a 3-year period, including paymentsissued in the names of 15 individuals who did notactually participate in the program.

• In Pennsylvania, a former sponsor official pled guiltyto embezzlement, misapplication of funds, and thefttotaling $92,000 from CACFP. She failed toreimburse 200 day care homes and misused funds tocover administrative expenses. The official used theembezzled money to cover personal expenses suchas her mortgage and to buy equipment for arestaurant she owned. Sentencing is pending.

• The former manager of an Arizona CACFPsponsoring agency was placed on probation for5 years and was ordered to pay restitution of $31,900to FNS after she pled guilty to theft of Governmentmoney. Our investigation disclosed that the managerdiverted money by writing 61 checks on thesponsoring agency’s account, made payable toindividuals whom she had falsely represented as daycare providers. She then deposited these checksinto her personal account.

• In California, an executive director of a sponsorretained food reimbursements to cover the salary heclaimed to earn in California while he was actuallyworking for another enterprise and living inWisconsin. He also had a vehicle in Wisconsin forhis personal use which was being paid for by theCalifornia sponsor. We questioned about $231,000paid to this individual.

• In Louisiana, a sponsor is being investigated forallegedly embezzling the food payments claimed forproviders who were no longer participating in CACFP.Our audit disclosed suspected forged checks thattotal about $35,000, and administrative costs ofabout $18,000 were also questioned. The106 homes we visited that were administered by thissponsor showed very poor oversight; we issued aManagement Alert recommending immediatetermination. The sponsor was unable to meetcorrective action demands by the State’s deadline,and the sponsor’s executive director turned in a letterof self-termination.

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• In Florida, a sponsor is being investigated forapparently using food funds to pay for over $147,000in questionable expenses uncovered during ouraudit. Large sums were paid to another enterprisewith which the director of the sponsor was affiliated.In addition, our visits to 167 homes showed that thesponsor’s oversight of the providers was very poor.We estimate that about 20 percent of the providers’claims will be questionable due to incomplete mealsprovided to children, meals claimed for children notpresent, and meals claimed for children with noenrollment forms on file at the day care homes.

• In California, two individuals, one of whom was aformer manager for a child care provider, areawaiting sentencing after they pled guilty to a chargeof making a false statement in connection withCACFP provider claims. Our investigation disclosedthat the former manager conspired with her friend tocreate a fictitious child care provider case. From May1995 through August 1997, they illegally obtainedover $23,000 in Federal and State funds.

Figure 2Status of Investigations of Sponsors and Providers

Individuals IndividualsEntities Indicted or Who Pled

Terminated Named in Guilty orInvestigations From Criminal Were Individuals

State in Progress CACFP Information Convicted Sentenced

Arizona 1 1 1 1

California 6 4 11 9 41

Colorado 1

Florida 2

Idaho 1 1 1 1 1

Louisiana 2 1

Michigan 1 1 2

New Mexico 2 1 1 1

New York 2 1 1 1

Ohio 2 1 9

Pennsylvania 3 1 1

Tennessee 3 2 1 1 1

Utah 1 1 1 1

Washington 2 1 13

TOTALS 29 122 29 16 101The sentence handed down on these four individuals included $2.2 million in restitution.2A thirteenth sponsor in Oregon was terminated from the program but not investigated for fraud.3An administrative action, not a criminal action, was handed down to this provider.

As part of Operation “Kiddie Care,” 13 sponsors havebeen terminated from the program. These 13 had beenreceiving $24.2 million in program funds annually toadminister the program and to reimburse the food costsof the homes and centers under their sponsorship.These funds may now go to legitimate sponsors to feedneedy children.

Although Operation “Kiddie Care” requires adisproportionate amount of resources for a relativelysmall feeding program, the operation will continue aslong as we find evidence that abuses are continuing.Returning integrity to this very important feedingprogram and protecting the resources of the Americantaxpayer are high priorities for OIG and FNS. Figure 2shows the status of our investigations of sponsors andproviders, as of September 11, 1998.

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Arkansas County Pays $900,000 Settlement

The sponsor for the 1992-1995 summer feedingprogram in Pulaski County, Arkansas, agreed to pay a$900,000 civil settlement after our investigationdisclosed approximately $880,000 in overclaimssubmitted for those years. We found the privateorganization operating the feeding sites on behalf of thecounty inflated the attendance records, and the countysubmitted those claims. The settlement was for fullrestitution and the equivalent of two $10,000 civilpenalties. Criminal action is still pending against theprivate organization actually operating the feeding sitesfor the county.

Improvements Needed in Administration of MealsPrograms in the District of Columbia (District)

The National School Lunch Act authorizes payments toStates based on the number and category of mealsserved—whether free, reduced price, or paid—for theNational School Lunch Program (NSLP) and the SchoolBreakfast Program (SBP). Our review of costs chargedto the school food service account for school years1995/1996 and 1996/1997 in the District disclosed thatfinancial controls over program funds and reimburse-ment claims were inadequate, procurement policieswere not always followed, and monitoring activities didnot always disclose deficiencies or ensure thatpreviously disclosed deficiencies were corrected.

We recommended that $4.2 million be refunded to theprogram for unallowable expenses (utility bills andspecial education) and $250,000 be refunded to FNS forcontract overpayments, reimbursement of ineligiblemeals, and nonprogram employee salaries. In addition,the District needs to support $2.4 million in contractpayments and obtain approval of $325,000 in salariesand $160,000 in bonuses or refund the amounts toFNS. We also recommended that procedures bedeveloped to improve future operations.

FNS agreed with the findings and recommendationsreported and will work with the District to obtaincorrective action.

SPECIAL SUPPLEMENTAL FOOD PROGRAMFOR WOMEN, INFANTS, AND CHILDREN(WIC)

Puerto Rico Did Not Comp ly With FundingRequirements for Nutrition Education andBreastfeeding Promotion

The State agency in Puerto Rico did not comply with theregulatory requirement that at least one-sixth of totalnutrition services and administrative costs be spent onnutrition education, for which we calculated a fundingdeficit of over $4.1 million for FY’s 1993 through 1996.Overstated costs also affected the required allocationfor breastfeeding promotion (by over $94,000 inFY 1996).

We recommended that FNS, as required, establish aclaim against the State agency for the more than$4.1 million funding deficit. We also recommended thatFNS closely monitor and assess the accuracy andapplicability of the calendar year 1997 time study to beused in calculating spending requirements. In addition,we recommended that FNS assess the State agency’sFY 1997 cost allocation operations to ensure that themethodologies implemented by the State agency areaccurately applied. FNS generally agreed to implementour recommendations.

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Marketing and Regulatory Programs

AGRICULTURAL MARKETING SERVICE(AMS)

AMS enhances the marketing and distribution ofagricultural products by collecting and disseminatinginformation about commodity markets, administeringmarketing orders, establishing grading standards, andproviding inspection and grading services. AMS’funding level for FY 1998 was approximately$243 million.

Inadequate Oversight Provided Over the Fluid MilkPromotion Program

AMS and the National Fluid Milk Processor PromotionBoard need to improve their oversight and controls overFluid Milk Promotion Program activities to ensure thatassessments on fluid milk products are used inaccordance with the Fluid Milk Promotion Act. Thoseassessments, from approximately 370 processors,totaled almost $169 million from December 1993through June 1997.

Our review identified (1) problems with the board’smanagement structure, (2) contracts that were awardedwithout competition to procure services, (3) paymentsthat exceeded contract limits, (4) a lack of enforcementof contract terms, and (5) instances where the boardhad not taken title to or possession of assets procuredwith program funds.

Neither AMS nor the board provided adequatemanagement or oversight of program activities. AMSleft most oversight efforts to the board. The boarddelegated most administrative functions to twocontractors and was not actively involved in the day-to-day operations of the program. One contractor, the MilkIndustry Foundation, was responsible for performingvarious management and administrative services. Theother contractor, the board’s Administrator, wasresponsible for collecting assessments, accounting forfunds, and performing compliance reviews.

This alignment of the program’s critical duties andresponsibilities, combined with AMS’ and the board’sarm’s-length approach in providing oversight, in effect,contributed to the compromise of the program’s internalcontrol structure.

The Administrator, through his public accounting firm,had contracts to provide financial, accounting, andcompliance review services to the board. Altogether,the board’s Administrator, either as an individual orthrough his firm, had three sole-source contracts withthe board.

Although AMS was responsible for reviewing andapproving all contracts, the board paid over $127 millionfor contracts, representing 75 percent of the fundscollected through the program, without AMS’ approval.The board entered into these sole-source contractswithout any competition to ensure the most cost-effective procurement of services.

The act requires that the board obtain title to all assetsdeveloped using program funds. In one case, thecontract to procure photographs, taken as part of amajor milk marketing campaign, did not includelanguage to secure title to the assets. Consequently,the program expended almost $130,000 in royalties forthe continued use of the photographs. Thephotographer still has control and possession of thephotographs, which were developed using over$2.7 million in program funds.

Our review disclosed that the board, the contractor, andsome subcontractors were not in compliance with theterms of certain contracts. For instance, the contractorincluded provisions in a subcontract with an advertisingagency to establish and pay an incentive commission of$350,000 if milk sales increased as a result of anadvertising campaign. Although this arrangement isappropriate, neither the contractor nor the board everestablished a contingency account for such potentialliability.

The board also presented financial statements that didnot accurately reflect its financial condition. Thefinancial statements as of March 31, 1995; April 30,1996; and June 30, 1997, contained material omissionsand questionable statements that, in the aggregate,were significant enough to potentially affect thedecisions of its users. These audits did not includeadequate tests of compliance with laws and regulations.

Overall, neither AMS nor the board has determined, asrequired, whether the program has resulted in increasedmilk consumption. The program’s most recognizedpromotion has been the milk-mustache advertisingcampaign. While this marketing campaign has been

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highly visible in the marketplace, no independentstudies have been performed to determine thiscampaign’s impact on fluid milk consumption.

We recommended that AMS (1) suspend board programactivities until a plan is developed whereby the boardwill take full control of its activities and ensurecompliance with the act (to include establishingguidelines for awarding contracts to ensure thatcontracted goods and services are obtained in the mostcost-effective manner), (2) require the board todetermine the effectiveness of its research andpromotion activities to increase fluid milk consumption,(3) require the board to obtain AMS approval on allcontracts before any funds are obligated or expendedand that the board obtain title and possession of allassets acquired with program funds, and (4) require theboard to assure that audits of its books and records areconducted using generally accepted Governmentauditing standards.

AMS did not agree to suspend the board’s activities.However, it agreed to institute improvements and isworking with the Fluid Milk Board to strengthenmanagement controls.

Controls Over Federal-State Inspection Funds NeedStrengthening

We found that the Puerto Rico Department ofAgriculture (PRDA) used Federal-State Inspection (FSI)Program funds to pay for expenses unrelated to theinspection program. Also, costs associated with theinspection of a specific product were not alwaysproperly charged to the correct inspection program;program revenues for the inspection of fresh fruits andvegetables were incorrectly credited to other programs;and PRDA reimbursed AMS more than allowed in theircooperative agreement.

We recommended that AMS require PRDA to(1) reimburse approximately $69,000 for expendituresimproperly claimed (PRDA has already reimbursed AMSover $103,000), (2) reallocate over $450,000 to specificinspection programs, and (3) develop and implementcontrols to ensure that FSI funds are used only forexpenditures directly related to the FSI process.Furthermore, AMS will need to coordinate with PRDA todevelop and implement a strategic plan to streamlineoperations and clearly define the organization’sstructure and responsibilities.

AMS agreed with our findings and recommendationsand is working with Puerto Rico to ensure correctiveaction is implemented.

Owners of Home Delivery Food Service Plead Guiltyto Charges of Theft and Conspiracy

The owners of a Delaware-based home delivery foodservice pled guilty in Delaware State Superior Court to44 counts of theft and conspiracy to misrepresentgrades of meats sold to customers. Sentencing ispending. The investigation, conducted jointly by OIGand the Delaware State attorney general’s office,disclosed that, from June 1993 through November1996, the company sold USDA Choice-graded beefproducts—while representing the beef product as beingUSDA Prime grade—to approximately 800 customers,for quantities ranging in price from $500 to $3,000.

Sentencing in Strawberry Substitution Case

We previously reported that a San Diego-based foodprocessing company and its president/owner pled guiltyto charges of submitting false claims to USDA in relationto the substitution of Mexican strawberries for U.S.domestic strawberries in the USDA National SchoolLunch Program. The president/owner has since beensentenced to 10 months in prison and has been fined$13,000. The company has been ordered to pay$200,000 in fines; $150,000 in restitution to USDA; and$1,300 in court penalties. In addition, the company hasagreed to a $1.3 million civil settlement. The formersales manager of the company was placed on probationfor 5 years after he pled guilty to conspiracy.

ANIMAL AND PLANT HEALTH INSPECTIONSERVICE (APHIS)

Through inspections, APHIS protects the Nation’slivestock and crops against diseases and pests andpreserves the marketability of U.S. agricultural productsat home and abroad. APHIS’ obligations for FY 1998are estimated to total over $516 million.

APHIS’ Inspection P rocess for Registered AirlineCarriers Needs Improvement

Inspection operations over airline carriers could beimproved. APHIS did not always obtain comprehensivelistings of airports from which inspected carriers

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operated and, thus, could not determine whether allsites were inspected on a periodic basis. We found in1 APHIS region that of 221 sites used by 3 airlines, only32 percent had been inspected since January 1995. Inaddition, because of the way the agency files inspectionreports, APHIS officials could not readily determinewhether any particular airport had been inspected withina given time period.

Since APHIS inspectors cannot determine at what timesa registered carrier is actually transporting animals,most attempts at performing inspections at airports areunsuccessful because no animals are present. Of297 inspections performed of 5 airlines betweenJanuary 1995 and April 1997, only 43 (14.5 percent)were completed with animals present. However,violations were found on over 37 percent of theseinspections, indicating that many violations may not beidentified because no inspectors are present whenanimals are shipped.

We recommended that APHIS require airlines to submitcomprehensive and up-to-date listings of airportsthrough which they transport animals and develop asystem to identify which airports have been inspectedduring any given time period. Also, because of the

difficulty in getting animal care inspectors to airports atappropriate times, i.e., when animals are being shipped,we recommended that APHIS continue its earlier pilotprogram of cross-utilizing veterinary care personnel toperform this function. APHIS agreed with ourrecommendations and plans to implement correctiveaction to improve the inspection function.

Dogs Stolen for Medical Research

In Oregon, six individuals are awaiting sentencing afterthey pled guilty to charges of theft for their part in aconspiracy to fraudulently acquire and sell dogs tomedical research facilities. The six defendants havealso agreed to testify against a former USDA-licenseddog dealer, her husband, and their son, who have allbeen indicted for conspiracy and mail fraud related tothe scheme. Our investigation disclosed that the dealerand her associates either stole dogs or obtained themunder false pretenses. Over a 15-month period, theyillegally obtained over 100 dogs in this manner. Thedealer then falsified APHIS forms in order to concealtheir activities. She also forwarded false documents tothe Oregon Department of Agriculture. Because of heractivities, APHIS refused to renew her dealer license.

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FOREST SERVICE (FS)

FS manages natural resources on over 191 millionacres of National Forest System lands. It providescooperative forestry assistance to States, communities,forest industries, and private landowners; manages acomprehensive forest research program; and appliesconservation measures to preserve wilderness andmanage recreation use. For FY 1998, total FS fundingwas about $3.2 billion, with receipts generated fromtimber sales and other activities reported at$975 million.

