Office of Inspector General Semiannual Report to Congress

United StatesDepartment ofAgriculture

Office ofInspectorGeneral

No. 48

February 2003

Office ofInspector GeneralSemiannual Reportto CongressFY 2002—Second Half

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Overview of USDA and OIG

To help the reader better understand the context inwhich we audit and investigate the programs andoperations of the Department, this section outlines themissions of USDA’s agencies and the role OIG fulfills.Agriculture provides tangible products that are essentialto sustain life, health, and happiness. The overridingUSDA mission is to enhance the quality of life for theAmerican people by supporting agriculture. At OIG, weperform a complementary function that is integral toUSDA’s mission—we take as our motto and ourpurpose, “Ensuring the Integrity of AmericanAgriculture.”

This Department plays a role of great breadth andmagnitude in American life, both at home and abroad.USDA’s hundreds of programs often appear inunexpected places and ways. OIG is a vital organizationwhose mission dovetails with that of the Department.While we do not make policy or run programs, ourauditors do their best to ensure that both policy andprograms are formulated and carried out properly, andour investigators, as the primary law enforcement armof the Department, investigate significant criminalactivities involving USDA programs, operations, andpersonnel.

HIGHLIGHTS OF USDA AGENCIES

When President Abraham Lincoln signed the legislationcreating USDA in 1862, he called it the “The People’sDepartment.” It touches all of our lives, every day, fromcity to suburb, and small town to farm.

• USDA helps keep America’s farmers and ranchers inbusiness as they face the uncertainties of weatherand markets. The Farm Service Agency (FSA) helpsensure the well-being of U.S. agriculture through theadministration of farm commodity programs; farmoperating, ownership, and emergency loans;conservation and environmental programs;emergency and disaster assistance; domestic andinternational food assistance; and international exportcredit programs. The Foreign Agricultural Service(FAS) opens, expands, and maintains global marketopportunities through international trade,cooperation, and sustainable development activities.The Risk Management Agency (RMA) providesagricultural producers with the opportunity to achievefinancial stability through effective risk managementtools, such as crop insurance.

• The Department works to harness the Nation’sagricultural abundance with a goal of ending hungerand improving nutrition and health in the UnitedStates and in many other places around the world. Itadministers the food stamp and other nutritionassistance programs, and links scientific research tonutritional needs. The Food and Nutrition Service(FNS) works to increase food security and reducehunger by providing children and low-income peoplewith access to food, a healthy diet, and nutritioneducation. The Center for Nutrition Policy andPromotion develops and promotes science-baseddietary guidance and economic information forconsumers and professionals in health, education,industry, and the media.

• USDA ensures that the Nation’s commercial supplyof meat, poultry, and egg products is safe,wholesome, and correctly labeled. It also plays a keyrole in the President’s Council on Food Safety andhas been instrumental in coordinating a national foodsafety strategic plan. The Food Safety and InspectionService (FSIS) sets standards for food safety;inspects meat, poultry, and egg products; andinforms the public about food safety issues. FSISalso facilitates the management of U.S. activitiespertaining to the Codex Alimentarius Commission, aninternational organization created by the UnitedNations to promote the health and economic interestsof consumers while encouraging fair internationaltrade in food. FSIS belongs to a number of nationaland international organizations, including the Meatand Poultry Advisory Committee Staff and NationalAdvisory Committee on Meat and Poultry Inspection,as well as the National Advisory Committee onMicrobiological Criteria for Foods.

• USDA facilitates the domestic and internationalmarketing of U.S. agricultural products and ensuresthe health and care of animals and plants. TheAgricultural Marketing Service (AMS) facilitates thestrategic marketing of agricultural products indomestic and international markets, while ensuringfair trading practices and promoting a competitiveand efficient marketplace. USDA agencies are activeparticipants in setting international and nationalstandards, through international organizations andFederal-State cooperation. For example, AMSprovides services to promote quality, includinggrading, quality standards, and certification.

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The Animal and Plant Health Inspection Service(APHIS) protects America’s animal and plantresources by safeguarding them from exotic invasivepests and diseases, monitoring and managing pestsand diseases existing in the United States, resolvingtrade issues related to animal and plant health, andensuring the humane care and treatment of animals.The Grain Inspection, Packers and StockyardsAdministration (GIPSA) facilitates the marketing oflivestock, poultry, meat, cereals, oilseeds, andrelated agricultural products, and promotes fair andcompetitive trading practices. GIPSA also providesFederal grading standards and a national inspectionand weighing system for grain and oilseeds.

• USDA provides help to farmers and ranchers topromote the health of the land through conservationprograms administered by the Natural ResourcesConservation Service (NRCS) and FSA. NRCSprovides national leadership in a partnership effort tohelp people conserve, maintain, and improveAmerica’s natural resources and environment. NRCSprovides leadership for conservation activities on theNation’s 1.6 billion acres of private and other non-Federal land. USDA is directly involved with 191million acres of national forests and grasslands underthe stewardship of the Forest Service (FS), thelargest agency in the Department.

• USDA provides research, analysis, and education toassist individuals and communities, and improveagricultural products. The Agricultural ResearchService (ARS) works to provide the scientificknowledge and technologies needed to ensure theviability of American agriculture. The CooperativeState Research, Education, and Extension Service(CSREES) works with land-grant universities,historically black colleges and universities, Hispanic-serving institutions, Native American institutions, andother universities and public and privateorganizations to advance research and education inthe food and agricultural and related sciences. TheEconomic Research Service (ERS) is USDA’sprincipal social science research agency. TheNational Agricultural Statistics Service (NASS)serves the basic agricultural and rural data needs ofthe country by providing statistical information andservices to farmers, ranchers, agribusinesses, publicofficials, and others.

• If we are to have a strong agricultural sector, indeed,a strong Nation, we need to have vibrant ruralcommunities. Approximately 60 million people live inrural America. USDA enhances their ability todevelop, grow, and improve their quality of life bytargeting financial and technical resources to areas ofgreatest need, through activities of greatest potential.The Rural Business-Cooperative Service (RBS)provides financing and technical assistance to helpbuild competitive businesses and establish andsustain agricultural cooperatives. The Rural HousingService (RHS) provides financing and technical helpfor needed community facilities and housing for verylow to moderate income areas. The Rural UtilitiesService (RUS) provides financial and technicalassistance so rural areas can have modern,affordable electricity, telecommunications, publicwater, and waste removal services.

OIG’S ROLE IN USDA

Helping to identify and correct questionable practicesand bring criminals to justice adds value to theDepartment’s programs and operations. OIG conductsand supervises audits and evaluations, as well asinvestigations and law enforcement efforts relating toUSDA’s programs and operations. Auditors are mostinterested in promoting economy, efficiency, andeffectiveness. Investigators concentrate on preventing,detecting, and thwarting crimes.

We perform an array of work that is as diverse as USDAitself. Audit work might include visiting food stampretailers, reviewing crop insurance claims, reviewinginspection controls at meat packing plants, andanalyzing financial statements and reports. We alsoaudit programs to ensure that disaster assistance goesto those who suffered losses and need help. As Federallaw enforcement officers, special agents in OIG carryfirearms, make arrests, and conduct searches. Criminalinvestigators may work on cases involving assault andthreats (including workplace violence), theft, smuggling,bribery, extortion, embezzlement, child pornography,food tampering and threats against the food supply,false claims, misuse of loan funds, or other fraudagainst the Government.

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Overall, our activities better ensure the Department’sprotection of the consumer, production agriculture, thepublic, and USDA employees, and we save theGovernment money. Criminal activity in USDAprograms, waste, and abuse are our enemies.Taxpayers expect and deserve to have their moneybenefit those who are entitled to it. Funds for improperlyimplemented programs can otherwise be properly used.Every misused dollar could have gone to someone trulydeserving or been returned to the U.S. Treasury. Basedon our audit work this reporting period, managementofficials agreed to recover $21 million and put anadditional $144 million to better use. Our investigativeefforts resulted in $30 million in recoveries, fines,restitutions, claims established, and cost avoidance.Our investigations produced 255 indictments and 233convictions. This report covers the period April 1through September 30, 2002.

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Contents

Message From the Inspector General .................................................................................................................. iOverview of USDA and OIG ................................................................................................................................... iii

Highlights of USDA Agencies .............................................................................................................................. iiiOIG’s Role in USDA ............................................................................................................................................ iv

Contents .................................................................................................................................................................. viiHomeland Security ................................................................................................................................................. 1

Front-Line Vulnerabilities ..................................................................................................................................... 1Investigating Sabotage and Threats .................................................................................................................... 2

Information Technology ........................................................................................................................................ 3Spotlight on ... Information Technology ............................................................................................................... 3

Food Safety ............................................................................................................................................................. 4Protecting the Food Supply ................................................................................................................................. 4

Public Corruption ................................................................................................................................................... 5Federal Crop Insurance ......................................................................................................................................... 7

Risk Management Agency ................................................................................................................................... 7Feeding Programs .................................................................................................................................................. 8

Food Stamp Program .......................................................................................................................................... 8Child Nutrition Programs ...................................................................................................................................... 9Special Supplemental Nutrition Program for Women, Infants, and Children ....................................................... 11

Program Integrity Investigations .......................................................................................................................... 12Financial Management and Accountability ......................................................................................................... 13

Government Performance and Results Act ......................................................................................................... 13Financial-Related Audits ...................................................................................................................................... 13

Summaries of Audit and Investigative Activities ................................................................................................ 15Statistical Data ....................................................................................................................................................... 16

Audits Without Management Decision ................................................................................................................. 16Indictments and Convictions ................................................................................................................................ 23Office of Inspector General Hotline ...................................................................................................................... 24Freedom of Information Act and Privacy Act Requests ....................................................................................... 25

Appendix I: Inventory of Audit Reports IssuedWith Questioned Costs and Loans .................................................................................................................. 26

Appendix II: Inventory of Audit Reports IssuedWith Recommendations That Funds Be Put to Better Use ............................................................................ 27

Appendix III: Summary of Audit Reports Released BetweenApril 1 and September 30, 2002 ........................................................................................................................ 28

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As described in our last two Semiannual Reports toCongress, one of OIG’s chief missions is to ensure thatthe Department maintains the safety and security of theAmerican food supply and protects the U.S. agriculturalinfrastructure from possible harm due to the accidentalor intentional introduction of foreign pests and diseases.The events of September 11, 2001, and the subsequentanthrax attacks gave new urgency to the issues ofsecurity over USDA’s infrastructure and the agriculturaleconomy.

We continued to work on a number of HomelandSecurity reviews to assess the vulnerability of agencies’assets and evaluate their responses and preemptiveactions after the events of September 11, 2001. Inaddition to the work described below, we have anumber of ongoing Homeland Security reviews thatinvolve Rural Development (RD), FS, NRCS, and USDAgrain and other commodity inventories.

