United StatesDepartment ofAgriculture

Office ofInspector General

No. 46

December 2001

Office of Inspector GeneralSemiannual Reportto CongressFY 2001—Second Half

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

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

On the cover: The photos depict various aspects of the U.S. Department of Agriculture (USDA) mission. The American flag designsymbolizes the unity of the Nation’s populace, agencies, and functions in the aftermath of the terrorist attacks on September 11, 2001.USDA photos.

Contents

In Focus: USDA and the Terrorist Threat .......................................................................................................... 1Executive Summary ............................................................................................................................................. 3Summaries of Audit and Investigative Activities .............................................................................................. 5Protecting the Food Supply

Audit Work To Improve Management of Protection of the Food Supply ............................................................ 6Investigations To Pursue Specific Threats ........................................................................................................ 7

Information TechnologyAudits To Strengthen USDA’s IT Security ......................................................................................................... 9Investigations Involving Abuse of IT Resources .............................................................................................. 11

Financial Management and AccountabilityAudits To Strengthen Financial Management and Accountability ................................................................... 13Investigative Work To Stem Financial Crime ................................................................................................... 16

Abuse of USDA Programs and OperationsPublic Corruption ............................................................................................................................................. 17Workplace Violence ......................................................................................................................................... 17Farm Programs ................................................................................................................................................ 18Crop Insurance ................................................................................................................................................ 20Nutrition Programs ........................................................................................................................................... 21Natural Resources and Environment ............................................................................................................... 22Rural Development .......................................................................................................................................... 23

Statistical DataAudits Without Management Decision ............................................................................................................. 25Indictments and Convictions ............................................................................................................................ 32Office of Inspector General Hotline .................................................................................................................. 33Freedom of Information Act and Privacy Act Requests ................................................................................... 34

Appendix I: Inventory of Audit Reports IssuedWith Questioned Costs and Loans .............................................................................................................. 35

Appendix II: Inventory of Audit Reports IssuedWith Recommendations That Funds Be Put to Better Use ........................................................................ 36

Appendix III: Summary of Audit Reports Released BetweenApril 1 and September 30, 2001 .................................................................................................................... 37

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The events of September 11 and the subsequentanthrax attacks have given new urgency to issues ofsecurity over the U.S. Department of Agriculture’s(USDA) infrastructure and the agricultural economy.Systems that ensure the protection of the Nation’s foodsupply have taken on even greater moment. Themission of the Office of Inspector General (OIG) is toinvestigate allegations of crimes against theDepartment’s programs, and to promote the economyand efficiency of its operations, with the object ofhelping it protect its programs and ensure their integrity.This experience in security matters and lawenforcement uniquely positions OIG to help theDepartment respond to the new and dangerousenvironment introduced by the attacks on New York andWashington. Consequently, within this current reportingperiod, OIG has redirected its resources toward twofronts—maintaining the integrity of Departmentprograms and helping the Department strengthen itsdefenses against activities that might threatenGovernment facilities, production agriculture, and theNation’s food supply.

As events have unfolded, we found the Departmentsingularly united in its response to the attacks. USDAagencies have worked together and with OIG to protectthe food supply and to ensure that the Departmentcontinues to serve the needs of the farmer and theconsumer. OIG has helped the agencies establishteams of dedicated personnel to respond to eachemerging crisis. The magnitude of this emergency andthe importance of preserving the Nation’s food supplyfrom threats both domestic and foreign have placedenormous demands on the resources of theDepartment.

Even before September 11, OIG was involved indepartmental efforts to ensure that animal and plantdiseases from abroad did not infect agriculturalproduction in this country. At the outbreak of Foot andMouth Disease (FMD) in Britain and elsewhere, webegan establishing emergency response teams toinvestigate any similar threat to American livestock.Team members traveled to the United Kingdom to gainfirsthand knowledge of the measures needed to counterany criminal activity involved in such an outbreak.Simultaneously, auditors in this country tested thesystems designed to prevent importation of any infectedmeat products, while investigators intensified theirefforts to dismantle any smuggling operations thatwould bring uninspected plants, animals, or meatproducts into the United States.

In Focus: USDA and the Terrorist Threat

With cyberattacks on Government systems a continuingproblem, OIG has undertaken a growing number ofaudits and reviews, as well as investigations of criminalactivity involving the Department’s computer systems.We have joined forces with the Chief Information Officerand agency information managers to enhance thesecurity of and protect the Department’s informationtechnology systems. As more and more Governmentprograms come to depend on information technology fortheir delivery, this component of the Department’sinfrastructure has become the linchpin both of programintegrity and of operational control. We have identifiedweaknesses in this component in the past, and we willcontinue to make recommendations to ensure that theflow of information vital to the Department’s businesscannot be disrupted. Computer security will becomeeven more critical as the President’s e-Governmentinitiative, providing for on-line customer transactions, isphased in, particularly in overseas areas where broaderforeign markets are being sought.

