United StatesDepartment ofAgriculture

Office ofInspectorGeneral

No. 43

MAY 2000

Office ofInspector GeneralSemiannual Reportto CongressFY 2000—First Half

On the cover: The eagle is used for the symbol of our law enforcement initiative “Operation Talon.” It represents the Governmentswooping down to snatch fugitive felons off the streets. See inside for details of this highly successful initiative. U.S. Fish and WildlifeService photo.

The U.S. Department of Agriculture (USDA) prohibits discrimination in all its programs and activities on the basis of race, color, nationalorigin, sex, religion, age, disability, political beliefs, sexual orientation, or marital or family status. (Not all prohibited bases apply to allprograms.) Persons with disabilities who require alternative means for communication of program information (Braille, large print,audiotape, etc.) should contact USDA’s TARGET Center at 202-720-2600 (voice and TDD).

To file a complaint of discrimination, write USDA, Director, Office of Civil Rights, Room 326-W, Whitten Building, 1400 IndependenceAvenue, SW, Washington, D.C. 20250-9410 or call (202) 720-5964 (voice and TDD). USDA is an equal opportunity provider andemployer.

UNITED STATES DEPARTMENT OF AGRICULTURE

OFFICE OF INSPECTOR GENERAL

Washington D.C. 20250

April 20, 2000 The Honorable Dan Glickman Secretary of Agriculture Washington, D.C. 20250 Dear Mr. Secretary: I am pleased to submit the Office of Inspector General’s Semiannual Report to Congress summarizing our activities for the 6-month period which ended March 31, 2000. During this period, our audits and investigations yielded approximately $163 million in recoveries, collections, restitutions, fines, claims established, costs avoided, and administrative penalties. Further, management agreed to put more than $35 million to better use. We also identified nearly $29 million in questioned costs that cannot be recovered. In addition, our investigations produced 241 indictments and 208 convictions. We are again reporting on several of our initiatives. OIG is intensifying an initiative to counteract smuggling of animals and plants that could endanger the Nation’s food supply through the introduction of diseases and plant pests. Cases initiated under Operation “Kiddie Care” are yielding successful prosecutions and significant penalties. The number of arrests during Operation Talon has now topped 6,000. The recognition of that initiative’s outstanding success was recently certified when the Operation Talon Task Force Teams won the Vice President’s prestigious Hammer Award for making Government work better and achieving results Americans care about. Once more, I extend my appreciation to you, the Deputy Secretary, and the Congress for your support in furthering our mutual efforts to improve the integrity and efficiency of the Department’s programs and operations. Sincerely,

ROGER C. VIADERO Inspector General Enclosure

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Contents

PageExecutive Summary ............................................................................................................................................... 1Summaries of Audit and Investigative Activities ................................................................................................ 4Update of Initiatives

Initiative To Counter Smuggling ........................................................................................................................... 5Operation Talon ................................................................................................................................................... 5Operation “Kiddie Care” ....................................................................................................................................... 5

Public Corruption Investigations .......................................................................................................................... 9Workplace Violence Investigations ...................................................................................................................... 10Farm and Foreign Agricultural Services

Farm Service Agency .......................................................................................................................................... 11Risk Management Agency ................................................................................................................................... 15

Food, Nutrition, and Consumer ServicesFood and Nutrition Service .................................................................................................................................. 17Food Stamp Program .......................................................................................................................................... 17Special Supplemental Nutrition Program for Women, Infants, and Children ....................................................... 19

Food SafetyFood Safety and Inspection Service .................................................................................................................... 21

Marketing and Regulatory ProgramsAgricultural Marketing Service ............................................................................................................................. 22Animal and Plant Health Inspection Service ........................................................................................................ 22

Natural Resources and EnvironmentForest Service ...................................................................................................................................................... 25

Rural DevelopmentRural Housing Service ......................................................................................................................................... 26Rural Business-Cooperative Service ................................................................................................................... 26Rural Utilities Service ........................................................................................................................................... 27

Research, Education, and EconomicsCooperative State Research, Education, and Extension Service ........................................................................ 28

Financial, Administrative, and Information TechnologyEqual Employment Opportunity ........................................................................................................................... 29Financial Management ........................................................................................................................................ 30Information Technology ....................................................................................................................................... 33Hazardous Materials Management Program ....................................................................................................... 33Government Performance and Results Act ......................................................................................................... 34

Statistical DataAudits Without Management Decision ................................................................................................................. 35Indictments and Convictions ................................................................................................................................ 43The Office of Inspector General Hotline .............................................................................................................. 44Freedom of Information Act and Privacy Act Requests ....................................................................................... 45

Appendix I: Inventory of Audit Reports IssuedWith Questioned Costs and Loans .................................................................................................................. 46

Appendix II: Inventory of Audit Reports IssuedWith Recommendations That Funds Be Put to Better Use ............................................................................ 47

Appendix III: Summary of Audit Reports Released BetweenOctober 1, 1999, and March 31, 2000 ............................................................................................................... 48

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Executive Summary

This is the 43rd Semiannual Report of the Office ofInspector General (OIG), U.S. Department of Agriculture(USDA), pursuant to the provisions of the InspectorGeneral Act of 1978 (Public Law 95-452), as amended.This report covers the period October 1, 1999, throughMarch 31, 2000.

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; a summary of significant reports; tables onquestioned costs and funds to be put to better use;previous audit reports unresolved; significant revisedmanagement decisions; any significant managementdecision disagreements; and a review of legislation andregulations.

Monetary Results

During this reporting period, we issued 59 audit andevaluation reports and reached management decisionson 47. Based on this work, management officialsagreed to recover $36.9 million and to put an additional$35.1 million to better use.

We also issued 253 reports of investigation during thisperiod. Our investigative efforts resulted in241 indictments, 208 convictions, and approximately$126.4 million in recoveries, fines, restitutions, claimsestablished, cost avoidance, and administrativepenalties.

Ongoing Initiatives

In Operation “Kiddie Care,” OIG has been workingclosely with the Food and Nutrition Service (FNS)concerning needed regulatory and legislative changesfor the Child and Adult Care Food Program (CACFP)recommended in our August 1999 audit report. Twenty-six sponsors receiving over $46.7 million annually infood and administrative funds have been terminatedfrom CACFP. Sixty individuals have been charged withcrimes, with 45 found guilty and 37 sentenced. In aMichigan case previously reported, the president of amulticenter day care operation was sentenced to 9years in prison, followed by 3 years’ supervised release,

and was ordered to pay $13.5 million in restitution, a$10 million fine, and a special assessment of $3,150.

As of March 31, 2000, Operation Talon had resulted in6,007 arrests of fugitive felons during joint OIG, State,and local law enforcement operations. The recognitionof that initiative’s outstanding success was recentlycertified when OIG won the Vice President’s prestigiousHammer Award for making Government work better andachieving results Americans care about.

Investigative Efforts

In a public corruption investigation in New York City,nine Agricultural Marketing Service (AMS) employees,responsible for grading the quality of fruit andvegetables, pled guilty to bribery. In addition,15 owners or employees of produce wholesalers,located at the Hunts Point Market in the Bronx, wereindicted on bribery charges. Seven of the wholesalershave pled guilty.

We conducted a number of workplace violenceinvestigations. An Oklahoma landowner was foundguilty by a Federal jury of assault of a Governmentemployee and second-degree murder after he shot andkilled his neighbor, who was assisting a NaturalResources Conservation Service (NRCS) districtconservationist. In North Carolina, OIG agents arresteda Farm Service Agency (FSA) borrower for threateningto kill an FSA farm loan manager. In California, anindividual was sentenced to 1 year in Federal prisonand 3 years’ supervised release after he was convictedof threatening Food Safety and Inspection Service(FSIS) Compliance officers. The owner of a custommeat slaughter business in upstate New York signed apretrial diversion agreement in U.S. District Court forcommitting an assault against an FSIS Complianceofficer. A farmer possessing numerous weapons, whorepeatedly wrote letters to the Secretary threateningdeadly force against him or any other Governmentemployee who attempted to foreclose on his farm, wasarrested by OIG special agents, confined to a medicalfacility for 15 months, and later sentenced to timeserved after he pled guilty to threatening a Governmentofficial.

The owner of several cotton warehouses was indictedfor his scheme to defraud approximately 140 cottonfarmers in Georgia and South Carolina. Congressawarded a special appropriation of $5 million to bematched by the States as reimbursement for the losses

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sustained by the farmers. Approximately $9 million hasbeen paid to farmers for the losses they incurred whenthis man stole their cotton.

A former eligibility counselor with the TennesseeDepartment of Human Services pled guilty to mail fraudand was sentenced to serve 18 months in a Federalprison, followed by 2 years’ supervised release, andordered to pay restitution of $217,000. She had createdsix fictitious recipient case files and had the benefitsmailed to herself.

A U.S. District Court judge issued a $71 millionsummary judgment against two prominent Cleveland,Ohio, area businessmen, who currently are fugitives, forillegally trafficking in food stamps and SpecialSupplemental Nutrition Program for Women, Infants,and Children (WIC) vouchers. The businessmen’sattorney made an out-of-court settlement, under whichthe attorney and his law firm paid the Government$275,000 for their involvement in the fraud.

In New Hampshire, an investigation determined that amultinational corporation based in Munich, Germany,submitted false Confidential Statements of Formula toFSIS to obtain food-grade approval for their lubricants,which are used in the food-processing industry, andviolated provisions of the Toxic Substance Control Act.The company was placed under pretrial supervision for18 months and will pay a total of $2.3 million.

Audit Efforts

We reviewed implementation of the State Option FoodStamp Program (SOFSP) in five States and identifiedinternal control deficiencies, which required correctiveactions by FNS and the States reviewed. We issuedmanagement alerts to the four FNS regional offices, buttheir initial corrective actions were inconsistent. Werecommended that FNS take immediate action toaddress the accounting and reporting deficiencies, issueclarifying guidance to State agencies, and recoverinvalid Food Stamp Program (FSP) expenditures.

We identified several weaknesses in the Store Tracking,Authorization, and Redemption Subsystem (STARS),used to monitor and identify unauthorized FSPpayments to disqualified retailers. FNS has addressedcertain problems and indicated that it intended toevaluate others as part of its redesign of systems inSTARS II. For example, FNS has implemented newprocedures for applicant data base searches in STARS,which appear to correct deficiencies related to verifyingthat applicants have not been disqualified previouslyfrom the program.

We found that the Animal and Plant Health InspectionService (APHIS) should reevaluate the level ofinspections in Florida. Our review of Plant Protectionand Quarantine practices for inspecting air and shipcargos and passengers arriving in the Miami and FortLauderdale ports identified vulnerabilities andweaknesses, which increased the risk of prohibitedagricultural products entering the United States. Wemade a series of recommendations, including theassessment of penalties when warranted and theevaluation of higher fee rates for inspections to providefor sufficient staff and resources.

Our review disclosed that the Urban ResourcesPartnership (URP) program was initiated withoutspecific statutory authority or congressionalappropriations. In addition, cities/areas were notselected to participate in URP on a competitive basis,URP recipients did not always use funds to meet thepurposes of the applicable statutes from which theappropriations were obtained, and the program did notinclude controls to ensure that award funds were usedin accordance with applicable Federal regulations.

Systemic internal control deficiencies existed in theVirginia Rural Development State office administrativeprocurement operations regarding the purchase,authorization, and/or receipt of goods and services. Asa result, miscellaneous payments of about $286,000were unsupported due to one or more documentationerrors, and 35 purchase orders, approximating$235,000, lacked supporting documentation. Certainquestionable payments are under investigation.

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As part of our continuing reviews, we found that theOffice of Civil Rights (CR) remains an inefficientmanager of both Equal Employment Opportunity (EEO)discrimination complaints and program complaints. Weemphasized that CR needs to design and implement along-term plan to ensure it can resolve complaintsefficiently and with due care. We also urged CR toexpedite implementation of a new EEO complaintstracking system and its installation of a new programcomplaints data base.

Our disclaimer of opinion for USDA’s FY 1999consolidated financial statements (and for the last 6years) means that the Department, as a whole, does notknow whether it correctly reported monies to becollected in total, how much money is collected, the costof its operations, or any other meaningful measure offinancial performance. The Department has recognizedthe need to improve its financial systems and createdthe Financial Information System Vision and StrategyProject Team to develop the financial systems,standards, and definitions necessary to implement theDepartment’s new accounting system, the FoundationFinancial Information System.

Our review disclosed material internal controlweaknesses in the Office of the Chief InformationOfficer/National Information Technology Center (OCIO/NITC) security structure. Consequently, we issued aqualified opinion to OCIO/NITC in terms of controls overprotection of the OCIO/NITC network, network securitymonitoring and intrusion detection, specified networksecurity procedures, and access authorities forauthorized users. OCIO agreed with all ourrecommendations and has initiated corrective actions.

Our ongoing audit work relating to informationtechnology (IT) security in the Department identified amaterial internal control weakness. Departmentalregulation requires that Privacy Act or sensitive data beencrypted if the information is sent over the Internet, butactions to implement and/or enforce this criticalrequirement have been limited. The Department couldbe vulnerable to inadvertent or deliberate disclosures ofsensitive data. OCIO concurred with therecommendations. The Department has established anIT security program and is taking steps to implementdata encryption and to strengthen access securitymechanisms.

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Summary of Audit Activities

Reports Issued ................................................................................................................................................. 59Audits Performed by OIG ............................................................................... 40Evaluations Performed by OIG ....................................................................... 9Audits Performed Under the Single Audit Act................................................. 3Audits Performed by Others ........................................................................... 7

Management Decisions MadeNumber of Reports ........................................................................................................................................ 47Number of Recommendations ....................................................................................................................... 344

Total Dollar Impact (Millions) .......................................................................................................................... $100.8Questioned/Unsupported Costs ............................................................................................. $65.7ab

Recommended for Recovery .......................................................................... $36.9Not Recommended for Recovery ................................................................... $28.8

Funds To Be Put to Better Use .............................................................................................. $35.1

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 ................................................................................................................................................... 253Cases Opened ................................................................................................................................................... 298Cases Closed ..................................................................................................................................................... 382Cases Referred for Prosecution ......................................................................................................................... 171

Impact of InvestigationsIndictments .................................................................................................................................................... 241Convictions .................................................................................................................................................... 208Searches ........................................................................................................................................................ 81Arrests ........................................................................................................................................................... 1,685

Total Dollar Impact (Millions) .......................................................................................................................... $126.4Recoveries/Collections .......................................................................................................... $5.3c

Restitutions ............................................................................................................................ $24.7d

Fines ...................................................................................................................................... $91.2e

Claims Established ................................................................................................................ $3.0f

Cost Avoidance ...................................................................................................................... $2.1g

Administrative Penalties ........................................................................................................ $0.1h

Administrative SanctionsEmployees ..................................................................................................................................................... 43Businesses/Persons ...................................................................................................................................... 2,498

aIncludes convictions and pretrial diversions. Also, the period of time to obtain court action on an indictment varies widely; therefore, the 208 convictions do not necessarily relate to the 241 indictments.bIncludes 1,206 Operation Talon arrests and 479 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.fClaims established are agency demands for repayment of USDA benefits.gThis category consists of loans or benefits not granted as the result of an OIG investigation.hIncludes monetary fines or penalties authorized by law and imposed through an administrative process as a result of OIG findings.

a

b

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Update of Initiatives

We are again reporting on several of our initiatives. OIGis continuing to work on an initiative to counteractsmuggling of animals and plants that could endangerthe Nation’s food supply through the introduction ofdiseases and plant pests. The number of arrests duringOperation Talon continues to climb. Cases initiatedunder Operation “Kiddie Care” are resulting insuccessful prosecutions and significant penalties.

Initiative To Counter Animal and PlantSmuggling

OIG is continuing to establish cases under its initiativeto counteract smuggling of animals, plants, andagricultural products. Smuggling is an increasinglyserious problem to American agriculture because of thepests and diseases inadvertently introduced. Suchillegal activities can cost billions of dollars in destroyedcrops, undermined agricultural markets, and lost jobs.Pests and diseases that threaten the United Statesthrough smuggling include insects (Mediterranean,oriental, and Mexican fruit fly), livestock diseases(bovine spongiform encephalopathy and brucellosis),avian and plant diseases, and noxious weeds. Wecurrently have 37 smuggling cases under investigation.

Arrests Continue To Climb in PresidentialInitiative Operation Talon

Operation Talon was designed and implemented byOIG to locate and apprehend fugitives, many of themviolent offenders, who are current or former food stamprecipients. As of March 31, 2000, Operation Talon hadresulted in 6,007 arrests of fugitive felons during jointOIG, State, and local law enforcement operations, asdetailed in Figure 1.