APHIS is responsible for inspecting agricultural productsentering this country from abroad to detect and interceptforeign pests or diseases that could threaten U.S.agriculture. We are in the process of completing areview of this APHIS activity, focusing on the adequacyand effectiveness of its operations to prevent orminimize the introduction of harmful, exotic pests anddiseases into the United States. After the events ofSeptember 11, 2001, we expanded our review toconsider the possibility of an intentional introduction intothis country of organisms harmful to the food supply.We continued to examine the departmental permitcontrols over the transshipment—both domestically andfrom abroad—of biohazardous agents.

We began fieldwork to test controls at USDA facilitiesthroughout the country in two major areas. One effort isassessing security controls over chemical andradioactive materials, and the other is assessingcontrols over plant variety protection and germplasmstorage, addressing particularly the possible terroristthreat to those repositories. We also began the secondphase of evaluating security over biological agents (andchemical and radioactive materials) at researchfacilities, specifically those receiving funding fromUSDA, which include both institutions of higher learningand private laboratories. As part of the latter effort, wemet and solicited assistance from a task forceestablished by the Experimental Station Committee onOrganization and Policy, which is a committee of the

Homeland Security

National Association of State Universities and Land-Grant Colleges. The task force acknowledged the needfor Federal Governmentwide policies and guidance. Wehave coordinated this review and our other efforts withan interagency task force of OIG personnel from theU.S. Departments of Health and Human Services(HHS), Defense, and Veterans Affairs. We coordinatedmost closely with HHS, which has been conductingsimilar reviews at universities.

Further, after extensive coordination with and feedbackfrom OIG, USDA issued a departmental regulation onsecurity policies and procedures at its biosafety level-3facilities. This is the first major effort by USDA to issuedepartmentwide biosecurity policies and procedures.(The Department is also working on the draft policiesand procedures for its other laboratories and technicalfacilities excluding biosafety level-3 facilities.) Theaffected USDA agencies have been developingcorrective actions in response to our report and inresponse to the new departmental policies andprocedures on biosecurity. Moreover, any effectiveimplementation of these corrective actions will entail amajor change in the approach by the agencies’ staff. Toensure that the current impetus is carried fortheffectively, we have planned followup reviews toevaluate and verify whether these facilities haveproperly implemented their corrective actions.

FRONT-LINE VULNERABILITIES

Smuggler Convicted

We seized 65 pounds of Witchweed (Striga asiatica)when we executed search warrants at the warehouseand retail establishment of a man still on probation for aprior felony smuggling conviction. The smuggler isawaiting sentencing after he pled guilty in August 2002to conspiracy to commit a variety of offenses, includingsmuggling and violating probation. Witchweed is aparasitic noxious weed that attacks corn, sorghum,sugarcane, and other grass crops and that would havedevastated agriculture in the Western United States ifdispersed. We worked this case as part of our ongoinginvolvement in the Interagency Import Task Forcedirected by the U.S. Attorney for the Northern District ofCalifornia.

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Man With Terrorist Links Sentenced in MultiprogramFraud Case

As part of the Joint Terrorism Task Force directed bythe U.S. Attorney for the District of Oregon, we workedwith the Bureau of Alcohol, Tobacco and Firearms(BATF) to follow up on a search warrant that BATF hadpreviously served on the residence of a Palestinian manfrom Lebanon. He stated that he had trained withPalestinian guerilla groups, made references to theterrorist group Hamas, and had prominently circledSeptember 11, 2001, on his calendar. The search found$20,000 in cash and personal financial records thatconflicted with information he provided when he appliedfor food stamps and other welfare benefits in Oregon.

Our investigation showed that, while on publicassistance and claiming to be unemployed, the manmade five overseas trips in 18 months, including trips toDenmark, Italy, and Lebanon. He became the target ofinvestigations by several other law enforcementagencies as other crimes were detected, and wedetermined a loss to the Government of approximately$65,000, including $18,000 in food stamp and SpecialSupplemental Nutrition Program for Women, Infants,and Children (WIC) benefits. The subject was convictedon 10 counts of fraud against various Federal programsin addition to the weapons charges. The subject wassentenced to 30 months in prison and ordered to makerestitution of almost $42,000. The subject’s naturalizedcitizenship was revoked, and the Immigration andNaturalization Service (INS) flagged his immigrationstatus.

Former Grocery Store Owners Ordered To Pay Overa Half Million Dollars in Restitution

Two former Jordanian owners of a small grocery storein South Bend, Indiana, were sentenced to 41 and 27months’ incarceration and restitution of $585,000 afterthey were found guilty of food stamp trafficking andconspiracy to commit food stamp fraud. One ownerwas an illegal alien, the other was in the United Stateson a student visa, and neither was permitted to work. Ina 3-year period, the store redeemed over $700,000 infood stamp coupons, while paying only $272,000 tosuppliers. The former owner with the student visa hasmarried a U.S. citizen and, according to INS, is notdeportable. The other is deportable but has appealedhis sentence and is awaiting the conclusion of hisappeal. INS has been made aware of this matter.

INVESTIGATING SABOTAGE AND THEFTS

• OIG conducted an investigation of an attempt tosabotage the potable water system at the PlumIsland Animal Disease Center (PIADC), wheredangerous animal diseases are studied. Water iscrucial for operating the boilers, creating steam to runthe decontamination system on the island andensuring waste is sanitized and environmentally safe,as well as for fire fighting and animal care. The waterproblem was corrected at an estimated cost of about$37,000, but circumstances surrounding it warrantedour further investigation. The Federal Bureau ofInvestigation (FBI) later joined the investigation. Anemployee of a contractor at PIADC eventuallyconfessed to having turned off the valves to 9 of the10 fresh water wells on the island and subsequentlypled guilty to Federal charges of tampering withoperations at PIADC.

• The news media reported that a highly virulent strainof Actinobacillus pleuropneumoniae (APP)—whichcauses swine pneumonia—was stolen from alaboratory at Michigan State University which hadreceived about $750,000 in USDA funding since1996 to develop vaccines against the bacteria. OIGagents, the FBI, and university police found that notheft had actually occurred and that the APP strainreported to be stolen is no more virulent thannaturally occurring APP. The agents continue to workwith the U.S. attorney’s office in pursuing Federalcharges.

Michigan State University lab on the day of the reported theft. Photocourtesy of the Michigan State University Police Department.

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• In November 2001, a routine early morning patrolfound incendiary devices placed against the walls ofan FS research building and a university forestrybuilding at Michigan Technological University. Bothdevices were deactivated without incident and sent tothe Michigan State Police crime lab. A jointinvestigation with many agencies found a detailedmanual on how to build and deploy this kind of deviceposted on an Internet Web site supported by a directaction environmental terrorist group.

• A joint NRCS and FSA office in Florida wasburglarized of computers, related accessories, and a

Government-owned vehicle that contained ground-penetrating radar equipment. The stolen equipmentwas used to detect underground rock formations,water tables, and utilities. The estimated value of thestolen equipment and vehicle was $60,400. A manwas subsequently apprehended in Georgia drivingthe stolen vehicle. The man, who was on Stateprobation in Georgia at the time of the Florida theft,pled guilty to interstate transportation of a stolenvehicle. He was sentenced to 13 months in jail,3 years’ probation, and $9,465 in restitution. Hisprobation was also revoked, and he was sentencedto 2 years in a Georgia prison.

The dependence on IT and Internet technologies hasexposed USDA’s billions of dollars in assets and itscritical infrastructure to extraordinary vulnerabilitiesstemming from automated intrusions. Office ofManagement and Budget (OMB) Circular A-130(Management of Federal Information Resources) andthe Government Information Security Act directedFederal agencies to ensure that adequate andappropriate security measures are in place to protectthese assets, as well as to ensure the continuity ofnormal operations. After the events of September 11,2001, protecting IT assets is even more important asattacks against our technology infrastructure arecapable of crippling organizations.

USDA’s IT assets include sensitive information thatcould negatively affect millions of people, such asmarket-sensitive data on the agricultural economy andcommodities, signup and participation data forprograms, personal information on customers andemployees, and confidential financial data. Though theDepartment has been proactive in strengthening itsinformation security, OIG continues to identifydeficiencies in various security measures.

Information technology audits are a necessary functionin ensuring the safeguarding of data and the integrityof systems. OIG worked closely with the Office of theChief Information Officer (OCIO) to buttress existingcontrols, as well as to improve the existingdepartmentwide security plan. OIG also actively auditsindividual agencies within USDA to confirm theadequacy of IT protections. Following an audit of

Information Technology (IT)

SPOTLIGHT ON ... INFORMATIONTECHNOLOGY

USDA’s Departmental Administration (DA), OIG notedseveral material weaknesses and an overall inability toadequately protect assets and sensitive informationfrom fraud and misuse. Implementation of OIG’srecommendations will protect DA’s Privacy Act-protected data, as well as bring DA into compliancewith OMB Circular A-130 and Presidential DecisionDirective 63 (Critical Infrastructure Protection).

Rural Development manages over $85 billion in directand guaranteed loans; as expected with this hugeamount of funds, RD must ensure that its ITinfrastructure is protected against intrusion or misuse.Since 1997, OIG has issued various audit findings toRD regarding its IT security weaknesses, which haveincluded 470 high- and medium-risk securityvulnerabilities. Our recommendations were agreed tofollowing a January 16, 2002, Management Alert toRD.

It is also necessary for OIG to maintain an IT skill baseto investigate crimes against USDA. OIG investigatorsoften seize computers and data files for evidence.Excellent examples include two joint investigationswith the FBI to find USDA employees accessing childpornography on Government computers. In thesecases, the OIG Computer Forensics Unit worked withour criminal investigators and found that, in twounrelated investigations in Arkansas and Texas, twoNRCS employees were accessing child pornographyvia computer at work. The Arkansas employee, aDistrict Conservationist, pled guilty to possession ofchild pornography. His sentencing is pending. TheTexas NRCS employee has been charged in Federalcourt with the receipt of child pornography, and his trialis pending. OIG has seven other ongoinginvestigations of USDA employees for suspectedpossession of child pornography on their Governmentcomputers.

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PROTECTING THE FOOD SUPPLY

Ongoing Work Concerning Meat and Poultry Recalls

In June 2000, we issued our Food Safety Initiative, aseries of audits to determine whether the Food Safetyand Inspection Service’s meat and poultry inspectionprogram remains effective under the science-basedHazard Analysis and Critical Control Point (HACCP)system. We reviewed HACCP implementation,laboratory analyses, foreign imports, and thecompliance program that carried over from the previoussystem. FSIS had taken positive steps, but moreneeded to be done in all 4 areas reviewed, and wemade 80 recommendations in total to that end. We nowhave work underway to determine what actions FSIShas taken to address these recommendations and theireffectiveness. We also have work underway focusing onFSIS’s Recall Operations where meat or poultryproducts are found to be adulterated. The need for thisreview was highlighted by recent recalls in one plant of19 million pounds of ground beef adulterated with an E.coli strain and 27.4 million pounds of ready-to-eatpoultry products in another plant adulterated withListeria monocytogenes.