Serious Deficiencies Found in Forest LandAdjustment Program

Our audit identified a serious breakdown of controls inall phases of the Humboldt-Toiyabe National Forest landadjustment program. The forest administers all nationalforest lands in the State of Nevada and was a majorbeneficiary of Federal land exchanges proposed byprivate parties and developers wanting to acquire highlydesirable Federal lands in the Las Vegas metropolitanarea. FS management allowed private parties to exertundue influence over the direction and outcome ofalmost all large-value land exchanges at the forest. Wequestioned accomplished and proposed land exchangetransactions for 7,029 acres of Federal and non-Federallands, valued at $27.9 million.

An FS bargaining team, formed to establish the value ofproperty being acquired by the Government,disregarded guidelines provided by the FS Washington,D.C., office and the Office of the General Counsel(OGC) and allowed the private parties to control thebargaining process. The team excluded theparticipation of Federal appraisers and accepteduncorroborated valuations by an appraiserrecommended by the private party, resulting in a loss of$5.9 million to the Government. In addition, the forestentered into an improper agreement that gave a privateparty exclusive marketing rights to 850 acres of forestlands near Reno, Nevada, valued at $6.5 million, forwhich the private party had not identified any privatelands to be offered in exchange.

Natural Resources and Environment

FS also allowed the private parties to control theselection of lands that the forest would acquire throughland exchanges. Our audit questioned three proposedexchanges that were initiated by private parties andwere taken under consideration by FS, even though theland, 1,065 acres valued at $10.5 million, was of little orno discernable interest to FS. In one case, lands on adeveloped subdivision near Reno had steep slopes andseverely limited access, surrounded by a housingsubdivision and an industrial park, and were, therefore,of limited value to FS. Upon our notification, FSimmediately disclaimed title to the property and officiallynotified the private party of its decision.

Controls were also absent in the appraisal process. FSlands staff let private parties override the safeguardsagainst excessive valuations, and FS acquired privatelands whose appraised values were not based oncredible evidence. We questioned the FS acceptanceof three land appraisals that were based on speculativeassumptions that overvalued non-Federal lands by$8.8 million. One of the transactions involved 458 acresof private lands called Deer Creek in the MountCharleston area near Las Vegas. Although the landwas in extremely steep, mountainous terrain withavalanche chutes on the slopes of the property, theprivate party’s appraiser determined that the property’shighest and best use was as a housing subdivision.

FS regional and forest lands staff compromised theindependence of FS appraisers and weakened controlsover the coordination of land transactions with theBureau of Land Management (BLM), jeopardizing, inone land exchange, $2.1 million in water rights and$19.8 million worth of land that had not been properlycleared of encumbrances.

Finally, our audit questioned the integrity of FS landsstaff dealing with private parties. We identified theimproper conduct of one FS management employeewho received gifts, gratuities, and entertainment fromprivate parties doing business with FS. We also notedthat the region did not track the outside interests of keyFS lands personnel involved in approving multimillion-dollar exchanges.

In response to our audit, both the FS Chief and theUnder Secretary for Natural Resources andEnvironment have taken immediate actions toimplement needed controls in this area.

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These lands near Reno were of limited value because theyhad poor access and were surrounded by a housingsubdivision and industrial park. OIG photo.

The Deer Creek property contains avalanche chutes andsteep terrain. OIG photo.

FS Is in Jeopardy of Losing Management ControlOver Lands Recent ly Acquired for $38 Million

As part of our ongoing audit of land transactions at FS’Pacific Southwest regional office, we identified a seriousproblem relating to the treatment of buildingimprovements in a land exchange transaction at theLake Tahoe Basin Management Unit in Nevada. Theexchange involves a 46-acre parcel on Lake Tahoeknown as Zephyr Cove. The property, appraised at$38 million, has approximately 3,000 feet of sandybeach, a small wetland area, meadow, creek, and a10,000-square-foot mansion and other buildings.

A private land developer offered the Zephyr Cove landsand building improvements to FS in exchange forFederal lands of equal value managed by BLM in theLas Vegas, Nevada, area. On June 30, 1997, thedeveloper improperly transferred the FS-ownedimprovements to a private party for cash and gratuitiesat an estimated value of $3 million. The improvementsincluded a 10,000-square-foot mansion, a caretaker’scottage, and a four-car covered garage.

Shortly after the sale of the improvements, the privateparty locked the gates of the driveway leading to themansion, effectively precluding access to this publiclyowned land. The private party also hired a caretaker towatch the grounds and to keep the public away fromproperty belonging to the American taxpayer.

This is a beachfront view of Zephyr Cove. OIG photo. A private party locked the gates to Zephyr Cove, limiting publicaccess. OIG photo.

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In January 1998, the private party submitted anapplication to FS to operate an upscale “bed andbreakfast” and conference center at Zephyr Cove. Theprivate party proposed using all 46 acres of public landsto install gazebos, swimming pools, picnic areas, andtennis courts for its private, paying guests. Theapplication does not include any provision for generalpublic access to the beaches nor does it provide forgeneral public access for the entire FS acreage. Theprivate party has also posted “private property” signs onFS lands surrounding the improvements.

Within a few months of the $38 million acquisition, FSmanagement control over its newly acquired lands isnow seriously compromised by the development plansof a second private party possessing the buildingimprovements.

In response to an FS request, OGC issued a legalopinion concerning the ownership of the buildingimprovements on Zephyr Cove. The OGC opinionstated that FS is the legal owner of the buildingimprovements and that the developer had no authorityor right to sell and transfer FS-owned improvements tothe private party.

To preclude further deterioration of FS’ control of theZephyr Cove lands, it is imperative that FS immediatelytake aggressive action to assert its ownership of theproperty and all its improvements in coordination withOGC and the U.S. Department of Justice.

FS Estimates of Its Maintenance BacklogUnsupported

In response to a request from the House Committee onAppropriations, Subcommittee on Interior and RelatedAgencies, we performed a review of FS’ maintenancebacklog, also referred to as “deferred maintenance,”reported by the agency to be $7 to $8 billion. We foundthat FS had no system or systematic way to compilemaintenance backlog information, and FS had notprescribed a common definition as to what constituteddeferred maintenance. Although we were unable toattest to reported backlog amounts, we did have enoughinformation regarding certain segments of the backlogto conclude that the information was not reliable. The$5 to $6 billion for road maintenance, for example, wasformulated via an unsupported mathematicalextrapolation.

Management of the backlog could not be readilyassessed, in part, because the budgeting, allocation,and expenditure of maintenance funds occur within theframework of program activity and cannot be specificallyidentified. We also found that FS had not yet initiatedthe process to capture deferred maintenance costs asrequired by Federal accounting standards for FY 1998financial statements. We concluded that FS’ manage-ment of maintenance could be greatly enhanced if itexpanded its strategic plan per the GovernmentPerformance and Results Act (GPRA) to specificallyinclude maintenance.

We recommended FS establish a common definition fordeferred maintenance and a reliable, documentedmethod to compile deferred maintenance data. We alsorecommended that maintenance be classified as anexpanded budget line item to enhance accountability. Inaddition, we recommended that FS expedite thecompilation of maintenance data to fulfill the newaccounting standard and expand its GPRA plan tospecifically include all significant components ofmaintenance activity.

FS concurred with all of the recommendations in thereport, but the proposed corrective actions wereinadequate to achieve management decision. We areworking with the agency to resolve these issues.

Grants to Nonprofit Organizations (NPO)Ineffectively Managed

FS did not effectively manage grant agreements totalingabout $11.9 million ($7.8 million in Federal grant fundsplus about $4.1 million in required matching funds) tothe eight NPO’s that we reviewed. As a result,approximately $1.3 million in grant awards to the NPO’swas not in compliance with authorizing statutes; about$4.9 million is subject to recovery (pending furtherinvestigations by FS) because Federal grants were notproperly matched by three NPO’s; over $200,000 ininterest costs was incurred by the Federal Governmentbecause funds were advanced in excess of needs to alleight NPO’s; approximately $315,000 in unallowablecosts was paid to five NPO’s; and over $970,000 infunds was not deobligated after the grant period expiredfor one NPO.

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We recommended that FS design and implementnational procedures to require approving officials toensure that (1) only properly prepared assistanceagreements are approved for NPO’s, (2) matching fundrequirements are met, (3) only funds needed within30 days are advanced to NPO’s, and (4) costs claimedfor reimbursement by NPO’s are proper and supported.We also recommended that FS recover the improperlyissued grant funds and excess interest costs identified.In addition, we recommended that FS review all othergrant and cooperative agreements with NPO’s, recoverany advance funds not needed within 30 days, andrecover all interest earned by NPO’s with grant funds.The agency agreed with the findings andrecommendations and initiated corrective action.

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Rural Development programs are designed to meet thediverse needs of rural communities, to help them obtainthe financial and technical assistance needed toimprove the quality of life in rural America, and to helpindividuals and businesses compete in the globalmarketplace. These programs consist of a variety ofloan, loan guarantee, and grant programs, plustechnical assistance, cooperative development, andrural housing. Rural Development loan programs, withan outstanding portfolio of approximately $77.7 billion,are delivered through a national office for each agency,47 Rural Development State offices, and a network ofother field offices.

RURAL HOUSING SERVICE (RHS)

Financial Misconduct A dversely Affected aMultifamily Housing Project

The Vermont Rural Development State office requestedthat we perform an audit of an RRH borrower itsuspected was misusing project revenue. Our analysisdisclosed that the borrower did not comply withrequirements of his loan agreement or RuralDevelopment regulations. We concluded that theborrower directed a number of ineligible andunallowable financial transactions that adverselyaffected project operations. Also, management of thereserve account by the borrower and its managementcompany was not adequate; the borrower took improperreturns on his investment; and Rural Development didnot adequately monitor the reserve account and returnson investment. Specifically, we found the borrowerinadequately funded the reserve account from 1983through December 1996, took unentitled returns oninvestment of about $167,000, and withdrew $5,100from the reserve account without Rural Developmentapproval.

We recommended that Rural Development require theborrower to fund immediately the reserve account to therequired level. We also recommended that RuralDevelopment determine the amount of the improperreturns on investment for which the borrower should beheld liable and require him to deposit that amount intothe reserve account. In addition, we recommended thatRural Development strengthen its controls over itsfinancial reviews of project operations by monitoringproject accounts for accuracy and performing completeand timely reviews of reports submitted by the borrowerand certified public accountant (CPA).

Rural Development

Rural Development has agreed with the findingspresented and, after consultation with OGC, willimplement our recommendations.

CPA Admits to RRH Management Fraud

In Champaign, Illinois, a prominent local CPA wassentenced to a 3-year term of probation, with 5 monthsof monitored home confinement; fined $10,000; andordered to pay $25,000 in restitution after he pled guiltyto making false statements to Rural Development. Ourinvestigation disclosed that the individual, acting as anRRH management agent, submitted false statements inorder to collect rent subsidies for tenants who resided inan apartment building he managed. Civil litigation in thematter is ongoing.

Rural Housing Owners Plead Guilty to Conversion

Two owners/managers of a Boyne City, Michigan, RuralDevelopment project pled guilty to convertingmortgaged property and submitting false statements,and they will be placed in pretrial diversion for 1 yearand have agreed to debarment for 3 years. Thedefendants kept two sets of project account ledgers toconceal their unauthorized withdrawal of project startupmonies.

In addition, they charged a total of nearly $38,700 inunsupported and unallowable expenses to the project,some of which went toward the maintenance of theirpersonal residence. The defendants also obtainedseveral private loans, totaling more than $90,000, usingthe project accounts as collateral. An earlier consentjudgment, a result of a parallel civil proceeding, orderedthe defendants to pay $100,000 to USDA. Thisinvestigation was conducted jointly with the FBI.

Former Man ager of RRH P rojects Gets Priso n Timefor Embezzlement

The former manager of an RRH management companyin northern California was sentenced to 1 year 4 monthsin State prison, fined $1,200, and ordered to pay$33,400 in restitution after he pled guilty to embezzlingfunds from the RRH projects he was managing. Ourinvestigation disclosed that the manager embezzledover $33,000 by using the company’s credit card toobtain money at casinos in Reno, Nevada, and thentransferring money from the RRH reserve accounts topay the credit card company. He also forged the

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owner’s signature on company checks. The companysubsequently replenished the projects’ reserve accountsafter its insurance company settled a claim for the loss.

Congressional Request Spurs Evaluation of GaltSelf-Help Housing Program

We performed this audit at the request of members ofCongress who asked us to determine if RHS hadcomplied with agency regulations when it approvedfunding for the Grizzly Hollow housing project in Galt,California. Some citizens of Galt had argued that theircity was not a rural area and, therefore, an inappropriatelocation for a 193-home self-help project.

Galt’s population of 15,400 allows the city to retain arural designation if it meets four criteria, including therequirement that its low- and moderate-income familiesface a serious lack of mortgage credit. We determinedthat the credit analysis performed by RHS did notsupport Galt’s designation as a rural area, becauseRHS used inaccurate information and relied onunrealistic assumptions. We found that the availablehousing was more affordable than RHS calculated it tobe and that mortgage companies were less restrictivethan RHS assumed. Specifically, we noted threeincorrect assumptions.

• RHS reviewed prices for existing housing from anoutdated list that showed sales prices up to $160,000but did not include affordable new homes beingconstructed in Galt for as low as $95,000.

• RHS used the median sales price of a home($125,000), rather than the lower end price, tocalculate which borrowers would qualify for privatefinancing. At the median price, few moderate-incomeand no very low or low-income borrowers wouldqualify for private financing.

• RHS assumed that lenders would not approve loansif the cost of housing exceeded 29 percent of theapplicant’s income, but we found 15 such lendersthat would consider such loans.

We concluded RHS should perform another review ofthe city’s rural status because RHS’ credit study wasflawed, the mortgage industry had changed, andcitizens of Galt had raised concerns about the economicimpact of the Grizzly Hollow project on the city. Werecommended that RHS determine if Galt still meets thedefinition of a rural area. Rural Development disagreedwith many of our conclusions and recommendations.We are working together toward resolution.

Director of Self-Help Housing OrganizationConvicted of Embezzlement

The director of an Arkansas nonprofit corporation’s self-help housing program pled guilty in Federal court toembezzling Rural Development self-help constructionloan funds. The director oversaw the program by whichprospective rural homeowners helped build their ownhomes in order to reduce costs. However, she divertedover $7,000 in loan funds for nonexistent material froma fictitious company. She was sentenced to 2 years’imprisonment and ordered to pay full restitution.

Doctor Pleads Guilty and Pays $21,500 Restitution

Our investigation in Texas showed that a doctor whoobtained a rural housing loan while in medical schooland received interest credit assistance later purchaseda second house and rented the Government-financedhouse to a third party. During the annual interviewsrequired to renew his loan payment subsidy, the doctorfailed to disclose both the fact that he no longer lived inthe house and that he was receiving rental income. Thedoctor pled guilty in Federal court to a theft charge andwas placed on 2 years’ probation. He deeded his houseto the Government and paid $21,500 restitution for theunauthorized interest credit assistance received andother costs incurred by the Government.