Operation “Kiddie Care” Roots OutUnscrupulous Sponsors

We are reporting further successes in Operation “KiddieCare,” our nationwide initiative to identify, remove, andprosecute unscrupulous Child and Adult Care FoodProgram (CACFP) sponsoring organizations (sponsors).OIG has been working closely with FNS concerningneeded regulatory and legislative changesrecommended in our August 1999 audit report.Meanwhile, the cases of serious deficiencies andcriminal activities mount, and successful prosecutionshave resulted in significant penalties.

Figure 1Operation Talon - Total for All Phases

Offense Total Arrests Offense Total Arrests

Murder 21 Kidnapping 10

Attempted Murder 19 Assault 344

Child Molestation 27 Robbery 228

Rape 12 Drugs 1,449

Attempted Rape 2 Other 3,895

Total Arrests: 6,007

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• Twenty-six sponsors receiving over $46.7 millionannually in food and administrative funds have beenterminated from CACFP. Forty-six sponsorsreceiving over $82 million annually are subject totermination from CACFP unless they correct seriousprogram deficiencies.

• Forty-three investigations are completed or ongoing.Sixty individuals have been charged with crimes, with45 found guilty and 39 sentenced.

Audits and investigations concluded this reportingperiod yielded dramatic results.

• In a Michigan case previously reported, the presidentof a multicenter day care operation was sentenced to9 years in prison, followed by 3 years’ supervisedrelease, and was ordered to pay $13.5 million inrestitution, a $10 million fine, and a specialassessment of $3,150. The jury also had awardedforfeiture of over $1.1 million in cash and threeproperties. The owner and an assistant defraudedUSDA of approximately $27 million in CACFP funds.Sentencing is pending for the assistant .

• We previously reported on a California sponsor thatdefrauded CACFP by filing false claims for day carehomes no longer participating in the program. Thetwo owners/operators (a husband and wife) havenow pled guilty to defrauding CACFP of over$340,000. The wife was sentenced to 18 months inprison to be followed by 3 years’ probation. Thehusband was placed on probation for 1 year, toinclude 80 hours of community service. They werealso ordered to pay $320,000 in restitution andterminated from further participation in any childnutrition program. Three of the sponsor’s formeremployees pled guilty to related charges. All weresentenced to 5 years’ probation and 90 days’ homedetention, and each was ordered to pay USDA$12,000 in restitution.

• Also in California, the husband and wife who ownedand operated a facility were sentenced for mail fraudinvolving over $85,000 in CACFP funds. Thehusband was sentenced to 1 month in prison,followed by 2 years of supervised release to include5 months of home confinement. The wife wassentenced to 5 months in prison, followed by 2 years

of supervised release to include 5 months of homeconfinement. Each was fined $10,000 and orderedto pay a total of $55,000 in restitution.

• An OIG audit disclosed that a Seattle, Washington,sponsor lacked documentation to support almost$250,000 in salary and other costs it paid two of itsmonitors. An OIG investigation further disclosed thatthe two monitors falsified numerous records todocument fictitious monitoring visits. The sponsorfired the two monitors, the director resigned, and theorganization, which sponsored over 400 day careproviders, was terminated from further participation inany child nutrition program.

One of these monitors was also a day care provider,who worked with her daughter. Together, theyfalsified applications and monthly claims in order toreceive excessive CACFP payments as providers.The daughter also submitted false claims in order toreceive rental assistance payments from USDA’sRural Housing Service (RHS) and food stamps andother welfare payments from the State ofWashington. After pleading guilty, the mother wassentenced to 2 months in prison along with 2 monthsof home confinement and was ordered to payrestitution of $11,000. The daughter was sentencedto 60 days of home confinement and ordered to pay$7,300 in restitution.

• Our Summer Food Service Program (SFSP) auditfound that a Nevada sponsor disregarded programrules and regulations governing SFSP and may havebeen intentionally inflating its meal claims, using theincome for unallowable expenditures. Also, thesponsor failed to report program income and obtainrequired audits. We questioned over $1 million incosts. The sponsor was terminated from SFSP, andits CACFP application for FY 2000 was not renewed.This sponsor was receiving approximately $1.5million from SFSP and $100,000 from CACFPannually.

• Another OIG audit disclosed that a Denver, Colorado,sponsor appeared to be seriously deficient in itsadministration of the program. The sponsor did notfollow Federal or State program regulations in itsclaims for provider reimbursement and administrativecosts or in its disbursement of reimbursement to

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providers. The sponsor wrote approximately$132,000 in reimbursement payments to providersfor periods prior to their being approved toparticipate. Based on this, the sponsor improperlyreceived over $35,000 in administrative costs. Thesponsor also processed provider claims totaling over$96,000 even though the claims were received pastthe deadline. The sponsor improperly received over$17,000 in administrative costs based on theimproper claims. In addition, the sponsor claimedand received $29,000 in administrative costs notsupported by receipts or similar documentation.

The sponsor’s computer system processed almost $1million in reimbursements monthly but was notsecured by logons or passwords. The methods ofhandling money rendered its financial systeminadequate to account for both administrative andprovider funds. The sponsor transferred moneyamong its CACFP food accounts for day care homesand centers, administrative cost account, and a non-CACFP account to cover shortages in the variousaccounts.

• A husband and wife who owned and operated a Utahsponsorship pled guilty to defrauding CACFP bymaking false statements and embezzling CACFPfunds. The couple, who ran the day-to-day operationof the sponsorship, diverted approximately $120,000from a meal claim reimbursement account to theirown accounts. As part of their scam, the coupledemanded kickbacks from day care providers undertheir sponsorship in exchange for reimbursementchecks. Many of the program recipients wereimmigrant families living in run-down trailer parks andsmall, ramshackle wood-frame houses. Twomonitors, who were working in concert with thecouple, have also pled guilty. One of the monitorswas sentenced to 3 years’ probation (with credit fortime served in a halfway house) and was ordered topay restitution of nearly $3,700 to USDA. Sentencingof the other individuals is pending.

Figure 2 shows the status of our investigations, as ofMarch 31, 2000.

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Figure 2Status of Investigations of Sponsors and Providers as of March 31, 2000

Individuals IndividualsSponsors Indicted or Who Pled

Audits Terminated Named in a Guilty orAudits in From the Criminal Were Individuals

State 1 Investigations Completed Progress Program Information 2 Convicted Sentenced

Alabama 1

Arizona 1 2 1 1 1

Arkansas 1

California 8 9 6 21 19 17

Colorado 1 1

Florida 2 1 2 2 2 2

Georgia 4 3

Idaho 1 1 1 1 1

Illinois 3 1

Louisiana 2 2 1 1

Maine 1 1

Michigan 1 1 2 1 1

Mississippi 1

Missouri 1

Nevada 13

New Mexico 7 1 9 2 2

New York 3 1 1 1 1 1 1

North Carolina 1

Ohio 2 2 1 12 10 10

Oregon 1 1

Pennsylvania 3 1 2 14 14

Tennessee 3 2 3 1 1

Texas 1

Utah 1 2 1 4 3

Washington 2 1 1 2 3 3

Wisconsin 1 2 1 1

TOTALS 43 35 3 26 60 45 391Five audit surveys were also performed in Arkansas, California, Illinois, and Indiana, but the findings did not warrant audit reports.2An information is a formal accusation of a crime made by a prosecuting officer, as differentiated from an indictment by a grand jury.3This sponsor was terminated from CACFP based on our audit of the sponsor’s Summer Food Service Program.4The subject died before sentencing, and the conviction was dismissed.

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A top priority for OIG is the investigation of seriousallegations of employee misconduct. During the past6 months, such investigations resulted in 18 convictionsof current or former USDA employees and 43 personnelactions. Some recent investigations follow.

Corruption Uncovered at Hunts Point Market

In New York City, nine AMS employees, responsible forgrading the quality of fruit and vegetables, pled guilty tobribery. In addition, 15 owners or employees ofproduce wholesalers, located at the Hunts Point Marketin the Bronx, were indicted on bribery charges. Sevenof the wholesalers have pled guilty. During the 21/2-yearinvestigation, we uncovered a scheme by which theAMS graders accepted bribes from wholesalers todowngrade produce. The wholesalers then used thelower grades to negotiate downward the price they paidthe grower for the produce. Our investigation alsorevealed that the AMS graders were involved in acorrupt organization by which they received money fromthe wholesalers and then paid the AMS nightsupervisor, who made their work assignments, akickback of $100 per week from each grader.

Public Corruption Investigations

NRCS Employee Pleads Guilty to Possessionof Unregistered Destructive Devices

A search warrant executed at the residence of a NaturalResources Conservation Service (NRCS) employee byBureau of Alcohol, Tobacco, and Firearms (BATF)special agents revealed 58 pipe bombs, bomb-makingmaterial, a firearm silencer, and a land mine. At therequest of the U.S. attorney’s office, OIG was called into assist BATF with the investigation. The resulting jointinvestigation included extracting data from theemployee’s Government computer and searching foradditional explosive devices at the workplace withbomb-sniffing dogs. The employee pled guilty topossessing destructive devices (pipe bombs) and isawaiting sentencing.

Former NRCS Employee Pleads Guilty toEmbezzling Funds

A former NRCS secretary in Colorado pled guilty toembezzling approximately $23,600 in RuralConservation and Development (RC&D) funds. Ourinvestigation disclosed that the employee embezzledthe funds by issuing checks to herself and altering themonce they were returned by the bank. She admitted toembezzling the funds and to forging RC&D councilmembers’ names on the checks. The employee wasterminated from her NRCS position in April 1999.Sentencing is pending.

FS Employee Convicted of Embezzlement

In New Mexico, a former Forest Service (FS) employeepled guilty to embezzling Government funds whileemployed with FS. She was sentenced to 4 months ofhome confinement with electronic monitoring, placed onprobation for 3 years, fined $4,000, and ordered to payrestitution of nearly $300. Our investigation disclosedthat the former employee, while employed as abusiness management officer, used a Governmentcredit card to purchase over $8,500 in household goodsand groceries for personal use. The employee and herhusband, who was employed as a forestry technician,both subsequently resigned and repaid FS $6,000 forthe illegal credit card charges.

Airborne view of Hunts Point Market indicates its vast extent. FederalBureau of Investigation (FBI) photo.

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Oklahoma Landowner Found Guilty ofSecond-Degree Murder and Assault

An Oklahoma landowner was found guilty by a Federaljury of assault of a Government employee and second-degree murder. The man shot and killed his neighbor,who was assisting an NRCS district conservationist.The NRCS employee and the murdered landownerwere checking on damage to fencing around a wetlandsarea enrolled in the Wetlands Reserve Program whenthe owner of the adjacent property rode up to them onhorseback and began arguing. The man then pulled outa shotgun, killed the neighbor, and held the NRCSemployee at gunpoint. This case was conducted jointlywith the Oklahoma State Police with assistance from theFBI.

Individual Arrested for Threatening USDAEmployee

In North Carolina, OIG agents arrested an FSAborrower for threatening to kill an FSA farm loanmanager in an attempt to impede and intimidate him inthe performance of his official duties. The subject hadpreviously made threats against the manager and hadbeen warned by OIG agents against future threats. Thesubject has been placed in a pretrial diversion program.

Man Convicted of Threatening FSISEmployees

In California, an individual was sentenced to 1 year inFederal prison and an additional 3 years of supervisedrelease after he was convicted of threatening FSISCompliance officers. In July 1999, shortly after he hada confrontation with two FSIS Compliance officers at acustom slaughter facility, the individual’s vehicle almostran their vehicle off the road. When confronted by OIG,the individual denied that the near accident had beendeliberate on his part. In September 1999, hecontacted OIG and stated that he was consideringgetting a gun and shooting the Compliance officers atthe slaughter facility. He was subsequently detainedand placed in a mental health facility for observation.Upon release, he was transferred to a Federal detentionfacility. He was later indicted for the threats and wasconvicted after a trial.

Workplace Violence Investigations

Custom Meat Slaughterer Signs PretrialDiversion for Assault on USDA Employee

The owner of a custom meat slaughter business inupstate New York signed a pretrial diversion agreementin U.S. District Court for committing an assault against aFederal employee. The owner of the slaughterbusiness admitted he was holding a scraping knife withan 8-inch blade when he confronted an FSISCompliance officer. He became agitated during theconversation and began motioning with his hands whilestill holding the knife. Prosecution was deferred for1 year provided the individual abided by the conditionsand requirements set by the pretrial diversion program.In addition, FSIS issued a warning letter and planned tomonitor the facility.

Individual Pleads Guilty to ThreateningSecretary of Agriculture

A farmer repeatedly wrote letters to the Secretarythreatening deadly force against him or any otherGovernment employee who attempted to foreclose onhis farm. This individual was arrested by OIG specialagents in January 1999 and confined to a medicalfacility for psychiatric evaluation. At the time of arrest,he was carrying a semiautomatic pistol and shotgun inhis vehicle. An OIG search of his home found fiveshotguns, three .22 caliber rifles, ammunition, and a gasmask placed at various doors and windows throughoutthe house. On March 1, 2000, this individual pled guiltyto threatening a Government official and was sentencedto time served, which was 15 months.

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Farm and Foreign Agricultural Services

FARM SERVICE AGENCY (FSA)

FSA supports American farmers, and ultimatelyconsumers, through commodity and disaster programs,loans, conservation, and food assistance. The fiscalyear (FY) 2000 budget is estimated at over $4.2 billionin funds available directly to FSA. The CommodityCredit Corporation (CCC), a Government corporation,funds all other program operations at an estimated$19.5 billion.

Eight Georgia Producers Fraudulently ObtainedProgram Payments

Eight producers from Thomas County, Georgia,appeared to have participated in schemes or devicesdesigned to avoid maximum payment limitationprovisions for program years 1990 and 1991. The eightproducers provided misleading information to FSAabout their farming operations and, therefore, did notqualify for just over $661,000 they received in FSAprogram payments.

Our review was delayed several years because theproducers did not cooperate in providing us with theinformation needed. During 1993, OIG issuedadministrative subpoenas to obtain records for theproducers’ 1990 and 1991 farming operations.However, it was not until 1999 that OIG finally obtainedsufficient records to conduct the review.

The review was a continuation of a prior audit of theDisaster Assistance Program in Thomas County,Georgia, for program years 1992 and 1993 in which wequestioned payments totaling about $1.2 million for thesame eight producers. In October 1998, the GeorgiaState FSA Committee found that the eight producers didparticipate in schemes or devices to evade maximumpayment limitation provisions for program years 1992and 1993. FSA is working to recover the overpayments.

Similar to our prior audit findings, in our present reviewwe found that the eight producers used schemes ordevices to evade maximum payment limitationprovisions for program years 1990 and 1991. Theyreceived questionable FSA program payments totalingjust over $661,000 during that period. The eightproducers, whose farming operations consisted of fourindividuals and four corporations, operated as oneorganization, essentially influenced by a principal

producer, rather than separately as required to qualifyfor the program payments in question.

We recommended that FSA determine whether theeight producers participated in schemes or devices toevade the maximum payment limitation provisions forprogram years 1990 and 1991 and, if so, recover theoverpayments. FSA agreed with the findings; however,as a result of the determinations associated with theprevious report, the producers and their attorney haveentered into settlement negotiations for program years1992 and 1993 with USDA’s Office of the GeneralCounsel (OGC). FSA believes that the settlement couldencompass the 1990 and 1991 issues as well.

Emergency Conservation Program (ECP) NeedsImprovement

Audit work performed in nine States found that FSA didnot have internal controls in place to ensure ECP fundswere being used for eligible projects, resulting in $2.9million in unsupported payments. Findings included thefollowing.

• FSA’s spot-checks did not always include steps toidentify improprieties, and, in many cases, agencypersonnel were themselves unclear on theprocedures to follow.

• Some producers had not maintained the practicesfunded by ECP payments.

• Certain county offices allowed the cost of personallabor, while others did not, and some producersreceived reimbursement from FSA but did not paythe entire vendor bill or negotiated a discount thatwas not disclosed to FSA.

• Computational errors were occurring, and countyoffices were not following the proper applicationapproval process.

• Some county offices were not always using the ECPapplication form as intended, which contributed toerrors and gave the appearance that some practiceshad not been approved.

We recommended that the FSA national office finalizeupdating the ECP handbook and develop instructionalmaterial that could be used to train key peoplewhenever the program is authorized. We further

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recommended that FSA strengthen handbookprocedures and require additional oversight by districtdirectors. Also, FSA should review those cases wherethere was a maintenance default or inaccurateinformation and determine if the producer should berequired to make repayment with interest or penalty.

FSA generally concurred with the findings and isproposing changes to ECP in an interim rule currentlyunder review. Upon completion of the new rule, thehandbook procedures will also be amended.