Company Convicted and Fined for DistributingAdulterated Meat Product

A joint investigation by OIG and the FSIS compliancestaff revealed that, on multiple occasions, a large meat-distributing warehouse in North Carolina soldadulterated meat and poultry product to a salvage meatdealer, who then reconditioned it to sell for humanconsumption. A surprise inspection by OIG and FSISalso revealed unsanitary conditions at the warehouse.Two criminal informations were filed for Federal MeatInspection Act violations. The warehouse agreed to paya $100,000 fine, donate 40,000 pounds of unadulteratedproduct to a not-for-profit organization, and establish aquality control program in coordination with FSIS.

Nebraska Man Convicted and Sentenced to Prisonfor Tampering With Food

As followup of a matter previously reported, a Nebraskaman was sentenced to 40 months in prison. He hadbeen found guilty in Federal court of tampering withfood products by inserting sewing machine needles inmeat, fruit, and bakery items in an Iowa grocery store.

Food Safety

Korean Food Wholesaler Sentenced for ImportingMisbranded Food

Our investigation determined that a Korean foodwholesaler illegally imported thousands of pounds ofmeat dumpling products from South Korea, mislabeledas vegetable dumplings, and distributed them toretailers in New York City, California, and Maryland.Importing meat products from South Korea is prohibiteddue to possible Foot and Mouth Disease contamination.The corporation pled guilty, was sentenced to probation,and was ordered to pay a $100,000 fine. In addition tothe current case, from 1988 to 1996 the corporation hadbeen caught five times by USDA regulatory agencies forillegally importing meat products. These prior instanceshad resulted in destroyed product and small fines.

Overtime Controls Need Improvement

FSIS did not have adequate controls in place forovertime charged by field inspectors. The FSIS nationaloffice had not updated policies on overtime claims andhad given each district the autonomy to establish itsown policies and controls. Supervisory approvals of timeand attendance reports were not performed ordocumented, and prior written approval of overtimeworked was not required. As a result, there was a lackof assurance that the inspectors’ overtime claims wereaccurate and that the overtime reported was actuallyworked.

FSIS had not established adequate controls for billingplants for reimbursable overtime for inspections andwas not taking aggressive or effective collection actionon overdue bills for overtime services. We found thatFSIS continued to provide overtime and holidayinspection services for delinquent plants in violation ofcurrent regulations. In the 3 districts we visited, wefound that 40 plants with delinquent accounts totaling$990,000 were still receiving overtime inspection. Wefound that aggressive collection actions were not takenon plants with delinquent accounts, including those thatwere suspended or which had been withdrawn frominspection service. As a result, FSIS did not have anadequate collection system to aggressively pursuedelinquencies of $7 million.

We recommended that FSIS strengthen its proceduresfor monitoring, reporting, and collecting for overtimeservices.

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Another continuing priority for OIG is the investigation ofcriminal acts committed by USDA employees. Thepercentage of wrongdoers is small, but to maintain thepublic trust, those who commit crimes must be broughtto justice. During the past 6 months, public corruptioninvestigations resulted in 17 convictions of current orformer USDA employees and 48 personnel actions.Descriptions of some recent investigations follow.

APHIS Employee, Guilty of Several Crimes, AwaitsTrial for Murder

An OIG investigation of an alleged accidental shootingof an APHIS maintenance employee at an APHISfacility in Utah developed into an investigation of ateenage girl’s murder. The employee had reported thathe had been shot by an unknown assailant while onduty. Our investigation found that the employee hadshot himself with a Government-owned weapon he hadtaken from the APHIS facility without authorization. Wefurther found that the employee had stolen about$50,000 worth of Government property.

During the investigation, through coordination with theSheriff’s Department, the APHIS employee became asuspect in the disappearance of a 15-year-old femalewhom he knew. Continued investigation revealed thatthe employee had inexplicably dug and refilled severaldeep holes on the APHIS research facility groundsaround the time the girl disappeared. Excavation of thedig sites found dismembered remains, later determinedto be those of the missing teen. Based on this discoveryand other relevant evidence, the APHIS employee wasarrested and charged with murdering the girl. The jointOIG and Sheriff’s Department investigation revealedthat the employee had also committed several sexualassaults on the APHIS research grounds and hadsexually assaulted at least 35 women and girls over thepast 15-year period.

The employee initially pled guilty to theft of Governmentproperty and unlawful sexual activity with a minor, andwas sentenced in Utah State Court to serve 10 years inprison, fined $14,595, and ordered to pay restitution of$49,621. He subsequently pled guilty to murder in thefirst degree and is awaiting sentencing.

Public Corruption

OIG employees assisting in excavation of APHIS site where homicideevidence was found. OIG photo.

FS Employee Guilty of Setting Devastating ColoradoFire

As widely reported in the news media, an FS forestrytechnician was indicted in June 2002, and has sincepled guilty to both Federal and State charges, for settingthe largest forest fire in Colorado history. Before it wascontained, the fire, known as the Hayman Fire, coveredover 137,000 acres, an area greater than the Denvermetropolitan area. This fire is estimated to have cost theGovernment more than $23 million just in timber losses,with long-term forest rehabilitation costs and privateproperty losses estimated at many millions of dollarsmore.

During the investigation by OIG and FS investigators,the employee’s account of how the fire started wasquestioned. When investigators confronted her, theemployee admitted that she had lied about the origin ofthe fire and how it was discovered, and that she hadindeed started the fire. The employee was arrested byOIG and removed from her FS employment. Sentencingis pending in both Federal and State court.

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Hayman Fire, summer 2002. FS photo.

Three Embezzlers Sentenced

• In Henry County, Kentucky, a former FSA farm loanmanager was sentenced to 18 months’imprisonment, 3 years’ supervised release, and$242,500 in restitution after he pled guilty to makingfour farm loans to fictitious persons over a 2-1/2 yearperiod and concealing his illegal activity by creatingphony promissory notes and deposit agreements. Heused the embezzled funds primarily to pay personalloans and invest in the stock market.

• An FS secretarial assistant in Pennsylvania wassentenced in Federal court to 13 months’incarceration and ordered to make $233,576 inrestitution after she pled guilty to embezzling aboutthat amount of FS funds over a 3-year period. Ourinvestigation found that, from April 1996 throughSeptember 2000, the employee embezzled fundsfrom 17 different FS procurement accounts by usingthe names of other FS employees on checks fromthose accounts and depositing them in four bankaccounts she set up. The employee resigned.

• A former Agricultural Research Service supervisor inMaryland was convicted of grand theft for embezzlingover $20,000 during a 6-month period in 2000. Sheused Government-issued travel cards to obtain cashadvances from ATMs and make other purchases.She paid the resultant travel card bills fromGovernment convenience check accounts assignedto two employees she supervised and tried todisguise some of the expenditures as trainingexpenses. The supervisor was terminated fromFederal employment, sentenced to probation, andordered to pay restitution.

ARS and APHIS Employees Plead Guilty to Work-Related Drug Charges

• During a search of a methamphetamine lab nearPocatello, Idaho, the Idaho State Police recoveredlab paraphernalia and discovered shipping boxeswith address labels made out to the USDA ResearchLab in Aberdeen, Idaho. The methamphetamine laboperator admitted that an ARS laboratory technicianhad supplied him with glassware and iodine. OIGworked with the State Police to identify seized itemsas USDA property, as well as other possiblereceivers of stolen USDA property. The ARSemployee resigned, pled guilty to one count ofmanufacturing and possessing a controlledsubstance, and was sentenced to 6 months’incarceration followed by 3 years’ probation,including 6 months’ home detention.

• A New Mexico former APHIS employee who wasinvolved in a scheme to smuggle marijuana into theUnited States from Mexico pled guilty to possessionof marijuana with the intent to distribute. Fifty-fivepounds of marijuana was concealed in truck tiresafter being smuggled from Mexico through a cattle-crossing facility where the employee worked. Theemployee routinely crossed the Mexican border toinspect cattle in gathering pens. This was a jointinvestigation with the U.S. Customs Service and theSouthwestern New Mexico Drug Task Force.

Concealed in tires, bulk marijuana retains shape after removal. OIGphotos.

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RISK MANAGEMENT AGENCY (RMA)

Extending Insurance Coverage to a High-Risk CropCosts USDA $21.1 Million

RMA approved crop insurance coverage for fallwatermelons in its 1999 watermelon crop insurance pilotprogram for three south Texas counties. RMA did thiseven though our audit report this period disclosedevidence that this crop was not suitable to south Texasand was unlikely to produce a harvestable fruit. As aresult, questionable indemnities totaling about$21.1 million were made on fall watermelons in thethree Texas counties.

Virus infestation caused by a whitefly and coolertemperatures in the fall season reduced to only 5 to10 percent the chances of a fall watermelon cropmaking it to harvest. Because RMA personnel did notperform adequate research, the issue of fall watermelonsuitability in south Texas was not addressed in theTexas program development package. By offeringprotection on this high-risk crop, RMA created a “moralhazard,” which resulted in significant increases inplantings of watermelons in 1999 in south Texas. RMAofficials had estimated that 2,430 acres would beinsured in Texas; the ultimate total was almost 50,000acres.

One producer in Hidalgo County, Texas, whose springwatermelon acreage did not exceed 790 acres, claimeda loss on over 6,600 acres of fall watermelons. Thisproducer entered into written leases and customfarming agreements with 19 Hidalgo County landlordsfor the extra acreage but misrepresented his share inthe fall crop. The written leases showed the producer

Federal Crop Insurance

had a 100-percent share of the crop, but some of thelandlords admitted they also had oral agreements withthe producer to share in the crop or the insuranceproceeds. These oral agreements violated the cropinsurance contract. Based on the written leases, theproducer received 100 percent of more than $5.5 millionin insurance proceeds. Because the producer’s policycovered both spring and fall plantings, we questionedboth the producer’s spring indemnities ($1.4 million) andfall indemnities ($5.5 million).

The insurance agent who sold the producer hiswatermelon insurance policy had also leased land to theproducer. The agent was aware that his agreementwould require him to report his participation in theinsured farming operation to the insurance company,but he did not. His business relationship with theproducer netted his farming business over $1 million,three times the average payment received by the othercustom farmers growing watermelons for the producer.The insurance agent’s son also acted on behalf of theproducer, pursuing additional land for the producer tolease for fall watermelons that were insured through thefather’s insurance agency.