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Research, Education, and Economics

COOPERATIVE STATE RESEARCH,EDUCATION, AND EXTENSION SERVICE(CSREES)

CSREES administers USDA’s extramural researchprogram in support of new and improved agriculturaltechnology and its transfer to the farming and forestrycommunity. At the direction of Congress, CSREESassists specified educational institutions with Federalmatching grants for the construction, acquisition, andrenovation of buildings, laboratories, and other capitalfacilities to enhance agriculture-related research oreducational capabilities. As of September 30, 1997,CSREES administered 108 facility projects in variousstages of completion with Federal funding ofapproximately $658 million.

CSREES Needs To Imp rove Cont rols Over Resea rchFacility Construction Grants

During our review of CSREES’ administration ofresearch facilities construction grants, we visited11 institutions and found that the institutions adequatelymonitored construction and compliance with applicablelaws, completed facilities were well maintained andused as intended, financial and administrative recordswere satisfactory, and grant matching requirementswere met.

However, our review of 43 project files with awards to31 institutions, totaling about $310 million, showed thatCSREES did not timely deobligate residual funds ofabout $542,000 for 4 projects after completion, and6 institutions expended almost $2.6 million after thegrants’ expiration dates. Also, 7 institutions did notobtain prior approval of project architect, design, andconstruction contracts totaling $31.7 million;17 institutions with Federal awards of about$115.1 million did not submit annual performanceprogress reports for projects; and 11 institutions withFederal awards of about $75.1 million did not submitfinal performance and financial status reports forcompleted projects. These deficiencies diminishCSREES’ ability to forestall problems.

We recommended that CSREES (1) developprocedures to place a hold on grant funds afterexpiration dates, (2) review all expired grants anddeobligate residual funds, (3) recover from theUniversity of Southern Mississippi $630,000 ofunallowable costs and deobligate remaining grantfunds, and (4) establish controls to ensure timelysubmission of contracts and reports. The agencyagreed with our recommendations, except for therecovery of approximately $300,000 from the Universityof Southern Mississippi.

Controls Over Matching Requirements NeedStrengthening

Our review of grants to Prairie View A&M University(PVA&M) revealed that PVA&M did not maintain writtenrecords to substantiate its matching commitments ofFederal grant disbursements of about $1.2 million forseven grants awarded from FY’s 1995 through 1997.There were no records to support an additional$300,000 volunteered by the university for twoadditional Federal grants approximating $700,000.

Because PVA&M did not submit annual reports andtimely final reports, CSREES did not know whether theinstitution was matching its fund requirements during agrant’s life. PVA&M was delinquent in submittingreports for 15 grants. Ten of these were over 1 yeardelinquent with an average delinquency of about39 months. The 10 PVA&M grants had balances ofabout $115,000 which had not been deobligated.

We recommended that CSREES recover from PVA&Mall Federal grant funds that were not supported with therequired matching contributions, require grant recipientsto submit required reports on time, provide training togrant recipients regarding required recordsmaintenance, obtain final reports for all delinquentgrants over 1 year old, and deobligate any unused grantfunds. CSREES agreed with our recommendations.

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EQUAL EMPLOYMENT OPPORTUNITY

The Office of Civil Rights Does Not EnsureComplainants a Timely Hearing

The Assistant Secretary for Administration asked us toperform a followup review of the operations of USDA’sOffice of Civil Rights (CR), the office responsible forresolving complaints made against the Department foralleged civil rights violations in the administration of itsprograms. During four previous reviews of theDepartment’s civil rights program complaints system,we determined that the system was not functioningproperly and that the Department had amassed agrowing backlog of complaints which requiredimmediate attention. Although CR itself could notaccurately determine how large the backlog was atthe time of our first review, it later identified 1,088outstanding unresolved complaints beforeNovember 1, 1997.

Our past reviews had questioned the productivity of CR;we had found a disaffected staff and a leadershipvacuum. Little was being accomplished by USDAagencies to respond to citizen complaints ofdiscrimination, and little was done by CR to manage theresolution process. Some complaints in CR’s backloghad languished for over 2 years. After our February1997 report, CR made the resolution of its backlog itsfirst priority.

Our current review disclosed that the backlog ofcomplaints of civil rights violations, although reduced,still stands at 616 cases as of September 11, 1998. Ofthese 616 cases, 80 are under investigation, 310 areawaiting adjudication, 23 are undergoing a legalsufficiency review, and 103 are pending closure. Theremaining 100 cases still await a preliminary analysis.

The backlog is not being resolved at a faster ratebecause CR itself has not attained the efficiency itneeds to systematically reduce the case load. Few ofthe deficiencies we noted in our previous reviews havebeen corrected. The office is still in disarray, providingno decisive leadership and making little attempt tocorrect past mistakes. Over the last 20 months, CR hasmade virtually no progress in implementing thecorrective actions we determined to be essential to theviability of its operations.

Financial, Administrative, and InformationTechnology

We estimate that if CR continues to operate under itscurrent methods and at its current rate, the backlog ofcomplaints existing on November 1, 1997, will not becompletely resolved for at least another year. Figure 3summarizes the key areas for which ourrecommendations were made and in which theuncorrected deficiencies persist.

Most conspicuous among the uncorrected problems iscontinuing disorder within CR. The data base CR usesto report the status of cases is full of errors, and the filesit keeps to store needed documentation are slovenlyand unmanaged. Forty complaint files could not befound, and another 130 complaints that were listed inUSDA agency files were not recorded in CR’s database. Management controls were so poor that we couldnot render an opinion on the quality of CR’sinvestigations and adjudications.

Of equal significance is the absence of written policyand procedures. CR has not revised Departmentalpolicy to ensure it complies with civil rights laws and toestablish the framework of its own activities. Over thespace of 20 months, CR has produced nothing to laythe foundation for good management controls.

The absence of formal procedures and accurate recordsraises questions about due care within the complaintsresolution process. We found critical quality controlsteps missing at every stage of the process. Staffmembers with little training and less experience wereassigned as adjudicators to render decisions onwhether discrimination occurred. Legal staff memberswith OGC, who review CR’s decisions for legalsufficiency, have had to return over half of the decisionsbecause they were based on incomplete data or faultyanalysis. Almost half of the 616 cases of the unresolvedbacklog had become bottlenecked in the adjudicationunit.

CR’s office morale is low. The many reorganizations thecomplaints resolution staff has undergone, the highturnover the staff has experienced within the lastseveral years, and the inadequate training afforded bothmanagers and staff members have left the staffunfocused and without clear direction. In turn, lowmorale possibly has contributed to a lack of productivity.CR’s data base shows that since January 1997, CR hasclosed only 19 cases through adjudication, 8 of whichwere not even investigated by CR. Due to suchinefficiency, complainants are being denied a timelyhearing of their civil rights complaints.

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Figure 3Areas of Deficiency Previously Noted by OIG and Still Uncorrected

Office of Inspector General Evaluation Phases

Alert I II Memo IV VIssue 2/25/97 2/27/97 9/29/97 12/18/97 3/04/98 9/30/98

Review State foreclosure actions X 0 0 0 0 0

Send letters of acknowledgement(Completed November 1997) X 0

Develop and maintain a data base X ✓ ✓ ✓ ✓

Evaluate each agency’s civilrights staff X 0 0 0 0

Clean case files X 0 0 0 0

Clear backlog X 0 0 0 0

Publish regulations X 0 0 0 0

Reconcile case files with USDAagencies X 0 0 0 0

Write plans for compliancereviews X 0 0 0 0

Follow up on isolated instancesof potential discrimination X 0 0

Find lost case files X 0 0 0 0

Use aging reports X 0 0 0 0

Train investigators X 0 0 0

X = Condition originally noted and recommendation made. 0 = Condition continues. ✓ = Corrective action taken but notadequately implemented.

Furthermore, CR does not exercise the full scope of itsauthority. CR has concentrated its oversight onfederally conducted programs; it has largely ignored ahost of federally assisted programs (e.g., cropinsurance, research grants) in which complaints ofdiscrimination may have been made.

Also disturbing were the number of discrepancies wefound between staff members’ reports and the actuallevel of their performance. We found that informationprovided to the Secretary about the number of open andclosed cases was wholly inaccurate. This informationwas repeated at congressional hearings and otherpublic forums.

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We concluded that in order to complete the backlog ofcases expeditiously, the Secretary needs to transferresolution of the backlog to a complaints resolution taskforce, composed of seasoned adjudicators and well-qualified civil rights personnel from Federal agenciesoutside USDA. The task force should have full authorityto review and resolve all complaints, both new andbacklogged. The task force should also perform a case-by-case, document-by-document sweep of the casefiles to restore retrievability to the information containedin the files.

To increase CR’s efficiency in the long term, theSecretary should create an Assistant Secretary of CivilRights with subcabinet-level status. Concurrently, theCR Director should emphasize hiring managers whohave a solid background in civil rights and a goodknowledge of Department programs.

We also recommend that the Secretary require CR to(1) issue needed operational policies and procedureswithin a 2-month timeframe; (2) resolve, also within2 months, all other recommendations that we made inour previous reports but that CR has failed toimplement; (3) keep open all cases resolved throughsettlement agreements so the agreements may betracked; and (4) institute other operationalimprovements that will ensure the efficient operation ofthe civil rights functions within the Department andensure due care in the resolution of all civil rightscomplaints, as well as a timely hearing for allcomplainants.

FINANCIAL MANAGEMENT

USDA is required by the Chief Financial Officers Act andthe Government Management Reform Act to prepareand audit financial statements for all Departmentalaccounts and activities. Financial statements for USDAare generated from six separate systems operated byvarious USDA agencies.

Financial Statement Audits

We completed audits of the FY 1997 financialstatements of the Department (consolidated), the ForestService (FS), the Food and Nutrition Service (FNS), theRural Development mission area, the Commodity CreditCorporation (CCC), and the Rural Telephone Bank

(RTB). The Department and FS received disclaimers ofopinion, FNS and Rural Development received qualifiedopinions, and CCC and RTB received unqualifiedopinions.

USDA’s Consolidated Financial Statements: Disclaimerof Opinion

We were unable to express an opinion on theDepartment’s financial statements for FY 1997, largelybecause of the numerous material internal controlweaknesses at the Office of the Chief Financial Officer(OCFO)/NFC which we have previously reported.OCFO has generally agreed with our recommendations,and plans have been made to fix identified problems.Some corrective actions have been taken, but muchremains to be done.

The continuing delay in implementing the Department’snew accounting system, the Foundation FinancialInformation System (FFIS), has had a significant impacton USDA financial operations and will continue toimpact future operations. Without FFIS, USDA mustrely on the OCFO/NFC Central Accounting System(CAS); however, as we have reported since 1992, themany significant problems in CAS diminish the reliabilityand integrity of this data. For example, because ofnumerous material internal control weaknesses with theOCFO/NFC reconciliation procedures, we estimated thenumber of disbursement exceptions to be about 55,000with an absolute difference of about $7.1 billion betweenCAS and the U.S. Department of the Treasury(Treasury).

Most of the FFIS problems could be attributed to thepremature implementation of three FS regions onOctober 1, 1997. To address our concerns, OCFO, inconjunction with a working group led by the Secretary’soffice, deferred the implementation of the remaining FSregions until problems with FFIS have been resolved.In addition, a new leadership team was brought in tomanage the project, and a Statement of Work wasentered into with a contractor to provide an independentassessment of the current FFIS approach andalternatives to correct accounting deficiencies at NFC.While we believe the actions taken by OCFO will bebeneficial, we remain concerned with various aspects ofthe implementation of FFIS.

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Forest Service: Disclaimer of Opinion

Because of the absence of an integrated general ledgerand supporting subsidiary records, along with significantfinancial systems weaknesses, we were unable toexpress an opinion on the FS financial statements forFY 1997.

Our review of financial statement line items prepared byFS disclosed the need for accounting adjustmentstotaling over $1.9 billion due to errors and omissions inthe initial preparation of the line items. FS corrected theerrors and omissions before finalizing the financialstatements. In addition, we found that internal controlsover the total fund balances with Treasury and theproperty, plant, and equipment accounts, whichcombined represented 98.3 percent ($11.6 billion) of thereported $11.8 billion in assets held by FS, were notsufficient to ensure that account balances were reliable.

FS has taken significant steps toward improving itsfinancial accountability. However, much work remainsbefore FS can produce complete, reliable, timely, andconsistent financial statements. In April 1998, theSecretary of Agriculture and the FS Chief announcedmajor actions to address the problems, to includeestablishing clear accountability, ensuring necessaryresources, and hiring key leadership.

FNS: Qualified Opinion

Our qualified opinion was the result of FNS’ inability tosubstantiate the reported amount of FSP recipientclaims against households. During FY 1997, FNS madeprogress in improving the agency’s financial recordingand reporting processes, but several material internalcontrol weaknesses continue to warrant correctiveaction. FNS has not corrected its material internalcontrol weakness related to food stamp recipient claims;as a result, we were unable to assess thereasonableness of the more than $942.3 millionincluded in the gross accounts receivable, non-Federal,balance for FSP in FY 1997.

FNS made significant commitments in FY 1997 toaddress the longstanding issue with food stamprecipient claims and issued comprehensive review andself-assessment guidance to regional offices and State

agencies. For FY 1998, FNS planned to focusmanagement reviews on recipient claims using thisguidance and to complete the evaluation of theaccuracy of State agency balances reported.

Rural Development: Qualified Opinion

We issued Rural Development a qualified opinionbecause the mission area could not adequatelysubstantiate the value of the Government’s investmentin its outstanding direct and guaranteed loans. SinceFY 1994, we have reported problems with the missionarea’s procedures for establishing and reestimating loansubsidy costs. Early this year, Rural Developmentestablished a task force to address these longstandingproblems. However, the corrective action plan is notscheduled for completion until September 1999. Weare monitoring the agency’s progress in resolving thesematerial weaknesses.

CCC: Unqualified Opinion

Our report expresses an unqualified opinion in thatCCC’s financial statements presented fairly its financialposition and results of operation, in accordance withgenerally accepted accounting principles for Federalagencies. However, although a new accounting systemunder development should provide enhancements andrefinements to the current financial processes, wecontinue to find that increased oversight andsupervision of accounting and budgeting operations areneeded to timely and efficiently prepare the financialstatements, congressional reports, and relatedsupporting data.

We recommended that CCC strengthen its financialaccounting procedures and operations. We alsoincluded recommendations on more effective use andimprovement of the management control reviewprocess. CCC generally agreed with ourrecommendations and is continuing to improve itsfinancial management.

RTB: Unqualified Opinion

We issued RTB an unqualified opinion. We concludedthat the financial statements presented fairly its financialposition and results of operations. We continued to find,however, that RTB needs to improve controls forestablishing and reestimating loan subsidy costs.

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FS “Financial Health Initiative ” YieldsImprovements, More Needed

In July 1996, immediately following issuance of theFY 1995 FS financial audit, FS, OIG, and OCFO begana cooperative task force effort to plan and implementimprovements in FS’ financial management andaccountability. In March 1997, OIG began monitoringFS’ implementation of financial health action plans atregional, forest, and research station field units.Overall, the FS units we visited were activelyimplementing the national financial health action plan.However, significant work remained to be done, and, inthe current systems environment, maintaining accurateand current accounting data requires constant staff workat all field accounting units.

In June 1997, FS issued a financial health desk guidewhich was developed by the task force and, based oninput from users, from OIG, and from OCFO, updated itin January 1998. Many of the accounting errors wenoted should be corrected as FS personnel gainexperience applying the instructions contained in thedesk guide.

