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A Few Rotten Apples Could Bring Crop Insurance Woes

April 27, 2013
A Few Bad Apples

By Ed Clark and Nate Birt

Biggest crop insurance scheme in history could spoil the program

For several years running, North Carolina farmer Harry Dean Canady found the lure of padding his income was too much to resist. His revenue stream involved illegal paper transactions and deliberate twisting of production information to collect a crop insurance check. He wasn’t the only one, however.

The $100 million North Carolina crop insurance corruption ring has been likened by federal prosecutors to a drug cartel. Canady is just one of 41 farmers, agents, adjusters, warehouse workers and grain merchants involved in the chain of participants necessary for the ruse to succeed undetected for years, according to officials. This is the largest crop insurance fraud in the history of the federal program dating back to 1938.

Those prosecuted in North Carolina raked in millions for years without detection until 2005, when USDA audi­tors realized numbers weren’t adding up. While the U.S. Attorney’s Office in North Carolina has been issuing news releases about the fraud cases for years, the scheme went viral in March after The Associated Press did a major story on the issue and other news organizations followed suit.

Canady has pleaded guilty to charges and agreed to voluntary exclusion from the program in accordance with plea agreements. His sentencing is scheduled for late May. Others in­volved in the cases have been sentenced to as many as nine years in prison, plus fines. A number have been debarred from selling federal crop insurance. (See "How the Fraud Unfolded in North Carolina" on page 26.)

Farmers are harmed through higher premiums to the extent that fraud increases indemnity claims

In perspective. Although the North Carolina fraud ring has been highly publicized, crop insurance fraud is rare. An analysis of claims made in 2011 by USDA’s Risk Management Agency (RMA) found that 4% of payouts were improper, slightly less than 2008 to 2010, although the figure does not distinguish fraud from other types of improper payments.

"This is a great example that the checks and balances system works and should send a positive message to Congress, not a negative one," says Brandon Willis, RMA administrator. "While 4% is low, we have plans to reduce it."

With the farm bill back at square one, many farmers wonder whether the conspiracy will be the impetus for sweeping changes in the crop insurance program or in future enforcement efforts that could change how producers do business.

Willis says RMA is not contem­plating changes in the crop insurance program or investigation and enforcement procedures because of the North Carolina case. That said, the agency is always tweaking programs and looking for new ways to reduce fraud, abuse and waste, he adds.

Lawmakers on the Senate and House Agriculture Committees are staunch supporters of the crop insurance program, notes Bruce Babcock, ag economist at Iowa State University.

"It’s highly unlikely that the [North Carolina] case will propel Congress into making crop insurance program changes," Babcock says.

The good apples. Taxpayers and farmers alike are hurt by fraud. "For farmers nationwide, fraud increases indemnity claims paid out and premiums," Willis notes.

"It’s just very unfortunate because it puts a bad light on the whole program," says Curt Sindergard, who farms near Rolfe, Iowa, and spent three years on RMA’s Federal Crop Insurance Corporation board of directors. "It’s possible the North Carolina fraud case might lead RMA to conduct more farm audits in the future, even on operations playing by the rules."

Also unfortunate, notes Jay Boyette, commodities director for the North Carolina Farm Bureau Federation, is that the negative publicity paints all farmers with a broad brush. "Farmers who don’t abuse the system are nonetheless competitors of those who do, putting them at a disadvantage," he says.

The Government Accountability Office, the investigative arm of Congress, frequently calls on RMA to help reduce fraud, abuse and waste. RMA has cracked down on fraud largely through data mining. Using sophisticated computer technology, the agency can more easily discover abnormalities in claims and repeated payments to farmers in areas with not many claims and other red flags. Data mining is how the North Carolina cases were discovered, before the investigation by USDA, RMA and the Internal Revenue Service was turned over to the Department of Justice for prosecution, Willis says.

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FEATURED IN: Farm Journal - Late Spring 2013



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