RMA officials agreed to seek an Office of the GeneralCounsel (OGC) opinion to determine whether theproducer’s insurance contract should be consideredvoid and RMA should collect the $6.9 million that waspaid to the producer for crop year 1999 losses. If theinteraction of the insurance agent and the producer isconsidered a conflict of interest, appropriate actionshould be taken against the agent and his son. Inaddition, RMA officials agreed to add a provision to thecommon crop insurance policy to require evidence thatthe producer incurred expenses to grow the crop.

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FOOD STAMP PROGRAM (FSP)

Monitoring of EBT System Continues

Currently, 47 States and the District of Columbia useElectronic Benefits Transfer (EBT) systems to deliverfood stamp benefits. Forty-two of the systems havebeen implemented statewide, including the District ofColumbia. Nearly 85 percent of all FSP benefits arebeing issued via EBT. During this semiannual period,we completed EBT systems audit work in Arkansas andMichigan. The EBT systems were successfullyimplemented in both States; however, controls neededto be strengthened in some areas.

• Arkansas—The State agency needed to improve itscontrols to (1) provide for routine oversight of EBTsystem activity, including reviewing managementreports; (2) reconcile FSP benefits the Stateauthorized daily to benefits the EBT systemdeposited in recipients’ accounts and to reconciledaily the requests retailers made for FSPreimbursements to the disbursements the EBTsystem made to retailers; (3) maintain adequatedocumentation for user authorizations, removeterminated employees’ access in a timely manner,assign appropriate access levels to users, and reviewthe continued need for EBT system access; and (4)label expunged benefits (benefits removed fornonuse) properly on management reports submittedto the Food and Nutrition Service.

• Michigan—Controls were needed to ensure systemsecurity by denying access to the system by formeremployees—three former employees of the Stateagency still had an active logon identification. TheState agency also needed to have a permanentprocess in place to monitor its EBT system. Althoughthe EBT system went statewide on July 1, 2001, theState agency has not yet decided which of theprocessor or State-generated reports would beneeded to effectively manage the EBT system andFSP. Adding to this indecision was the lack ofoversight and guidance by the FNS regional office inensuring that a system was established or atimeframe was agreed to when the process would beimplemented. We made a series of recommendationsto address these issues.

Feeding Programs

Three Sentenced in $15 Million Food Stamp andWIC Fraud Case

In a case previously reported, a man in Cleveland, Ohio,was sentenced to prison for 3 years 5 months, and hiswife was sentenced to 3 years’ probation after they bothpled guilty to their involvement in a scheme to commitan estimated $15 million in food stamp and WIC fraudsince 1995. A third participant in this scheme has beensentenced to 41 months’ imprisonment. Theseindividuals also forfeited approximately $2.5 million inassets to the Government. Two other individualsindicted in the scheme became fugitives; one wasrecently arrested in Detroit. This investigation wasworked jointly with nine other Federal and State lawenforcement agencies.

In other large-scale food stamp trafficking cases thisreporting period:

• Newark, New Jersey: The owner of a businessclaiming to be a wholesale warehouse club wassentenced to 4 months in prison, was ordered to payover $660,000 in restitution to USDA, and forfeited$25,000 to the Government after he pled guilty tofood stamp fraud. The business redeemed more than$1.3 million in paper food stamps in a 19-monthperiod, largely for other food stamp traffickers.Wholesale operations cannot redeem food stamps.The owner had lied on the food stamp applicationabout the nature of his business (as well as hisprevious history when he said he had never beendisqualified from FSP when he actually had).

• Michigan City, Indiana: Two brothers, a father anda son, and two owners of two grocery stores weresentenced to various prison terms and ordered to payrestitution of $515,000. The two stores conspiredfrom 1994 through 2000 to redeem more than $3million in food stamp benefits illegally.

• Bessemer, Alabama: The owner of a discount meatmarket forfeited $100,000 in cash to the Governmentwhen he pled guilty to conspiring to traffic in EBTbenefits worth between $500,000 and nearly$700,000 from May 2000 through November 2001.The owner was sentenced to serve 1 year 1 day inFederal prison and 24 months’ supervised probation,and pay over $49,000 in restitution to USDA. Aformer store employee has also entered a plea andwas sentenced to serve 10 months in Federal prisonand 24 months’ supervised release. He was also

9

ordered to pay over $49,000 in restitution jointly andseverally with the owner.

• Augusta, Georgia: A co-owner of a store wassentenced in U.S. district court to 15 months in prisonand ordered to pay $366,000 in restitution to USDAafter he pled guilty to EBT fraud and traffickingcharges. During the investigation, approximately40 EBT recipients admitted to trafficking at the storeon occasion.

Woman Uses False Identity To Fraudulently ObtainFood Stamp Benefits

As a result of a joint investigation with the U.S. StateDepartment, a woman and her husband were foundguilty of using another woman’s identity to obtain$24,000 in duplicate food stamp benefits and medicalassistance from Maryland and Washington, D.C. Theywere also involved in a scheme to falsely obtain a birthcertificate from the District of Columbia to claim minorchildren dependents for welfare benefits and to obtainU.S. passports for a minor child. Both subjects weresentenced to prison and given fines and restitutiontotaling $22,600. INS is considering deportation upontheir release. (The husband had become a U.S. citizenfraudulently, and the wife is a permanent resident.)

One of two homes, valued at $600,000, owned by a woman and herhusband who used false identity to obtain food stamps illegally. OIGphoto.

Arrests Continue in Operation Talon

Operation Talon was designed and implemented byOIG to locate and apprehend fugitives who are food

stamp recipients. As of September 30, 2002, OperationTalon had resulted in 8,281 arrests of fugitive felonsduring joint OIG, Federal, State, and local lawenforcement operations throughout the country. Seriouscrimes perpetrated by those arrested include homicide-related offenses (murder, attempted murder,manslaughter), sex offenses (child molestation, rape,attempted rape), kidnapping/abduction, assault,robbery, and drug/narcotics violations.

Inaccurate and Unsupportable FSP AdministrativeCosts Claimed by California

We conducted an audit in California to determine theaccuracy of FSP administrative costs claimed by theState and the allowability of those costs. We found thatclaims were not always accurate and the costs were notalways supportable. The California State agencyclaimed about $8.5 million in prior fiscal years’expenditures in fiscal year (FY) 2000, resulting in anoverstatement of its FY 2000 claim. Although the Stateagency may retroactively submit a claim, fundsappropriated for those years may not be available. Inaddition, the State agency could not providedocumentation to support its claim of about $518,000for management evaluations. Furthermore, at two of thethree county offices that we reviewed, we identified over$67,000 of unallowable costs charged to FSP.Examples of these costs included microwave ovens,catering costs for celebrations, training costs unrelatedto FSP, settlements for lawsuits against the county, and“marriage license fees.” The FNS regional officeconcurred with our recommendations for correctiveaction.

CHILD NUTRITION PROGRAMS

Food Service Management Companies Unduly Profit

The lack of clear instructions from FNS, in conjunctionwith inadequate oversight by State agencies and schoolfood authorities, allowed food service managementcompanies to reduce their costs by retaining benefitsintended for school food authorities. Five of the eightmanagement companies we reviewed nationwideimproperly received over $6 million in benefits, either inthe form of purchase discounts or USDA-donatedcommodities, which were intended to benefit the schoolfood authorities’ nonprofit food services.

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The management companies profited by using USDA-donated commodities without properly crediting theschool food authorities for the commodities’ value. FNSdid not require States and school food authorities toinclude contract provisions requiring the companies tocredit the value of the commodities, even thoughFederal regulations required that commodities solelybenefit and be used in a school food authority’snonprofit food service operation. The managementcompanies also benefited by retaining the discounts andrebates they received on purchases made for their foodservice operations. The companies amended,eliminated, or ignored terms included in the requests forproposal issued by the school food authorities. Contraryto FNS regulations, the management companies wereable to include contract terms that favored thembecause FNS did not mandate specific contract termsand provisions.

In addition, although school food authorities wererequired to maintain oversight of management companyoperations, we found that 16 of the 24 we visited did nothave adequate controls in place to ensure accuratemeal claims or to prevent the companies from beingreimbursed for nonprogram costs. The mealaccountability systems claimed meals inaccurately andreimbursed school food authorities for almost 84,000unsupported meals. School food authorities alsoimproperly used $1.2 million in National School LunchProgram (NSLP) funds to reimburse three managementcompanies for unallowable nonprogram costs.

We recommended that the FNS regional offices requirethe State agencies to collect the $5.8 million for USDA-donated commodities and the $280,000 in discountsand rebates from the management companies. FNSalso needs to establish specific requirements forappropriate contract terms for States and school foodauthorities to follow to ensure that they, not themanagement companies, benefit from the value ofUSDA-donated commodities, purchase discounts, andrebates. FNS generally agreed with our findings, hasimplemented some of the corrective actions, and hasindicated that it will continue to pursue restitution of theschool food authorities’ accounts for the value of USDA-donated commodities, purchase discounts, and rebates.

Additional Database Analysis of Large CACFPSponsors Would Improve Integrity of Program

We performed a database analysis for six large Childand Adult Care Food Program (CACFP) sponsors. Our

analysis showed that improvements were needed in thecomputer system controls over program payments andoperations. The systems did not always identify orprevent claims from being paid when it appeared thatthey were based on enrollment rather than actual mealsserved (block claiming). We found indications of blockclaiming at all six sponsors reviewed. We identifiedprovider payments, totaling about $2.4 million, where allor part of the claimed amounts were apparently blockclaims. In addition, the computer systems did notalways identify questionable claims where providersclaimed meals every single day in the month, includingweekends and holidays. We also identified claims paidwhere they (1) were for the wrong payment rate, (2)were for the wrong meal category, and (3) exceeded themaximum number of meals possible based onenrollment multiplied by the number of days in themonth. FNS officials agreed corrective action waswarranted based on the conditions we identified.

Strengthened Controls Over Applicant Eligibilityand Meal Counts Needed To Ensure SchoolDistrict’s Entitlement to School Lunch ProgramFunds

As part of our ongoing reviews, we evaluated the NewYork City school district’s meal accountability systemand management controls that were designed toprovide reasonable assurance as to the accuracy of itsmeal claims at over 1,460 schools that were reimbursedabout $204 million in NSLP funds for school year 1998/1999. We observed over 23,000 meals served at35 schools and analyzed 6,673 monthly meal claims.The school district had not implemented controls, orcontrols were ineffective in preventing invalid payments.We identified the following material control weaknesses.