Ineffective Controls Provided Environment forEmbezzlement Scheme

An OIG investigation of alleged embezzlement by aprogram assistant in an FSA county office prompted anexamination of internal controls over administrativeprogram operations. We found that internal controlsneeded enhancement to reduce the potential formisappropriation of funds through manipulation ofcheckwriting software features, to increase the analysisof available computer queries, and to properly separateduties and second-party reviews, which would haveprevented or allowed to be detected the embezzlementof administrative funds. The weak controls allowed aprogram assistant to perpetrate a relativelyunsophisticated embezzlement scheme that obtainedabout $275,000 over 7 years.

We recommended that the agency reinforce to theStates and counties the policies and procedures forallocating, budgeting, and monitoring expenses. Also,we recommended FSA handbook information beamended to specifically define actions expected ofemployees responsible for reviewing, verifying, andensuring the proper use of funds and to require that asecond party research and complete corrective actionsfor expense transaction exception reports. We furtherrecommended that the agency establish additionalcontrol features to address other potential vulnerableareas and make use of computer software capabilities.FSA generally concurred and is addressing therecommended corrective action.

Attempt To Conceal the True Nature of FarmingOperation Costs Producer Over $300,000

At the request of the Louisiana State FSA office, wereviewed the operation of a joint venture consisting ofsix corporate entities, whose stockholders were a father,two daughters, and a hired foreman, to determine ifpayment limitation provisions of the Agricultural MarketTransition Act (AMTA) were violated. We found the jointventure did not exercise separate responsibility for itsinterest in the crops or maintain funds or accountsseparate from that of any other individual or entity.Members of the joint venture were not actively engagedin farming because they were not at risk for their 1996and 1997 contributions to the farming operation.

Specific problems identified included nonpayment of$406,000 in cash rent to a limited-liability companyowned by trusts established for the two daughters,involving numerous questionable loans and moneytransactions. By the end of 1997, the father anddaughters had realized a net benefit of almost $400,000from these transactions during 1996 and 1997. Weconcluded that the father attempted to evade paymentlimitation provisions by concealing and/or submittingerroneous information about his true interest in thefarming operation. This would have affected FSA’s“person” determination and the production flexibilitycontract (PFC) payments for 1996 through 2002 underthe AMTA program.

We recommended FSA determine whether a scheme ordevice was knowingly adopted to evade paymentlimitation provisions and/or defeat the purpose of theAMTA program. If so determined, we recommendedrecovery of over $750,000 in 1996 through 1999 PFCpayments and termination of the remaining 3 years ofthe contract (a savings of about $509,000).

The Louisiana State FSA Committee did not determinethat a scheme had been adopted to defeat the purposeof the AMTA program. However, it did determine ascheme was adopted in 1996 to evade paymentlimitation provisions and will recover about $318,000 in1996 and 1997 PFC payments from the joint venture.

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FLP Loan-Servicing Actions in General ComplianceWith FAIR Act

The Federal Agriculture Improvement and Reform(FAIR) Act of 1996 imposed several restrictiveloanmaking and loan-servicing policies on the FarmLoan Program (FLP). The act prohibited (after April 4,1996) an individual or entity from receiving more thanone instance of debt forgiveness.

Our review did not identify material program deficienciesor control weaknesses; therefore, we did not expand thesurvey into the audit phase but summarized our resultsin a brief report. We reported that of the 24 debtforgiveness decision cases reviewed, no improprietieswere noted with the 13 reviewed in Oklahoma andTexas. However, in 3 of the 11 cases reviewed inLouisiana, borrowers received improper debtforgiveness decisions totaling $194,000.

We also noted the Louisiana and Texas State FSAexecutive directors inadvertently exceeded theirauthorities by approving debt settlements for twoborrowers in each State whose outstandingindebtedness exceeded $100,000. The writeoffs totaledalmost $580,000 and were improper because allapplications for settlements, with outstandingindebtedness in excess of $100,000, were to have beenreferred through OGC to the U.S. Department of Justice(DOJ) for approval. Although the State executivedirectors exceeded their authorities in approving thedebt settlements, we found no information in the casefiles indicating the decisions to debt-settle the accountswere unjustified.

We recommended FSA, in accordance with agencyinstructions, and, as applicable, through consultationwith OGC, initiate the appropriate action to collect the$194,000 which resulted from improper debtforgiveness provided to the three Louisiana borrowers.Further, we recommended that FSA refer the fourimproperly settled cases to DOJ for review andapproval. Agency officials concurred with our findingsand agreed to implement our recommended course ofaction within 12 months.

Controls Over Environmental Benefits Index ScoresNeed Continued Improvement

Under the Conservation Reserve Program (CRP),producers receive annual payments from FSA to takehighly erodible cropland out of production and establishand maintain a vegetative cover on it. The tracts of landare scored according to values on the EnvironmentalBenefits Index (EBI). FSA, with assistance from NRCS,has overall responsibility for CRP.

Our previous review of Signup 15 found that thecontrols over EBI scores could be improved. We foundthat the complexity of EBI continued to cause scoringproblems during Signup 16. FSA and NRCS took actionto address those weaknesses.

During this period, we addressed concerns FSA andNRCS officials expressed about the high approval ratefor appeals filed in conjunction with CRP Signup 15.We identified errors in the revised EBI scores for 39 ofthe 70 offers reviewed. Of the 39 offers with errors, 29were incorrectly accepted for the program, withscheduled program benefits totaling about $2 millionover the life of the CRP contracts. FSA State officereviews of appealed offers did not always detect errorsin the revised EBI scores, and those scores revised as aresult of producer appeals were not subjected to theautomated validation routines. In response to ourrecommendations, FSA and NRCS agreed to providefor joint agency spot-checks of offers with EBI scoresthat are revised after the date of initial offer acceptance.This includes a final validation of any EBI scoringchanges made after transmission of the original offerdata.

During this period, for Signup 18, we found EBI scoringerrors on 37 of 80 offers reviewed, similar to the ratesfor Signups 15 and 16. To help identify trends andinconsistent applications of factors, FSA developedcomputer-generated maps showing average EBI scoresby factor and subfactor. These maps were accessibleby State offices to assist in identifying inconsistenttrends during Signup 18.

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However, the maps were not effectively used to identifyand follow up on apparent scoring inconsistenciesacross State and county lines. Also, consistency wasnot provided when interpreting point scores forthreatened and endangered species that were commonto more than one State.

We recommended that FSA and NRCS explorealternatives for simplifying and clarifying the EBI scoringprocess and implement additional controls to ensure thereasonableness of EBI scores. We also recommendedthat the joint agency working group develop aframework for analyzing the computer-generated mapsas a tool to further enhance program operations. Inaddition, we recommended that NRCS establish thespecific habitat requirements needed to obtain themaximum threatened and endangered species pointsfor species that were common to more than one State.

FSA concurred that the continuing high level of errorswas unacceptable. NRCS indicated that efforts wereunder way to automate the EBI calculations, whichshould help to significantly reduce errors and provideaccuracy. Both agencies will explore what actions maybe necessary to reduce the error rate, includinganalyses of maps showing trends and inconsistenciesacross State and county boundaries.

Cotton Warehouse Owner Indicted for Cotton FraudScheme

The owner of several cotton warehouses was indictedfor his scheme to defraud approximately 140 cottonfarmers in Georgia and South Carolina through mail andwire fraud, interstate transportation of stolen property,and money laundering. OIG’s investigation disclosedthat the warehouse owner gambled that the price ofcotton would rise when he contracted to purchasemillions of dollars in cotton from farmers withoutoffsetting the purchases with sales to cotton mills.When the price fell instead, the owner became unableto pay the farmers under contract. He then began tosteal cotton that was stored in his company’swarehouses and illegally sold it to other cotton mills andmerchants as his own. He also knowingly soldmortgaged cotton without the permission of the farmeror lien holder. His company and warehouses have filedfor bankruptcy. Congress awarded a specialappropriation of $5 million to be matched by the Statesas reimbursement for the losses sustained by the

farmers. Approximately $9 million has been paid tofarmers for the losses they incurred when this man stoletheir cotton.

Three in Georgia To Serve Time, 11 Others EnterPretrial Diversion

Three South Georgia farmers who masterminded adisaster fraud scheme that netted them approximately$1.6 million in unentitled FSA disaster payments beganserving Federal prison terms in January. The threeenlisted a number of their relatives and friends to signup for disaster payments to which they were notentitled. Once FSA disbursed the disaster funds to thenamed individuals, they turned the monies over to thethree ringleaders. As part of a negotiated pleaagreement with the U.S. attorney’s office, the threemain subjects each agreed to serve 1 year in Federalprison and pay restitution of approximately $442,000.Their 11 relatives and friends were allowed to enterpretrial diversion programs since it was determined thatthey had not benefited financially from the scheme.

Sentencing for Forgery and Grand Theft

A Wooster, Ohio, farmer was sentenced to pay $57,000in restitution and 5 years’ probation after he pled guiltyto forgery and grand theft charges. Our investigationshowed the farmer submitted two forged documentswith his application for two farm-stored commodityloans. The farmer also falsely certified the amount ofcorn and soybeans he had in storage on which he gaveFSA a security interest. After he received FSA loanstotaling almost $60,000, he converted most of thestored grain to his own use, feeding his own dairy herdwith it and selling it in his son’s name to avoid thesecurity interests on file against his grain. Ourinvestigation also revealed that the farmer had pledgedthe same crops to two other private creditors for loans.

Five Texans Enter Into Civil Settlements for FalseDisaster Claims

Five Texans entered into civil settlement agreements toavoid civil prosecution stemming from their involvementin submitting false receipts in support of loss claims inthe Disaster Assistance Program. Their combined finestotaled over $200,000. These investigations were theresult of an OIG/Audit referral, and the investigationswere worked jointly with OIG/Audit.

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Two Texas Businessmen Conspired To Defraud theEmergency Feed Program

Two Texas businessmen have agreed to plead guilty toconspiracy to submit false feed receipts under theEmergency Feed Program (EFP). They received about$172,000 in EFP payments based on the false receiptssubmitted. Bills of information were recently filedagainst them.

Former Arkansas Sheriff Sentenced for Loan Fraud

As previously reported, a former Arkansas county sheriffhad been indicted for furnishing false statementsconcerning a $121,000 FSA loan. The sheriff wassupposed to use the loan to pay debts to a bank andraise a 1996 crop but used over $44,000 in FSA loanproceeds to pay off campaign debts and did not growany crops. The former sheriff has now been sentencedin Federal court to 4 months’ home confinement,followed by 5 years of supervised release, and orderedto make restitution of nearly $103,700. Thisinvestigation was worked jointly with the FBI.

Federal Jury Finds Individual in Mississippi Guiltyof Conversion, Other Violations

A Federal jury found a Mississippi farmer guilty ofconversion of FSA-mortgaged collateral, moneylaundering, and crop insurance fraud. The farmer hadpledged his 1996 cotton and soybean crop to FSA for atotal of $461,000 in loans but then illegally converted itto his own use. The farmer also submitted falsestatements to obtain crop insurance for a 1994 claim inexcess of $18,000. Sentencing is pending.

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 and revenue crop insurancethrough a private delivery system by means of reinsuredcompanies. RMA’s FY 2001 Government cost, net ofproducer-paid premiums of $968 million, is estimated at$2.2 billion.

Controls Over Risk Fund Changes and Acceptanceof Crop Yields Needed Strengthening

OIG conducted this audit to evaluate controls over cropinsurance risk fund changes made by reinsuredcompanies after the final date authorized for suchchanges and the acceptance of crop yields submitted byreinsured companies. RMA did not have effectivecontrols and procedures in place to prevent or detectunauthorized risk fund changes and protect theaccuracy and reliability of crop yields in its data bases.The control weaknesses have resulted in programlosses to FCIC and the use of inflated crop yields forinsurance purposes.

One reinsured company improperly transferred losseson its 1994 multiple-peril crop insurance (MPCI) raisinpolicies to FCIC without RMA’s knowledge. Thisoccurred when RMA permitted the reinsured companiesto change their annual plans of operation in 1995 toaccommodate the new catastrophic risk plan ofinsurance. However, RMA did not establish controls toensure that the companies did not make unauthorizedchanges or use excessive adverse risk selectionpractices. One reinsured company improperly shiftedabout $6 million in underwriting losses to FCIC.

RMA’s separation of duties over the approval of funddesignation changes was not adequate. The DataQuality Section, responsible for RMA’s data bases, canaccept and approve fund designation changesrequested by reinsured companies without the approvalof RMA’s Reinsurance Services Division because RMAhas not clearly designated one division to approve allfund designation changes. Weak controls also causedRMA to maintain inflated crop yields for some farms inits data bases used to deliver MPCI programs, whichpotentially may inflate MPCI program statistics andinfluence RMA’s actuarial tables.

We recommended RMA recover about $6 million inunderwriting losses that FCIC incurred when thereinsured company improperly ceded 1994 raisin lossesin California to FCIC. We also recommended that RMAstrengthen management controls over fund designationchanges, particularly to ensure no changes are madeafter the established cutoff dates, and establishreasonable validity checks for the acceptance of cropyields into its data bases. RMA personnel generallyagreed with our recommendations.

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Roundtable Meeting Between OIG and RMA

On November 30 and December 1, 1999,representatives of RMA and OIG met in San Antonio,Texas, to identify ways to improve interagencycooperation and effectiveness. (This was the secondformal joint discussion of such magnitude—the firstbeing the December 1998 roundtable meeting betweenOIG and FSA at which OIG and FSA made acommitment to more efficiently ensure the effectivenessand integrity of USDA programs through betterinteragency coordination and understanding.) At least20 representatives from each agency were present,including the RMA Administrator, the AssistantInspectors General for Audit and Investigations, and theDeputy Under Secretary for Farm and ForeignAgricultural Services. RMA and OIG agreed to improvecoordination and understanding between the agenciesthrough better communication.

OIG and RMA jointly issued a report to the Secretary,summarizing the results of their discussions, andagreed to make it available to their staffs nationwide. Inthe report, each agency outlined agreed-to actionsneeded to improve on existing modes of communication/operation that would transcend old perceptions andfoster both agencies’ commitments to achieve theirforemost common goal: RMA program integrity. Eachagency has taken steps to implement the correctiveactions.

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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.FNS’ funding for FY 2000 is $34 billion. Three FNSprograms receive the bulk of this funding: FSP, $19.8billion; CNP, $9.8 billion; and WIC, $4.1 billion.

Consulting Firm Pays Government $1.9 Million

A consulting firm based in Cambridge, Massachusetts,agreed to pay $1.9 million to the United States in orderto settle civil claims brought against it by theGovernment under the False Claims Act. The companyprovided a wide array of social science consultingservices to various Government agencies, includingFNS, which contracted with the firm to collect andanalyze data to evaluate nutrition-related programs.The company routinely used subcontractors andsubmitted invoices to agency clients, including FNS, forservices rendered, when, in fact, the company had notyet incurred the costs for the services for which theywere charging. This was a violation of FederalAcquisition Regulations (FAR). Premature billingsoccurred in approximately 74 percent of the contracts,which ultimately deprived the Government of the use offunds at an imputed cost of $2.4 million.

FOOD STAMP PROGRAM

Monitoring of Electronic Benefits Transfer (EBT)System Continues

Currently, 40 States and the District of Columbia useEBT systems to deliver food stamp benefits. Thirty-seven of the systems have been implementedstatewide, including the District of Columbia. Over 70percent of all FSP benefits are being issued via EBT.During this semiannual period, we completed EBTsystem audit work in Louisiana.

The EBT system for Louisiana was successfullyimplemented; however, controls needed to bestrengthened in some areas. The State agency did notensure that user access codes for separated employeeswere removed from the system. Controls over returned

EBT cards needed strengthening because cards werenot destroyed. Reconciliation of drawdowns of Federalfunds for retailer FSP redemption settlements was notproperly monitored on a daily, monthly, or fiscal-yearbasis, which could result in drawdown errors. The Stateagency also needed to ensure computer securitytraining is provided for all EBT system users annually.

We recommended that FNS instruct the State agency toimplement controls to address these deficiencies. FNSagreed to work with the State agency to implement thenecessary controls.

Federal and State-Funded Food Stamp BenefitsWere Not Accurately Determined or Reported toFNS

The State Option Food Stamp Program (SOFSP)assists legal immigrants and childless, able-bodiedadults who were made ineligible to receive food stampbenefits by the Personal Responsibility and WorkOpportunity Reconciliation Act of 1996 (PRWORA).States were authorized to use the federally funded FSPinfrastructure to deliver SOFSP benefits but wererequired to pay FNS for their value.