In the aftermath of September 11, OIG’s lawenforcement efforts focused substantially on homelandsecurity. Special agents responded to an increasednumber of threats to USDA employees and facilities andprovided assistance to investigate the attacks in NewYork. OIG assigned 32 special agents to counter-terrorism task forces and to nationwide criminalinvestigations related to the events of September 11.In joining the pursuit of suspected terrorists, we havematched the Federal Bureau of Investigation’s (FBI)“watch list” against databases available to theDepartment. We are also assisting the FBI ininvestigating agriculture-related issues. Thisassistance will continue.

Because disruption of the U.S. Government appears tobe one goal of terrorism, we have heightened ourprotection of the Secretary and joined in ensuring thecontinuation of USDA functions in the event of furtherassaults. We are accelerating our review of controlsover accidental or intentional release of biohazards,with an emphasis on the physical security of USDAlaboratories around the Nation where the Departmentstores biological materials used in research anddiagnostic work that could be harmful to plants andanimals. Similarly, we are devoting increased resourcesto our reviews of controls over genetically engineeredorganisms, or GEOs, whose premature release into theenvironment in an untested state could damage theagricultural economy. Our past investigations of

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vandalism at USDA facilities by ecoterrorists havealready resulted in a heightened awareness of securityat these locations.

Other environmental concerns have also placeddemands on OIG’s resources. Current audits of theNation’s fire plan are aimed at shoring up weaknessesin the Department’s ability to respond to major forestfires. Although these audits were initially undertakenwithin the context of past years’ devastating fires inIdaho and New Mexico, our focus will now include thepossibility of intentional acts of destruction to our naturalresources.

Protecting the integrity of USDA programs remains ascritical a responsibility for OIG as does securing theDepartment’s infrastructure. Our ongoing investigationsinto food stamp fraud continue to rid the program ofillegal participants. Operation Talon, an initiative toidentify and arrest fugitive felons who apply for foodstamp benefits, is now in its fourth year and reports over7,800 arrests. We must also find time to intensify ourpursuit of those who traffic in food stamps and thosewho defraud the program using Electronic BenefitsTransfer, or EBT. Criminal assault on these benefitprograms costs the Department millions of dollars overtime and can fuel even broader criminal activity. Wehave routinely focused our investigations of benefitstrafficking on the money trail and know that some of theillegally gained money is finding its way overseas. Wehave made great efforts to halt this fraud throughaggressive use of money laundering and forfeiturestatutes.

The September 11 attacks have caused us toconcentrate more sharply on USDA’s fundamentaloperations within the context of the 21st century. Theeffects of more efficient means of production, morerapid communications, free trade, and the freer, faster

pace of movements around the globe have contributedto a new operational environment and a new set ofmanagement challenges. To help the Departmentrespond to these challenges, and to keep pace withthem ourselves, we are undertaking a complete reviewof our own activities. We want to see how we can betteruse our existing resources through additional trainingfor employees, better equip our personnel, anddetermine what specific additional resources we mightneed. This would include personnel with specializedskills, such as computer scientists and systemsengineers. Limited funding, new statutory mandates,and now unanticipated criminal threats have placedincreasing demands on OIG’s resources. Byreengineering our business practices, we plan to takefull advantage of state-of-the-art technologies in ouraudit and investigative activities, streamline operations,and increase efficiencies.

Clearly, the events of September 11 have impacted theway USDA does business. These events have alsoenlarged the role that OIG must play in helping theDepartment through the days ahead. But we do notcome to this role unprepared. The work we have donein the past, the experience we have gained in protectingthe integrity of Department programs, and therelationships we have made with Federal lawenforcement and, especially, with State and local policedepartments have armed us against the threats theDepartment now faces. As an alerted citizenrycontinues to report suspicious activities, we will help inall ways we can. The equipment we have alreadyprovided to State and local law enforcement agencieswith asset forfeiture funds and the communications linkswe have developed have extended the effectiveness ofour own reach. We and the rest of the law enforcementcommunity are ready to act as one front againstdomestic and international terror.

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This is the 46th Semiannual Report of the Office ofInspector General (OIG), U.S. Department of Agriculture(USDA), pursuant to the provisions of the InspectorGeneral Act of 1978 (Public Law 95-452), as amended.This report covers the period April 1 throughSeptember 30, 2001.