• The school district’s eligibility verification process didnot provide reasonable assurance that childrenserved meals were correctly classified as eligible forfree or reduced-price meals because it did not takeprudent corrective actions when a large error ratewas disclosed. About 55 percent of the applicationssampled had to be reclassified either because thehousehold did not respond or the householdresponse disclosed that the original classification wasin error. The error rate has continued to climb. Theschool district’s verification process identified a59.5 percent error rate for school year 1999/2000, a65.1 percent error rate for school year 2000/2001,and a 69.5 percent error rate for school year 2001/2002.

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• For those applications found to be in error during theeligibility verification process, the school district didnot establish controls to ensure the applications werecorrected at the school level. We identified 17schools that did not correct the applications andadjust meal claims. As a result, the school districtreceived excess reimbursement of about $19,000.

• The school district did not perform the requiredaverage daily attendance to daily meal count editcheck to provide reasonable assurance that eachschool was not claiming more meals served thanchildren in attendance. A computer analysis of 6,673monthly claims found that, in 1,647 claims, theschools claimed over 590,000 meals served inexcess of children in attendance. As a result, theschool district received excess reimbursement of atleast $982,000 and obtained excess USDA-donatedfoods valued at about $87,000.

• The school district did not assign sufficient resourcesto timely or effectively monitor its over 1,460 schools’meal counting and claiming systems, resulting in thecited overclaims. Further, at only 21 of 94 schoolssurveyed were the applications used as a basis forcalculating NSLP reimbursement retained for therequired period to support the meal claims.

We made a series of recommendations to addressthese control weaknesses. If the school district does nottake timely action to implement management controlsover the eligibility verification process, FNS shouldconsider withholding administrative funding.

SPECIAL SUPPLEMENTAL NUTRITIONPROGRAM FOR WOMEN, INFANTS, ANDCHILDREN

Participants in Stolen Baby Formula SchemeProsecuted

Two reputed organized crime families in Cincinnati andColumbus, Ohio, were found to be conspiring to trafficfood stamps and purchase large quantities of stolenWIC program infant formula and other stolenmerchandise, much of which was then transported towarehouses in Lexington, Kentucky. A total of 17individuals have been indicted on charges ranging fromracketeering and food stamp trafficking to moneylaundering and trafficking in the prescription drug

Viagra. Twelve have pled guilty; two have been foundguilty at trial and were sentenced to 57 months’imprisonment and 78 months’ imprisonment. Assetstotaling approximately $2.1 million were seized from thebank accounts of these subjects. These assets and anadditional $800,000 were later criminally indicted in theGovernment’s action against this property. Thisinvestigation was conducted jointly with the OhioOrganized Crime Investigations Commission, the FBI,and the Food and Drug Administration.

Four Individuals Sentenced in WIC Scam

Four people were indicted by a Federal grand jury inAtlanta on charges of conspiracy to defraud the WICProgram and theft of Government funds. During an 18-month period, 9,391 WIC vouchers, valued at $268,237,were stolen from an Atlanta clinic by an employee andthen sold by another indidivual to the owners of a localgrocery store. All four pled guilty and have beensentenced to terms ranging from 4 months’ homedetention followed by probation to 21 months in prison.They were also ordered to make full restitution, whichthe store owners did prior to sentencing.

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In addition to the cases highlighted in previous sections,OIG agents, as always, have been working on a widevariety of investigations affecting the entire gamut ofUSDA programs. A few of those cases follow.

Former FSA State Committeeman and BrotherSentenced for Making False Statements to FSA

A former Mississippi FSA State Committeeman and hisbrother were found guilty by a Federal jury for makingfalse statements to FSA to obtain 1998 cotton disasterpayments totaling more than $225,000. The brotherscertified that they had planted the cotton within the FSA-established planting period when, in fact, the plantingoccurred much later. The former chairman wassentenced to 18 months in prison and fined $20,000.His brother was sentenced to 12 months in prison andfined $5,000.

New York Attorney Sentenced to Jail and OrderedTo Pay $864,500 in Restitution

A Long Island, New York, attorney was sentenced to 2years 9 months in Federal prison and ordered to pay$864,500 in restitution for wire fraud. A RuralDevelopment loan applicant had retained the attorney toclose a single-family housing loan in Riverhead, NewYork. When the purchase of the property did not occuras scheduled, RD instructed the attorney to return the$147,050 that had been transferred to his escrowaccount. The attorney instead transferred the USDAfunds overseas via wire to a fraudulent investmentscheme operating out of Lagos, Nigeria, along with$717,450 in funds he stole from the estates of severalclients and obtained from victims he had convinced toparticipate. This investigation was worked jointly withthe FBI.

Georgia Businessman and Equipment Broker PleadGuilty to $5 Million B&I Loan Fraud Scheme

A Federal grand jury returned a 31-count supersedingindictment against a Georgia businessman for his role ina fraudulent scheme to obtain a $5 million USDA RDBusiness and Industry (B&I) guaranteed loan for acatfish processing plant in a poverty-stricken ruralGeorgia county. He was given the loan after hefraudulently claimed to have purchased $2,950,000 inprocessing equipment for collateral for the loan. He andan equipment broker signed affidavits falsely certifyingthat he had given the money to the broker when, in fact,

Program Integrity Investigations

no money had exchanged hands and no equipment hadbeen purchased. The businessman used about half ofthe $5 million loan to have the plant built and used theother half for his personal use. Both the businessmanand equipment broker entered guilty pleas to conspiracycharges. The broker was sentenced to 32 months inprison and 3 years’ supervised release, and ordered topay $7,500 in resitution. The businessman is awaitingsentencing.

Major Virginia Dog Fighter and AssociatesConvicted

Three individuals were convicted for illegally promotingand fighting dogs in Virginia and the Mid-AtlanticRegion. The main promoter was sentenced to 30months in Federal prison and received a $17,000 finefor fighting dogs, as well as producing and sellingvideotapes and a magazine on how to train and fightdogs. His associate was sentenced to 9 months in Stateprison and given a $3,000 fine. He had 70 dogs he wastraining at the time a search warrant was served on hisproperty. A third individual was sentenced to probationand received a $2,000 fine for fostering the illegalactivity. Multiple search warrants served in this case byOIG special agents and State and local police agenciesalso resulted in the seizure of records; trainingequipment, such as tread mills; many legal and illegaldrugs for treating the dogs; and a bloody fighting pit.This investigation was worked with the Franklin CountySheriff’s Department, the Virginia State Police, theFranklin County Department of Public Safety andAnimal Control, the Pittsylvania County Sheriff’sDepartment, the Humane Society of the United States,and the Virginia Department of Forestry.

A dog used for fighting, and training treadmills utilized to increase dogendurance. OIG photos.

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GOVERNMENT PERFORMANCE ANDRESULTS ACT

Implementation of GPRA in FSA

In 1993, Congress passed, and the President signedinto law, the Government Performance and Results Act(GPRA). In response to a congressional request, weinitiated an ongoing examination of agencies’ activitiespursuant to GPRA. This period, we concluded an auditof GPRA in FSA. We found that some improvementswere needed.

For example, we found errors in the results reported inthe Annual Program Performance Report (annualreport) for 3 of 21 performance measures. Further, 18 ofthe 21 performance measures were output-oriented(expressed in terms of a quantitative result) rather thanoutcome-oriented (expressed in terms of aprogrammatic result), and the results reported did notindicate the degree to which long-term goals were beingmet.

The results FSA reported for these 18 measures wouldnot permit readers of the annual report to gauge theimpact of its programs’ products or services. FSA wasmaking efforts to develop outcome-orientedperformance measures to replace 4 of the18 performance measures but had not completeddevelopment of reporting systems that would provideaccurate and supportable results at the time of ourreview.

FSA had not implemented controls or developed writtenprocedures over some of the activities related to thereporting of performance results. Therefore, FSAreported data on loans that did not match thedescription of the data in its annual plan and annualreport. As a result, FSA reported some performanceresults that did not reflect its actual accomplishments.

We recommended that FSA develop performancemeasures that are outcome-oriented, linked to theachievement of its long-term goals, and for whichresults reported would indicate the degree to which thelong-term goals are being met. FSA also needed toensure that written procedures were established andimplemented, including internal controls over thecollection, calculation, and reporting of performancedata. We also recommended that FSA ensure that

Financial Management and Accountability

annual plans include specific verification and validationmethods that will ensure the accuracy of performanceresults, and that those methods be fully implemented.

FSA officials agreed with the recommendations andhave initiated corrective actions. FSA stated that it iscontinuing efforts to improve the development ofperformance information that is more outcome-oriented.It has added three recently developed outcome-orientedperformance measures to the FY 2003 annualperformance plan. The FY 2004 annual performanceplan guidance will include requirements to documentinternal control methodologies. This guidance will alsoinclude specific instructions for preparing the verificationand validation sections of the annual performance plan.

FINANCIAL-RELATED AUDITS

Audit of Selected FFIS Operations

The Foundation Financial Information System (FFIS) isa highly significant and much needed undertaking bythe Office of the Chief Financial Officer (OCFO) andUSDA, prompted by the longstanding financialmanagement problems OIG has reported over the last10 years. As of October 1, 2001, FFIS had beenimplemented for approximately 98 percent of theDepartment. FFIS will provide the Department with amaterially strengthened accounting system,strengthened financial controls, and better financialreporting. When coupled with other financialmanagement improvements planned or underway byOCFO, the Department’s overall financial managementsystem should be substantially improved.

We tested access and document processing controls,funds control, and the audit trail processes for eachagency participating in FFIS as of October 1, 2002, andfound that accounting policies and internal controlprocedures, established by each agency, frequently didnot adhere to the OCFO guidance or other authoritativesources. In our opinion, the weaknesses we found, inaggregate, constitute a material internal controlweakness. Examples follow.

• The corporate-level control and processing structure,established by OCFO for the agencies to follow,needed to be expanded, and agencies frequentlywere not following OCFO’s guidance.

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• Departmental agencies had not adequately limitedaccess granted to users, appropriately segregatedduties, or sufficiently controlled changes to “feeder”system documents.

• There were five types of FFIS payment documentswhere agencies did not require “approvals” beforethe payment was processed, as required by OCFOguidance.

• Budgetary controls, inherent in the FFIS system,were not implemented or were implementedinconsistently by the agencies.

• Agencies implemented internal control settings andedits inconsistently and/or did not comply with OCFOrequirements. For example, the interest rate appliedto overdue receivables varied from 5 percent to 6.375percent among eight agencies reviewed; the correctrate was 6 percent.

We recommended that OCFO require agencies toobtain training on internal control processes and toimmediately eliminate unauthorized or unnecessaryaccesses to FFIS, including users who are no longerUSDA employees. Agencies also should be required tofully use the controls available in FFIS, includingestablishing full control for all appropriated funds andsetting budgetary spending limits on all appropriatedfunds. OCFO agreed with all findings andrecommendations and has begun corrective action.