We reviewed implementation of SOFSP in California,Washington, Florida, New Jersey, and Rhode Islandand identified internal control deficiencies, whichrequired corrective actions by FNS and the Statesreviewed. The States were not accurately calculatingbenefits for households receiving both Federal andState-funded food stamps (mixed households). TheseState agencies did not take actions necessary to complywith their State plans and FSP regulations whencalculating SOFSP and FSP benefits for mixedhouseholds. During fieldwork, we issued managementalerts to the four FNS regional offices, but their initialcorrective actions were inconsistent. The FNS Mid-Atlantic and Northeast regional offices took aggressiveaction to require the States to revise their procedures,correct errors, and make appropriate payments to FNSfor SOFSP benefits issued. The FNS Southeastregional office and Washington State have now takensimilar actions to correct problems in Washington andFlorida. Corrective action is still pending in California.

In view of its estimate that invalid paymentsapproximating $10 million could have been made duringFY 1998 in determining FSP immigrant benefits inSOFSP States, FNS needs to implement consistent

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policy in administering SOFSP. Actions required forindividual States should ensure that Federal funds arenot used to fund State programs and should bescheduled for completion so that financial transactionsare recorded, processed, summarized, and reported inthe fiscal year in which they occur. We recommendedthat FNS take immediate action to address theaccounting and reporting deficiencies identified duringour audit, issue clarifying guidance to State agencies,and recover invalid FSP expenditures.

FNS has initiated corrective actions and plans tocontinue its monitoring of State operations; however, itbelieves that PRWORA legislation allowed Statesflexibility in implementing SOFSP. According to FNS, ithas agreed to document how each State has elected totreat ineligible alien income and will require States tofollow their elected procedures.

Improper Payments Were Made to Disqualified FoodStamp Retailers

FNS relies on controls in the Store Tracking,Authorization, and Redemption Subsystem (STARS) tomonitor and identify unauthorized FSP payments todisqualified retailers. As part of our ongoing work toensure that FNS retailer management systems keeppace with changes in technology and continue tostrengthen Federal controls for the oversight of programretailers, we initiated an ongoing evaluation of thecontrols in place to prevent disqualified retailers fromreentering FSP during the assigned disqualificationperiod.

During the period of evaluation, we identified severalweaknesses in STARS that made the system lesseffective than it should be. We determined that, due tothe high volume of suspect transactions that had to beresearched, the identification through STARS ofimproper redemptions made by disqualified retailerswas in danger of becoming ineffective. For example,our review of 14 disqualified stores disclosed that$123,000 in questionable redemptions was made by 3retailers. However, the STARS data for the firmsindicated that over $210,000 in questionableredemptions was made for these stores. Based on theSTARS data, FNS staff would have to evaluate anincreased number of transactions before identifying thequestionable ones. We recommended that FNSevaluate STARS to develop controls that would moreprecisely identify FSP benefit redemptions bydisqualified retailers.

FNS indicated that it recognized that the processresulted in an increased demand on agency resourcesto research and identify suspect transactions and that itintended to evaluate the problem as part of its redesignof systems in STARS II. FNS also noted that theconversion toward full EBT implementation changedspecific controls needed to identify discrepanttransactions.

We noted that unauthorized transactions of disqualifiedretailers are also a problem under the EBT system, andwe recommended that FNS develop appropriatecontrols to preclude this. At the time of our review, wenoted that the minimum amount of time needed to blockan EBT retailer from processing FSP transactions wasabout 3 business days after disqualification. FNS hassince developed the Retailer EBT Data ExchangeSystem, which permits the deactivation of point-of-saledevices electronically to prevent further FSPtransactions. FNS advised us that, with rareexceptions, withdrawals and disqualifications shouldoccur within 24 hours.

There was also the potential for disqualified retailers to“sneak” back into the program because there were noprocedures requiring specific data base searches toidentify disqualified applicants prior to approving aretailer’s application. STARS did not prompt users toperform data base searches to determine if theapplicant had been disqualified previously from theprogram. FNS has implemented new procedures forapplicant data base searches in STARS. The newprocedures developed under the Related IndividualsTracking System project appear to correct thedeficiencies related to verifying that applicants have notbeen disqualified previously from the program.

Update on $63 Million Food Stamp Fraud Case

As reported last period, in a complex food stamptrafficking conspiracy involving 46 defendants, foodstamps worth $63 million were fraudulently redeemedthrough 20 authorized stores in New York City. To date,35 defendants have been convicted, including 4 bankofficials. Of those four bank officials, three individualspled guilty, and a jury found one official guilty of bankfraud and bank bribery. Sentencing is pending.

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Store Owners/Employees Face Penalties for EBTFraud in Baltimore

Two brothers who co-owned a Baltimore City grocerystore were convicted of conspiring to commit nearly$740,000 in food stamp fraud through the EBT system.The brothers were sentenced to 6 months in jail,followed by 6 months of home detention, and ordered topay a total of approximately $24,000 in restitution.While OIG was investigating this store, its formermanager opened her own store in Baltimore, obtainedauthorization to participate in FSP, and was laterconvicted of trafficking in over $239,000 worth of foodstamp benefits via the EBT system. The formermanager has been sentenced to 1 year in jail andordered to pay $239,000 in restitution.

Also in Baltimore, the owners of another grocery storepled guilty to EBT fraud and trafficking in food stampbenefits. The loss to the Government totaled between$800,000 and $2 million from 1995 to November 1999.In October 1999, OIG agents executed a Federalsearch warrant at the store, where they seized $9,500 incash and obtained statements from the ownersadmitting to the trafficking. As part of their pleaagreement, the owners agreed to forfeit the seized cashand any other available assets. Sentencing is pending.

Computer Match Identifies District of ColumbiaInmates Receiving Welfare Benefits

We initiated a joint operation with the District ofColumbia’s Department of Human Services (DCDHS) tomatch prison inmate rolls with the DCDHS welfarerecipient rolls. DCDHS completed the prison match inJanuary 2000. After reviewing 173 cases from thematch, DCDHS identified 108 food stamp cases inwhich overissuances totaling almost $142,000 had beenpaid to unauthorized households. DCDHS also found29 cases in which overpayments totaling more than$77,000 had been paid from the Temporary Assistancefor Needy Families and General Assistance programs.This project thus identified 137 households that hadreceived nearly $220,000 in unauthorized food stampand welfare benefits. DCDHS is seeking recovery ofthese monies from the recipients. Matches such asthese were authorized by the Welfare Reform Act of1996.

Nine Subjects From Violent Street Gang PleadGuilty

A joint undercover investigation with the Ohio OrganizedCrime Investigations Commission led to the indictmentand conviction of nine members of a violent street gangin Dayton, Ohio. Investigation showed that the ninewere involved in a conspiracy to defraud the food stampand other welfare programs, conspiracy to possess anddistribute cocaine, interstate travel to promote drugtrafficking, use of firearms while engaged in narcoticstrafficking, money laundering, receiving stolen property,and homicide. Many of the gang members, includingthe upper echelon, were collecting food stamp andwelfare benefits. In this case, 17 residential searchwarrants were executed in 5 Ohio cities, and 12 arrestwarrants were executed in Ohio and Kentucky. Itemsseized included 9 residences, 18 automobiles, 66 guns,drugs, steroids, and cash. Sentences for the nine arepending. Additional indictments are anticipated.

Former Caseworker Sentenced in Fraud Scheme

A former eligibility counselor with the TennesseeDepartment of Human Services (TDHS) pled guilty tomail fraud and was sentenced to serve 18 months in aFederal prison, followed by 2 years’ supervised release,and ordered to pay a special assessment fee of $100and restitution of $217,000. The caseworker had beenresponsible for determining recipient eligibility in thefood stamp, welfare, and TennCare medical assistanceprograms. In her position, she had created six fictitiousrecipient case files and had the benefits mailed toherself. This was a joint investigation among OIG,TDHS, and the U.S. Postal Inspection Service.

SPECIAL SUPPLEMENTAL NUTRITIONPROGRAM FOR WOMEN, INFANTS, ANDCHILDREN (WIC)

$71 Million Judgment Awarded in Food Stamp/WICCase

A U.S. District Court judge issued a $71 millionsummary judgment against two prominent Cleveland,Ohio, area businessmen, who currently are fugitives.The civil complaint, filed in May 1996, petitioned fortriple damages for illegally trafficking $24 million in food

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stamps and WIC vouchers. The subjects were alsocharged with money laundering a total of $4.3 million,hiring unauthorized aliens, and tax charges. Thebusinessmen’s attorney made a separate out-of-courtsettlement, under which the attorney and his law firmpaid the Government $275,000 for their involvement inthe fraud.

The two businessmen remain fugitives in the Kingdomof Jordan. The Jordanian court failed to extradite thetwo after their arrest by the Jordanian National Police.The DOJ Office of International Affairs and OIG’srepresentative at INTERPOL continue to work on theirextradition. This investigation was conducted jointlywith the Internal Revenue Service’s (IRS) CriminalInvestigation Division and the Immigration andNaturalization Service’s Investigations Division.

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Food Safety

Formula to FSIS to obtain food-grade approval for theirlubricants, which are used in the food-processingindustry. The former vice president of manufacturingstated the company feared that disclosure of thelubricants’ true ingredients, which contained poisonousimpurities, would result in denial of the products’ use.The investigation further found the company in violationof provisions of the Toxic Substance Control Act, sincethe lubricants imported from Germany were not listed onthe inventory maintained by EPA. Under the terms ofthe agreement, the company accepted responsibility forits actions and was placed under pretrial supervision for18 months. The company will also pay a total of $2.3million, consisting of a $1.3 million payment to theUnited States, $750,000 to resolve an administrativeaction brought by EPA, and $250,000 to fund asupplemental environmental project of its choosing,subject to acceptance by the Government.

FOOD SAFETY AND INSPECTION SERVICE(FSIS)

FSIS administers a comprehensive system of inspectionlaws to ensure that meat, poultry, and egg productsmoving in interstate and foreign commerce for use ashuman food are safe, wholesome, and accuratelylabeled. FSIS’ appropriation for FY 2000 totaledapproximately $649 million.

Multinational Corporation Submits False Statementsto FSIS

In New Hampshire, a joint investigation with theEnvironmental Protection Agency’s (EPA) CriminalInvestigation Division resulted in a pretrial diversionagreement with a multinational corporation based inMunich, Germany. Investigation determined thecorporation submitted false Confidential Statements of

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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 2000 is approximately $274 million.

AMS Needs To Improve Its Controls Over theCommodity Purchase Program

AMS purchases excess supplies of 100-percentdomestic commodities to assist farmers when pricesand income are depressed by surpluses. AMSrequested that we assess its procedures and controlsover the Commodity Purchase Program to determine ifthere was reasonable assurance the food it purchasedfor Government programs was of 100-percent domesticorigin.

We found that AMS inspectors did not follow agencyprocedures in confirming domestic origin for 51 of the89 contracts we reviewed. Either the inspectors couldnot provide evidence that they conducted the requiredreviews or the reviews were inadequate because thedocumentation they collected did not confirm domesticorigin. The inspectors told us that they received limitedtraining and did not clearly understand theirresponsibilities. As a result, AMS could not providereasonable assurance that commodities purchased withprogram funds were 100-percent domestic for contractsvalued at $28 million.

Although we found no indication of foreign products inthe 89 contracts, the AMS national office was unawarethat its domestic origin verification procedures were notproperly understood or implemented by its field staff.Also, AMS was not complying with Federal AcquisitionRegulations (FAR) class deviation requirements. FARadopted the Buy American Act, which, in certain cases,allows foreign products to be commingled with domesticproducts. AMS did not realize that its 100-percentdomestic origin policy required notifying the FARSecretariat and possibly proposing a revision to FAR.USDA’s OGC believed that the lack of an appropriateFAR revision could create legal challenges for the $700million to $800 million of commodities purchasedannually by AMS.

We recommended that AMS develop comprehensivetraining and improve written instructions, requirenational office personnel to review subcontractors morecomprehensively, and obtain an OGC opinion regardingcompliance with FAR. AMS agreed with therecommendations and implemented corrective action.

Coffee Company Falsifies USDA Certificates

The owner of a Bridgeport, Connecticut, company pledguilty in U.S. District Court to one count of wire fraud.The firm distributes coffee beans and manufacturedcoffee products to companies throughout the country.From October 1997 to June 1999, the company bid oneight contracts, worth about $400,000, with a fooddistributor in Illinois to manufacture and ship coffee.The contracts required that each shipment of coffee beofficially inspected and certified by USDA, since thecoffee products were to be used in Illinois publicinstitutions. The company obtained the contracts bysubmitting the lowest bid. However, in order to make aprofit on the contracts, the company never obtainedUSDA inspections. Instead, it provided the fooddistributor with falsified USDA Certificates of Quality andCondition and USDA stamps. Sentencing is pending.

ANIMAL AND PLANT HEALTH INSPECTIONSERVICE (APHIS)

Through inspection, APHIS protects the Nation’slivestock and crops against diseases and pests andpreserves the marketability of U.S. agricultural productsat home and abroad. APHIS’ available funding forFY 2000 is estimated at about $573 million.

APHIS Should Reevaluate the Level of Inspectionsin Florida

Pests and diseases on agricultural products haveentered Florida through the State’s ports undetected,leading to costly eradication and control efforts. Forexample, the outbreak and spread of citrus canker andMedflies in Florida have caused the State and FederalGovernment to spend millions of dollars to fundprograms to combat the outbreaks. Our review of PlantProtection and Quarantine (PPQ) practices forinspecting air and ship cargos and passengers arrivingin the Miami and Fort Lauderdale ports identifiedvulnerabilities and weaknesses, which increased therisk of prohibited agricultural products entering theUnited States.

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submitted false entry documents that omitted thesmuggled items. In March, a Federal jury found one ofthe importers guilty of bribery, money laundering,smuggling and entry of adulterated foodstuffs, andconspiracy. The other two importers had already pledguilty, one to receipt of adulterated food in interstatecommerce, and the other to importing adulteratedproduct and bribery. All three are scheduled to besentenced later. This case resulted from work initiatedby the San Francisco Interagency Import Task Force,which has been targeting firms involved in illegallyimporting plants and animals that may present a threatto America’s food supply. OIG agents have beenworking with representatives from FDA, APHIS, the U.S.Customs Service, the U.S. National Marine FisheriesService, the U.S. Fish and Wildlife Service, the IRS, theCalifornia Department of Health Services, and theCalifornia Department of Food and Agriculture at thedirection of the U.S. Attorney for the Northern District ofCalifornia.

Individual Impersonating USDA Inspector Nabbed

An individual in the Lancaster, Pennsylvania, areaapproached a large circus, claiming to be a USDAinspector and asking to inspect the animals. The circusemployees called the local police because no onerecognized the impersonator. Subsequent investigationby OIG confirmed the individual had never beenemployed with USDA, although he had at one time beena field enumerator under contract with a statistics officein USDA. The individual pled guilty in State court toimpersonating a public servant and was sentenced to 2years’ probation and a fine of about $200.

We observed that PPQ inspectors did not (1) inspectcargo ships timely upon arrival; (2) inspect the baggageof 75 percent of arriving international airline passengersand 99 percent of cruise ship passengers arriving fromforeign locations; (3) assess fines as a deterrent againstairline and cruise ship passengers found to haveprohibited agricultural items in their possession whenentering the United States; (4) select samples ofperishable cargo for inspection but, instead, allowedbrokers to select the samples; and (5) ensure caterersmet all foreign arriving aircraft timely and controlregulated garbage. We also observed that cargoinspections performed during overtime periods, whichaccounted for over 50 percent of all cargo inspections,were not supervised.

We made a series of recommendations to improve theinspection process and to correct the specificvulnerabilities and weaknesses noted. Therecommendations included the assessment of penaltieswhen warranted and the evaluation of higher fee ratesfor inspections to provide for sufficient staff andresources. APHIS agreed with the recommendations orproposed alternatives and is implementing correctiveactions.

Smugglers Caught Trying To Bribe GovernmentOfficial

A multiagency sting operation in San Francisco nettedthree importers who tried to bribe a Food and DrugAdministration (FDA) official to expedite the entry oftheir food shipments from Hong Kong into the UnitedStates without regulatory inspections. The subjects

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Natural Resources and Environment

The Natural Resources and Environment mission areaplays a critical role in the sound stewardship of theNation’s land and natural resources. The ForestService and the Natural Resources ConservationService share responsibility for fostering soundstewardship on 75 percent of the country’s land.

URP Program Initiated Without Statutory Authorityor Appropriated Funds

The Department initiated the Urban ResourcesPartnership (URP) program in FY 1994. The UnderSecretary for Natural Resources and Environmentestablished URP to work directly with local people onprojects related to natural resources in urban areas.

The prescribed process for implementing a Federalfinancial assistance program was not followed for URP,as it was initiated without specific statutory authority orcongressional appropriations. The program wasfinanced using funds appropriated for existing FS andNRCS programs. Further, regulations were notpromulgated in the Federal Register to publicize theobjectives and requirements of the program.