In FY 1997, our initial work identified major issue areasinvolving property, plant, and equipment; accountspayable and accounts receivable; management codes;and fire caches. During FY 1998, FS and OIGcontinued to work together to improve FS’ financialaccounting processes and data quality. Our initialFY 1998 consulting visits to seven FS field accountingunits yielded the following observations:

• Real Property - Physical inventories of real property(excluding road assets) were progressing well;however, validations of real property capitalized costsand acquisition dates, as well as the completion ofproperty documentation files, were not progressing inline with FS’ goals.

• Personal Property - Physical inventories of allpersonal properties were not completed in FY 1997,as planned by FS. Also, capitalized costs for38 percent of the properties we tested were incorrector inadequately documented.

• Accounts Payable/Accounts Receivable - Bothcontinued to be highly error prone.

• Cash and Deposit Accounts - Overall, maintenanceof working capital fund accounts, budget clearingaccounts, and suspense deposit accounts hasimproved since FY 1997, but frequent review andadjustment are required.

Accounting processes and accounts payable andaccounts receivable are particularly burdensome anderror prone because the existing accounting systemlacks automated and integrated subsidiary ledgers. Inaddition, many of the errors are caused bynonaccountant employees receiving insufficientsupervisory oversight and on-the-job training in applyingfinancial health guide instructions. Improvedinformation on transactions executed by operatingpersonnel needs to be provided to fiscal staff so thattransactions can be properly recorded. Improvedaccounting processes will take time to develop andapply in FS’ decentralized management structure. Also,critical to FS success is implementation of a fullyintegrated standard general ledger accounting system.Until a new system is fully implemented, FS’ accountingprocesses will continue to be error prone and consumesignificant staff resources.

FS Retroactive Redistribution Process Poses GreatRisk That Funds May Be Misused

We reviewed FS’ control of funds, specifically as itrelates to the retroactive redistribution of incurred coststhat occurs at NFC, to address the prospective impactthe process could have on the burgeoning FFIS and toevaluate management controls over the redistributionprocess.

We found that FS shifted charged costs at least269,000 times in FY 1997, the preponderance(125,000 occurrences) of which took place in the fourthquarter. We also found that controls had not beenadequately prescribed to ensure that the actions wereproperly authorized, approved, justified, or documented.Accordingly, there was insufficient assurance that theshifting of incurred costs from one account to anotherwas done in a manner consistent with appropriationslaw. We also found that the implementation of FFISwas unduly delayed and the costs of the projectsignificantly increased because retroactive redistributioncould not be made to run on the system.

35

The timing of these changes in charged costsepitomizes the potential risk and enforces the notionthat the actions were undertaken to shift funding tothose accounts which could absorb the charges, fromthose where they had been incurred. The retroactiveredistribution process provides a great risk to adherencewith appropriations law, as shifts in charges could crossappropriations lines and the receiving appropriationaccount could be exceeded. We did not seek toestablish whether deliberate violations had occurred.

We recommended that FS eliminate the currentcapability to shift the charges of incurred expendituresand rescind plans to automate the process in FFIS. Wealso recommended that FS implement controls toensure that all revisions to accounting transactions areproper.

FS concurred with the findings and recommendationsregarding FFIS and the implementation of managementcontrols. The agency cited, however, that it was notfeasible to modify NFC’s Central Accounting Systemand thereby eliminate the capability to retroactivelyredistribute funds. FS proposed an alternative actionthrough policy, procedures, and monitoring which wouldgreatly restrict management code changes. We haverequested additional information about these proposedcontrols before coming to management decision.

INFORMATION TECHNOLOGY

Department P rogressin g With “ Year 2000”Conversion Project

Most Departmental computer systems are notprogrammed to perform calculations based on the year2000. These systems recognize such a data entry onlyas 1900. If by the year 2000 the systems are notconverted to accept “2000,” either they will fail toperform any calculations based on that year or willprovide inaccurate information. This situation hasbecome known as the “Year 2000” crisis.

The Office of Management and Budget (OMB) set thetarget date for all Federal systems to become convertedby March 30, 1999. The Office of the Chief InformationOfficer (OCIO) serves as the Department’s focal pointfor addressing conversion issues.

We performed a review to determine the accuracy of thequarterly data being reported to OMB by OCIO. Wefound that the Department had not adopted a commondefinition for the term “systems.” This resulted inagencies reporting minor applications as mission criticalsystems, which significantly overstated the number ofmission critical systems within the Department. Forexample, after a standard definition of “systems” wasadopted, FS reduced its number of mission criticalsystems from 452 to 17. OCIO originally reported1,319 mission critical systems to OMB; however, as ofJune 30, 1998, OCIO revised the number to 657.

We also found that OCIO’s reported number ofcompliant systems overstated the Department’s actualprogress toward meeting Year 2000 compliance. Wefound that many of the systems being reported ascompliant required no renovation work, which indicatedthey were already Year 2000 compliant. For example,OCIO reported that 539 (41 percent) of theDepartment’s 1,319 mission critical systems were Year2000 compliant as of February 1998. However, ourreview showed that 327 of these systems wereoriginally compliant or were not affected by date fields intheir programming code. As of June 30, 1998, OCIOrevised the report to show that 375 systems werecompliant.

OCIO officials agreed with our findings and haveimplemented corrective actions. Our review work iscontinuing. We have completed reviews at NFC, NITC,and Rural Development. Additional reviews are underway or planned at FS, the National Agricultural StatisticsService, APHIS, FSA, and FNS.

AUDITS OF CONTRACTS

Questioned Costs of $192,000 on FS ContractSettlement Proposal

The audit reviewed an FS contract modificationproposal resulting from a Government-ordered changein construction from a conventional heating andventilating system to a system capable of using onsitegeothermal resources. The audit of the $630,000proposal identified questioned costs of $192,000consisting of unsupported overhead costs andunallowable costs due to related-party transactions andinterest financing. The FS contracting officer used theaudit findings to eliminate the questionable items from

36

the settlement proposal and issued a final determinationon the matter.

Review of the Depa rtment ’s Mail OperationsSubstantiated Overcharges

At the request of the Office of Operations’ (OO)contracting officer, we performed a review of the blanketpurchase agreement and subsequent contract with aprivate company for mail services at the USDAheadquarters complex. OO asked us to verify whetherthe contractor had, as suspected, overcharged theGovernment.

We confirmed that the contractor had overcharged theDepartment by at least $250,000 by charging for(1) 40 hours of work per week when only 37.5 hourswere performed, (2) holidays not permitted by thecontract, (3) a labor category not included in thecontract, and (4) hours not supported by documentation.

OO’s management control deficiencies allowed thecontractor’s overcharges to remain undetected for16 months. During the course of our review, thecontract came up for renewal. The Department electednot to exercise the contract option year.

We recommended that OO recover the overpayment tothe contractor. OO agreed and has initiated therecoupment process.

OVERSIGHT OF NON-FEDERAL AUDITORS

OIG monitors the work performed by non-Federalauditors for agencies of the Department and takesappropriate steps to ensure that their work complieswith professional audit standards. We oversee theaudits of State and local governments for which USDAhas been assigned single audit cognizance and providetechnical assistance when needed. In addition, OIGcommonly participates in quality control reviews, led byother assigned cognizant Federal audit organizations, ofState agencies administering major USDA programs.

Single Audits

During this reporting period, we issued 24 audit reportscovering areas over which we have been assignedcognizance or where large amounts of USDA fundshave been expended. As a result of one of these singleaudits, we were notified by FNS that it had received acheck of nearly $2 million for questioned costs for threeprior Connecticut single audits performed. DuringFY 1996, Connecticut received over $295 million inUSDA funds.

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A top priority for OIG is the investigation of seriousallegations of employee misconduct, including conflictsof interest, misuse of official position for personal gain,and the misuse or theft of Government property andmoney. During the past 6 months, our investigationsinto these types of matters resulted in 14 convictions ofcurrent or former USDA employees and 36 personnelactions, including reprimands, removals, suspensions,and resignations. The following are examples of someof the investigations that yielded results during the past6 months.

Employee Sentenced in Embezzlement Case

A Louisiana Rural Development county office employeepled guilty in Federal court to embezzling andmisapplying over $82,000 in rural housing loanpayments she had received in her office. She wassentenced to serve 6 months’ imprisonment, to befollowed by 4 months’ home confinement. She was alsofined $10,000 and ordered to pay nearly $24,350restitution. The employee resigned soon after weinitiated our investigation.

Employee Integrity Investigations

Three NRCS Empl oyees Guilty of Accepting Bribesand Gratuities

In July 1994, a tropical storm struck southern Georgia,causing serious flooding and millions of dollars indamage. As a result, NRCS negotiated and fundednumerous watershed repair contracts under theEmergency Watershed Protection Program (EWPP).After we received confidential information from a privatesector contractor, our 18-month investigation developedevidence showing that two NRCS employees who wereresponsible for managing EWPP contracts acceptedcash bribes from a contractor in exchange for specialconsiderations in obtaining EWPP contracts. A thirdemployee arranged for a contractor doing business withNRCS to perform construction work on personallyowned land. The cost of this work was then improperlybilled to USDA. Between July and September 1998, thethree employees entered guilty pleas in U.S. DistrictCourt, Middle District of Georgia, to violations resultingfrom their acceptance of bribes and gratuities. Oneemployee was fined and placed on probation, andresigned from NRCS. The other two employees arecurrently on indefinite suspension; they stated in theirplea bargains that they would resign from their positionsand are awaiting sentencing.

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AUDITS WITHOUT MANAGEMENT DECISION

The following audits did not have management decisions made within the 6-month limit imposed by Congress.Narratives follow this table.

Audits Pending Agency Action

Amount WithTotal Value No Mgmt.at Issuance Decision

Agency Date Issued Title of Repo rt (in dollars) (in dollars)

CR 09/29/97 1. Farm Loan Programs - 0 0Civil Rights ComplaintSystem (50801-3-HQ)

03/04/98 1. Followup on Civil 0 0Rights Recommendations(50801-5-HQ)

CSREES 03/27/97 2. Use of 4-H Program 5,633 0Funds - University ofIllinois (13011-1-Ch)*

03/31/98 3. Use of Grant Funds by 1,364,560 857,325Langston University(13011-1-Te)

03/31/98 4. National Research Initiative 32,757,862 32,757,862Competitive Grants Program(13601-1-At)

FAS 12/02/96 5. Evaluation of the Fund for 5,855,622 5,853,589Democracy and Development(07801-4-Te)*

FNS 03/21/97 6. Establishment and 1,908,988 1,908,988Collection of FoodStamp Claims(27002-2-Te)*

07/08/97 7. Reinvestment of 50,150,541 30,497,946Quality ControlPenalties (27099-4-At)*

08/25/97 8. National School Lunch 31,200,000 31,200,000Program Verificationof Applications inIllinois (27010-11-Ch)*

Statistical Data

39

Amount WithTotal Value No Mgmt.at Issuance Decision

Agency Date Issued Title of Repo rt (in dollars) (in dollars)

09/25/97 9. Strategic Monitoring of 0 0the Electronic BenefitsTransfer System in Illinois(27099-11-Ch)*

09/30/97 10. Food Stamp Program - 0 0Reporting Accuracy ofClaims Activity(27601-12-Ch)*

03/30/98 11. New York City 2,047,988 2,047,988Case File Documentation(27010-12-Hy)

FS 10/27/92 12. Historic Aircraft 35,260,665 1,079,189Exchange Program(08097-2-At)*

07/18/96 13. FY 1995 FS Financial 1,150,183,750 1,150,183,750Statements (08401-1-At)*

09/30/96 13. Real and Personal 0 0Property Issues(08801-3-At)*

02/11/98 14. Forest Service Grants 1,248,595 1,247,824to NonprofitOrganizations(08801-1-Te)

FSA 09/18/95 15. Management of the 75,175,410 909,437Dade County, FL, FSAOffice (03006-1-At)*

03/15/96 16. Wool and Mohair 2,072,102 1,177,675Payment Limitation,Concho County, TX(03099-2-Te)*

03/29/96 17. Texas Agricultural 964,878 964,878Mediation Program(03801-15-Te)*

03/29/96 18. Cash/Share Lease 1,076,557 18,911Provisions(03801-2-Te)*

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Amount WithTotal Value No Mgmt.at Issuance Decision

Agency Date Issued Title of Repo rt (in dollars) (in dollars)

05/02/96 19. Disaster Assistance 2,177,640 2,145,533Program - 1994,Thomas County, GA(03006-13-At)*

03/04/97 20. State-Administered 1,174,624 1,174,624Mediation Programs(03801-23-Te)*

08/27/97 21. Operator Compliance With 63,909 63,909Payment Eligibility and/or Limitation Provisionsin South Dakota(03006-5-KC)*

09/29/97 22. Peanut Price Support 46,704,388 46,704,388Program(03601-6-At)*

02/24/98 23. Implementation of the 127,679,250 225,050Beginning FarmerProgram(03601-9-KC)

03/05/98 24. Emergency Disaster Loan 111,026 111,026Program - Mississippi(03601-7-At)

03/10/98 25. Emergency Disaster Loan 661,870 661,870Eligibility(03601-22-Te)

03/18/98 26. Noninsured Crop Disaster 190,320 0Assistance Payments for1996 Crop Losses inFlorida (03601-27-Te)

03/31/98 27. Reorganization of Payment 542,807 542,807Limitation in HildagoCounty, TX(03601-23-Te)

FSIS 05/23/97 28. Controls Over the 0 0Export of Meat andPoultry Products(24099-1-Te)*

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Amount WithTotal Value No Mgmt.at Issuance Decision

Agency Date Issued Title of Repo rt (in dollars) (in dollars)

NRCS 03/30/98 29. Conservation Reserve 0 0Program Acreage Enroll-ments - Signup 16(50601-6-KC)

Office of 02/27/98 30. Rio Grande Valley 0 0Community Empowerment Zone - TexasDevelopment (34801-2-Te)

OCFO 03/25/98 31. Review of Controls in the 27,259 27,259Payroll/Personnel and Timeand Attendance System -Phase I (50099-0011-FM)

RBS 03/31/97 32. Intermediary Relending 3,602,796 3,602,795Program (34601-1-Te)*

RHS 03/26/98 33. Evaluation of Tenant 67,477 17,073Income VerificationProcess(04801-1-KC)

RMA 09/30/97 34. Reinsured Companies’ 0 0APH Self-Reviews(05099-1-Te)*

09/30/97 35. Crop Insurance on 15,082,744 15,082,744Fresh Market Tomatoes(05099-1-At)*

11/25/97 36. Crop Insurance Claims 726,057 726,057in the Midwest(05601-1-Ch)

03/03/98 37. Transfer of CAT Policies 0 0to Reinsured Companies(05099-1-KC)

Audits Pending Judicial, Legal, or Investigative Proceeding

AARC 09/30/96 38. AARC Cooperative 0 0Corporation Agreement With Agro-

Fibers, Inc.(34099-1-At)*

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Amount WithTotal Value No Mgmt.at Issuance Decision

Agency Date Issued Title of Repo rt (in dollars) (in dollars)

FNS 09/22/97 39. Child and Adult Care 56,296 56,296Food Program - SponsorAbuses (27601-7-KC)*

FS 03/31/97 40. Research Cooperative 469,000 469,000and Cost ReimbursableAgreements (08601-18-SF)*

FSA 09/30/93 41. Disaster Program, 5,273,795 1,482,759Nonprogram Crops,Mitchell County,GA (03097-2-At)*

03/02/95 42. Disaster Assistance 359,265 359,265Program, JacksonCounty, FL(03099-158-At)*

03/31/95 43. Disaster Assistance 484,972 364,552Program, 1993 Nonpro-gram Crops, Yuba County,CA (03600-26-SF)*

09/07/95 44. Large Operators’ 165,069 165,069Compliance With PaymentLimitation Provisionsin Stephenson County,IL, and Rock County, WI(03099-8-KC)*

09/07/95 45. A&B Professional 628,976 628,976Consulting, Inc.(03004-1-At)*

09/28/95 46. Disaster Assistance 1,805,828 1,805,828Payments, Lauderdale,TN (03006-4-At)*

01/02/96 47. Crop Disaster - 2,469,829 2,418,167Brooks/Jim Hogg,TX (03006-1-Te)*

09/18/96 48. Emergency Feed 626,182 115,425Program in Texas(03601-7-Te)*

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Amount WithTotal Value No Mgmt.at Issuance Decision

Agency Date Issued Title of Repo rt (in dollars) (in dollars)

09/30/96 49. 1994 Disaster Assis- 2,666,383 2,660,573tance Program - Maine(03601-1-Hy)*

03/27/97 50. Emergency Disaster 614,490 280,000Loan Eligibility inArkansas (03099-13-Te)*

12/04/97 51. Emergency Disaster Loan 797,696 620,666Program in California(03601-8-SF)

RHS 05/02/96 52. RRH Project Operations - 235,498 235,498Cato Company, Michigan(04010-12-Ch)*

*Reported in last semiannual report.