USDA’S FMFIA Act Guidance Is Lacking

We performed a review of the Department’s FederalManagers’ Financial Integrity Act (FMFIA) reportingrequirements. Our objective was to assess theadequacy of the Department’s guidance regarding whatconstitutes a material internal control weakness and,thus, warrants disclosure in the Department’s FMFIAreport to Congress.

Materiality is based on the concept that items of littleimportance, which do not affect the judgment or conductof a reasonable user, do not require investigation. Asstated by the U.S. General Accounting Office,“materiality has both quantitative and qualitativeaspects.” Pursuant to FMFIA, each agency is requiredto review its system of internal controls and report anymaterial internal control weaknesses. Without viablecriteria, however, known internal control weaknesses

that potentially should be considered material may gounreported, and the existence of additional materialinternal control weaknesses may not be detected.

The Department had not established clear instructionsfor determining whether an identified weakness wassufficiently material to be included in its FMFIA report.This condition was caused primarily by an absence ofquantitative criteria set forth by OCFO in its regulations,something agencies need in order to classify ordescribe a weakness as being material. OCFOincorporated a very broad definition of materialweakness, put forth by OMB, without addingsupplemental criteria. As a result, USDA agencies maynot be considering dollar impact in determining whetherto report weaknesses as material. For example, theRural Housing Service identified a weakness internallywhich estimated that the cost of repairs to its Multi-Family Housing portfolio was underfunded by about$850 million. This weakness, however, was not reportedby the agency because it was deemed to be immaterial.

We recommended that the Department develop andimplement a definition of a material weakness thatcontains quantitative characteristics and properlyreflects the relative risk and significance of deficiencies.OCFO did not concur with the report’srecommendations, stating that “management’s opinion,based on their experience, is adequate to ensurematerial deficiencies are disclosed….” OIG’s opinion isthat USDA agencies have internally generated very fewreportable conditions, in part, because prescribedquantitative criteria are absent. Relying on thesubjectivity inherent in management’s opinion results inlack of uniformity and, as can be discerned historically,minimal disclosures of what are, in fact, significantdeficiencies in the administration of programs andoperations of the Department.

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Summary of Audit ActivitiesReports Issued ................................................................................................................................................. 42

Audits Performed by OIG .................................................................................... 33Evaluations Performed by OIG ........................................................................... 1Audits Performed Under the Single Audit Act ..................................................... 4Audits Performed by Others ................................................................................ 4

Management Decisions Made Number of Reports ............................................................................................................................................ 35 Number of Recommendations .......................................................................................................................... 247

Total Dollar Impact (Millions) .......................................................................................................................... $173.8Questioned/Unsupported Costs .......................................................................................... $29.5a,b

Recommended for Recovery .............................................................................. $21.0Not Recommended for Recovery ........................................................................ $8.5Funds To Be Put to Better Use ............................................................................................ $144.3

a These were the amounts the auditees agreed to at the time of management decision.b The recoveries realized could change as the auditees implement the agreed-upon corrective action plan and seek recovery of amounts recorded

as debts due the Department.

Summary of Investigative ActivitiesReports Issued ................................................................................................................................................... 222Cases Opened ................................................................................................................................................... 254Cases Closed ..................................................................................................................................................... 340Cases Referred for Prosecution ......................................................................................................................... 99

Impact of InvestigationsIndictments .................................................................................................................................................... 255Convictions .................................................................................................................................................... 233a

Searches ........................................................................................................................................................ 73Arrests ........................................................................................................................................................... 472b

Total Dollar Impact (Millions) .......................................................................................................................... $30.7 Recoveries/Collections ............................................................................................................ $ 3.4c

Restitutions ............................................................................................................................. $14.6d

Fines ....................................................................................................................................... $ 0.8e

Claims Established .................................................................................................................. $ 8.4f

Cost Avoidance ....................................................................................................................... $ 3.5g

Administrative SanctionsEmployees ..................................................................................................................................................... 48Businesses/Persons ...................................................................................................................................... 363

a Includes convictions and pretrial diversions. Also, the period of time to obtain court action on an indictment varies widely; therefore,the 233 convictions do not necessarily relate to the 255 indictments.

b Includes 300 Operation Talon arrests and 172 arrests not related to Operation Talon.c Includes money received by USDA or other Government agencies as a result of OIG investigations.d Restitutions are court-ordered repayments of money lost through a crime or program abuse.e Fines are court-ordered penalties.f Claims established are agency demands for repayment of USDA benefits.g Consists of loans or benefits not granted as the result of an OIG investigation.

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Statistical Data

CCC 02/26/02 1. FY 2001 CCC Financial 19,586 19,586Statements (06401-4-KC)

FNS 11/09/01 2. Florida FSP (27004-3-At) 15,933,950 15,933,950

11/21/01 3. CACFP – Wildwood, Inc., 36,895,611 36,895,611Phase II (27010-6-KC)

11/21/01 4. CACFP – Oversight of 27,484 27,484Sponsor (27010-8-KC)

01/14/02 5. States’ Oversight of CACFP 0 0Sponsors (27002-14-Ch)

03/29/02 6. NSLP – Chartwell’s Food 307,711 307,711Service ManagementCompany (27601-13-KC)

FS 11/14/01 7. MATCOM – Contract Audit 66,899 66,899(08017-10-KC)

Multi 03/29/02 8. Controls Over Accidental 0 0and Clandestine Releaseof Biohazards (50099-13-At)

RD 03/20/02 9. Compliance With FMFIA 0 0Requirements (85401-4-Ch)

03/22/02 10. KY Highland Empowerment 34,419 34,419Zone (04801-10-At)

RMA 03/15/02 11. Monitoring of RMA’s 0 0Implementation of Manual 14(05099-14-KC)

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)

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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 Secretaries havebeen notified of those audits without management decisions.



ARS 02/08/99 12. Audit of J.A. Jones 160,233 160,233Management Services,CY 1994 and 1995(02017-4-AT)

CR 09/30/98 13. Evaluation of CR Efforts 0 0To Reduce ComplaintsBacklog (60801-1-Hq)

03/24/99 14. Evaluation of CR Management 0 0of Settlement Agreements(60801-2-Hq)

03/10/00 15. Office of CR Management of 0 0Employment Complaints(60801-3-Hq)

03/10/00 16. Status of Implementation of 0 0Recommendations Made inPrior Evaluations of ProgramComplaints (60801-4-Hq)

CSREES 03/27/97 17. Use of 4-H Program Funds - 5,633 0University of Illinois(13011-1-Ch)

FNS 03/22/00 18. CACFP – National Initiative 319,279 0To Identify Problem Sponsors -Wildwood (27010-3-KC)

05/11/01 19. NSLP – Food Service 3,572,137 3,572,137Management Companies(27601-12-KC)*

09/06/01 20. NSLP – Food Service 3,537,912 3,198,926Management Companies,MWR (27601-24-Ch)*

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FS 03/31/97 21. Research Cooperative and 468,547 468,547Cost Reimbursable Agreements(08601-18-SF)

09/24/98 22. Assistance Agreements to 7,098,026 0Nonprofit Organizations(08601-2-Te)*

05/04/01 23. FY 2000 FS Financial 1,305,600,000 1,305,600,000Statements (08401-11-At)

05/29/01 24. Northeastern Research 2,388,107 0Station Accounting forTimber Sales(08007-1-At)

FSA 09/28/95 25. Disaster Assistance 1,805,828 1,672,929Payments,Lauderdale, TN (03006-4-At)

05/02/96 26. Disaster Assistance 2,177,640 2,145,533Program–1994,Thomas County, GA(03006-13-At)*

03/30/99 27. Payment Limitation - Mitchell 881,924 881,924County, Georgia(03006-20-At)

08/22/00 28. LaFlore County FSA 228,764 228,764Office Disaster Programs(03006-20-Te)*

05/24/01 29. FSA Payment Limitations 0 0Majority Stockholders ofCorporations (03099-27-Te)

07/30/01 30. 1999 Crop Disaster Program 950,891 950,891(03099-42-KC)

FSIS 06/21/00 31. Implementation of the Hazard 0 0Analysis and Critical ControlPoint System (24001-3-At)

06/21/00 32. Imported Meat and Poultry 0 0Inspection Process (24099-3-Hy)

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Multi 09/30/98 33. CSREES Managing 3,824,211 2,651,292Facilities Construction Grants(50601-5-At)

03/31/99 34. Private Voluntary 18,629,558 18,501,064Organization Accountability(50801-6-At)

09/28/00 35. Crop Loss Disaster 10,728,872 149,178Assistance Program(50801-3-KC)

OCIO 03/03/01 36. Security Over USDA IT 0 0Resources Needs Improvement(50099-27-FM)

RBS 10/01/99 37. Business and Industry Loan - 595,511 595,511Indiana Farms (34099-3-Ch)*

09/12/01 38 Lender Servicing of B&I 2,365,060 2,365,060Guaranteed Loan, Stateof Arizona, Lender B(34601-4-SF)

01/28/02 39. Lender Servicing of Business 1,536,060 1,536,060and Industry GuaranteedLoans – Florida (34601-3-At)

RHS 01/08/99 40. RRH Program - Dujardin 195,694 195,694Property Management, Inc.,Everett, WA (04801-5-SF)*

04/20/99 41. RRH Program - Owner/ 346,685 346,685Manager, Olympia, WA(04801-6-SF)*

05/25/00 42. RRH Nationwide Initiative, 4,922,879 4,919,579in MO, St. Louis, MO(04801-2-KC)

12/18/00 43. RRH Program, InsuranceExpenses, Washington, D.C. 924,751 753,448(04801-6-KC)

09/28/01 44. RRH Program, Insurance 596,665 562,515Expenses, Phase II(04601-4-KC)

20



RMA 09/30/97 45. Crop Insurance on Fresh 15,082,744 0Market Tomatoes(05099-1-At)

12/16/98 46. Crop Insurance on 3,963,468 0Nurseries (05099-2-At)*

02/28/01 47. FY 2000 FCIC Financial 0 0Statements (05401-1-Hq)

03/12/01 48. RMA/FCIC FY 2000Financial StatementsReport on Management Issues 0 0(05401-2-Hq)

03/14/01 49. Crop Insurance for 2,254,014 2,254,014Specialty Crops(05601-4-At)

05/21/01 50. Review of Written 1,565,730 1,565,730Agreements (05002-1-Te)

08/17/01 51. Risk Management Agency 1,506,620 1,506,620Watermelon Claims in SouthTexas (05601-7-Te)

21

1. Commodity Credit Corporation (CCC) – FY 2001Financial Statements, Issued February 26, 2002

We issued an unqualified opinion on CCC’s FinancialStatements. However, as in prior years, we continued tofind significant errors in CCC’s accounting records for itsforeign loan and domestic accounting operations. As aresult, transactions are not properly recorded,processed, and summarized to permit the preparation ofreliable financial statements without numerous andsubstantial adjustments. We recommended that CCC(1) make improvements to its accounting and reportingsystems, (2) improve the timeliness and accuracy of itsfinancial information, and (3) strengthen supervisorymanagement over financial account reconciliation,accounting entries, and adjustments. We continue towork with CCC to resolve these issues.