A number of specific problems were noted during ourreview. Cities/areas were not selected to participate inURP on a competitive basis. Also, URP recipients didnot always use funds to meet the purposes (see photo)of the applicable statutes from which the appropriationswere obtained. Our review identified 131 awards for$3.4 million that did not meet the intended purposes. Inaddition, the program did not include controls to ensurethat award funds were used in accordance withapplicable Federal regulations. Recipients claimedquestionable costs totaling over $1.3 million, whichresulted in over $474,000 subject to recovery.

We recommended that all URP grants be reviewed todetermine their legal authority as well as fulfillment ofpurposes under the applicable statutes, and that astrategy be developed to resolve all such issues. Wealso recommended the Department publish applicablerequirements and procedures in the Federal Registerand that control procedures be established at the UnderSecretary level to ensure all program initiatives areforwarded to OGC for review prior to implementation. Inaddition, we recommended that controls be establishedat FS and NRCS to ensure grant awards meet thestatutory purposes. We further recommended that

NRCS usedappropriated funds,whose use waslimited to activitiesassociated with soilerosion control, foractivities such aspainting a mural on awall as seen here.URP photo.

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control procedures be implemented at the office of theUnder Secretary for Natural Resources andEnvironment and the offices of the Chiefs of FS andNRCS to assure USDA and Office of Management andBudget (OMB) regulations are adhered to for all awardprograms.

The Under Secretary for Natural Resources andEnvironment responded that FS and NRCS haveconducted internal reviews of the program and thatadditional guidance has been provided regarding URPactivities. The Under Secretary requested a clarifyingopinion from OGC regarding its July 1999 opinion inwhich it determined there was no authorizing legislationfor URP. OGC’s clarification stated the Secretary hasbroad authority to undertake soil and water conservationmeasures relating to soil erosion; however, the agencymust ensure any proposed URP activity falls within thescope of that authority. Based on the OGC clarification,the Under Secretary believes that the agencies havesufficient legal authority to undertake the activitiesconducted under URP.

We continue to believe that URP projects such as wallmurals, transportation, and bringing civil lawsuitsagainst owners of derelict properties to force demolitionor rehabilitation of structures are not related to soilerosion prevention. FS and NRCS officials also believeit is not in the public interest to recover funds fromorganizations that completed URP projects accepted bythe local steering committees. We continue to believe

that misspent funds should be established as areceivable on the agencies’ accounting records anddeterminations made regarding whether the amountsowed should be collected and/or waived. We continueto work with departmental officials to reach agreementon the management decisions.

FOREST SERVICE (FS)

FS has the responsibility for providing leadership in theprotection, management, and use of the Nation’sgrassland and aquatic ecosystems on public and privatelands. The National Forest System includes 191.8million acres of forest, grass, and shrub lands. FS alsocooperates with State and local governments andprivate landowners in the management of forestresources and provides leadership in forest andrangeland research. The FY 2000 budget for FS isestimated at $3.5 billion, while receipts generatedthrough timber sales and other activities are estimatedat about $845 million.

San Bernardino National Forest Land AdjustmentProgram Was Effective

Our audit found that the San Bernardino National ForestLand Adjustment Program was effective in acquiringonly high-priority lands, properly using third parties tofacilitate land exchanges, and disposing of unneededforest lands.

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Rural Development

The Rural Development mission area helps the peopleof rural America develop sustainable communities andimprove their quality of life. Rural Developmentprograms are delivered through three agencies: theRural Housing Service, the Rural Business-CooperativeService, and the Rural Utilities Service. In a typicalyear, Rural Development programs create or preservemore than 150,000 rural jobs, enable 40,000 to 50,000rural Americans to buy homes, and help 450,000 low-income rural residents rent apartments or other housing.

Internal Controls Over Administrative PaymentOperations Lacking

Systemic internal control deficiencies existed in theVirginia Rural Development State Office administrativeprocurement operations regarding the purchase,authorization, and/or receipt of goods and services. Asa result, miscellaneous payments of about $286,000were unsupported due to one or more documentationerrors, and 35 purchase orders, approximating$235,000, lacked supporting documentation. Certainquestionable payments are under investigation.

We recommended that the State office recover anypayments confirmed to be improper in the investigationand implement controls, including separation of duties.The national office should perform a review of the Stateoffice administrative operations to ensure paymentprocedures are followed. Management agreed with thefindings and recommendations in the report andperformed a review in March 2000 of the correctiveactions implemented by the State office.

RURAL HOUSING SERVICE (RHS)

RHS is responsible for making available decent, safe,sanitary, and affordable housing and communityfacilities by making loans and grants for rural single-family housing and apartment complexes, fire stations,libraries, hospitals, and clinics. For FY 2000, programfunding for RHS loans and grants totaled $5.8 billion.

RRH Company’s Regional Manager Pleads Guilty

In California, the regional manager of an RRHmanagement company pled guilty to conspiracy todefraud the Government and filing a false income taxreturn. Our investigation disclosed that the managerdiverted money from RRH projects by charging

purchases for his personal residence to the RRHcomplexes, paying shell companies for landscapingservices never performed, stealing money from coin-operated laundry facilities at the RRH complexes, andreceiving kickbacks from contractors who providedservices to the complexes. The manager is estimatedto have netted $60,000 from these combined schemes.Sentencing is pending.

RURAL BUSINESS-COOPERATIVE SERVICE(RBS)

RBS enhances the quality of life for rural residentsthrough grants or loans to rural-based cooperatives andbusinesses and through partnerships with ruralcommunities. RBS national staff and RuralDevelopment State office staff promote stable businessenvironments in rural America through financialassistance, business promotion, and technicalassistance, as well as research, education, andinformation.

Lender Hid Financial Condition of Borrower WhoDefaulted in 16 Days

The Indiana Rural Development State Office requestedthe audit to determine why a borrower defaulted on aguaranteed Business and Industry (B&I) loan after only16 days, causing RBS to pay almost $600,000. RuralDevelopment requested that we ascertain whether loanfunds had been used for authorized purposes and thelender had properly determined and reported theborrower’s financial condition in requesting the B&I loanguarantee.

Our audit uncovered evidence that the lender knew ofthe borrower’s poor financial condition before makingthe loan but did not disclose this information to RBS.Also, the lender knew of the borrower’s delinquent taxstatus but certified otherwise. Further, the lender wasaware that the borrower had serious cash-flowproblems. The lender used over $295,000 of theguaranteed loan proceeds to pay off a prior loan it hadmade to the borrower and liquidate overdrawn checks.RBS had required that guaranteed loan funds be usedonly for working capital and not to pay short-term notes.Rural Development officials informed us they would nothave guaranteed the loan if they had known the fundswould be used to pay off prior obligations. In addition,the borrower had not filed Federal and State tax returnssince 1995.

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Based on the evidence uncovered during our audit, wereferred this case for criminal investigation. Werecommended that RBS seek recovery of almost$596,000 paid on the loan guarantee.

RURAL UTILITIES SERVICE (RUS)

RUS seeks to improve the quality of life in rural Americathrough a variety of loan, loan guarantee, and grantprograms for electric energy, telecommunications(including distance learning and telemedicine), andwater and waste projects. As of September 30, 1999,electric borrowers had received over $58.2 billion indirect and guaranteed loans, telecommunicationsborrowers had received over $13.1 billion in direct loansand guaranteed loans, and water and waste borrowershad received a total of $22.7 billion in direct loans, loanguarantees, and grants.

Many RUS Telephone Loan Borrowers Do Not NeedGovernment Assistance

RUS continues to make and service telephone loans tofinancially strong borrowers who likely could obtainfinancing from other sources. Title 7, U.S.C. 930, statesthat rural telephone systems are to be encouraged andassisted to develop their resources and ability toachieve the financial strength needed to enable them tosatisfy their credit needs from their own organizationsand other sources.

Nevertheless, we identified 434 borrowers with loanstotaling $1.9 billion who had sufficient financial strengthto repay their loans and/or could obtain, or be graduatedto, non-Government lending sources. Their financialratios were equal to or better than the average of thosefor 16 borrowers who, in 1998, had paid off RUS loanstotaling $125 million an average of 22.6 years ahead ofschedule. Although prohibited from denying a loan forany reason other than that based on a properly enactedadministrative rule, RUS has not enacted a rule torequire that borrowers who can obtain private credit at

reasonable rates and terms use private resourcesinstead of Government loans. Thus, under the currentregulatory scheme, RUS does not have the discretion torefuse a loan because a borrower is in strong financialcondition.

Electric Program Borrowers Are Not Investing inRural Development as Intended by Congress

RUS electric generation and distribution borrowers didnot increase their investment portfolio in ruraldevelopment as intended by Congress when itamended the Rural Electrification (RE) Act to increasethe amount of investments, loans, and loan guaranteesthat electric borrowers could make without priorapproval of RUS. Of the $10.9 billion in investmentsreported by 787 electric program borrowers in calendaryear 1997, only 90 borrowers reported about $61 million(about 1/2 of 1 percent) in rural developmentinvestments.

Prior to passage of section 312 of the RE Act,borrowers were prohibited from investing more than 3percent of the value of their total utility plant (TUP) in“non-Act” investments. In December 1987, Congressamended the RE Act to allow investment of up to 15percent of TUP without prior approval by RUS. Thelegislative history shows that one of the primarypurposes for increasing the level of investment was toincrease the amount of funds available for ruraldevelopment projects and to promote the ability ofelectric borrowers to improve the rural areas they serve.

Electric borrowers have taken advantage of the 15-percent investment rule; however, over 99 percent ofthese investments have not been in rural development.Instead, electric borrowers reported investments suchas U.S. Treasury notes, stocks and bonds, moneymarket certificates, certificates of deposit, andcommercial paper. RUS agreed with ourrecommendation to develop and implement a strategyto encourage electric borrowers to make discretionaryinvestment in rural areas as intended by Congress.

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

The Cooperative Extension System is a nationalnetwork that helps the agricultural and forestrycommunities improve their lives and production throughthe dissemination and demonstration of new scientificknowledge and improved technologies. The partners inthis unique system include CSREES, the CooperativeExtension Service (CES) at each land-grant institution,and nearly all of the Nation’s 3,150 counties. CSREESadministers funds in accordance with various laws tosupport the programs and creates the infrastructure ofCES.

University Charged Ineligible Costs, Still Did NotComplete Construction of Funded Facility

At the request of the CSREES Administrator, wereviewed the South Carolina State University’s (SCSU)use of Extension Service grant funds to determine ifthey were used for eligible purposes. We found thatSCSU improperly used funds from its Extensionprogram account (Public Law 95-113) to pay almost$114,000 of construction expenses related to itsExtension facility account (Public Law 99-198). Use ofPublic Law 95-113 funds for construction-relatedexpenses is prohibited. In addition, we identified grantfunds approaching $15,000 not properly accounted for,used for ineligible purposes, or not deposited in theproper accounts.

Research, Education, and Economics

SCSU had not completed a CSREES-funded officefacility after a contract dispute interrupted construction.In 1994, SCSU entered into a $2.4 million contract forthe construction of an Extension office facility.Construction on the project began in July 1994 and wasto be completed within 1 year. However, problems withthe architectural design and change orders, as well asdisagreement between the architect and engineeringfirm and the construction contractor, resulted in delaysand eventual termination of the contract. After morethan 5 years and the expenditure of over $2 million ofFederal funds, the facility remains incomplete andprovides no benefit toward strengthening SCSU’scapacity to carry out educational programs. SCSUestimated that an additional $1 million would be neededto complete the facility.

We made a series of recommendations for SCSU toimprove its accounting controls and recommended fiscaladjustments for approximately $128,000 of Extensionfunds improperly used. We also recommended thatbecause SCSU, its architect and engineering firm, andthe contractor were all responsible for the project notbeing completed in accordance with the terms of thecontract, no additional Federal funds beyond the originalcontract price should be used for the facility. CSREESagreed and has required SCSU to prepare a plan tocomplete the facility in 12 months and to secure thebuilding until its completion.

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Financial, Administrative, andInformation Technology

• Of the 54 prior recommendations we had made toimprove CR’s program complaints processing, CRhad implemented only 13.

We concluded that CR’s inefficiencies are thesymptoms of the larger problem of CR’s operatingenvironment. Over the past several years, because ofthe multiple changes in its chain of command andresultant differing demands of each new manager, CRhas resorted to short-term solutions rather than long-term plans demanding accountability of employees.Previously, we recommended that CR reengineer itscomplaints resolution process; CR officials agreed yetimplemented no significant changes.

For this seventh review, we emphasized that CR needsto design and implement a long-term plan to ensure itcan resolve complaints efficiently and with due care,concentrating on process reengineering, effectiveleadership, a changing organizational culture, andcustomer focus. We also urged CR to expediteimplementation of a new EEO complaints trackingsystem and its installation of a new program complaintsdata base.

Department’s Original Backlog of ProgramComplaints Substantially Cleared, Other ConcernsRemain

During our latest evaluation of the operations of CR, wereviewed the status of its original backlog of complaintsof discrimination in the award of USDA program benefitsto farmers and others. After 2 years, and with the helpof an OIG-recommended task force, CR has been ableto substantially clear this original backlog. In November1997, the backlog stood at 1,088 cases; during ourcurrent review, the backlog had been reduced to 35cases.

Our concern remains that the complainants in these 35cases have not received a resolution. These complaintshave been open up to 7 years, and CR’s trackingsystem shows that eight are still in the preinvestigationstage.

Also, in clearing the original backlog, CR entered into 34settlement agreements without adequately documentinghow it arrived at the amounts of compensatory damagesand debt relief it awarded the complainants. Damagesawarded under settlement agreements are paid fromUSDA appropriations, and the awards in these 34 casesdo not appear to satisfy all the requirements of

EQUAL EMPLOYMENT OPPORTUNITY (EEO)

Complaints of Discrimination Need More EfficientHandling

As part of our continuing reviews, we found that theOffice of Civil Rights (CR) remains an inefficientmanager of both EEO discrimination complaints andprogram complaints. CR’s data base is not a reliabletracking system. It did not accurately reflect where inthe resolution process fully one-third of the open EEOcomplaints stood, and it could not identify where over1,200 program complaints case files could be located.Further, case file documents are misfiled, and thechaotic state of CR’s file room makes retrievabilitydifficult. During our review, CR could not locate 115 ofthe files we requested for both EEO and programcomplaints.

Moreover, despite a Governmentwide timeframe of 270days established for resolving EEO complaints, the ageof those cases pending the approval of the draft reportsof investigation and draft final agency decision is, onaverage, 474 and 668 days, respectively. Forcomplaints of program discrimination, CR averages 126days to decide if it will accept a case and another174 days to investigate and adjudicate the case;together, this is longer than the 180-day time period CRgives itself to resolve program complaints.

CR’s inefficiencies are reflected throughout theprocessing cycle and raise questions of due care in theresolution of discrimination complaints.

• EEO reports of investigation had been accepted byCR as complete even though they containedsubstantial errors.

• Final decisions reached in EEO cases were notalways based on accurate assumptions and did notalways reflect the evidence collected.

• Individuals had their program complaints rejectedwithout being given an opportunity to provide missinginformation.

• Program complaints still awaited acceptance after 30days (the limit for this phase of processing) eventhough the submitters had not been sent lettersacknowledging receipt of the complaint or requestingadditional information. (At least 454 cases exceededthe 30-day limit and may be considered backlog.)

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appropriations law. Although the USDA task force thatcleared the backlog recommended limited damages anddebt relief in many cases, CR increased the amountssignificantly but did not document its analysis of USDA’sliability.

A DOJ opinion states that because damage awards arepaid from appropriations, such awards should only bemade if it is determined a court would have made asimilar award. Such a determination presupposes anassessment of the degree to which USDA was liable inthe case.

We found the awards to the 34 claimants who acceptedsettlement offers were not fully supported bydocumentation that reasoned USDA’s degree of liability.These claimants received over $2.3 million incompensatory damages and nearly $3.7 million in debtrelief. In eight of these cases, the USDA task force hadfound either no finding of an inference of discriminationor a low to very low potential of discrimination. None ofthese 34 settlements was reviewed by OGC for legalsufficiency. A subsequent memorandum issued by theSecretary has emphasized the need to submit allsettlement documentation to a legal sufficiency review.

We recommended that CR’s procedures require it todocument the computations behind its awards ofcompensatory damages, debt relief, and attorneys’ feesand that it submit this documentation to OGC as part ofthe legal sufficiency review. We also recommendedthat CR resolve the remaining 35 cases in the originalbacklog with all deliberate speed.

FINANCIAL MANAGEMENT

The Chief Financial Officers Act and the GovernmentManagement Reform Act require USDA to prepare andaudit financial statements. Financial statements aregenerated from six separate systems operated byvarious USDA agencies.