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

Monetary Impact and Results

During this reporting period, we issued 58 audit andevaluation reports and reached management decisionson 53. Based on this work, management officialsagreed to recover $4 million and to put an additional$78.6 million to better use.

We also issued 269 reports of investigation during thisperiod. Our investigative efforts resulted in181 indictments, 172 convictions, and approximately$28.2 million in recoveries, fines, restitutions, claimsestablished, cost avoidance, and administrativepenalties.

USDA and the Terrorist Threat

In our special introductory section on USDA and theterrorist threat, we have highlighted what we have beenfocusing on since the September 11 and subsequentattacks. These events have given new urgency toissues of security over the USDA infrastructure and theagricultural economy. OIG has redirected its resourcesboth to maintain the integrity of Department programsand help the Department strengthen its defensesagainst activities that threaten Government facilities andagricultural production. We have redoubled our effortsin certain key areas where we were already devotingmuch time and resources. Because we had established

Executive Summary

initiatives in place, we have been able to capitalize onour knowledge of and expertise in USDA programs andthe agricultural economy and our relationships withFederal, State, and local law enforcement agencies toaddress heightened challenges and issues quickly andeffectively.

Protecting the Food Supply

With the outbreak of Foot and Mouth Disease in Europeand, subsequently, South America, we conducted aspecial review of the controls and procedures employedby the Department to prevent the entry into the UnitedStates of the disease via imported meat. We found thatenhanced controls were needed to reduce thepossibility of such entry. Communications between theAnimal and Plant Health Inspection Service (APHIS)and the Food Safety and Inspection Service (FSIS), thetwo USDA agencies responsible for regulating the entryof imported meat, were weak. APHIS needed toimprove its accountability over imported products fromtheir arrival at U.S. ports of entry through theirdisposition by the respective agencies. APHIS and FSISagreed with the findings and recommendations and areacting on them.

Three of our investigations resulted in significantcriminal penalties against meat processors thatdistributed products contaminated by the deadlybacteria Listeria monocytogenes, which had sickenedand killed people who consumed it. Our rapidemergency responses immediately halted distribution ofthe products.

Information Technology

One of the more significant dangers USDA, as well asother public and private entities, faces is cyberterrorism.The dependence on information technology (IT) and theInternet has exposed USDA’s billions of dollars inassets and its critical infrastructure to additional criminaland security vulnerabilities. The Department has takenpositive action by developing a plan to strengthenUSDA information security; however, our auditscontinue to identify deficiencies in USDA’s securityposture. Our audits of several agencies foundinadequate controls over access to systems and oversensitive information, as well as security vulnerabilities.Our Government Information Security Reform Actreview disclosed that the Department is still far fromeffectively managing and securing IT resources.

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Criminal investigations have resulted in the conviction ofan employee using USDA IT resources to sexuallyexploit children over the Internet. Numerous programparticipants were convicted for illegally gaining millionsof program dollars via electronic commerce systemssuch as the Food Stamp Program’s Electronic BenefitsTransfer system.

Financial Management and Accountability

Financial crimes and management irregularities remainsignificant challenges for the Department. For the past7 years, we have disclaimed an opinion on theDepartment’s consolidated financial statements. Thismeans the Department does not know whether itproperly accounted for the money it collected, the costof operations, and assets of well over $100 billion. Thisperiod, the Forest Service (FS) and the CommodityCredit Corporation (CCC) were unable to complete theirfinancial statements in time for us to audit them by thelegislatively mandated timeframe of March 1. Oursubsequent audit work of these entities resulted in adisclaimer of opinion. Investigative efforts resulted in therecovery of millions of dollars lost to contract fraud andembezzlements.

Abuse of USDA Programs and Operations

OIG investigations continue to focus only on the mostegregious cases of criminal activity in USDA programs

and operations. Our efforts pursued criminal activitycommitted by USDA employees, directed at USDAemployees or companies, or committed by others toaffect USDA programs. Examples include the convictionof an Agricultural Marketing Service (AMS) produceinspector and produce company owners for bribery in ascheme to cheat produce farmers. We also participatedin a joint investigative effort to stop a gang of 12 thieveswho were preying on farmers in the Midwest, stealingover $5 million in farm equipment, much of which wascollateral for USDA loans.