2. Florida Food Stamp Program, Issued November9, 2001

The audit identified about 128,700 unworked foodstamp claims with an estimated value of $14.7 million.The State had agreed to a plan to reduce the backlogby June 30, 2002, or face fiscal sanction actions. FNSscheduled an onsite review to begin July 28, 2002, tovalidate that the State has met target reduction goalsand assigned sufficient resources to the effort. We areawaiting the results of the FNS review findings anddetermination of whether sanction actions will bepursued.

3. CACFP – Wildwood, Inc., Phase II, IssuedNovember 21, 2001

The recommendations for this report are still open. Inorder to achieve management decision, we need to beinformed of the timeframes for corrective actions, andprovided information on the specific actions to be taken,along with billings on the unauthorized costs. The FNSregional office gave the State agency additional time toreply to the report due to appeals and court orders.

Audits Without Management Decision - Narrative for New Entries

4. CACFP – Oversight of Sponsor, IssuedNovember 21, 2001

The recommendations for this report are still open. Inorder to achieve management decision, we need to beinformed of the timeframes for corrective actions andprovided information on the specific actions to be taken,along with billings on the unauthorized costs. The FNSregional office gave the State agency additional time toreply to the report due to appeals and court orders.

5. States’ Oversight of CACFP Sponsors, IssuedJanuary 14, 2002

Management decisions have not been reached on 4 of11 recommendations. We are working with FNS toresolve one recommendation dealing with theidentification of subrecipients whose total Federalfunding reaches the threshold that would require anaudit in accordance with OMB Circular A-133. In orderto resolve a second recommendation, we are awaitingthe completion of an FNS financial review at one Stateagency that included an evaluation of FY 1999administrative audit fund expenditures that wasscheduled to be performed by September 30, 2002. Weexpect to reach management decision on the remainingtwo recommendations in the near future when wereceive clarification of actions FNS has initiated.

6. National School Lunch Program – Chartwell’sFood Service Management Company, IssuedMarch 29, 2002

Two recommendations remain open in this report. ForRecommendation No. 1, clearance must be obtainedfrom OIG before action can be taken. ForRecommendation No. 2, Chartwell’s should be requiredto begin crediting school food authorities (SFA) with thedollar amount of commodities used during the 2002school year. If that has not been done, then anyrecovery of amounts that should have been creditedshould be cleared with OIG. Also, the State agency is toensure that the bid process and contracts aredeveloped so that SFAs receive credit for USDA-donated commodities and revise the checklist providedto SFAs to include the contract language needed.

22

7. MATCOM Contract Audit, Issued November 14,2001

The report has one recommendation requiring thecontracting officer to resolve the questioned costs. Afterissuance of the report, and as a part of the managementdecision process, the Defense Contract Audit Agency(DCAA) informed us that an additional audit of acompany purchased by MATCOM was necessary todetermine the amount of the questioned costs, becausethe USDA contracts covered several years. This neededaudit is scheduled to be performed sometime in FY2003. We are working with DCAA and the contractingofficer to obtain the required information.

8. Controls Over Accidental and ClandestineRelease of Biohazards, Issued March 29, 2002

We found that security of biological agents at USDAlaboratories was inconsistent and generally in need ofimprovement. The Department had issued no policiesand procedures for agencies to implement to managesecurity at the laboratories and to centralize control offield unit practices involving the use and storage ofbiological agents. To reach management decision, theagencies need to put forth a determined effort toimprove communications with their laboratories and toimplement the Department’s new policies andprocedures. We also concluded that more needed to bedone in several key areas. The most prominent area isa centralized database. Such a database is critical toDepartment-level management of biological agents, andwe urge the agencies to finish consolidating theirinventories at the agency and Department levels. Wealso need all agencies to adhere to the doctrines of thetask force policies and implement those policies at alllaboratories with biological agents, not just thoseclassified as high risk.

9. Rural Development Compliance With FMFIARequirements, Issued March 20, 2002

We found that RD’s process did not ensure that allmaterial weaknesses would be identified and reported.In the past 10 years, RD found only 3 of the 23 (13

percent) material internal control weaknesses identifiedin Section 2 of the FMFIA report. We recommended thatRD develop clear and comprehensive control objectivesand techniques, and establish risk level assessmentsfor individual control objectives in order to adequatelymonitor the effectiveness of its programs and identifynationwide trends. We are working with RD to achievemanagement decision.

10. RD – The Kentucky Highland EmpowermentZone - Issued March 22, 2002

We recommended that the Clinton CountyEmpowerment Zone Community, Inc. (CCEZCI), collect$34,418.92 from a former board member. The boardmember had improperly authorized the disbursement offunds without the approval of other board members andhad diverted funds for his personal use.

11. Monitoring of RMA’s Implementation of Manual14 Reviews/Quality Control (QC) ReviewSystem, Issued March 15, 2002

We recommended that the RMA Administrator seeklegislation to mandate a QC review system to evaluateprivate sector delivery of the Federal Crop InsuranceProgram, implement basic program policy decisions toinclude meaningful performance measures, and developa long-term QC plan of action. We also recommendedthat RMA define and describe its QC systemauthoritatively by regulation and report the absence of areliable system as a material internal control weaknessunder FMFIA. RMA believes that a legislative process islengthy and time-consuming and has proposed to awarda contract to study its delivery process and theunderlying agreement. RMA also plans to study andanalyze its contractual agreements for program delivery,which includes the QC system, and has indicated thatthe new system will include goals and objectives toevaluate performance and measure results. RMAagrees that improvements can be made to the currentsystem but disagrees with reporting its unreliability as amaterial weakness. We maintain our opinion on thatmatter and continue to work with the agency to resolvethe issue.

23

Between April 1 and September 30, 2002, OIGcompleted 222 investigations. We referred 99 cases toFederal, State, and local prosecutors for their decision.

During the reporting period, our investigations led to255 indictments and 233 convictions. The period of timeto obtain court action on an indictment varies widely;therefore, the 233 convictions do not necessarily relateto the 255 indictments. Fines, recoveries/collections,restitutions, claims established, cost avoidance, andadministrative penalties resulting from our investigationstotaled about $30.7 million.

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

Indictments and Convictions

Indictments and ConvictionsApril 1 - September 30, 2002

Agency Indictments Convictions*

AMS 0 21APHIS 13 6ARS 2 1CSREES 0 1FNS 189 153FS 4 3FSA 22 20FSIS 5 6GIPSA 0 6NRCS 2 1OIG 1 1RBS 4 0RHS 9 8RMA 1 5RUS 2 0SEC 1 1

___ ___Totals 255 233

*This category includes pretrial diversions.

24

The OIG Hotline serves as a national receiving point forreports from both employees and the general public ofsuspected incidents of fraud, waste, mismanagement,and abuse in USDA programs and operations. Duringthis reporting period, the OIG Hotline received1,134 complaints, which included allegations ofparticipant fraud, employee misconduct, andmismanagement, as well as opinions about USDAprograms. Figure 1 displays the volume and type of thecomplaints we received, and figure 2 displays thedisposition of those complaints.

Office of Inspector General Hotline

Hotline ComplaintsApril 1 to September 30, 2002(Total = 1,134)

Disposition of ComplaintsApril 1 to September 30, 2002

Figure 1 Figure 2

ParticipantFraud617

Bribery3

Health/Safety

19Opinion/

Information91

EmployeeMisconduct

202

Waste/Mismanagement

202

Referred toFNS for Tracking

232

Referred toUSDA Agencies

for Response526

Referred toState Agency

82

Referred toOther Law

EnforcementAgencies

5

Referred toOIG Audit or

Investigationsfor Review

61

Filed WithoutReferral-

InsufficientInformation

61

Referred toUSDA or OtherAgencies for Information-

No Response Needed

167

25

Number of FOIA/PA Requests Received 175

Number of FOIA/PA Requests Processed: 185

Number of Requests Granted in Full 58Number of Requests Granted in Part 47Number of Requests Not Granted 42

Reasons for Denial:

No Records Available 18Requests Denied in Full 11Referrals to Other Agencies 13

Requests for OIG Reports From Congressand Other Government Agencies

Received 65Processed 61

Appeals Processed 7

Appeals Completely Upheld 4Appeals Partially Reversed 3Appeals Completely Reversed 0

Number of OIG Reports/Documents 114Released in Response to Requests

NOTE: A request may involve more than one report.

During this 6-month period, 27 audit reports werepublished on the Internet at the OIG Web site:www.usda.gov/oig.

Freedom of Information Act (FOIA) and Privacy Act (PA) Requests for the Period April 1 toSeptember 30, 2002

26

INVENTORY OF AUDIT REPORTS ISSUEDWITH QUESTIONED COSTS AND LOANS

BETWEEN APRIL 1 AND SEPTEMBER 30, 2002

DOLLAR VALUES

QUESTIONED UNSUPPORTEDa

NUMBER COSTS AND LOANS COSTS AND LOANS

A. FOR WHICH NO MANAGEMENT 45 $152,787,146 $85,037,884DECISION HAD BEEN MADEBY APRIL 1, 2002

B. WHICH WERE ISSUED DURING 13 33,800,577 1,359,545THIS REPORTING PERIOD

TOTALS 58 $186,587,723 $86,397,429

C. FOR WHICH A MANAGEMENT 15DECISION WAS MADE DURINGTHIS REPORTING PERIOD

(1) DOLLAR VALUE OFDISALLOWED COSTS

RECOMMENDED FOR RECOVERY $20,975,461

NOT RECOMMENDED FOR RECOVERY 8,487,723

(2) DOLLAR VALUE OF 5,288,945 $2,350,965COSTS NOT DISALLOWED

D. FOR WHICH NO MANAGEMENT 43 152,367,976 84,046,464DECISION HAS BEEN MADE BYTHE END OF THIS REPORTINGPERIOD

REPORTS FOR WHICH NO 32 126,863,237 82,686,919MANAGEMENT DECISION WASMADE WITHIN 6 MONTHSOF ISSUANCE

aUnsupported values are included in questioned values.