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1. Farm Loan Programs - Civil Rights ComplaintSystem, Issued Septembe r 29, 1997, andFollowup on Civil Rights Recommendations,Issued March 4, 1998

We continue to audit CR activities and are finding thatissues reported in the above-referenced reports arerecurring. We are working with Department officials tocraft solutions that will address the recurring problems.

2. Use of 4-H Program Funds - University ofIllinois, Issued March 27, 1997

After having participated on a team that identifiedmembers of a county 4-H volunteer committee who haddiverted club funds to their own organization, twoSchedule A, joint Federal-State employees of theUniversity of Illinois Cooperative Extension Service(CES), were removed from their positions and givennotice that their employment would be terminated. Werecommended that Illinois CES be required to suspendits personnel actions against these two Schedule Aappointees and that CSREES monitor the situation toensure that any rights due these employees under theMerit Service Protection Act are honored. Finally, werecommended that CSREES clarify and disseminate itsposition regarding the legal rights and protection ofFederal appointees to all CES directors.

The Office of the General Counsel (OGC) advised theagency that the CES Schedule A positions werecovered under the 1990 law extending coverage toSchedule A excepted-service positions. OGCconcluded that, specifically in the case of the twoSchedule A appointees, the provisions of the actcovering due process, appeal rights, and whistleblowerprotections applied. CSREES officials stated they willimplement all recommendations except those relating tothe dissemination of the OGC opinion of Schedule Aappointees’ employment rights and our recommendedintervention in the prohibited personnel actions at theuniversity. The university contends that Federal civilservice provisions of due process and whistleblowerprotection are not applicable to actions taken by theuniversity against State employees who are alsoSchedule A appointees. The university has agreed todefer further actions pending a decision by the MeritSystems Protection Board (MSPB) and has reassignedone of the Schedule A appointees and retracted thetermination letter.

Audits Without Management Decision - Narrative

In February 1998, OIG issued a management alert tothe Under Secretary for Research, Education, andEconomics elevating the findings of our report to obtainhis position on Schedule A coverage. As a result, theUnder Secretary directed the CSREES Administrator toaccept the application of civil service coverage toSchedule A extension employees, disclose fully thepertinent facts and information on these positions toMSPB, inform all CES directors of the protectionsafforded to Schedule A appointees, and preventprohibited personnel practices to include protectionsfrom adverse actions against whistleblowers.CSREES’s response, however, was not acceptable toreach management decisions on the recommendations.Subsequently, the Department’s Office of HumanResources Management issued a statement that theSchedule A appointees are joint Federal and Stateemployees who are entitled to civil service andwhistleblower protections. We are currently workingwith the Under Secretary to resolve the differencesbetween the Department’s official position and theagency’s actions, including the need for the UnderSecretary and CSREES to work with the State CESpartners to resolve the dual status of these Schedule Aappointees.

3. Use of Grant Funds by Langston Unive rsit y,Issued March 31, 1998

After we reported that a former director of research andextension at Langston University had misused up to$1.2 million of CSREES grant funds, CSREES agreedto require the university to replace any funds that theuniversity could not justify within Federal fundingstandards and the criteria for these projects. Wecontinue to work with the agency to reach an agreementon the amount that the university must replace.

4. National Research Initiative Competitive GrantsProgram (NRICGP), Issued March 31, 1998

The audit disclosed that CSREES’ process for awardinggrants favors large institutions and researcherspreviously awarded NRICGP grants, that there appearsto be a direct relation between the institutionalaffiliations of peer review panel members and theinstitutions receiving awards, and that more than60 percent of the approximately $32 million forStrengthening Program funds awarded from FY’s 1994

45

through 1996 did not fully meet NRICGP objectives.Management decisions have not been reached for oureight recommendations. We are withholding ourresponse to CSREES’ latest proposed action whileOGC completes an opinion.

5. Evaluation of the Fund for Democracy andDevelopment (FDD), Issued December 2, 1996

OIG recommended that FAS collect $2,163,390 fromFDD for its failure to account for donated commoditiesand its agent’s misappropriation of donatedcommodities. Although the donation agreementprovides that the cooperating sponsor will be liable toCCC for any use of the commodities or sales proceedsthat is inconsistent with the donation agreement, theGeneral Sales Manager believes that CCC did notintend to make the cooperating sponsor an insureragainst any unauthorized use of the commodities,regardless of the circumstances relating to any suchunauthorized use. OIG believes that if accountability isnot established for the donated commodities, programlosses may even escalate. We also recommended thatFAS determine the proper disposition of $3.6 million insales proceeds from donated commodities because ofthe auditee’s noncompliance with its operating plan.

Although CCC has established an account receivable,FAS has not issued demand letters seeking collection of$2,163,390 from FDD. FDD contends it has accountedfor all the donated commodities. FAS is still reviewingthe documents provided by FDD; the four recommen-dations relating the monetary exceptions are still open.

6. Establishment and Collection of Food StampClaims, Issued March 21, 1997

We reported that the State agency in Texas referredpotential fraud claims for investigation beforeestablishing them as inadvertent household errors in theaccounts receivable tracking system. This happenedbecause of a State agency policy that requires delay inestablishment of a claim until a determination ofintentional program violation is made. As a result,outstanding claims valued at over $1.9 million are notrecorded in the accounts receivable tracking systemand reported as a receivable for financial statementpurposes. We recommended that the State agencycompute the overissuance for all cases referred forinvestigation and establish these cases as inadvertenthousehold error claims. We also recommended that the

State agency change its policy and classify all futurereferral cases as inadvertent household error claims.To address these matters, FNS officials decided to seekguidance from the Federal Accounting StandardsAdvisory Board; however, FNS now is seekingalternative solutions. We cannot reach a managementdecision until FNS advises us of planned correctiveactions.

7. Reinvestment of Quality Control Penalties,Issued July 8, 1997

We questioned the eligibility of reinvestment projects innine States and costs charged to other eligible projects.FNS disagreed with some questioned costs, is in theprocess of assessing the eligibility of the remainingcosts, and is processing fiscal settlements with therespective States as appropriate. Managementdecision is pending settlement of the questioned costsand assessments against three of the nine States.

8. National School Lunch Program (NSLP)Verification of Applications in Illinois,Issued August 25 , 1997

We recommended that FNS require the Illinois Stateagency to monitor verification efforts of its school foodauthorities (SFA) regarding NSLP applications and takeappropriate followup measures on those which had higherror rates. We also recommended that FNS establisha threshold for the maximum percentage of errorsallowable during the verification process and requireadditional sampling when that percentage wasexceeded.

FNS responded that the State agencies monitoredverification activities as part of the Coordinated Revieweffort. However, since these reviews are performedonly every 3 years, we do not believe this is adequateoversight, as was evidenced by the high error rateswhich we detected. FNS has been unwilling to requireexpanded sampling, even for SFA’s whose applicationshave high error rates. FNS did not want to requireadditional verifications based on the work in only oneState; it proposed to do a study which would collect datafrom additional States before making a decision.Subsequently, FNS advised that its funding for thisproject had been transferred to another agency and thatFNS would be unable to do the study. FNS has nowagreed to contact State agencies and obtain error-rateinformation for major cities to assist in making a

46

decision on our recommendations. FNS also believesthat the potential savings from any increase inverification requirements should be accuratelydetermined and should be weighed carefully against theincrease in administrative burden which it would imposeon SFA’s.

9. Strategic Monitoring of the Electronic BenefitsTransfer (EBT) System in Illinois , IssuedSeptember 25, 1997

Illinois does not monitor the use of food stamp benefitsseparate from other State-issued benefits on the EBTcard. The State regards an EBT card as “active” if anybenefit, including a State-issued benefit, is accessed bythe recipient. Therefore, unused food stamp benefitscould accrue on the EBT card while the recipient isaccessing other benefits. Federal regulations requireunused food stamp benefits to be expunged after1 year. Unless food stamp benefit access is trackedseparately, the State is unable to identify whether stampbenefits were accessed. FNS initially disagreed withour recommendation addressing this issue; however,based on subsequent discussions, FNS agreed toreevaluate its position. We continue to work with FNSto achieve management decision.

10. Food Stamp P rogram - Repo rting Accura cy ofClaims Activit y, Issued September 30 , 1997

One issue relating to the establishment of claims by theStates remains unresolved. We recommended FNSmonitor State agencies to ensure that all potential fraudclaims are established and entered to the accountsreceivable system in accordance with existingregulations. This issue, in part, has caused FNS toreceive a qualified opinion to its financial statementaudit. FNS officials decided to seek guidance from theFederal Accounting Standards Advisory Board;however, FNS now is seeking alternative solutions. Wecannot reach a management decision until FNS advisesus of planned corrective actions as appropriate.

11. New York City Case File Documentation , IssuedMarch 30, 1998

One recommendation remains open. Werecommended that FNS establish a minimumacceptable standard for determining compliance withcase file documentation requirements and establishpenalties to recover the value of food stamp issuances

that are not supported when the standard is not met.FNS responded that current regulations require case filedocumentation to support eligibility and benefit levels.FNS agreed to issue a memorandum to Statesreiterating this policy and to use financial penaltieswhen States do not comply. However, FNS stated thatfinancial penalty guidelines would be too complex todevelop and reiterated that all case files should beproperly documented.

We agree that issuing a policy memorandum to remindStates of the requirements is needed; however, wecontinue to believe that additional guidelines should beimplemented. Per our September 22, 1998, meetingwith FNS, and our memorandum of September 25,1998, we believe these issues may be resolved, or areclose to being resolved, and are working with FNS toachieve management decision.

12. Historic Ai rcraft Exchan ge Program , IssuedOctober 27, 1992

We recommended that FS officials resolve ownershipissues involving C-130A and P-3A aircraft that wereimproperly exchanged for private aircraft and recoverownership of the aircraft as appropriate. The U.S.Department of Justice and OGC have recommendedthat FS proceed with action to claim title of the aircraft indispute. FS has agreed to begin actions to claim title tothe aircraft but, as of September 28, 1998, had notformally notified holders of the aircraft. Once FSformally begins proceedings to recover the Governmentaircraft, we will be able to reach management decision.

13. FY 1995 FS Financial Statements, IssuedJuly 18, 1996, and Real and Personal PropertyIssues, Issued September 30, 1996

FS and OIG personnel have been working closely in atask force approach to improve FS accounting systemsand processes and to adopt new accounting standardsissued by OMB. One primary objective of the task forceis to enable FS to prepare timely and accurate financialstatements and ultimately receive unqualified auditopinions on those statements. FS has begun toimplement a new real property accounting system andis working toward converting field offices to the newDepartmental general ledger system. Implementationtimeframes for (1) the new general ledger,(2) improvements in FS accounting subsystems, and(3) new accounting standards will extend into FY 1999.

47

We continue to work closely with FS to ensure thatlongstanding deficiencies in its accounting systems andcontrols are eliminated.

14. Forest Service Grants to NonprofitOrganizations , Issued Februa ry 11, 1998

In our audit of the National Forest Foundation (NFF), werecommended that FS recover $1.2 million in funds thathad not been matched as required by the terms of thegrant agreement. FS disagreed with our recommen-dation and proposed to evaluate the financial records ofNFF to determine if sufficient private donations wereavailable and used to match FS funds. However, todate, sufficient detailed cost data has not been providedto determine the allowability of the $1.2 million, and wecontinue to recommend that FS recover the amount inquestion.

15. Management of the Dade Count y, FL, FSAOffice, Issued Septembe r 18, 1995

We found that eight producers, including a countycommittee member, received over $850,000 inpayments that were improper because the producers’qualifying gross income exceeded the $2 million limit.Also, a county office employee, primarily responsible foradministering the disaster assistance program, receivedquestionable payments of over $50,000 based oninaccurate supporting information. We recommendedthat FSA recover the excessive payments. We areworking with FSA officials to reach agreement on thecases.

16. Wool and Mohair Payment Limitation , ConchoCount y, TX, Issued Ma rch 15, 1996

We questioned approximately $1.2 million in wool andmohair price support payments to a family groupbecause the producer did not operate as reported toFSA. Not all of the producers were actively engaged infarming, they were not separate and distinct, and theirshares of a partnership were not properly reported toFSA. In addition, another producer’s farming operationwas not separate and distinct from the partnership. Werecommended that the agency determine whether themembers of the partnership and the other producershould be combined as one “person” for paymentlimitation purposes. We are working with FSA officialsto reach management decision.

17. Texas Agricultural Mediation ( TAM) Program,Issued March 29, 1996

The Texas Attorney General instructed Texas TechUniversity (TTU) officials to deny OIG access tomediation program records, asserting that such recordswere confidential under Texas law. We have issuedInspector General subpoenas to obtain the records, andlitigation in this matter is ongoing.

We identified a potential conflict of interest for three ofthe four full-time mediation program employees,excessive grant reimbursements totaling over $485,000,a TAM official claimed as a full-time employee of themediation program who was engaged in numerousother time-consuming duties, and questionable chargesfor training.

We recommended that the FSA Administrator cancel thecertification of the agricultural mediation programadministered by TTU and instruct the FSA Texas StateExecutive Director to implement an alternativemediation program (regulations already provide for sucha program) for Texas borrowers. We also recommend-ed that FSA recover the excessive grant funds, clarifythe extent and type of mediation training required tomeet the mediation program certification requirement,and evaluate the effectiveness of the agricultural loanmediation program by determining whether grant fundsare being used effectively. We continue to meet withthe FSA Administrator and other Department officials todiscuss resolution of these issues.

18. Cash/Share Lease Provisions, Issued March 29,1996

We recommended that FSA officials clarify andconsistently apply regulations prohibiting landlords fromusing combination leases requiring tenants to pay themany Government payments or price support benefitsearned by the tenant under FSA programs. We alsorecommended that FSA issue specific instructions thatwould prohibit landlords from receiving Governmentpayment or price support benefits earned by theirtenants. We are working with agency officials to reachmanagement decision.