OIG continues to audit other major departmentalprograms and functions, and make recommendationsthat will increase efficiency and reduce wasteful andfraudulent activities. Examples include: (1) watermeloncrop insurance claims of $1.5 million filed by threeproducers who were not eligible; (2) food servicemanagement companies engaged to operate schoollunch and breakfast programs that did not pass on toschool districts purchase discounts of $237,000 or failedto credit school districts with $2.9 million of USDA-donated commodities; (3) FS’ Northeastern ForestExperiment Station improperly used cooperativeagreements to sell timber, resulting in an unauthorizedretention of $2 million and failure to pay West Virginia$342,000; and (4) four management companiescharged the Rural Rental Housing (RRH) Program withexcessive and questionable insurance expensestotaling over $595,000.

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Summary of Audit ActivitiesReports Issued ................................................................................................................................................. 58

Audits Performed by OIG .................................................................................... 48Evaluations Performed by OIG ........................................................................... 0Audits Performed Under the Single Audit Act ..................................................... 5Audits Performed by Others ................................................................................ 5

Management Decisions Made Number of Reports .......................................................................................................................................... 53 Number of Recommendations ........................................................................................................................ 383

Total Dollar Impact (Millions) .......................................................................................................................... $83.0Questioned/Unsupported Costs .......................................................................................... $4.4a,b,c

Recommended for Recovery .............................................................................. $4.0Not Recommended for Recovery ........................................................................ $0.5Funds To Be Put to Better Use ............................................................................................ $78.6

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.c Because of rounding, this number does not equal the addition of the two numbers composing it. See Appendix I for exact numbers.

Summary of Investigative ActivitiesReports Issued ................................................................................................................................................... 269Cases Opened ................................................................................................................................................... 206Cases Closed ..................................................................................................................................................... 415Cases Referred for Prosecution ......................................................................................................................... 161

Impact of InvestigationsIndictments .................................................................................................................................................... 181Convictions .................................................................................................................................................... 172a

Searches ........................................................................................................................................................ 78Arrests ........................................................................................................................................................... 659b

Total Dollar Impact (Millions) .......................................................................................................................... $28.2 Recoveries/Collections .......................................................................................................... $ 2.8c

Restitutions ........................................................................................................................... $18.2d

Fines ..................................................................................................................................... $ 4.1e

Claims Established ................................................................................................................ $ 2.0f

Cost Avoidance ..................................................................................................................... $ 0.9g

Administrative Penalties ........................................................................................................ $ 0.2h

Administrative Sanctions Employees...................................................................................................................................................... 33

Businesses/Persons ...................................................................................................................................... 395

a Includes convictions and pretrial diversions. Also, the period of time to obtain court action on an indictment varies widely; therefore,the 172 convictions do not necessarily relate to the 181 indictments.

b Includes 522 Operation Talon arrests and 137 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.h Includes monetary fines or penalties authorized by law and imposed through an administrative process as a result of OIG findings.

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Protecting U.S. agriculture and ensuring safe andwholesome meat and poultry is one of the primarychallenges facing USDA. One of OIG’s chief missions isto ensure the safety of the American food supply, bothby auditing food safety programs to detect deficienciesand recommend improvements and by investigatingcriminal activity involving the intentional contaminationof food products; the processing and sale of adulteratedmeat, poultry, and egg products; and the substitution,adulteration or other misrepresentation of food productsregulated or inspected by USDA. Further, OIG playsan important role in protecting the U.S. agricultureinfrastructure from possible harm due to the accidentalor intentional introduction of foreign pests and diseases.Foreign plant and animal pests and diseases can befinancially devastating to farmers, expensive for Federaland State Governments seeking to eradicate them, anddangerous, sometimes fatal, to people, animals, andcrops.

OIG’s work ranges from detecting criminal smuggling ofplants, animals, vegetables, fruits, and meats fromoverseas to investigating reports of illegal activity atmeat and poultry processing plants to following up onreports of adulterated products in stores. This missionhas become even more critical now, as the threat ofintentional contamination of food for terrorist purposeshas become more real. We also can never ignore thecontinuing threats to consumers caused when someunscrupulous businesses place profit above publicsafety, failing to report and destroy food contaminatedby dangerous pathogens or even actively adulteratingfood to increase their profit.