Financial Statement Audits

USDA’s FY 1999 Consolidated Financial Statements:Disclaimer of Opinion

Our disclaimer of opinion (for the last 6 years) meansthat the Department, as a whole, does not knowwhether it correctly reported monies to be collected in

total, how much money is collected, the cost of itsoperations, or any other meaningful measure offinancial performance. The Department has manyserious financial management system problems thatimpact its ability to provide accurate and reliablereporting on its financial operations. The Departmenthas reported to the President that it is unable to providereasonable assurance that the Department’s financialsystems provide information that is relevant andconsistently reported. This difficulty will continue until atleast 2003.

The Department’s existing financial information systemdoes not always process and report Departmentwidefinancial information accurately. We noted that thesystem was not integrated with its subsystems and didnot substantially comply with the three requirements ofthe Federal Financial Management Improvement Act(FFMIA). In addition, the delay in implementing theDepartment’s new accounting system, the FoundationFinancial Information System (FFIS), has had asignificant impact on the Department’s financial andprogram operations.

The Department has recognized the need to improve itsfinancial systems and created the Financial InformationSystem Vision and Strategy (FISVIS) Project Team todevelop the financial systems, standards, anddefinitions necessary to implement FFIS. Achieving thereforms required by financial management legislation isessential to effectively manage the Department’s over$118 billion in assets and budget authority of about $89billion.

Rural Development’s FY 1999 Financial Statements:Qualified Opinion

Our qualification of opinion (for the last 6 years) is dueto Rural Development’s inability to ensure that the costsof its direct and guaranteed loan programs arereasonably estimated as required by the Credit ReformAct of 1990.

Our Report on Internal Controls described severalweaknesses. First, credit reform problems (ensuringsubsidy costs are reasonably estimated) significantlyimpact Rural Development’s financial statements andbudget submissions, calling into question the reliabilityof the costs of Rural Development’s loan programs,estimated at about $14 billion. One major shortcomingstems from the lack of historical data regarding the

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performance of Rural Development’s long-term loans.In lieu of this information, Rural Development has reliedon the judgment of program managers. No statisticallyvalid studies are on hand, however, to support thesecritical assumptions. In FY 1999, the Departmentestablished a task force, to include the Office of theChief Financial Officer (OCFO), the U.S. GeneralAccounting Office, and OIG, that is making progress toresolve credit reform issues. However, significant workremains to be done.

We also reported a material internal control weaknesswith regard to controls over information technology. Inaddition, we reported that the oversight of guaranteedloans needed improvement and that substantial controlweakness at OCFO/National Finance Center (NFC)impacted the integrity of financial management dataprovided to Rural Development. Further, we reportedthat Rural Development’s financial systems do not meetFederal accounting requirements.

We recommended Rural Development participate withthe Department’s Chief Financial Officer in developing along-range plan to consolidate, reengineer, andintegrate financial/administrative systems.

FY 1999 Forest Service (FS) Financial Statements:Disclaimer of Opinion

FS uses a nonintegrated general ledger system, theCentral Accounting System (CAS), for approximately84 percent of its financial activity. The inability to traceindividual transactions from general ledger accounts tosupporting subsidiary records, along with significantfinancial systems weaknesses within CAS, precluded usfrom performing sufficient tests to obtain assurancesthat amounts reported in FY 1999 financial statementswere fairly presented.

Our examination of FS’ internal control structuredisclosed FS initiated major changes to overcomecontinuing financial management deficiencies.However, because of the continued use of CAS andvarious problems occurring within FFIS, FS’ financialdata remained unreliable. Also, internal controls werenot sufficient to safeguard assets such as Property,Plant, and Equipment, as well as Fund Balances WithTreasury, which together comprise approximately 95percent of FS assets.

Based on a statistical sample of individual real propertyassets, we estimated that approximately $197.8 millionof the total $1.75 billion of capitalized value was notadequately supported. We also estimated thecapitalized values contained approximately $135.8million in overstatements and $79.9 million inunderstatements.

Food and Nutrition Service (FNS) FY 1999 FinancialStatements: Unqualified Opinion

In FY 1999, FNS made progress in strengthening itsinternal control structure to provide a financialmanagement system that contains sufficient discipline,effective internal controls, and reliable data. However,we identified several material internal controlweaknesses that warrant corrective actions.

FNS has not corrected its internal control weaknessrelated to FSP recipient claims, initially identified in ourFY 1991 financial statements audit. However,corrective actions have been initiated with an expectedimplementation date of September 2001 for all Stateagencies. In addition, FNS twice posted an EBTreconciliation adjustment to its accounting system,resulting in an understatement of $16.3 million. FNSalso did not record funds on hand for the State ofMissouri, at fiscal year end, as advances for EBTsystem drawdowns. This ultimately caused five relatedgeneral ledger accounts and six applicable financialstatement line items each to be misstated by $2.6million.

EBT processors can adjust previously submittedissuance information in the Account Management Agent(AMA) system without State knowledge or approvalbecause of a system design flaw, which OIG firstreported in FY 1997. As a result, EBT processors cangain access to a larger amount of Federal funds thanauthorized by the States. In response to our priorfinancial statements report, additional States began inFY 1999 to reconcile State issuance data to EBTprocessor and AMA data. This reconciliation does notprevent unauthorized adjustments from being posted toAMA, but it would identify the adjustments after the fact.FNS recently stated that the enhancement to the AMAsystem, to prevent unauthorized changes, would not beimplemented until the first quarter of FY 2001.

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FY 1999 Risk Management Agency/Federal CropInsurance Corporation’s (RMA/FCIC) FinancialStatements: Unqualified Opinion

During this reporting period, we completed an audit ofthe FY 1999 and FY 1998 financial statements for RMA/FCIC. RMA/FCIC received an unqualified opinion inthat its financial statements fairly presented, in allmaterial respects, its financial position as ofSeptember 30, 1999, and 1998, and its net costs,changes in net position, budgetary resources, andreconciliation of net costs to budgetary obligations. Nointernal control or compliance with laws and regulationdeficiencies were identified that would have a materialeffect on the financial statements.

Rural Telephone Bank’s (RTB) FY 1999 FinancialStatements: Unqualified Opinion

We issued an unqualified opinion on RTB’s financialstatements for the year ended September 30, 1999.Our Report on Internal Controls described fourweaknesses, one material, which dealt withimprovements needed in controls over informationtechnology. We also reported conditions with regard toinadequate controls over both the estimation of directloan subsidy costs (for loans made after 1991) and theallowance for loan losses (for loans made prior to 1992).We recommended that RTB reestablish controls overthe estimation of the allowance for loss for loans. Ourreport on compliance with laws and regulationsdescribed a material noncompliance for RTB’s financialmanagement systems, which do not meet FMFIA,FFMIA, or OMB Circular A-127 requirements.

Assessment of AARCC Shows ManagementLacking Over High-Risk Investments

Our assessment of the Alternative Agricultural Researchand Commercialization Corporation’s (AARCC)investments was performed because of severe internaladministrative and accounting control deficienciesidentified during our audit of its financial statements forFY 1997. During our review of investment filesmaintained by AARCC at its Washington, D.C., office,we noted evidence of potential significantnoncompliance with its investment agreements andpossible misuse of Government funds. We concludedthat the deficiencies noted left AARCC highlysusceptible to fraud, waste, and abuse.

Our site visits to 11 investees and 1 grantee, which hadreceived, in total, over $8 million in AARCC funding,disclosed significant problems. We found generalnoncompliance with the investment agreements andevidence that most of the projects visited did not resultin any substantive job creation in rural areas orexpansion of agricultural markets.

We concluded that these serious problems wereattributable to the absence of effective internaladministrative and accounting control policies andprocedures within the corporation, poor investmentdecisions, and ineffective monitoring actions byAARCC. During our previous audit of AARCC’sFY 1997 financial statements, we estimated that about75 percent of AARCC’s approximately $27 millionportfolio was not performing, representing over$20 million in potential losses. Based on the results ofthis audit, we believe that AARCC’s financial positionmay have deteriorated even further.

To illustrate the decline in its investment value, wedetermined that AARCC will not recoup about $6.8million (about 85 percent) of its $8 million investment inthe 11 investees visited. Four of these companies hadceased operations, and five of the companies wereexperiencing significant financial difficulties, includinglarge losses and limited sales/production, to such adegree that we questioned their ability to continue asgoing concerns. Further, the two remaining investeeswere primarily producing non-AARCC products eventhough they used AARCC funds to assist in theproduction of these products.

We recommended that no further investments be madeuntil actions were taken to resolve all material internalaccounting and administrative control weaknesses wehad reported. Subsequent to the release of our report,it was disclosed that AARCC would not receive anyFY 2000 appropriations. The corporation has ceasedoperations; however, the disposition of its portfolio is stillin question.

Federal Financial Management Improvement Act

USDA does not currently comply with FFMIArequirements. As required by law, the Department hasdeveloped a remediation plan that includes the variousactions and target dates needed to achieve compliance.Incorporated into the Department’s plan are detailedremediation plans for CCC, Rural Development, FS,and NFC.

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Our overall assessment is that the Department hasmade progress in accomplishing its remediation planand is generally on track with intermediate dates.However, the plan is long-term in nature:Implementation of the Department’s new accountingsystem has an estimated completion date of October 1,2002, and Rural Development’s individual remediationplan has target dates that extend to September 2003.

INFORMATION TECHNOLOGY (IT)

Security Over USDA IT Resources NeedsImprovement

Our review disclosed material internal controlweaknesses in the Office of the Chief InformationOfficer/National Information Technology Center (OCIO/NITC) security structure. Consequently, we issued aqualified opinion to OCIO/NITC in terms of controls overprotection of the OCIO/NITC network, network securitymonitoring and intrusion detection, specified networksecurity procedures, and access authorities forauthorized users.

We recommended OCIO/NITC take action to eliminatethe cited network vulnerabilities, and implement networkfirewall and intrusion detection systems. We alsorecommended that controls over access authorities anduser ID’s be strengthened. OCIO agreed with all ourrecommendations and has initiated corrective actions.

Secure Data Transmission Techniques NeedStrengthening

Our ongoing audit work relating to IT security in theDepartment identified a material internal controlweakness. Departmental regulation requires thatPrivacy Act or sensitive data (i.e., computeridentification numbers and passwords) be encrypted ifthe information is sent over the Internet. However,actions taken by departmental and agency officials toimplement and/or enforce this critical requirement havebeen limited.

By sending sensitive data over the Department’snetwork, which is accessible to all departmentalemployees and contractors, unauthorized personnel canobtain sensitive departmental data. The Department’sintranet contains information that would enable

unauthorized users to access USDA’s most critical databases, which control billions of dollars in assets andmake billions of dollars in payments. Theseunauthorized users could render the Departmentvulnerable to inadvertent or deliberate disclosures ofsensitive data.

We recommended that OCIO implement appropriateencryption techniques and other available means ofsecuring data, and establish a departmental IT securityprogram. OCIO concurred with the recommendations.The Department has established an IT security programand is taking steps to implement data encryption and tostrengthen access security mechanisms.

Weaknesses Exist in Rural Development’s ITNetwork

The Rural Development mission area uses a computer-assisted network among Federal, State, and localoffices to accomplish its mission. Our review disclosedweaknesses in Rural Development’s IT securityprogram, involving lack of controls over the transmissionof sensitive data; vulnerabilities, which could allowunauthorized access to agency data; lack of acomprehensive network risk management program; andinadequate access authorities and password controls.

We recommended Rural Development ensure sensitivedata are secured when transmitted, take action toeliminate the cited network vulnerabilities, andimplement a risk management program whichaddresses the weaknesses cited in our report. We alsorecommended that controls over access authorities andpasswords be strengthened. Rural Developmentagreed with the recommendations and has initiatedcorrective actions.

THE HAZARDOUS MATERIALSMANAGEMENT PROGRAM (HMMP)

Since 1988, Congress has appropriated $172.6 millionto clean up hazardous waste sites on property under thestewardship of the Department and defray associatedadministrative and legal costs. The funds areadministered by HMMP and allocated to the agenciesbased on jointly assessed priorities. HMMP wasreorganized in 1997 to give proper emphasis to USDA’sFederal facilities compliance effort. The Hazardous

34

Materials Policy Council (HMPC) was formed in 1999 tocoordinate, at an executive level, the overall USDAenvironmental compliance effort.

HMMP Needs Comprehensive PerformanceStrategy, Overall Accounting Policies

We completed an evaluation of the Department’sreorganization of HMMP in preparation for an audit thatwould revisit the major issues on environmentalcompliance we had reviewed over the past decade. Werecommended that the Department (1) develop acomprehensive performance strategy and procedures tomeasure progress and (2) improve accountability andmonitoring of program funds.

Although the Department continues to work out anagenda and guidelines for HMMP, the program hadprogressed to the point where we found that its strategicplan should be reformulated to meet the criteria of theGovernment Performance and Results Act, particularlyin reference to the interacting compliance goals andobjectives of the participating agencies and the HMPCleadership. We also found that agencies either did nothave written policies and procedures or their policiesand procedures were not adequate to manage, accountfor, and report on funds budgeted for hazardous wasteprojects.

The Department generally agreed with therecommendations. HMMP has developed acomprehensive strategic plan to cover organizationalstructure and procedures, objectives, andmeasurements, together with performance goals tosupport the implementation of a consistent and effectivedepartmental compliance program. A task force isworking to establish policies and procedures foragencies to consistently account for hazardous wastemanagement funds.

GOVERNMENT PERFORMANCE ANDRESULTS ACT (GPRA) OF 1993

Our ongoing audit will assess the Forest Service’sefforts to implement GPRA and will determine whetherthe agency has an effective process to establishperformance goals and objectives, the process used tomonitor performance measures is valid, and the sourcedata that supports the measures are valid and verifiable.

FS’ FY 1999 Annual Report was due to Congress onMarch 31, 2000. A preliminary draft showed that theagency was aware of problems in performancereporting and concluded that FS has not been able toobjectively evaluate the contribution of its annualaccomplishments, as defined by the annualperformance goals and measures, toward achievingeither the strategic long-term goals or objectives.

During the process of preparing the GPRA report andas a result of our ongoing audit, FS identified severalweaknesses in the Management Attainment Reporting(MAR) process. FS identified cases of missing,incomplete, and inaccurate data, and concluded that theagency does not have sufficient checks in place toensure the performance data from MAR are complete,accurate, and consistent with other data sources. Ourpreliminary audit results agree with FS’ assessment ofMAR data.

35

Statistical Data

AUDITS WITHOUT MANAGEMENT DECISION

The following audits did not have management decisions made within the 6-month limit imposed by Congress.Narratives for new entries follow this table. An asterisk (*) indicates that an audit is pending judicial, legal, orinvestigative proceedings that must be completed before the agency can act to complete management decisions.

New Since Last Reporting Period

Amount WithTotal Value No Mgmt.at Issuance Decision

Agency Date Issued Title of Report (in dollars) (in dollars)

FNS 07/29/99 1. FSP – Cross-State 394,025 394,025Match (27601-9-KC)*

08/23/99 2. CACFP, National 34,551,576 34,551,576Report on ProgramAbuse (27601-7-SF)

09/15/99 3. Regional Food Stamp 11,572,867 3,680,731E&T Program(27601-8-At)

FSA 08/10/99 4. Evaluation of Security 521,606 0and Repayment ofCommodity Loans(03006-13-Ch)

OCFO 09/29/99 5. FY1998 NFC Review of 0 0Internal Control Structure(11401-4-FM)

Multiagency 07/09/99 6. Review of the Department’s 0 0Final Action Process(50801-1-HQ)

09/29/99 7. Effective Implementation 0 0of FFIS Will Reduce USDA’sMany Financial ManagementProblems (50801-7-FM)

RBS 10/01/99 8. B&I Loan - Indiana 595,511 595,511Farms (34099-3-Ch)

RHS 04/20/99 9. RRH Program - 346,685 346,685Owner/Manager,Olympia, WA(04801-6-SF)

36

Amount WithTotal Value No Mgmt.at Issuance Decision

Agency Date Issued Title of Report (in dollars) (in dollars)

06/03/99 10. RRH Program - Medlock 73,865 73,865Southwest ManagementCorporation (04099-7-Te)

09/23/99 11. RRH Initiative - Calhoun 12,931,081 0Property Management(04801-11-Te)

RMA 08/05/99 12. CY 1998 Potato Insurance 615,771 615,771Claims in Gaines County, TX(05099-2-Te)

09/30/99 13. Servicing of CAT 0 0Policies (05099-6-KC)

Previously Reported but Not Yet Resolved

These audits are still pending agency action or are under judicial, legal, or investigative proceedings. Details on therecommendations where management decisions had not been reached have been reported in previous SemiannualReports to Congress. Agencies have been informed of actions that must be taken to reach management decision,but, for various reasons, the actions have not been completed. The appropriate Under and Assistant Secretarieshave been notified of those audits without management decisions.