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19. Disaster Assistance P rogram - 1994 , ThomasCount y, GA, Issued M ay 2, 1996

We found that 17 producers, involving 2 separate familyfarming operations and 1992 and 1993 paymentstotaling $2,145,533, appeared to have participated inschemes or devices to avoid maximum paymentlimitations. One family farming operation is underinvestigation, and FSA has been precluded from takingaction on these producers until investigative actions arecompleted. The FSA Georgia State office advised usthat it was acting on the other family farming operation.

20. State-Administered Mediation Programs, IssuedMarch 4, 1997

For Texas, Michigan, Minnesota, and North Dakota, werecommended that FSA recover $2.1 million as a resultof excessive and unsupported claims for reimbursement(includes almost $1 million recommended for recoveryin report No. 03801-15-Te, Texas Agricultural MediationProgram). We also recommended that FSA withholdFY 1997 and future grant funds until the State agenciesprovide access to all mediation records needed toevaluate the effectiveness of program operations anduse of grant funds. We are working with FSA to reachmanagement decision.

21. Operator Complianc e With Payment Eligibilityand/or Limitation Provisions in South Dakota,Issued Augus t 27, 1997

We reported that a producer, the producer’s spouse,and an associated corporation inaccurately reportedtheir interest in 1996 production flexibility payments and1995 conservation use for payment acres, bringing intoquestion payments totaling $61,459. We recommendedthat the county committee perform an end-of-yearpayment review and determine if the producers adopteda scheme or device to evade the payment limitationprovisions. The South Dakota State office agreed toinclude the entities in its end-of-year reviews. FSA,when conducting the review, determined that theproducer had already provided copies of pertinentdocumentation to OIG. As a result, OIG providedcopies of requested documents to the South DakotaState office in January 1998. We continue to work withthe agency to reach management decision.

22. Peanut Price Support Program, IssuedSeptembe r 29, 1997

We reported that FSA did not assess required penaltiesagainst handlers who remitted marketing assessmentfees late. FSA agreed with the recommendations toassess up to $9,401,964 in penalties for crop-years1995 and 1996. However, before the penalties can beassessed, FSA must complete a complex reconciliationprocedure and verify the fees were remitted late. Weare working with FSA to reach management decisionpending FSA’s assessments of the penalties.

23. Implementation of the Beginning FarmerProgram, Issued Februar y 24, 1998

We reported that FSA has been partially successful inimplementing the Beginning Farmer Loan Program(BFLP) but that a significant portion of the BFLP loanswere made to borrowers who did not meet the definitionof a beginning farmer. We recommended, in part, thatFSA inform county office personnel of the conditionsreported and require that coverage of these areas beprovided in future staff training. In addition, werecommended FSA request the guaranteed lender forone loan to prepare a new promissory note reflectingpayment terms specified in the conditional commitment.As part of the agreed-to corrective action, FSAcommitted to requesting the lender to correct thepayment terms for the cited loan. We are working withagency officials to reach management decision.

24. Emergency Disaster Loan Program -Mississippi, Issued Marc h 5, 1998

We reported excessive loan amounts totaling $111,026made to borrowers. The FSA State office is in theprocess of taking appropriate loan-servicing actions torecover the unauthorized assistance.

25. Emergency Disaster Loan Eligibilit y, IssuedMarch 10, 1998

In Oklahoma, contrary to law, 11 borrowers receivedcatastrophic risk protection (CAT) indemnity paymentsor Noninsured Crop Disaster Assistance Program (NAP)benefits totaling $98,512 along with emergency loanbenefits totaling $459,220 for the same losses. Further,all borrowers included in the review provided false orinaccurate information, and FSA county office personnel

49

mae errors computing six borrowers’ loans. As acumulative result of the inaccurate information anderrors, the borrowers received excess loan fundstotaling $314,217. Of the 13 borrowers who submittedfalse information, 8 have been referred to theU.S. attorney’s Affirmative Civil Enforcement Division forprosecution under the False Claims Act.

26. Noninsured C rop Disaster Assistance Paymentsfor 1996 Crop Losses in Florida, IssuedMarch 18, 1998

We questioned payments of $190,320 because countyoffice personnel incorrectly used the county-expectedyield rather than the approved yield to compute thepayments. We recommended that action be taken torecover the cited overpayments and that all other crop-year 1996 NAP payments be reviewed for accuracy.FSA determined that county office error caused theoverpayments, and the finality rule was applied to waivecollection. A management decision has been reachedfor all recommendations in the report except for the onerecommending a review to verify the accuracy of NAPpayments that were not included in our review.

27. Reorganization of Payment Limitation in HildagoCount y, TX, Issued Ma rch 31, 1998

We found that seven members of one family, including apresent county committee member and a former countycommittee member, did not, as they claimed, operate asseparate producers for crop-years 1996 and 1997, andwe questioned payments of over $500,000. FSA isdetermining whether the seven family members adopteda scheme or device. Upon that conclusion, FSA willneed to further address the recommendation and collectthe resultant overpayments.

28. Controls Over the Export of Meat and PoultryProducts, Issued May 23, 1997

FSIS’ current directive precludes FSIS inspectors fromopening, inspecting, and verifying the contents ofproduct containers presented for export unless thecontainers appear to be damaged. We believe that theabsence of such a control constitutes a material internalcontrol system weakness of FSIS’ food safety oversightresponsibility. FSIS officials proposed to resolve thematter by transferring the responsibility to AMS.However, before we can accept a managementdecision, FSIS needs to provide us with its proposed

corrective action plan addressing FSIS/AMS exportinspection procedures, responsibilities, and internalcontrols.

29. Conse rvation Rese rve Program Acrea geEnrollments - Signup 16, Issued Marc h 30, 1998

We reported that States experienced problems withexisting Environmental Benefits Index (EBI) softwarepackages. We recommended that NRCS solicit inputfrom each State as to the nature of its problem(s). Weconcur with the actions taken to implement therecommendation. We can reach management decisionwhen NRCS provides documentation of itsimplementation. We also reported that NRCS increasedthe risk of criticism to USDA by awarding producersoffering larger tracts of land additional EBI points. Werecommended that NRCS conduct an analysis todetermine whether producers have been deniedparticipation in the Conservation Reserve Program orother agency programs due to any associated farm sizerequirements.

30. Rio Grand e Valley Emp owerment Zone - Texas,Issued February 27, 1998

We recommended that Rural Development officialsensure that Rio Grande Valley Empowerment Zoneofficials take appropriate action on a grant-specific auditof a subrecipient that received over $500,000 inempowerment zone funds and failed to fulfill itscontractual obligations. The audit questioned use ofover $282,000 in program funds. We are working withRural Development to ensure there is a properaccounting for these funds.

31. Review of Controls in the Payroll/Personnel andTime and Attendance (T&A) System - Phase I,Issued March 25, 1998

We reported that additional procedure processes andcontrols were needed to more fully protect the payroll/personnel systems from errors or irregularities andrecommended that the Department implement internalcontrols to preclude the weaknesses noted in the report.Management decision is pending receipt of informationfrom the Acting Assistant Secretary for Administrationand OCFO advising as to the specific actions that havebeen taken and/or planned regarding Departmentalguidance for payroll/personnel management, redesignof T&A business processes, reports management and

50

related training, and improvement of controls over theVoluntary Leave Transfer Program, including relatedtimeframes for completion.

A reply was due July 30, 1998, from DepartmentalAdministration, and we are working with the audit liaisonfor the Acting Assistant Secretary for Administration toobtain and evaluate it to reach management decision onthe outstanding recommendations.

32. Intermediary Relending Program, IssuedMarch 31, 1997

We recommended that the Rural Business-CooperativeService (RBS) notify relenders that 17 loans totaling$1.4 million were for ineligible purposes and initiateaction to recover the loan funds; determine whetheranother 22 questioned loans totaling $1.6 million metprogram guidelines, loan agreements, and workplans;and for those loans that did not meet eligibilityrequirements, initiate action to recover the funds fromthe relenders. We also recommended that RBSdetermine if five loans totaling $750,000 which involvedconflicts of interest should be recovered. The agencyreviewed the cited loans; however, proposed actionswere insufficient to reach a management decision on allrecommendations. We continue to work with theagency to obtain the information needed to reach amanagement decision.

33. Evaluation o f Tenant Incom e VerificationProcess, Issued March 26, 1998

We recommended that RRH management companiesrecover improper rental assistance and interest creditsubsidies from audit sample tenants who inaccuratelyreported income information. RHS officials have statedthey have no disagreements with the auditrecommendations and are currently evaluatingalternatives for implementing corrective action andtimeframes for completing those actions.

34. Reinsured Companies ’ Actual P roductionHistory (APH) Self-Reviews, Septembe r 30, 1997

We recommended that RMA take action to ensure thatAPH’s are corrected in all data bases, track and ensurethe receipt of APH results, perform tests to determinethe accuracy of past results, and establish a system ofrewards and penalties for APH accuracy. We have

reached management decisions on three of the sixrecommendations and are continuing to work with RMAto reach management decision on the remaining threerecommendations.

35. Crop Insurance on Fresh Marke t Tomatoes,Issued September 30, 1997

The audit disclosed that the Fresh Market Tomato CropInsurance Program in Florida has been poorly managedby the reinsured companies and abused by salesagents, loss adjusters, and producers. Reinsuredcompanies paid indemnities for (1) abandoned crops,(2) losses outside the insured period, (3) crops plantedon wetlands, and (4) under/nonreported production. Wealso found two sales agents of reinsured companieswho received almost $400,000 in commissions for cropinsurance policies sold to producers in conflict-of-interest situations. The report included 13 recommen-dations addressing the problems disclosed. We arecurrently evaluating RMA’s latest response to the auditand continue to work with RMA to reach managementdecision on the 13 recommendations.

36. Crop Insurance Claims in the Midwest, IssuedNovember 25, 1997

We reviewed 7 policies, involving 3 producers filing12 loss claims on corn, cranberries, potatoes, andsoybeans. The review disclosed that seven of theindemnity payments were incorrect. Six of theseresulted in overpayments, totaling about $725,000,because optional units were improperly used tocalculate indemnity payments. The remaining claimwas underpaid $449. We are evaluating RMA’s latestresponse and continue to work with RMA to reachmanagement decision on the audit recommendations.

37. Transfer of Catast rophic Risk P rotection (C AT)Policies to Reinsured Companies, IssuedMarch 3, 1998

Our audit of the first transfer of CAT policies showedthat RMA, FSA, and private insurance companies didnot effectively coordinate their activities. Specifically,we found that producers did not always receiveadequate local agent servicing, the needs of limitedresource producers were not addressed, and RMA’sevaluation process did not fully assess the effectivenessof CAT program servicing. RMA concurred with the

51

recommendations but generally proposed or offeredactions that did not address the recommendations.RMA has not responded to the audit since it was issued.We are continuing to work with RMA to reachmanagement decision on the four recommendationsthat are still open.

38. Alternative Agricultural Resea rch andCommercialization (AARC) CooperativeAgreemen t With Ag roFibers , Inc. , IssuedSeptember 30, 1996

The AARC Corporation awarded $800,000 to acompany to develop, manufacture, and market kenaf(papyrus grass) nonwoven mat products. Our auditdisclosed that, after 5 years, the company had only$100 equity in the business and had misrepresented itsfinancial position. Soon after our visit to the site, theplant burned to the ground. The AARC Corporation hastaken action to improve its project management andagreed to apply due diligence in future arrangementswith the company. The U.S. attorney recentlyconcluded that criminal or civil prosection was notwarranted. OIG is currently presenting the case to theDepartment of Justice for civil fraud prosecution.

39. Child and Adult Care Food P rogram - SponsorAbuses, Issued Septembe r 22, 1997

The sponsor reviewed is under investigation, and werecommended that the sponsor be terminated from theprogram. FNS concurs with this recommendation;however, OGC is working with us to determine theconditions for termination. FNS will act upon OGC’sdecision. We also need to be advised when claims areestablished. FNS can take no action until theinvestigation is complete.

40. Research Cooperative and Cost ReimbursableAgreements, Issued Marc h 31, 1997

We recommended FS recover about $469,000 ofadministrative overhead expenses that had beenincorrectly reimbursed to a university. FS has requireda legal review by OGC before determining the correctiveactions it will take. No action will be taken prior to anOGC opinion regarding this matter.

41. Disaster Program, Nonprogram Crops, MitchellCount y, GA, Issued Septembe r 30, 1993

We found that disaster payments on nonprogram crops,primarily squash, were not proper because producershad reported incorrect or questionable information thatcounty staff accepted even though, in many cases,other readily available data would have shown thatinaccurate information was provided. FSA officialsagreed with our recommendations. However, claimscannot be established until all investigative actions arecomplete.

42. Disaster Assistance P rogram , Jackson Count y,FL, Issued Marc h 2, 1995

We identified program payments of $359,265 resultingfrom suspected intentional program violations byproducers. FSA officials agreed with ourrecommendations. However, claims cannot beestablished until investigative actions are completed.

43. Disaster Assistance P rogram , 1993 Nonp rogramCrops , Yuba Count y, CA, Issued Ma rch 31, 1995

One recommendation is without management decision.After two producers had settled with plea agreements,OIG/Investigations referred the two producers to theFSA State office for administrative action.Subsequently, the county committee determined thatthe producers acted in good faith on a farmingoperation; this decision was affirmed by the FSA Stateand national offices. However, we strongly disagreedwith FSA’s interpretation, and we concluded that, basedon signed statements by the producers, the countyoffice should have collected all payments on the farmingoperation. After discussing this with a regional counselon May 11, 1998, we referred the issue to OGC for alegal opinion. We are still awaiting a response fromOGC.

44. Large Operators ’ Complianc e With PaymentLimitation P rovisions in Stephenson Count y, IL,and Ro ck Count y, WI, Issued September 7 , 1995

We found that a producer and an individual adopted ascheme to evade application of the maximum paymentlimitation provisions and received excessive paymentsof $165,069. FSA agreed with our recommendations;however, claims cannot be established untilinvestigative actions are completed.

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45. A&B Professional Consulting, Inc., IssuedSeptember 7, 1995

We identified program payments of $628,976 resultingfrom suspected intentional program violations byproducers. FSA officials agreed with ourrecommendations; however, claims cannot beestablished until review is completed by the U.S.attorney.

46. Disaster Assistance Payments - Laude rdale, TN,Issued September 28, 1995

Our review disclosed questionable payments totaling$1,890,622, including $1,523,918 for disaster paymentsand $366,704 for other program payments obtained byproducers who participated in schemes to evadedisaster payment limitation provisions. FSA officialsagreed with our recommendations and assembled ateam to review the payments; however, claims cannotbe established until investigative actions are completed.

47. Crop Disaster - Brooks/Jim Hogg, TX, IssuedJanuary 2, 1996

Twenty-seven cases have been referred forinvestigation for possible criminal prosecution, and wequestioned payments to two producers. Werecommended that FSA take administrative action;however, claims cannot be established until theinvestigative actions are completed.

48. Emergency Feed P rogram i n Texas, IssuedSeptember 18, 1996

We recommended recovery of program overpaymentstotaling $214,267 from producers in two counties. TheState office has begun corrective action to collect theoverpayments in one of the counties. Due to ongoinginvestigations, the State executive director was notifiednot to take administrative action against the producersin the other county because it might interfere with legalactions.