Appendix I

27

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

BETWEEN APRIL 1 AND SEPTEMBER 30, 2002

NUMBER DOLLAR VALUE

A. FOR WHICH NO MANAGEMENT 14 $163,424,541DECISION HAD BEEN MADEBY APRIL 1, 2002

B. WHICH WERE ISSUED DURING 8 41,378,711THE REPORTING PERIOD

TOTALS 22 $204,803,252

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

(1) DOLLAR VALUE OF $144,258,882DISALLOWED COSTS

(2) DOLLAR VALUE OFCOSTS NOT DISALLOWED

D. FOR WHICH NO MANAGEMENT 16 60,544,370DECISION HAS BEEN MADE BYTHE END OF THE REPORTINGPERIOD

REPORTS FOR WHICH NO 10 19,231,958MANAGEMENT DECISION WASMADE WITHIN 6 MONTHSOF ISSUANCE

Appendix II

28

SUMMARY OF AUDIT REPORTS RELEASEDBETWEEN APRIL 1 AND SEPTEMBER 30, 2002

DURING THE 6-MONTH PERIOD BETWEEN APRIL 1 AND SEPTEMBER 30, 2002, THE OFFICE OF INSPECTORGENERAL ISSUED 42 AUDIT REPORTS, INCLUDING 4 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

FARM SERVICE AGENCY 4 $4,943,782RURAL HOUSING SERVICE 1 193,699 $15,500,000RISK MANAGEMENT AGENCY 3 7,033,115 21,100,000FOREST SERVICE 2 2,049,653RURAL UTILITIES SERVICE 1 2,940,838NATURAL RESOURCES CONSERVATION SERVICE 5 580,000COOPERATIVE STATE RESEARCH, EDUCATION, 1 1,246,161 841,762 AND EXTENSION SERVICEOFFICE OF OPERATIONS 1FOOD SAFETY AND INSPECTION SERVICE 1FOOD AND NUTRITION SERVICE 7 10,185,258 517,783ANIMAL AND PLANT HEALTH INSPECTION 1 1,430,522 268,950 SERVICERURAL BUSINESS-COOPERATIVE SERVICE 2 5,827,202MULTIAGENCY 10 1,813,809RURAL DEVELOPMENT 3 66,299

TOTALS 42 $33,800,577 $1,359,545 $41,378,711

TOTAL COMPLETED:SINGLE AGENCY AUDIT 32MULTIAGENCY AUDIT 9SINGLE AGENCY EVALUATION 0MULTIAGENCY EVALUATION 1

TOTAL RELEASED NATIONWIDE 42

TOTAL COMPLETED UNDER CONTRACTb 4

TOTAL SINGLE AUDIT ISSUEDc 4

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

Appendix III

29

AUDIT REPORTS RELEASED AND ASSOCIATED MONETARY VALUESBETWEEN APRIL 1 AND SEPTEMBER 30, 2002

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

FARM SERVICE AGENCY

03-099-0004-SF LIMITED CALIFORNIA COOPERATIVE INSOLVENCY $304,398 2002/08/26 PAYMENT PROGRAM - TRI VALLEY GROWERS 03-099-0005-SF CROP DISASTER PROGRAM PAYMENTS TO PEACH $55,587 2002/08/29 GROWERS SUTTER/YUBA COUNTY, CA 03-099-0050-KC QUALITY LOSS PROGRAMS 2002/04/02 03-099-0164-AT ASSESSMENTS ON IMPORTED TOBACCO $4,583,797 2002/09/30

TOTAL: FARM SERVICE AGENCY 4 $4,943,782

RURAL HOUSING SERVICE

04-601-0005-KC RURAL RENTAL HOUSING PROGRAM $193,699 $15,500,000 2002/08/08 SERVICING OF INSURANCE EXPENSES

TOTAL: RURAL HOUSING SERVICE 1 $193,699 $15,500,000

RISK MANAGEMENT AGENCY

05-099-0010-SF INDEMNITY PAYMENTS TO PEACH GROWERS IN $34,336 2002/08/26 CALIFORNIA 05-601-0008-TE VIABILITY OF 1999 FALL WATERMELON CROP $21,100,000 2002/09/30 INSURANCE IN TEXAS 05-601-0009-TE REVIEW OF LARGE INSURANCE CLAIM FOR $6,998,779 2002/09/30 WATERMELONS

TOTAL: RISK MANAGEMENT AGENCY 3 $7,033,115 $21,100,000

FOREST SERVICE

08-017-0004-HY KAJAX ENGINEERING, INC., 2002/08/30 INCURRED COST - FISCAL YEARS 1998 & 1999 08-017-0011-KC OMNI DEVELOPMENT CORPORATION - CONTRACT $2,049,653 2002/07/17

TOTAL: FOREST SERVICE 2 $2,049,653

RURAL UTILITIES SERVICE

09-001-0001-HQ SALE OF CAPITAL ASSETS BY RUS $2,940,838 2002/09/27 COOPERATIVES

TOTAL: RURAL UTILITIES SERVICE 1 $2,940,838

NATURAL RESOURCES CONSERVATION SERVICE

10-017-0003-HY KAJAX ENGINEERING, INC., 2002/08/30 INCURRED COST - FISCAL YEARS 1998 AND 1999 10-099-0008-KC COMPLIANCE WITH HIGHLY ERODIBLE LAND 2002/09/10 PROVISIONS 10-099-0009-KC EFFECTIVENESS OF STATUS REVIEW PROCESS IN 2002/08/08 KANSAS 10-601-0005-TE SURVEY OF FARMLAND PROTECTION PROGRAM-REPORT $580,000 2002/08/05 10-601-0006-TE CONTROLS OVER FUNDS CONGRESSIONALLY 2002/09/24 EARMARKED FOR CONSERVATION PROJECTS

TOTAL: NATURAL RESOURCES CONSERVATION SERVICE 5 $580,000

30



COOPERATIVE STATE RESEARCH, EDUCATION, AND EXTENSION SERVICE

13-099-0002-TE GRANTS TO NATIONAL CENTER FOR RESOURCES $1,246,161 $841,762 2002/08/06 INNOVATIONS

TOTAL: COOPERATIVE STATE RESEARCH, 1 $1,246,161 $841,762EDUCATION AND EXTENSION SERVICE

OFFICE OF OPERATIONS

23-099-0002-FM SECURITY OF INFORMATION TECHNOLOGY RESOURCES 2002/05/22 AT USDA DEPARTMENTAL ADMINISTRATION

TOTAL: OFFICE OF OPERATIONS 1

FOOD SAFETY AND INSPECTION SERVICE

24-099-0004-AT OVERTIME CONTROLS 2002/09/30

TOTAL: FOOD SAFETY AND INSPECTION SERVICE 1

FOOD AND NUTRITION SERVICE

27-010-0007-KC PHASE II, ANALYSIS OF LARGE CACFP SPONSORS 2002/04/23 27-010-0028-HY NATIONAL SCHOOL LUNCH PROGRAM OPERATIONS IN $1,088,403 2002/09/30 NEW YORK CITY 27-099-0011-TE ARKANSAS EBT SYSTEM DEVELOPMENT 2002/09/24 27-099-0018-SF FOOD STAMP PROGRAM ADMINISTRATIVE COSTS - $9,096,855 $517,783 2002/07/03 CALIFORNIA 27-099-0019-SF FOOD STAMP PROGRAM ADMINISTRATIVE COSTS - 2002/07/24 ARIZONA 27-099-0023-CH CONTINUED MONITORING OF EBT SYSTEM 2002/08/21 DEVELOPMENT FISCAL YEAR 2002 - MICHIGAN 27-601-0027-CH NSLP - FOOD SERVICE MANAGEMENT COMPANIES 2002/04/30

TOTAL: FOOD AND NUTRITION SERVICE 7 $10,185,258 $517,783

ANIMAL AND PLANT HEALTH INSPECTION SERVICE

33-099-0002-AT APHIS CITRUS CANKER MONITORING EFFORTS - $1,430,522 $268,950 2002/08/08 SOUTH FLORIDA

TOTAL: ANIMAL AND PLANT HEALTH 1 $1,430,522 $268,950INSPECTION SERVICE

RURAL BUSINESS-COOPERATIVE SERVICE

34-601-0006-SF BUSINESS AND INDUSTRY DIRECT LOAN PROGRAM - $5,355,000HAWAII

34-601-0014-TE BUSINESS AND INDUSTRY DIRECT LOAN PROGRAM - $472,202 2002/09/27 ARKANSAS

TOTAL: RURAL BUSINESS-COOPERATIVE SERVICE 2 $5,827,202

31



MULTIAGENCY

50-021-0001-CH SINGLE AUDIT OF THE ILLINOIS 2002/08/13 DEPARTMENT OF AGRICULTURE 50-021-0002-CH SINGLE AUDIT OF THE MICHIGAN 2002/07/03 DEPARTMENT OF AGRICULTURE 50-022-0005-HY PUERTO RICO DEPARTMENT OF AGRICULTURE, A-133, 2002/08/02 SFYE JUNE 30, 1997 50-022-0006-HY PUERTO RICO DEPARTMENT OF AGRICULTURE, A-133, 2002/08/02 SFYE JUNE 30, 1998 50-099-0005-HQ REVIEW OF POLICIES AND PROCEDURES FOR NEW 2002/06/27 OFFICES AND FACILITIES 50-099-0050-FM FY 2002 USDA GOVERNMENT INFORMATION SECURITY 2002/09/10 REFORM ACT REPORT 50-401-0042-FM AUDIT OF FFIS OPERATIONS 2002/06/24 50-601-0004-CH IMPLEMENTATION OF THE GOVERNMENT PERFORMANCE

& RESULTS ACT IN THE FARM SERVICE AG FY 2000 50-601-0004-HQ REVIEW OF USDA AGENCIES’ OFFICIAL WEBSITES 2002/08/06 FOR SENSITIVE CONTENT 50-801-0012-AT MANAGEMENT OF USDA HAZARDOUS WASTE MANAGEMENT $1,813,809 2002/09/09 FUNDS

TOTAL: MULTIAGENCY 10 $1,813,809

RURAL DEVELOPMENT

85-099-0002-FM SECURITY OF INFORMATION TECHNOLOGY RESOURCES - 2002/08/05 RURAL DEVELOPMENT 85-401-0001-HY FISCAL YEAR 2001 RURAL DEVELOPMENT FINANCIAL $39,249 2002/04/26 STATEMENT AUDIT-NER ASSIST 85-401-0005-CH FISCAL YEAR 2001 RURAL DEVELOPMENT FINANCIAL $27,050 2002/04/19 STATEMENT AUDIT - FIELD CONFIRMATIONS, WISCONSIN

TOTAL: RURAL DEVELOPMENT 3 $66,299

TOTAL: RELEASE - NATIONWIDE 42 $33,800,577 $1,359,545 $41,378,711