AUDIT WORK TO IMPROVE MANAGEMENTOF PROTECTION OF THE FOOD SUPPLY

Enhanced Controls Needed To Control ImportedMeat

As we reported in July of this year, we undertook anexpedited review of APHIS and FSIS functions withregard to imported meat. APHIS has the primaryresponsibility for ensuring that animal products do notenter the United States if they are from restrictedcountries, e.g., those with FMD, or if they arecontaminated by diseases such as African swine fever.FSIS reinspects imported meat products after APHISofficers determine they may enter the country. OIGlooked at the two agencies’ activities at five FSIS

Protecting the Food Supply

inspection houses in Maryland and New Jersey, as wellas APHIS’ three regional offices and the major ports ofMiami, Florida; Houston, Texas; Long Beach, California;Philadelphia, Pennsylvania; and Detroit, Michigan. Wefound a number of activities that needed improvementand made recommendations to correct the identifiedproblems. APHIS and FSIS agreed with the findingsand recommendations and began implementation ofcorrective actions immediately.

The fundamental problem, we learned, was a failure tocommunicate between APHIS and FSIS. In order for theprocess of inspection, reinspection, and clearance (orrejection) of imported meat to work efficiently to preventembargoed product from entering the United States,e.g., meat from FMD-restricted countries, and to allowunrestricted product to enter in a timely manner, the twoagencies must communicate in an organized andpunctual manner. This did not always occur. Forinstance, a shipment of over 32,000 pounds of meatproducts from an FMD-restricted country arrived in thePort of Houston and was released to an FSIS inspectionhouse, but through error was moved to a warehouse inSan Antonio, Texas. FSIS had not been informed toexpect the product at its inspection house and wasnotified after the broker discovered the error 9 daysafter the release. The product was returned to Houston,where over one-sixth of it had to be destroyed becauseit was produced after the restricted date. The remainingproduct had been produced prior to the restricted dateand was allowed into commerce.

We also found that APHIS needed to improve itsaccountability over imported products from their arrivalat U.S. ports-of-entry through their disposition by therespective agencies. There was no central automatedsystem that controlled imports entering U.S. ports-of-entry through their disposition. More important, neitherAPHIS nor FSIS had an adequate system of controls orrecords that could produce such information. APHIShad to manually search the records at each port toprovide a record of inventory of held shipments andproduct forwarded to inspection houses which OIGcould use to take a physical inventory of productassociated with selected ports-of-entry. Without theunderlying controls or system of records, there was littleassurance that our physical inventory represented all ofthe product.

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We recommended that APHIS and FSIS implement newprocedures to strengthen their communication andcoordination at the field level, and issue instructionsspecifically identifying the responsibilities of eachagency regarding the handling of products fromrestricted countries. We also recommended that APHISdiscontinue its policy of allowing mixed shipments ofenterable and nonenterable products to enter thecountry for sorting, and that the agencies jointly conductan inventory to identify and account for all suchproducts that had entered the United States from FMD-restricted countries and ensure the disposition of anythat still remained. We recommended that APHISimprove its systems to track and account for productsthat are retained on hold at the ports-of-entry, and toflag instances where such products have remained foran unreasonable amount of time. Both APHIS and FSISagreed with the findings and recommendations and areacting on them.

OIG is now reviewing FSIS’ reinspection of importedmeat and poultry products as they enter the UnitedStates, as well as equivalency determinations of foreigninspection systems in terms of the Hazard Analysis andCritical Control Point System and microbial producttesting. A review of APHIS’ inspection activities atports-of-entry designed to prevent the introduction offoreign plant and animal pests and diseases, which areharmful to U.S. agriculture, is currently underway.

INVESTIGATIONS TO PURSUE SPECIFICTHREATS

Major Food Processor Guilty of Producing andDistributing Adulterated Products

In June 2001, attorneys for a major food-processingcorporation entered a plea of guilty in U.S. District Courtto producing and distributing adulterated meat andpoultry products. From June to September 1998, one ofits processing plants produced and distributed foodproducts that contained the bacterium Listeriamonocytogenes. Sentencing included the maximum fineof $200,000 with an agreement to underwrite foodsafety research projects by funding a $3 million grant toMichigan State University. The corporation also settleda civil lawsuit relating to the 1998 sale of meat productsto the U.S. Department of Defense by paying more than$915,800, as well as Government investigative costs,resulting in a total civil settlement of more than

$1.2 million. FSIS compliance officers assisted inthe investigation.

Corporation Fined for Distribution of AdulteratedMeat Products

A Michigan-based corporation pled guilty in Federalcourt to the distribution of adulterated food products andwas fined $50,000. The plant involved was in Arkansas.On April 13, 1999, FSIS deemed over 21 million poundsof meat and poultry products produced at this plant unfitfor human consumption and withdrew the mark ofinspection. Our investigation showed that thecorporation failed to notify FSIS of 16 positive tests forListeria monocytogenes in 1997 and 1998. Thecorporation has since declared bankruptcy and hasbeen sold. Assisting in the investigation were FSIScompliance officers and the Office of SpecialInvestigations, U.S. Air Force.