49. 1994 Disaster Assistance P rogram - Main e,Issued September 30, 1996

The report identified 21 producers who providedinaccurate information and received excessive disasterpayments of $1.6 million. We also reported that theState committee, acting without approval, improperlyestablished the payment rate and yield used in thecomputation of 1994 potato disaster payments, resultingin Maine producers being overcompensated byapproximately $887,443. We recommended that theagency take steps to recover overpayments in thosecases for which they were not prohibited from takingaction pending the conclusion of the investigativeactions. The agency response indicated concurrencewith the recommendation, but the agency hasdetermined that no action should be taken until theinvestigations are complete.

50. Emergency Disaster Loan Eligibility inArkansas, Issued March 27, 1997

This report identified one borrower who falsifiedinformation to qualify for excessive loan funds and twoborrowers who did not qualify for the excessive loansdue to excessive resources. We also identified nineborrowers where excessive loans were made due toagency errors in determining qualified disaster losses.We recommended that FSA take administrative action;however, claims against the borrower who falsifiedinformation cannot be established until the investigativeactions are completed.

51. Emergency Disaster Loan Program in California,Issued Decembe r 4, 1997

We reported that several producers in Monterey andTulare Counties received duplicate emergency loansand NAP payments for the same disaster. Werecommended that the FSA State office instruct allAgricultural Credit Offices to review their emergencyloans and NAP payment records for other producerswho may have received duplicate benefits and take theappropriate corrective actions. The FSA State officecontends that the recommendations would impose anundue hardship on the producers. FSA is seekingadvice from OGC. The FSA State office informed us onAugust 17, 1998, that OGC is reviewing the matter.

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52. Rural Rental Housing (RRH) ProjectOperations - Cato Compa ny, Michigan,Issued May 2, 1996

The management company charged RRH projects$215,631 in unsupported and unallowable operatingcosts. The unallowable costs included expenditures fortraining, travel, bookkeeping fees, and office equipmentpurchases. In addition, the management company usedanother firm with an undisclosed identity of interest topurchase supplies and other items for its projects.These unallowable costs totaled $19,867. Werecommended that the borrower reimburse the projectsfor $235,498 in unallowable and unsupported chargesmade to RRH projects. In accordance with ourinstructions, RHS has suspended corrective actionpending completion of an ongoing investigation.

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Between April 1 and September 30, 1998, OIGcompleted 421 investigations. We referred 308 casesto Federal, State, and local prosecutors for theirdecision.

During the reporting period, our investigations led to488 indictments and 333 convictions. The period oftime to obtain court action on an indictment varieswidely; therefore, the 333 convictions do not necessarilyrelate to the 488 indictments. Fines, recoveries/collections, administrative penalties, restitutions, claimsestablished, and cost avoidance resulting from ourinvestigations totaled about $42.8 million.

The following is a breakdown, by agency, of indictmentsand convictions for the reporting period.

Indictments and Convictions

Indictments and ConvictionsApril 1 - September 30, 1998

Agency Indictments Convictions *

AMS 47 6APHIS 14 4ARS 0 1FAS 4 2FSA 29 30FNS 334 254FS 0 2FSIS 4 6GIPSA 5 3NRCS 1 1RHS 5 6RMA 9 0RUS 8 0SEC 24 18Other** 4 0

___ ___Totals 488 333

* This category includes pretrial diversions.** This category includes cases involving multiple agencies (one

indictment) and non-USDA/affiliated agencies (three indictments).

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The OIG Hotline serves as a national receiving point forreports from both employees and the general public ofsuspected incidents of fraud, waste, mismanagement,and abuse in USDA programs and operations. Duringthis reporting period, the OIG Hotline received1,215 complaints, which included allegations ofparticipant fraud, employee misconduct, andmismanagement, as well as opinions about USDAprograms. Figure 4 displays the volume and type of thecomplaints we received, and figure 5 displays thedisposition of those complaints.

The Office of Inspector General Hotline

Hotline ComplaintsApril 1 to September 30, 1998(Total = 1,215)

Disposition of ComplaintsApril 1 to September 30, 1998

Figure 4 Figure 5

ParticipantFraud771

Bribery2

Health/Safety

19Opinion/

Information148

EmployeeMisconduct

176

Waste/Management

96

Referred toFNS for Tracking

352

Referred toUSDA Agencies

for Response326

ComplaintReferred to

State Agency157

Referred toOther Law

EnforcementAgencies

19

Referred toOIG Audit orInvestigations

for Review80

Filed WithoutReferral-

InsufficientInformation

29

Referred toUSDA or Other

Agencies for Information-No Response Needed

252

Reprisal3

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Number of FOIA/ PA Requests Received 309

Number of FOIA/ PA Requests P rocessed: 305

Number of Requests Granted in Full 137 Number of Requests Granted in Part 112 Number of Requests Not Granted 56

Reasons for Denial:

No Records Available 20 Requests Denied in Full 21 Referrals 15_______________________________________________

Requests for OIG Reports From Congressand Other G overnment A gencies

Received 114 Processed 113_______________________________________________

Appeals Processed 7

Appeals Granted 0 Appeals Denied in Full 5 Appeals Denied in Part 2_______________________________________________

Number of OIG Reports Released 321in Response to Requests

NOTE: A request may involve more than one report.

Freedom of Information Act (FOIA) and Privacy Act (PA) Requests for the Period April␣ 1 toSeptember␣ 30, 1998

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INVENTORY OF AUDIT REPORTS ISSUEDWITH QUESTIONED COSTS AND LOANS

DOLLAR VALUES

QUESTIONED UNSUPPORTED *NUMBER COSTS AND LOANS COSTS AND LOANS

A. FOR WHICH NO MANAGEMENT 69 $560,012,559 $149,157,565DECISION HAD BEEN MADEBY SEPTEMBER 30, 1998

B. WHICH WERE ISSUED DURING 56 34,200,634 12,612,432THIS REPORTING PERIOD

TOTALS 125 $594,213,193 $161,769,997

C. FOR WHICH A MANAGEMENT 50DECISION WAS MADE DURINGTHIS REPORTING PERIOD

(1) DOLLAR VALUE OFDISALLOWED COSTS

RECOMMENDED FOR RECOVERY $12,057,372 $860,326

NOT RECOMMENDED FOR RECOVERY $36,526,447

(2) DOLLAR VALUE OF 132,719,919 123,327,295COSTS NOT DISALLOWED

D. FOR WHICH NO MANAGEMENT 75 413,931,298 37,582,376DECISION HAS BEEN MADE BYTHE END OF THIS REPORTINGPERIOD

REPORTS FOR WHICH NO 42 381,855,280 25,187,180MANAGEMENT DECISION WASMADE WITHIN 6 MONTHSOF ISSUANCE

* Unsupported values are included in questioned values.

Appendix I

58

INVENTORY OF AUDIT REPORTS ISSUEDWITH RECOMMENDATIONS THAT FUNDS BE PUT TO BETTER USE

NUMBER DOLLAR VALUE

A. FOR WHICH NO MANAGEMENT 22 $5,420,425,577DECISION HAD BEEN MADEBY SEPTEMBER 30, 1998

B. WHICH WERE ISSUED DURING 10 7,331,905,976THE REPORTING PERIOD

TOTALS 32 $12,752,331,553

C. FOR WHICH A MANAGEMENT 12DECISION WAS MADE DURINGTHE REPORTING PERIOD

(1) DOLLAR VALUE OF $5,343,407,301DISALLOWED COSTS

(2) DOLLAR VALUE OF 1,166,215COSTS NOT DISALLOWED

D. FOR WHICH NO MANAGEMENT 20 7,407,758,037DECISION HAS BEEN MADE BYTHE END OF THE REPORTINGPERIOD

REPORTS FOR WHICH NO 11 76,101,927MANAGEMENT DECISION WASMADE WITHIN 6 MONTHSOF ISSUANCE

Appendix II

59

SUMMARY OF AUDIT REPORTS RELEASEDBETWEEN APRIL 1 AND SEPTEMBER 30 , 1998

DURING THE 6-MONTH PERIOD BETWEEN APRIL 1 AND SEPTEMBER 30, 1998, THE OFFICE OF INSPECTORGENERAL ISSUED 108 AUDIT REPORTS AND EVALUATIONS, INCLUDING 7 PERFORMED BY OTHERS.

THE FOLLOWING IS A SUMMARY OF THOSE REPORTS BY AGENCY:

QUESTIONED UNSUPPORTEDa FUNDS BE PUTREPORTS COSTS COSTS PUT TO

AGENCY RELEASED AND LOANS AND LOANS BETTER USE

AGRICULTURAL MARKETING SERVICE 2 $180,823AGRICULTURAL RESEARCH SERVICE 2FARM SERVICE AGENCY 18 $6,128,518RURAL HOUSING SERVICE 8 $272,467 $190,049 $2,669RISK MANAGEMENT AGENCY 3 $126,787 $7,909COMMODITY CREDIT CORPORATION 1FOREIGN AGRICULTURAL SERVICE 2FOREST SERVICE 10 $6,115,608 $5,224,986 $7,329,073,925RURAL UTILITIES SERVICE 1NATURAL RESOURCES CONSERVATION

SERVICE 3 $17,728 $974,127COOPERATIVE STATE RESEARCH, EDUCATION, 1 $1,239,314 $1,239,314 $185,669

AND EXTENSION SERVICEOFFICE OF OPERATIONS 1 $249,866FOOD AND NUTRITION SERVICE 24 $16,090,629 $3,093,185 $802,677ANIMAL AND PLANT HEALTH 1

INSPECTION SERVICERURAL BUSINESS-COOPERATIVE SERVICE 2MULTIAGENCY 28 $4,028,760 $2,856,989 $617,043CIVIL RIGHTS 1

TOTALS 108 $34,200,634 $12,612,432 $7,331,905,976

TOTAL COMPLETED:SINGLE AGENCY AUDIT 63MULTIAGENCY AUDIT 27SINGLE AGENCY EVALUATION 17MULTIAGENCY EVALUATION 1

TOTAL RELEASED NATIONWIDE 108

TOTAL COMPLETED UNDER CONTRACT b 7

TOTAL SINGLE AUDIT ISSUED c 24

a Unsupported values are included in questioned valuesb Indicates audits performed by othersc Indicates audits completed as Single Audit

Appendix III

60

AUDIT REPORTS RELEASED AND ASSOCI ATED MONETARY VALUESBETWEEN APRIL 1 AND SEPTEMBER 30 , 1998

QUESTIONED UNSUPPORTED FUNDS BE AUDIT NUMBER COSTS COSTS PUT TO RELEASE DATE TITLE AND LOANS AND LOANS BETTER USE

AGRICULTURAL MARKETING SERVICE

01-001-0003-CH NATIONAL FLUID MILK PROCESSOR PROMOTION 1998/09/24 PROGRAM 01-005-0001-HY PUERTO RICO FEDERAL-STATE AMS INSPECTION $180,823 1998/09/10 PROGRAM

TOTAL: AGRICULTURAL MARKETING SERVICE 2 $180,823

AGRICULTURAL RESEARCH SERVICE

02-017-0013-HY BURNS AND ROE 1997 LABOR REVIEW 1998/04/27 02-017-0014-HY DCAA AUDIT OF BIONETICS CORPORATION FY 1991, 1998/05/20 1992, AND 1993 INCURRED COSTS

TOTAL: AGRICULTURAL RESEARCH SERVICE 2

FARM SERVICE AGENCY

03-001-0003-AT ASSESSMENTS FOR STORED TOBACCO 1998/08/20 03-004-0008-KC EMERGENCY DISASTER LOAN ELIGIBILITY $96,666 1998/07/08 03-006-0009-CH EMERGENCY DISASTER LOANS - EFFINGHAM CO., IL $1,330 1998/05/05 03-006-0011-CH EMERGENCY DISASTER LOANS - GRUNDY CO., IL $43,720 1998/06/25 03-006-0012-CH EMERGENCY DISASTER LOANS - LASALLE CO., IL 1998/05/04 03-012-0001-AT REVIEW OF CCC OPERATIONS 1998/09/25 03-099-0020-TE WOOL AND MOHAIR PAYMENT LIMITATION $2,432,120 1998/09/30 IN VAL VERDE COUNTY, TX 03-099-0021-TE 1997 FOUNDATION LIVESTOCK RELIEF PROGRAM IN $785 1998/08/18 NEW MEXICO 03-099-0022-TE REVIEW OF GUARANTEED LOAN APPLICATION IN 1998/08/21 LINCOLN COUNTY, AR 03-099-0027-KC EMERGENCY DISASTER RELIEF ASSISTANCE FOR $2,543,916 1998/07/02 LIVESTOCK 03-099-0029-KC LIVESTOCK INDEMNITY PROGRAM $217,546 1998/08/24 03-601-0024-TE NONINSURED ASSISTANCE PROGRAM PAYMENTS FOR $109,776 1998/06/11 1996 CROP YEAR LOSSES 03-601-0026-TE NONINSURED CROP DISASTER ASSISTANCE PAYMENTS $110,551 1998/06/24 FOR 1996 CROP LOSSES IN GEORGIA 03-601-0030-TE EMERGENCY LOAN PROGRAM $1 1998/09/25 03-801-0006-CH EVALUATION OF STATE ADMINISTERED MEDIATION 1998/04/01 PROGRAM - WISCONSIN 03-801-0034-TE EMPLOYEE DEBT FORGIVENESS 1998/06/30 03-801-0035-TE PROCESSING OF A FARM LOAN PROGRAMS DEBT $572,107 1998/07/08 SETTLEMENT PROPOSAL - YORK COUNTY, PA 03-801-0036-TE REEVES COUNTY OFFICE OPERATIONS - TEXAS 1998/04/30

TOTAL: FARM SERVICE AGENCY 18 $6,128,518

61

AUDIT REPORTS RELEASED AND ASSOCI ATED MONETARY VALUESBETWEEN APRIL 1 AND SEPTEMBER 30 , 1998

QUESTIONED UNSUPPORTED FUNDS BE AUDIT NUMBER COSTS COSTS PUT TO RELEASE DATE TITLE AND LOANS AND LOANS BETTER USE

RURAL HOUSING SERVICE

04-099-0001-CH RRH PROJECT OPERATIONS - BETA MANAGEMENT, INC. $43,985 1998/04/14 04-099-0001-SF FARM LABOR HOUSING AND RENTAL ASSISTANCE 1998/06/18 SURVEY 04-099-0004-HY MOUNTAIN VIEW ESTATES RRH PROJECT - VERMONT $180,625 $167,408 1998/08/28 04-801-0002-AT RRH TENANT INCOME VERIFICATION $22,641 $22,641 1998/04/28 04-801-0002-HY EVALUATION OF RRH TENANT INCOME VERIFICATION $16,102 1998/07/30 PROCESS 04-801-0002-SF SELF-HELP HOUSING PROGRAM - GRIZZLY HOLLOW 1998/08/10 PROJECT, GALT, CA 04-801-0007-SF RRH PROGRAM - BUCKINGHAM PROPERTIES, $8,401 1998/09/24 FRESNO, CA 04-801-0013-TE RRH INITIATIVE - GREEN DEVELOPMENT, OKLAHOMA $713 $2,669 1998/09/10