AARCC 09/30/96 14. AARCC Cooperative Agreement 0 0With Agro-Fibers, Inc. (34099-1-At)

ARS 02/08/99 15. J.A. Jones Management 160,233 160,233Services CY’s 1994 and1995 Incurred Costs (02017-4-At)

CR 09/30/98 16. Evaluation of CR Efforts 0 0To Reduce ComplaintsBacklog (60801-1-HQ)

03/24/99 17. Evaluation of CR Management 0 0of Settlement Agreements(60801-2-HQ)

CSREES 03/27/97 18. Use of 4-H Program Funds - 5,633 0University of Illinois(13011-1-Ch)

03/31/98 19. National Research Initiative 32,757,862 32,757,862Competitive GrantsProgram (13601-1-At)

37

Amount WithTotal Value No Mgmt.at Issuance Decision

Agency Date Issued Title of Report (in dollars) (in dollars)

09/30/98 20. Use of CSREES Grant 1,424,983 1,239,314Funds by Prairie ViewA&M (13011-2-Te)

FNS 09/22/97 21. CACFP - Sponsor 56,296 56,296Abuses (27601-7-KC)*

12/07/98 22. CACFP - Family 338,100 338,100Day Care Services, Inc. -West Palm Beach, FL(27601-7-At)*

FS 07/18/96 23. FY1995 FS Financial 1,150,183,750 1,150,183,750Statements(08401-4-At)

09/30/96 24. Real and Personal 0 0Property Issues(08801-3-At)

03/31/97 25. Research Cooperative 468,547 468,547and Cost ReimbursableAgreements (08601-18-SF)*

07/13/98 26. FY1997 FS Financial 0 0Statements (08401-7-At)

08/16/98 27. Humboldt/Toiyabe 0 0National Forest LandAdjustment Program(08003-2-SF)

08/19/98 28. Review of FS’ Retroactive 0 0Redistribution (08801-4-HQ)

08/26/98 29. Improvements on the 38,000,000 38,000,000Zephyr Cove LandExchange (08003-4-SF)*

09/24/98 30. FS Assistance Agreements 7,098,026 6,124,896With Nonprofit Organizations(08801-2-Te)

01/05/99 31. Timber Sale Environmental 0 0Analysis Requirements(08801-10-At)

38

Amount WithTotal Value No Mgmt.at Issuance Decision

Agency Date Issued Title of Report (in dollars) (in dollars)

02/23/99 32. FY1998 FS Financial 0 0Statements (08401-8-At)

FSA 09/30/93 33. Disaster Payments 5,273,795 1,482,759Mitchell County, GA(03097-2-At)*

09/07/95 34. A&B Professional 628,976 628,976Consulting, Inc.(03004-1-At)

09/18/95 35. Management of the 75,175,410 909,437Dade County, FL,FSA Office (03006-1-At)

09/28/95 36. Disaster Assistance 1,805,828 1,805,828Payments, Lauderdale,TN (03006-4-At)*

01/02/96 37. 1993 Crop Disaster 2,469,829 2,418,167Payments Brooks/Jim Hogg Cos., TX(03006-1-Te)*

05/02/96 38. Disaster Assistance 2,177,640 2,145,533Program - 1994,Thomas County, GA(03006-13-At)*

09/18/96 39. Emergency Feed 626,182 115,425Program in TX(03601-7-Te)*

09/30/96 40. 1994 Disaster 2,666,383 2,601,692Assistance Program -ME (030601-1-Hy)

04/30/98 41. Reeves County Office 1,365,640 421,152Operation - TX(03801-36-Te)

09/30/98 42. Wool and Mohair 2,432,112, 2,432,112Payment Limitationin Val Verde County,TX (03099-20-Te)*

39

Amount WithTotal Value No Mgmt.at Issuance Decision

Agency Date Issued Title of Report (in dollars) (in dollars)

03/30/99 43. Payment Limitation - 881,924 881,924Mitchell County, GA(03006-20-At)

Multiagency 02/27/97 44. Farm Loan Programs - 0 0Civil Rights ComplaintSystem (50801-2-HQ)

03/25/98 45. Verification of Data 27,259 27,259Input Into NFCPayroll/PersonnelSystem (50099-11-FM)

02/01/99 46. FY 1998 Rural 0 0Development FinancialStatements(50401-28-FM)

02/22/99 47. FY 1998 USDA 0 0Consolidated FinancialStatements(50401-30-FM)

07/16/98 48. FY 1997 USDA 0 0Financial Statements(50401-24-FM)

RHS 08/10/98 49. Self-Help Housing 0 0Program - GrizzlyHollow Project, Galt,CA (04801-2-SF)*

01/08/99 50. RRH Program - Dujardin 195,694 195,694Property Management,Inc., Everett, WA(04801-5-SF)*

02/13/99 51. RRH - Initiative in 109,653 109,653NC (04801-7-At)

03/12/99 52. RRH - Nationwide 82,324 81,646Initiative - PA(04801-3-Hy)

03/25/99 53. Guaranteed Rural 139,220,122 215,030Housing LoanProgram (04601-2-At)

40

Amount WithTotal Value No Mgmt.at Issuance Decision

Agency Date Issued Title of Report (in dollars) (in dollars)

03/31/99 54. RRH - Nationwide 233,958 233,958Initiative in NE -Bosley Management,Inc., Sheridan, WY(04801-3-KC)

RMA 01/31/94 55. Tobacco Indemnity 88,631 88,631Payments, MitchellCounty, GA (05099-22-At)

09/30/97 56. Crop Insurance on 15,082,744 444,210Fresh Market Tomatoes(05099-1-At)

03/03/98 57. Transfer of CAT 0 0Policies to ReinsuredCompanies(05601-1-KC)

03/10/98 58. FY 1998 FCIC Financial 0 0Statements Report onManagement Issues(05401-6-FM)

04/10/98 59. Crop Insurance Claims 126,787 78,986(05601-1-KC)

07/14/98 60. Quality Control for 0 0Crop InsuranceDeterminations(05099-2-KC)

12/16/98 61. Crop Insurance on 3,963,468 3,963,468Nurseries (05099-2-At)

03/10/99 62. FY 1998 FCIC Financial 0 0Statements Report onManagement Issues(05099-2-KC)

03/16/99 63. Preventive Planting 158,430 139,612of 1996 Insured Crops(05601-5-Te)

41

Audits Without Management Decision - Narrative for New Entries

1. FSP – Cross-State Match, Issued July 29, 1999

We performed a cross-State computer match of FSPwithin Nebraska, Kansas, Iowa, Missouri, Indiana,Illinois, and Wisconsin of program participants’ socialsecurity numbers to determine if they were receivingfood stamp benefits in more than one State during thesame months. We identified 147 food stampparticipants who received benefits in more than 1 Statesimultaneously, resulting in overissuances of about$99,000. Administrative action cannot be taken untilpending investigations are completed.

2. CACFP, National Report on Program Abuse,Issued August 23, 1999

This report presented our analysis of audits andinvestigations completed as part of the nationwideinitiative known as Operation “Kiddie Care.” We foundCACFP had attracted opportunistic sponsors who tookadvantage of a program delivery system that placedprimary controls of CACFP in their hands. FNS needsto study alternative methods of delivering a mealprogram to children and adults to address the problemswe found in the private, nonprofit organizations includedin our review. We made 23 recommendations toeliminate structural program flaws, strengthen internalcontrols, and clarify program requirements in CACFP.We have accepted management decision on six ofthese recommendations. Ten recommendations will beresolved upon publication of the proposed CACFPintegrity rule currently in the clearance process. FNShas responded to us on the remaining recommen-dations, and we are working with the agency to resolvethem.

3. Regional Food Stamp Employment and TrainingProgram, Issued September 15, 1999

This audit identified material deficiencies in the GeorgiaState agency’s procedures for charging costs to theEmployment and Training grant, resulting in costadjustments of $4.6 million for FY 1998. The costdeficiencies continued in FY 1999. The FNS regionaloffice must complete an indepth validation review of theState agency’s 1999 cost claims, make appropriatefiscal recoveries, and confirm that the State hasimplemented sufficient corrective measures to preventfurther overclaims.

4. Evaluation of Security and Repayment ofCommodity Loans, Issued August 10, 1999

FSA does not document the time of day that commodityspot-checks are performed, loan payments arereceived, and marketing authorizations are requested,and county committees were not considering suchinformation in determining if producers acted in goodfaith when violations were found. FSA agreed to issueto all county offices a notice that instructs personnel onprocedures to follow in dealing with program violations.We await supporting documentation for the proposedmanagement decisions.

5. FY 1998 NFC Review of Internal ControlStructure, Issued September 29, 1999

During FY 1998, in response to our audit, OCFO begancomprehensive, time-phased corrective actions. Ourreview found that material weaknesses remained in theareas of accounting adjustments and reconciliations,systems documentation, and conformance with the U.S.Standard General Ledger. We are working with OCFOto obtain management decision.

6. Review of the Department’s Final ActionProcess, Issued July 9, 1999

Our evaluation disclosed that, in numerous instances,corrective actions on audit recommendations have notbeen implemented in a timely manner. Werecommended that departmental regulations beamended to incorporate a formal process for elevatingaudits to the Secretariat level where final action has notbeen completed in the mandated 1-year timeframe.OCFO has not agreed to amend departmentalregulations, stating ongoing interaction between OCFOand the agencies meets the intent of therecommendation.

7. Effective Implementation of FFIS Will ReduceUSDA’s Many Financial Management Problems,Issued September 29, 1999

Since 1992, we have reported on the many severe andlongstanding financial management problems in theDepartment. To aid in correcting these problems, theDepartment is implementing FFIS. Our current reviewdisclosed that several existing weaknesses and prior

42

decisions by OCFO to interface existing feeder systemshave resulted in FFIS implementation problems. OCFOhas made numerous and substantive changes to correctthe serious impediments to the effective implementationof FFIS. However, OCFO is unable to provideestimated timeframes for implementing ourrecommendation related to consolidating, integrating,and reengineering the feeder systems. The agencyplans to have estimated timeframes after a contractorcompletes an independent analysis.

8. B & I Loan - Indiana Farms, Issued October 1,1999

We recommended that Rural Development recover the$595,511 paid on the loan guarantee, and its officialshave agreed. Due to the ongoing criminal investigation,administrative action cannot be taken at this time.

9. RRH Program – Owner/Manager, Olympia, WA,Issued April 20, 1999

The results of the audit were referred for investigation.RHS and Rural Development have been instructed totake no further action pending completion of theinvestigation.

10. RRH Program – Medlock SouthwestManagement Corporation, Issued June 3, 1999

We determined the management company misused$73,865 in reserve funds. Instead of depositing themoney in restrictive reserve accounts for the properties,as required, the management company deposited it intothe operating accounts of the properties and used it forunauthorized purposes. In addition, we determined thebank released $73,865 from nine properties’ supervisedbank reserve accounts to the general partner withoutobtaining RHS authorization. We recommended thatRHS consult with OGC and determine the appropriatecollection effort to recover $73,865 from themanagement company and the bank. RuralDevelopment has issued demand letters to themanagement company and bank; however, the fundshave not been recovered nor has an account receivablebeen established. We continue to work with agencyofficials to resolve this matter.

11. RRH Initiative – Calhoun Property Management,Issued September 23, 1999

Results of the audit were referred for investigation.RHS and Rural Development have been instructed totake no further action pending completion of theinvestigation.

12. CY 1998 Potato Insurance Claims in GainesCounty, TX, Issued August 5, 1999

The insured received $777,317 for 1998 crop yearlosses on 490 acres of potatoes. We found thatinsurance policy provisions were violated because thepotato seeds used for planting were not adapted to thearea. The seed purchased from a firm in North Dakotadid not produce a crop. We recommended recovery of$615,771 because the potato seed variety on 100 acresmight have been used in past years. RMA has agreedwith our recommendation to recover funds but has notestablished a claim against the insured.

13. Servicing of CAT Policies, Issued September 30,1999

This audit followed up on a previous review of thetransfer of catastrophic risk protection (CAT) policies toreinsured companies. The current audit identifiedsimilar issues. These problems included inadequateservicing provided to limited-resource producers, theCAT program’s underperformance in meeting producerneeds, and RMA’s insufficient oversight. In its responseto the final report, the agency did not provide sufficientinformation to reach management decision on sixrecommendations. After numerous informaldiscussions, a satisfactory response was provided fortwo of the six recommendations.

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Indictments and Convictions

Between October 1. 1999, and March 31, 2000, OIGcompleted 253 investigations. We referred 171 casesto Federal, State, and local prosecutors for theirdecision.

During the reporting period, our investigations led to241 indictments and 208 convictions. The period oftime to obtain court action on an indictment varieswidely; therefore, the 208 convictions do not necessarilyrelate to the 241 indictments. Fines, recoveries/collections, restitutions, claims established, costavoidance, and administrative penalties resulting fromour investigations totaled about $126.4 million.

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

Indictments and ConvictionsOctober 1, 1999 - March 31, 2000

Agency Indictments Convictions *

AMS 23 19APHIS 3 6ARS 3 0FAS 3 2FNS 146 139FSA 34 28FSIS 12 7FS 0 1NRCS 5 2RHS 3 3RMA 9 1

___ ___Totals 241 208

* This category includes pretrial diversions.

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The Office of Inspector General Hotline

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 received839 complaints, which included allegations of participantfraud, employee misconduct, and mismanagement, aswell as opinions about USDA programs. Figure 3displays the volume and type of the complaints wereceived, and figure 4 displays the disposition of thosecomplaints.

Hotline ComplaintsOctober 1, 1999, to March 31, 2000(Total = 839)

Disposition of ComplaintsOctober 1, 1999, to March 31, 2000

Figure 3 Figure 4

Bribery1

Health/Safety

20Opinion/

Information94

EmployeeMisconduct

163

Waste/Management

82

Referred toFNS for Tracking

201

Referred toUSDA Agencies

for Response395

ComplaintReferred to

State Agency13

Referred toOther Law

EnforcementAgencies

9

Referred toOIG Audit or

Investigationsfor Review

40

Filed WithoutReferral-

InsufficientInformation

29

Referred toUSDA or OtherAgencies for Information-

No Response Needed

152

Reprisal0

ParticipantFraud479

45

Freedom of Information Act (FOIA) and Privacy Act (PA) Requests for the PeriodOctober␣ 1, 1999, to March␣ 31, 2000

Number of FOIA/PA Requests Received 263

Number of FOIA/PA Requests Processed: 282

Number of Requests Granted in Full 171 Number of Requests Granted in Part 55 Number of Requests Not Granted 39

Reasons for Denial:

No Records Available 8 Requests Denied in Full 18 Referrals 15_______________________________________________

Requests for OIG Reports From Congressand Other Government Agencies

Received 82 Processed 88_______________________________________________

Appeals Processed 6

Appeals Completely Reversed 0 Appeals Completely Upheld 5 Appeals Partially Reversed 0 Appeals Withdrawn 1_______________________________________________

Number of OIG Reports Released 254in Response to Requests

NOTE: A request may involve more than one report.

46

Appendix I

INVENTORY OF AUDIT REPORTS ISSUEDWITH QUESTIONED COSTS AND LOANS

DOLLAR VALUES

QUESTIONED UNSUPPORTED a

NUMBER COSTS AND LOANS COSTS AND LOANS

A. FOR WHICH NO MANAGEMENT 57 $246,748,747 $70,853,432DECISION HAD BEEN MADEBY OCTOBER 1, 1999

B. WHICH WERE ISSUED DURING 22 1,945,037,798 20,966,889THIS REPORTING PERIOD

TOTALS 79 $2,191,786,545 $91,820,321

C. FOR WHICH A MANAGEMENT 22DECISION WAS MADE DURINGTHIS REPORTING PERIOD

(1) DOLLAR VALUE OFDISALLOWED COSTS

RECOMMENDED FOR RECOVERY $36,944,564 $2,535,466

NOT RECOMMENDED FOR RECOVERY $28,833,903

(2) DOLLAR VALUE OF 12,536,119 2,113,770COSTS NOT DISALLOWED

D. FOR WHICH NO MANAGEMENT 57 2,115,282,363 87,171,085DECISION HAS BEEN MADE BYTHE END OF THIS REPORTINGPERIOD

REPORTS FOR WHICH NO 41 199,477,037 66,205,860MANAGEMENT DECISION WASMADE WITHIN 6 MONTHSOF ISSUANCE

aUnsupported values are included in questioned values.