Florida Corporation Pleads Guilty to Adulteration ofMeat Products

A major food store chain’s meatpacking plant located inMadison, Florida, pled guilty to Federal charges ofselling meat products contaminated with Listeriamonocytogenes. An OIG investigation revealed thecorporation failed to acknowledge lab tests that showeda presence of the deadly pathogen. The corporationrecalled approximately 4.5 million pounds of meat andpoultry products and has invested over $1 million toupdate its plant with new processing equipment. Thecorporation was fined $20,000.

Six Milk Drivers and Dairymen Convicted in MilkAdulteration Scam

As previously reported, a series of investigationsdubbed “Operation Got Water” in Louisiana andMississippi found that milk truck drivers and dairymenadded salt and water to raw milk in order to increase theweight of the daily milk production, resulting in higherpayments to the dairymen. Four drivers and twodairymen have now been convicted and sentenced toterms that range from 3 years’ probation to 5 months inFederal prison. They have been ordered to makerestitution ranging from $7,500 to $23,000. This matterwas worked jointly with the U.S. Attorney’s Office for theEastern District of Louisiana and the Food and DrugAdministration’s (FDA) Office of Criminal Investigations(OCI).

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California Firm Agrees to Monetary Penalty

A large fresh fruit company headquartered in Californiaagreed to pay USDA an administrative penalty of$180,000 in lieu of having its Perishable AgriculturalCommodities Act license suspended. The firm hadimported six truckloads of grapes into the United Stateswithout obtaining the required USDA inspections.Counterfeit USDA Certificates of Inspection were thenused to sell the fruit. The company through its ownrecords found that the inspection certificates werefraudulent and reported it to USDA, which promptedOIG’s investigation.

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One of the more significant dangers USDA faces is anattack, whether by terrorists seeking to destroy uniquedatabases or more typical criminals seeking economicgain. The dependence on IT and the Internet hasexposed USDA’s billions of dollars in assets and itscritical infrastructure to predators who use a new form ofweapon against the Department’s programs andoperations. The Department has numerous informationassets that include market sensitive data on theagricultural economy and commodities, signup andparticipation data for programs, personal information oncustomers and employees, and accounting data. Theinformation and related systems face unprecedentedlevels of risk from intentional or accidental disruption,disclosure, damage, or manipulation. Public confidencein the security and confidentiality of the Department’sinformation and technology is essential. TheDepartment has taken positive action by developing aplan to strengthen UDSA information security; however,our audits continue to identify deficiencies in USDA’ssecurity posture, while investigations have identifiedemployee and program participant criminal activity.

AUDITS TO STRENGTHEN USDA’S ITSECURITY

GISRA Review Discloses Department Still Far FromEffectively Managing and Securing IT Resources

Congress passed the Government Information SecurityReform Act (GISRA) to seek to ensure propermanagement and security for the information supportingFederal operations and assets. Our audits haveidentified that USDA, through the work of the Office ofthe Chief Information Officer (OCIO), has aDepartmentwide security plan in place and has begunimproving security over the Department’s IT resources.Despite its efforts, however, the Department remainsnoncompliant with several requirements of Office ofManagement and Budget (OMB) Circular A-130 andPresidential Decision Directive 63. Before theappointment of a Chief Information Officer,departmental agencies and staff offices separatelyaddressed their respective IT security and infrastructureneeds. These isolated approaches taken by individualagencies have resulted in a disparate array of technicaland physical solutions that do not always ensure thatcomprehensive Departmentwide security is obtained.

Information Technology

Our independent evaluations disclosed the followingmaterial IT security weaknesses within the Department.Most of the agencies in our audits (1) had not ensuredthat their major applications’ security plans contained allthe elements required by OMB guidance; (2) had notplanned for contingencies or disaster recovery, noradequately tested those plans; (3) had not ensured thatall their systems had been properly certified andauthorized, attesting to the adequacy of securitycontrols and whether those controls are operatingeffectively; and (4) had not assessed the existing andpotential risks to their IT infrastructure or implemented aplan to eliminate or mitigate those risks. This reportconsolidated the results of several audits conducted inthe past fiscal year, and recommendations to addressthe identified vulnerabilities were made in those reports.