TOTAL: RURAL HOUSING SERVICE 8 $272,467 $190,049 $2,669

RISK MANAGEMENT AGENCY

05-099-0001-FM EVALUATION OF MANAGEMENT AND CONTROL OF 1998/05/08 SOFTWARE 05-099-0002-KC QUALITY CONTROL FOR CROP INSURANCE 1998/07/14 DETERMINATIONS 05-601-0001-KC CROP INSURANCE CLAIMS $126,787 $7,909 1998/04/10

TOTAL: RISK MANAGEMENT AGENCY 3 $126,787 $7,909

COMMODITY CREDIT CORPORATION

06-401-0007-FM FISCAL YEAR 1997 CCC FINANCIAL STATEMENTS 1998/07/13

TOTAL: COMMODITY CREDIT CORPORATION 1

FOREIGN AGRICULTURAL SERVICE

07-099-0002-HY SURVEY OF THE SUPPLIER CREDIT GUARANTEE 1998/07/07 PROGRAM 07-801-0001-AT INTERNATIONAL TRADE POLICY PROCEDURES 1998/08/21

TOTAL: FOREIGN AGRICULTURAL SERVICE 2

FOREST SERVICE

08-003-0002-SF HUMBOLDT-TOIYABE NATIONAL FOREST $27,900,000 1998/08/05 LAND ADJUSTMENT PROGRAM 08-003-0004-SF IMPROVEMENTS ON THE ZEPHYR COVE LAND EXCHANGE 1998/08/26 08-005-0001-HY STATE AND PRIVATE FORESTRY GRANTS 1998/07/31 08-017-0002-HY SETA CORPORATION INCURRED COSTS AUDIT 1998/08/27 FYE 12/31/94 THROUGH 12/31/96

62

AUDIT REPORTS RELEASED AND ASSOCI ATED MONETARY VALUESBETWEEN APRIL 1 AND SEPTEMBER 30 , 1998

QUESTIONED UNSUPPORTED FUNDS BE AUDIT NUMBER COSTS COSTS PUT TO RELEASE DATE TITLE AND LOANS AND LOANS BETTER USE

08-017-0009-SF CONTRACT MODIFICATION PROPOSAL, GASCHLER-HILL $191,507 $90,188 1998/06/30 INVESTMENTS, L.L.C. 08-099-0003-CH INFRASTRUCTURE MAINTENANCE ON NATIONAL FOREST 1998/07/09 LANDS 08-401-0007-AT FISCAL YEAR 1997 FS FINANCIAL STATEMENTS 1998/07/13 08-801-0002-TE ASSISTANCE AGREEMENTS TO NONPROFIT $5,924,101 $5,134,798 $1,173,925 1998/09/24 ORGANIZATIONS 08-801-0003-HQ FOREST SERVICE MAINTENANCE BACKLOG $7,300,000,000 1998/06/15 08-801-0004-HQ FOREST SERVICE - RETROACTIVE REDISTRIBUTION 1998/08/19

TOTAL: FOREST SERVICE 10 $6,115,608 $5,224,986 $7,329,073,925

RURAL UTILITIES SERVICE

09-401-0003-FM FISCAL YEAR 1997 RUS/RTB 1998/06/04 FINANCIAL STATEMENT AUDIT

TOTAL: RURAL UTILITIES SERVICE 1

NATURAL RESOURCES CONSERVATION SERVICE

10-017-0001-HY CLAIMS AUDIT - CONTI ENTERPRISES $974,127 1998/07/30 10-601-0002-KC EMERGENCY WATERSHED PROTECTION PROGRAM PILOT 1998/08/13 FOR THE PURCHASE OF FLOODPLAIN EASEMENTS 10-801-0002-TE GREAT PLAINS CONSERVATION PROGRAM EVALUATION $17,728 1998/04/10 HOWARD COUNTY, TX

TOTAL: NATURAL RESOURCES CONSERVATION SERVICE 3 $17,728 $974,127

COOPERATIVE STATE RESEARCH, EDUCATION AND EXTENSION SERVICE

13-011-0002-TE USE OF CSREES GRANT FUNDS BY PRAIRIE VIEW A&M $1,239,314 $1,239,314 $185,669 1998/09/30 UNIVERSITY, PRAIRIE VIEW, TX

TOTAL: COOPERATIVE STATE RESEARCH, EDUCATION 1 $1,239,314 $1,239,314 $185,669 AND EXTENSION SERVICE

OFFICE OF OPERATIONS

23-801-0001-HQ REVIEW OF OO’S CONTRACT WITH B&G $249,866 1998/08/20 BUILDING MAINTENANCE

TOTAL: OFFICE OF OPERATIONS 1 $249,866

FOOD AND NUTRITION SERVICE

27-002-0012-CH ACCOUNTABILITY FOR FOOD STAMPS PROVIDED TO $370,545 $122,989 1998/05/13 STATE LAW ENFORCEMENT BUREAUS 27-004-0003-CH ADMINISTRATION OF THE FOOD STAMP EMPLOYMENT & $2,921,556 1998/08/13 TRAINING PROGRAM IN OHIO 27-004-0006-HY NUTRITION EDUCATION COSTS CHARGED TO THE WIC $4,126,822 1998/09/10 PROGRAM - PUERTO RICO 27-010-0001-KC NATIONAL INITIATIVE TO IDENTIFY PROBLEM $12,234 1998/08/19 SPONSORS - CACFP

63

AUDIT REPORTS RELEASED AND ASSOCI ATED MONETARY VALUESBETWEEN APRIL 1 AND SEPTEMBER 30 , 1998

QUESTIONED UNSUPPORTED FUNDS BE AUDIT NUMBER COSTS COSTS PUT TO RELEASE DATE TITLE AND LOANS AND LOANS BETTER USE

27-010-0006-SF CACFP - FEEDING ARIZONA KID, INC., $45,409 1998/04/21 PHOENIX, AZ 27-010-0007-SF CACFP - B J ENTERPRISES, INC., $8,322 1998/06/15 SCOTTSDALE, AZ 27-010-0009-SF CACFP - C.B.I.A., INC., PASADENA, CA $462,387 1998/09/23 27-010-0013-HY CHILD AND ADULT CARE FOOD PROGRAM - SPONSOR $353,823 1998/09/29 ABUSES 27-010-0013-SF CACFP - CHILDREN’S SPECTRUM, YUCCA VALLEY, $231,371 1998/07/10 CA 27-010-0015-HY DISTRICT OF COLUMBIA NSLP $7,441,944 $2,950,142 1998/08/28 27-010-0020-HY CACFP - CHILDREN’S BEST INTERESTS, INC. $15,756 1998/09/03 27-017-0015-HY ABT ASSOCIATES, INC., 1994 INCURRED COST AUDIT $1,414 $1,414 1998/07/30 27-099-0008-TE FOOD SERVICE MANAGEMENT COMPANY CONTRACTS 1998/07/24 27-099-0009-TE CACFP - SOUTHEAST ARKANSAS COMMUNITY ACTION $322 1998/07/16 CORP., WARREN, AR 27-401-0011-HY FOOD AND NUTRITION SERVICE FISCAL YEAR 1997 1998/05/21 FINANCIAL STATEMENTS 27-601-0004-AT CACFP - CAPE FEAR TUTORING, INC., WILMINGTON, $355 1998/09/04 NC 27-601-0005-AT STRATEGIC MONITORING OF EBT SYSTEM DEVELOP- $20,179 1998/09/22 MENT, PHASE IV - ALABAMA 27-601-0005-TE CHILD AND ADULT CARE FOOD PROGRAM IN $63,014 $18,640 $736,278 1998/08/13 LOUISIANA 27-601-0006-TE CHILD AND ADULT CARE FOOD PROGRAM IN ARKANSAS 1998/09/25 27-601-0010-HY AUDIT OF THE FOOD STAMP REDEMPTION 1998/07/22 ACCOUNTABILITY PROGRAM 27-601-0010-KC FOOD STAMP STORES SWEEP $66,399 1998/09/29 27-601-0017-CH CHILD AND ADULT CARE FOOD PROGRAM - YWCA OF $14,309 1998/09/03 CHICAGO, IL 27-601-0018-CH CHILD AND ADULT CARE FOOD PROGRAM - HUMAN $867 1998/09/21 DEVELOPMENT CENTER, HARVEY, IL 27-801-0003-TE OKLAHOMA EBT SYSTEM DEVELOPMENT 1998/09/29

TOTAL: FOOD AND NUTRITION SERVICE 24 $16,090,629 $3,093,185 $802,677

ANIMAL AND PLANT HEALTH INSPECTION SERVICE

33-099-0002-CH MONITORING OF REGISTERED CARRIERS AND 1998/08/24 INTERMEDIATE HANDLERS

TOTAL: ANIMAL AND PLANT HEALTH INSPECTION SERVICE 1

RURAL BUSINESS-COOPERATIVE SERVICE

34-004-0002-CH BUSINESS AND INDUSTRY LOAN PROGRAM - 1998/04/16 MINNESOTA 34-601-0001-HY BUSINESS AND INDUSTRY LOANS - FINANCIAL 1998/07/22 STATEMENT ANALYSIS

TOTAL: RURAL BUSINESS-COOPERATIVE SERVICE 2

64

AUDIT REPORTS RELEASED AND ASSOCI ATED MONETARY VALUESBETWEEN APRIL 1 AND SEPTEMBER 30 , 1998

QUESTIONED UNSUPPORTED FUNDS BE AUDIT NUMBER COSTS COSTS PUT TO RELEASE DATE TITLE AND LOANS AND LOANS BETTER USE

MULTIAGENCY

50-018-0003-TE DESK REVIEW OF ARKANSAS STATE FORESTRY 1998/06/22 COMMISSION SINGLE AUDIT FYE 6/30/96 50-018-0010-SF A-133 STATE OF HAWAII, DEPARTMENT OF 1998/07/23 AGRICULTURE, FYE 6/30/97 50-019-0019-HY TOWN OF THOMASTON, ME, SINGLE AUDIT, A-128, 1998/06/17 FYE 6/30/96 50-020-0031-AT A-128 AUDIT OF THE STATE OF ALABAMA FOR 1998/08/20 FYE 9/30/96 50-020-0039-KC A-128 STATE OF MONTANA $4,576 1998/06/11 50-020-0040-KC A-128 STANDING ROCK SIOUX FY 1996 $4,059 $4,059 1998/06/15 50-020-0041-KC A-128 INTERTRIBAL AGRICULTURE COUNCIL $2,477 $2,477 1998/06/11 50-020-0042-KC A-128 NORTHERN CHEYENNE TRIBE $1,526 1998/06/11 50-020-0053-HY COMMONWEALTH OF VIRGINIA, A-128, SFYE 6/30/96 $114,688 1998/04/17 50-020-0054-HY STATE OF RHODE ISLAND, A-128, SFYE 06/30/96 1998/04/29 50-020-0055-HY STATE OF MAINE, A-128, SFYE 06/30/96 $1,402 1998/04/30 50-020-0056-HY STATE OF NEW JERSEY, A-128, SFYE 06/30/96 $769 1998/04/30 50-020-0057-HY STATE OF MARYLAND, A-128, SFYE 06/30/96 1998/05/11 50-020-0058-HY STATE OF VERMONT, A-128, 6/30/96 $10 1998/04/17 50-020-0059-HY STATE OF DELAWARE, A-128, 6/30/96 1998/04/17 50-020-0061-HY GOVERNMENT OF THE U.S. VIRGIN ISLANDS $246,002 1998/05/27 A-128, SFYE 9/30/94 50-020-0061-SF A-133 AUDIT REPORT - GUAM TELEPHONE AUTHORITY 1998/04/30 FYE 09/30/97 50-020-0062-HY STATE OF NEW YORK SINGLE AUDIT, A-128 1998/05/12 03/31/96 50-020-0062-SF A-128 AUDIT - COMMONWEALTH OF THE NORTHERN $3,386 1998/06/12 MARIANA ISLANDS - FYE 9/30/95 50-020-0063-HY STATE OF CONNECTICUT SINGLE AUDIT, A-128 $167,093 1998/05/22 SFYE 06/30/96 50-020-0063-SF A-128 AUDIT - COMMONWEALTH OF THE NORTHERN $1,315 1998/06/12 MARIANA ISLANDS - FYE 9/30/96 50-020-0064-HY STATE OF NEW HAMPSHIRE SINGLE AUDIT, A-128 $273,527 $273,527 1998/07/10 SFYE 06/30/96 50-020-0065-HY INDIAN TOWNSHIP TRIBAL GOVERNMENT, $762 1998/06/17 SINGLE AUDIT, A-128, FYE 6/30/96 50-022-0004-HY NATIONAL COUNCIL OF AGRICULTURAL EDUCATION, 1998/06/17 SINGLE AUDIT, A-133, FYE 6/30/96 50-401-0021-FM RURAL DEVELOPMENT FINANCIAL STATEMENT AUDIT 1998/05/29 50-401-0024-FM FISCAL YEAR 1997 USDA FINANCIAL STATEMENTS 1998/07/16 50-601-0005-AT FACILITIES CONSTRUCTION GRANTS $3,207,168 $2,576,926 $617,043 1998/09/30 50-801-0005-FM MATERIAL CONTROL WEAKNESSES WILL CONTINUE TO 1998/06/02 IMPACT DEPARTMENTAL FINANCIAL OPERATIONS

TOTAL: MULTIAGENCY 28 $4,028,760 $2,856,989 $617,043

65

AUDIT REPORTS RELEASED AND ASSOCI ATED MONETARY VALUESBETWEEN APRIL 1 AND SEPTEMBER 30 , 1998

QUESTIONED UNSUPPORTED FUNDS BE AUDIT NUMBER COSTS COSTS PUT TO RELEASE DATE TITLE AND LOANS AND LOANS BETTER USE

CIVIL RIGHTS

60-801-0001-HQ EVALUATION OF CR EFFORTS TO REDUCE 1998/09/30 COMPLAINTS BACKLOG

TOTAL: CIVIL RIGHTS 1

TOTAL: RELEASE - NATIONWIDE 108 $34,200,634 $12,612,432 $7,331,905,976

Abbreviations of Organizations

AARC Alternative Agricultural Research and Commercialization (Corporation)AMS Agricultural Marketing ServiceAPHIS Animal and Plant Health Inspection ServiceARS Agricultural Research ServiceBLM Bureau of Land ManagementCCC Commodity Credit CorporationCES Cooperative Extension ServiceCR Office of Civil RightsCSREES Cooperative State Research, Education, and Extension ServiceFAS Foreign Agricultural ServiceFBI Federal Bureau of InvestigationFCIC Federal Crop Insurance CorporationFDD Fund for Democracy and DevelopmentFmHA Farmers Home AdministrationFNS Food and Nutrition ServiceFS Forest ServiceFSA Farm Service AgencyFSIS Food Safety and Inspection ServiceGIPSA Grain Inspection, Packers, and Stockyards AdministrationInterpol International Criminal Police OrganizationIRS Internal Revenue ServiceMSPB Merit Systems Protection BoardNFC National Finance CenterNFF National Forest FoundationNRCS National Resources Conservation ServiceOCFO Office of the Chief Financial OfficerOCIO Office of the Chief Information OfficerOGC Office of the General CounselOIG Office of Inspector GeneralOMB Office of Management and BudgetOO Office of OperationsPRDA Puerto Rico Department of AgricultureRBS Rural Business-Cooperative ServiceRHS Rural Housing ServiceRMA Risk Management AgencyRTB Rural Telephone BankRUS Rural Utilities ServiceSEC Office of the SecretaryTreasury U.S. Department of the TreasuryUSDA U.S. Department of Agriculture