47

Appendix II

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

NUMBER DOLLAR VALUE

A. FOR WHICH NO MANAGEMENT 22 $253,312,909DECISION HAD BEEN MADEBY OCTOBER 1, 1999

B. WHICH WERE ISSUED DURING 6 607,861,077THE REPORTING PERIOD

TOTALS 28 $861,173,986

C. FOR WHICH A MANAGEMENT 6DECISION WAS MADE DURINGTHE REPORTING PERIOD

(1) DOLLAR VALUE OF $35,117,183DISALLOWED COSTS

(2) DOLLAR VALUE OF 13,553,804COSTS NOT DISALLOWED

D. FOR WHICH NO MANAGEMENT 22 812,502,999DECISION HAS BEEN MADE BYTHE END OF THE REPORTINGPERIOD

REPORTS FOR WHICH NO 17 204,770,383MANAGEMENT DECISION WASMADE WITHIN 6 MONTHSOF ISSUANCE

48

Appendix III

SUMMARY OF AUDIT REPORTS RELEASEDBETWEEN OCTOBER 1, 1999, AND MARCH 31, 2000

DURING THE 6-MONTH PERIOD BETWEEN OCTOBER 1, 1999, AND MARCH 31, 2000, THE OFFICE OFINSPECTOR GENERAL ISSUED 59 AUDIT REPORTS, INCLUDING 7 PERFORMED BY OTHERS.

THE FOLLOWING IS A SUMMARY OF THOSE AUDITS BY AGENCY:

QUESTIONED UNSUPPORTEDa FUNDS BEAUDITS COSTS COSTS PUT TO

AGENCY RELEASED AND LOANS AND LOANS BETTER USE

AGRICULTURAL MARKETING SERVICE 1 $28,005,521AGRICULTURAL RESEARCH SERVICE 2FARM SERVICE AGENCY 5 $2,295,051 $2,794,586RURAL HOUSING SERVICE 2 $1,500RISK MANAGEMENT AGENCY 4 $5,971,666FOREST SERVICE 4RURAL UTILITIES SERVICE 4 $1,874,577,197 $602,260,826NATURAL RESOURCES CONSERVATION SERVICE 1 $784,562OFFICE OF THE CHIEF FINANCIAL OFFICER 1COOPERATIVE STATE RESEARCH, EDUCATION, AND EXTENSION SERVICE 1 $128,461OFFICE OF OPERATIONS 2 $82,951FOOD AND NUTRITION SERVICE 11 $11,047,941 $315,375 $643,600ANIMAL AND PLANT HEALTH INSPECTION SERVICE 2 $2,851RURAL BUSINESS-COOPERATIVE SERVICE 3 $1,141,749ALTERNATIVE AGRICULTURAL RESEARCH AND COMMERCIALIZATION CORPORATION 1MULTIAGENCY 10 $21,126,809 $20,651,514 $2,033,604CIVIL RIGHTS 2RURAL DEVELOPMENT 2OFFICE OF THE CHIEF INFORMATION OFFICER 1

TOTALS 59 $1,945,037,798 $20,966,889 $607,861,077

TOTAL COMPLETED: SINGLE AGENCY AUDIT 42 MULTIAGENCY AUDIT 8 SINGLE AGENCY EVALUATION 7 MULTIAGENCY EVALUATION 2

TOTAL RELEASED NATIONWIDE 59

TOTAL COMPLETED UNDER CONTRACTb 7

TOTAL SINGLE AUDIT ISSUEDc 3

aUnsupported values are included in questioned valuesbIndicates audits performed by otherscIndicates audits completed as Single Audit

49

AUDIT REPORTS RELEASED AND ASSOCIATED MONETARY VALUESBETWEEN OCTOBER 1, 1999, AND MARCH 31, 2000

QUESTIONED UNSUPPORTED FUNDS BEAUDIT NUMBER COSTS COSTS PUT TORELEASE DATE TITLE AND LOANS AND LOANS BETTER USE

AGRICULTURAL MARKETING SERVICE

01-099-0001-SF DOMESTIC ORIGIN PROVISIONS OF THE COMMODITY $28,005,521 2000/02/15 PURCHASE PROGRAM

TOTAL: AGRICULTURAL MARKETING SERVICE 1 $28,005,521

AGRICULTURAL RESEARCH SERVICE

02-017-0015-HY BIONETICS CORP. FY 1994 & 1995 INCURRED COST 1999/12/03 AUDITS 02-017-0016-HY BIONETICS CORP-1996 INCURRED COST AUDIT 2000/03/06

TOTAL: AGRICULTURAL RESEARCH SERVICE 2

FARM SERVICE AGENCY

03-006-0021-AT PAYMENT LIMITATION REVIEW - THOMAS COUNTY, GA $661,072 2000/01/13 03-099-0023-TE PAYMENT LIMITATION IN ST LANDRY PRISH, LA $1,263,243 2000/01/14 03-099-0032-KC CONTROLS OVER ADMINISTRATIVE PROGRAM 1999/12/22 OPERATIONS 03-601-0015-KC EMERGENCY CONSERVATION PROGRAM $155,911 $2,794,586 2000/03/31 03-601-0035-TE 1996 FAIR ACT PROVISIONS AFFECTING FARM LOAN $214,825 1999/12/14 PROGRAMS LOAN SERVICING

TOTAL: FARM SERVICE AGENCY 5 $2,295,051 $2,794,586

RURAL HOUSING SERVICE

04-099-0009-TE VERIFICATION OF MEDLOCK MANAGED PROPERTY $1,500 1999/12/14 EXPENSES 04-601-0005-SF FARM LABOR HOUSING PROGRAM - NATIONWIDE 2000/03/31 REVIEW

TOTAL: RURAL HOUSING SERVICE 2 $1,500

RISK MANAGEMENT AGENCY

05-099-0001-HQ OIG-RMA ROUNDTABLE MEETING 2000/03/31 05-099-0008-KC STANDARD REINSURANCE AGREEMENT (SRA) $5,971,666 2000/03/31 REPORTING REQUIREMENTS 05-401-0007-FM FY 1999 FCIC FINANCIAL STATEMENTS 2000/02/11 05-401-0008-FM FY 1999 FCIC FINANCIAL STATEMENTS 2000/03/30 REPORT ON MANAGEMENT ISSUES

TOTAL: RISK MANAGEMENT AGENCY 4 $5,971,666

FOREST SERVICE

08-401-0009-AT FY 1999 FS FINANCIAL STATEMENTS 2000/02/25 08-801-0006-SF LAND ADJUSTMENT PROGRAM - SAN BERNARDINO 2000/01/19 NATIONAL FOREST 08-801-0013-AT NATIONAL FIRE CACHE SYSTEM 2000/03/31 08-801-0014-AT FS CONSULTING SERVICES FOR FY 1999 2000/01/28

TOTAL: FOREST SERVICE 4

50

AUDIT REPORTS RELEASED AND ASSOCIATED MONETARY VALUESBETWEEN OCTOBER 1, 1999, AND MARCH 31, 2000

QUESTIONED UNSUPPORTED FUNDS BEAUDIT NUMBER COSTS COSTS PUT TORELEASE DATE TITLE AND LOANS AND LOANS BETTER USE

RURAL UTILITIES SERVICE

09-016-0001-TE TELEPHONE LOAN PROGRAM POLICIES AND $1,874,577,197 $602,260,826 2000/02/11 PROCEDURES 09-401-0005-FM MONITORING OF FY 1999 RURAL TELEPHONE BANK 2000/02/25 FINANCIAL STATEMENT AUDIT 09-401-0006-FM RURAL TELEPHONE BANK FY 1999 REPORT ON 2000/03/30 MANAGEMENT ISSUES 09-601-0001-TE ELECTRIC GENERATION AND DISTRIBUTION BORROWER 2000/03/13 INVESTMENTS

TOTAL: RURAL UTILITIES SERVICE 4 $1,874,577,197 $602,260,826

NATURAL RESOURCES CONSERVATION SERVICE

10-601-0001-TE NRCS CONTRACTING, PROCUREMENT, AND $784,562 2000/03/31 DISBURSEMENT ACTIVITIES

TOTAL: NATURAL RESOURCES CONSERVATION SERVICE 1 $784,562

OFFICE OF THE CHIEF FINANCIAL OFFICER

11-401-0006-FM AGREED-UPON PROCEDURES: RET., HEALTH AND LIFE 1999/12/08 INS., & HEADCOUNT INFO SUBMITTED TO OPM

TOTAL: OFFICE OF THE CHIEF FINANCIAL OFFICER 1

COOPERATIVE STATE RESEARCH, EDUCATION, AND EXTENSION SERVICE

13-011-0002-AT EXTENSION FUNDS – SC STATE UNIVERSITY $128,461 2000/03/30

TOTAL: COOPERATIVE STATE RESEARCH, EDUCATION 1 $128,461 AND EXTENSION SERVICE

OFFICE OF OPERATIONS

23-017-0008-HY FU ASSOCIATES INCURRED COST AUDIT FOR $82,951 1999/12/08 FY ENDED DECEMBER 1996 THRU 1998 23-099-0001-FM SECURITY OVER DATA TRANSMISSION NEEDS 2000/03/30 IMPROVEMENT

TOTAL: OFFICE OF OPERATIONS 2 $82,951

FOOD AND NUTRITION SERVICE

27-010-0003-KC CACFP - NATIONAL INITIATIVE TO $319,279 $313,711 2000/03/22 IDENTIFY PROBLEM SPONSORS 27-010-0013-CH NSLP-PROCUREMENT AND MEAL ACCOUNTABILITY IN $143,740 2000/03/22 DETROIT PUBLIC SCHOOLS 27-010-0019-SF SMART START - SUMMER FEEDING PROGRAM $506,438 $499,860 1999/11/18 27-016-0003-CH WIC FOOD DELIVERY SYSTEMS - VENDOR COMPLIANCE 2000/01/07 27-017-0019-HY ABT ASSOCIATES- FY 95 THROUGH FY 97 INCURRED $1,664 $1,664 1999/12/09 COST AUDIT 27-099-0004-KC FOOD STAMP PROGRAM PARTICIPATION $122,794 2000/01/31 BY BANNED RETAILERS 27-099-0009-HY AUDIT OF STATE OPTION FOOD STAMP $10,097,066 1999/12/14 27-401-0017-HY FY 1999 FNS FINANCIAL STATEMENTS 2000/02/01 27-601-0009-AT CHILD AND ADULT CARE FOOD PROGRAM $700 2000/01/13

51

AUDIT REPORTS RELEASED AND ASSOCIATED MONETARY VALUESBETWEEN OCTOBER 1, 1999, AND MARCH 31, 2000

QUESTIONED UNSUPPORTED FUNDS BEAUDIT NUMBER COSTS COSTS PUT TORELEASE DATE TITLE AND LOANS AND LOANS BETTER USE

27-601-0021-CH CHILD AND ADULT CARE FOOD PROGRAM IN OHIO 2000/03/03 27-801-0005-TE LOUISIANA EBT SYSTEM DEVELOPMENT 2000/03/31

TOTAL: FOOD AND NUTRITION SERVICE 11 $11,047,941 $315,375 $643,600

ANIMAL AND PLANT HEALTH INSPECTION SERVICE

33-004-0001-AT PLANT PROTECTION AND QUARANTINE ACTIVITIES IN $2,851 2000/03/07 FLORIDA 33-801-0003-AT USDA’S EFFORTS TO PROTECT MARINE MAMMALS 1999/10/27

TOTAL: ANIMAL AND PLANT HEALTH INSPECTION SERVICE 2 $2,851

RURAL BUSINESS-COOPERATIVE SERVICE

34-004-0005-HY EVALUATION OF PROCUREMENT OPERATIONS - $546,238 2000/02/18 VIRGINIA STATE OFFICE 34-017-0001-KC PRAIRIE PUBLIC BROADCASTING, INC. INDIRECT 2000/01/05 COST RATE 34-099-0003-CH BUSINESS AND INDUSTRY LOAN - INDIANA FARMS $595,511 1999/10/01 PORK MARKETING

TOTAL: RURAL BUSINESS-COOPERATIVE SERVICE 3 $1,141,749

ALTERNATIVE AGRICULTURAL RESEARCH AND COMMERCIALIZATION CORPORATION

37-099-0001-FM ASSESSMENT OF AARC CORPORATION INVESTMENTS 1999/11/30

TOTAL: ALTERNATIVE AGRICULTURAL RESEARCH AND 1 TOTAL: COMMERCIALIZATION CORPORATION

MULTIAGENCY

50-018-0008-HY COMMONWEALTH OF PENNSYLVANIA SINGLE AUDIT 2000/02/15 A-133, STATE FISCAL YEAR ENDED JUNE 30, 1998 50-020-0045-KC A-128 ROSEBUD SIOUX TRIBE $587 1999/10/19 (FY 9/95), ROSEBUD, SD 50-020-0071-HY D.C. DEPARTMENT OF HUMAN SERVICES $92,514 $92,514 1999/12/10 A-128, SEPT. 30, 1994, 1995 AND 1996 50-099-0003-HQ REVIEW OF THE YEAR 2000 DAY ONE STRATEGIES 1999/12/02 50-099-0008-SF PUBLIC FINANCIAL DISCLOSURE REPORTING SYSTEM 2000/03/15 FOR FOREST SERVICE EMPLOYEES 50-401-0035-FM FY 1999 USDA CONSOLIDATED FINANCIAL 2000/02/22 STATEMENTS 50-601-0007-KC CRP APPEAL PROCESS SIGNUP 15 $2,033,604 2000/03/07 50-601-0008-KC CONSERVATION RESERVE PROGRAM ACREAGE 2000/01/25 ENROLLMENTS UNDER SIGNUP 18 50-801-0001-TE URBAN RESOURCES PARTNERSHIP $21,033,708 $20,559,000 1999/11/02 50-801-0008-AT EVALUATION OF USDA’S REORGANIZATION OF ITS 2000/03/21 HAZARDOUS MATERIALS MANAGEMENT PROGRAM

TOTAL: MULTIAGENCY 10 $21,126,809 $20,651,514 $2,033,604

52

AUDIT REPORTS RELEASED AND ASSOCIATED MONETARY VALUESBETWEEN OCTOBER 1, 1999, AND MARCH 31, 2000

QUESTIONED UNSUPPORTED FUNDS BEAUDIT NUMBER COSTS COSTS PUT TORELEASE DATE TITLE AND LOANS AND LOANS BETTER USE

CIVIL RIGHTS

60-801-0003-HQ EVALUATION REPORT FOR THE SECRETARY ON CIVIL 2000/03/10 RIGHTS ISSUES - PHASE 7 60-801-0004-HQ STATUS OF RECOMMENDATIONS MADE IN PRIOR 2000/03/10 EVALUATIONS OF PROGRAM COMPLAINTS

TOTAL: CIVIL RIGHTS 2

RURAL DEVELOPMENT

85-099-0001-FM REVIEW OF RURAL DEVELOPMENT’S FEDERAL 2000/03/30 INFORMATION SYSTEM CONTROLS 85-401-0001-FM FY 1999 RURAL DEVELOPMENT FINANCIAL 2000/02/22 STATEMENTS

TOTAL: RURAL DEVELOPMENT 2

CHIEF INFORMATION OFFICER

88-099-0001-FM NATIONAL INFORMATION TECHNOLOGY CENTER 1999/12/10 GENERAL CONTROLS - FY 1998

TOTAL: CHIEF INFORMATION OFFICER 1

TOTAL: RELEASE - NATIONWIDE 59 $1,945,037,798 $20,966,889 $607,861,077

Abbreviations of OrganizationsAARCC Alternative Agricultural Research and Commercialization CorporationAMS Agricultural Marketing ServiceAPHIS Animal and Plant Health Inspection ServiceARS Agricultural Research ServiceBATF Bureau of Alcohol, Tobacco, and FirearmsCCC Commodity Credit CorporationCES Cooperative Extension ServiceCR Office of Civil RightsCSREES Cooperative State Research, Education, and Extension ServiceDOJ Department of JusticeDCDHS District of Columbia Department of Human ServicesEPA Environmental Protection AgencyFAS Foreign Agricultural ServiceFBI Federal Bureau of InvestigationFCIC Federal Crop Insurance CorporationFDA U.S. Food and Drug AdministrationFNS Food and Nutrition ServiceFS Forest ServiceFSA Farm Service AgencyFSIS Food Safety and Inspection ServiceGAO U.S. General Accounting OfficeHMPC Hazardous Materials Policy CouncilIRS Internal Revenue ServiceNFC National Finance CenterNRCS Natural Resources Conservation ServiceOCFO Office of the Chief Financial OfficerOGC Office of the General CounselOIG Office of Inspector GeneralOMB Office of Management and BudgetRBS Rural Business-Cooperative ServiceRHS Rural Housing ServiceRMA Risk Management AgencyRUS Rural Utilities ServiceSCSU South Carolina State UniversityTDHS Tennessee Department of Human ServicesUSDA U.S. Department of Agriculture

U.S. DEPARTMENT OF AGRICULTUREOFFICE OF INSPECTOR GENERALSTOP 23091400 INDEPENDENCE AVE., SWWASHINGTON, DC 20250-2309

www.usda.gov/oig