USDA’s Second Largest Computer Center Needs ToImprove Access Controls

The National Information Technology Center (NITC)needed to take the necessary actions to ensure thatonly authorized users access its systems, periodicallyidentify and mitigate existing vulnerabilities in itssystems, ensure the use of proper controls to itssystems from the Internet, and ensure compliance withexisting Federal security guidelines. NITC did notensure that user accounts belonging to its customerswere timely removed when those users no longerneeded access, and it was not tracking access to allsensitive and critical datasets on its mainframes. NITCalso had not been conducting periodic vulnerabilityscans of its systems to ensure that known operatingsystem vulnerabilities were identified and promptlycorrected, or that data sent over the Internet wasprotected from unauthorized disclosure through the useof encryption. Finally, NITC had not complied with allthe requirements of OMB Circular A-130 by ensuringthat its security plan included all the needed elements,such as specification of authority to access systems.

We recommended that NITC improve its controls overaccess, including ensuring that separated employeesare timely removed from its systems, and review itssecurity software logging rules to ensure that all accessto sensitive and critical operating systems datasets waslogged. We also recommended that NITC periodicallyscan its systems to detect and mitigate known operating

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system vulnerabilities, and improve the security overdata to ensure it is transmitted in a controlled, securedmanner. Finally, we recommended that NITC ensurecompliance with OMB Circular A-130 by ensuring thatits security plan meets all requirements.

Privacy Considerations Within USDA AgencyInternet Sites

We evaluated the Department’s Internet activities, asrequired by the Consolidated Appropriations Act of2001, to ensure that individual privacy is sufficientlyprotected when visiting USDA agency Web sites. Wefound only two instances where agencies hadunknowingly allowed their Web sites to use “cookies”(automated means of collecting information used totrack users without proper disclosure). However, theDepartment lacked controls to ensure that existingprivacy policies were being enforced. Further, theDepartment had not maintained an accurate list of itsWeb sites, which we believe is necessary to furtherstrengthen the Department’s Internet privacy posture.

We recommended that the Department requireagencies to provide an inventory of their Web sites andreport changes to those inventories as they occur,establish a standardized set of software tools for thecreation and maintenance of USDA Internet Web sites,assess agency compliance with governmental anddepartmental privacy policies relating to Web sites,require agencies periodically to review and test theirWeb sites for compliance with established Internetprivacy policies, and submit annual certifications toOCIO that these requirements are being met. TheDepartment agreed with our recommendations andpromptly issued guidance.

Weaknesses Identified in NASS’ Ability To ProtectCritical IT Resources

We identified weaknesses in the National AgriculturalStatistics Service’s (NASS) ability to adequately protectsensitive information from inappropriate disclosure, andcritical operations from disruption. Significantinformation security weaknesses includednoncompliance with existing Federal securityregulations and inadequately restricted access tosensitive data. Our scans of selected NASS networksidentified over 70 significant vulnerabilities that could

make the agency’s systems subject to successfulattack. NASS officials stated that they took promptcorrective action to mitigate a majority of theweaknesses identified.

We recommended that NASS ensure corrective actionsare taken on the vulnerabilities identified, periodicallyscan their network for vulnerabilities and track correctiveactions to ensure remediation, adopt a corporate-levelapproach to system administration, and take thenecessary actions to ensure compliance with existingFederal IT security guidelines.

NASS officials stated that they have implementedconfiguration management and a “best practices”approach to securing their systems, and initiated a planto ensure compliance with existing Federal securityguidelines.

FNS Agrees To Improve Security Over IT Resources

FNS computer systems process, analyze, and supportmore than $32 billion in financial and program dataannually. Our audit of FNS’ security over IT resourcesdisclosed serious security vulnerabilities andinadequate controls over access to FNS’ computernetwork and systems. We identified the followingmaterial weaknesses.

• Our scans of FNS networks disclosed 270 significantvulnerabilities that could make the agency’s systemssubject to successful attack.

• Agency officials did not effectively ensure that FNS’operating systems were free from known securityvulnerabilities. Adequate physical controls were notimplemented at the facilities reviewed. For example,door lock controls were not always used.

• User ID and password security and FNS’ process forreviewing continuing system access to financial andpayment systems were not always effectivelymanaged to ensure individual accountability.

• Weaknesses in access controls existed in two ofFNS’ systems. Password features were not alwaysimplemented, and the user ID password for onesystem was not encrypted.

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• FNS had not always updated or tested itscontingency plans in a timely manner nor alwayscorrected deficiencies identified in its vulnerabilityassessments.

• FNS had not always adhered to OMB requirementsthat risk assessments and system certifications becompleted at least every 3 years. Five of ninemission-critical systems, which contain critical andsensitive information, have not been assessed withinthe past 3 years. Further, certifications have neverbeen obtained for three systems, and recertificationsfor three other systems were past due.

• FNS had not validated that all data for one systemwere encrypted before transmission to NITC, puttingsensitive Privacy Act data at risk.

• Incompatible duties existed within the InformationTechnology Division. The local area network (LAN)administrator, who was a “super user” (havingunlimited access authority) of LAN, was also thedeputy security officer responsible for maintaining thesecurity over LAN.

We recommended that FNS take immediate action toeliminate the high- and medium-risk vulnerabilitiesfound on its systems and implement a number ofspecific procedures to correct its security vulnerabilitiesand inadequate controls. FNS agreed with therecommendations and will implement applicableprocedures and controls.

INVESTIGATIONS INVOLVING ABUSE OF ITRESOURCES

Employee Sentenced for Sexual Coercion ofChildren, Possession of Child Pornography

In Iowa, a Natural Resources Conservation Service(NRCS) employee was sentenced to 57 months’imprisonment, followed by 3 years’ supervised release,after pleading guilty to sexually coercing children overthe Internet and possessing child pornography. Theemployee used his NRCS Government computer tofacilitate the crime and to visit unauthorized Internetsites during working hours. The employee was fired.The OIG investigation identified a minor in Louisiana

that the employee met on an Internet chat room andwith whom he engaged in sexual activity after travelingto Louisiana. The employee also contacted minors inother States through the Internet in attempts to enticeand coerce them into having sexual encounters withhim.

Trafficking Case Yields Substantial Prison Sentenceand Restitution

The owner of a grocery store in New York City wassentenced to 2 years in prison and ordered to pay$580,660 in restitution to USDA following his guilty pleato charges of EBT fraud and trafficking. Theinvestigation disclosed that the grocery store redeemedover $1 million in EBT benefits in 1 year. Sentencing ispending for an employee of the store.

Substantial Restitution Ordered for New JerseyStore Owner

The owner of a New Jersey grocery store wassentenced to 13 months in prison and ordered to pay$494,280 in restitution to USDA after she pled guilty tocharges of EBT fraud and trafficking. The investigation,worked jointly with the U.S. Secret Service, disclosedthat the grocery store redeemed over $1 million in EBTbenefits during 1 year. Sentencing for three otheremployees is pending.

Operation Swipe in Connecticut Results in LargeCivil Settlement

Fourteen convenience stores located in Connecticutwere ordered to pay a total of $335,330 in civilsettlements for their role in EBT trafficking. The civiljudgment was issued after the various owners wereconvicted and sentenced under Federal criminalcharges. This case was conducted jointly with theConnecticut Chief State Attorney’s Office as part ofOperation Swipe in Connecticut.

Three Brothers Arrested in WIC and EBT Fraud

Three brothers were arrested and are being heldwithout bond after OIG agents executed searchwarrants at their store and residence. The store was thehighest Special Supplemental Nutrition Program for

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Women, Infants, and Children (WIC) redeemer inNorth Carolina, with more than $542,000 in depositsin 3 years. The store also deposited in excess of$176,550 in EBT benefits. Multiple undercovertransactions involving WIC vouchers and EBT cards led

This store used for WIC trafficking was the highest WIC redeemer in North Carolina. OIG photo.

to a 329-count indictment. Bank accounts, cash, andan automobile were seized. The investigation wasconducted jointly with the Internal Revenue Service’s(IRS) Criminal Investigation (CI) unit, North CarolinaOIG, and Greenville Police Department.

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Financial crimes and management irregularities remainsignificant challenges for the Department. For the past7 years, we have disclaimed an opinion on theDepartment’s consolidated financial statements. Thismeans the Department does not know whether itproperly accounted for the money it collected, the costof operations, and assets of well over $100 billion.Consequently, some USDA managers are forced tomake decisions on program operations “in the dark”without solid financial data. The Department’sproblematic issues with the financial managementsystem will continue until at least 2003, at which pointall USDA agencies should be converted to theFoundation Financial Information System (FFIS).Effective implementation of FFIS is needed to improvethe Department’s financial management to ensure thatmanagers have reliable data to manage their programs.This period, the Forest Service (FS) and the CommodityCredit Corporation (CCC) were unable to complete theirfinancial statements in time for us to audit them by thelegislatively mandated timeframe of March 1. Oursubsequent audit work of these entities resulted in adisclaimer of opinion. Investigative work continues toconfirm the vulnerability of USDA programs to generalcontract fraud and embezzlement.

AUDITS TO STRENGTHEN FINANCIALMANAGEMENT AND ACCOUNTABILITY

Financial Statement Audits

FY 2000 FS Financial Statements—Disclaimer ofOpinion

Due to limitations on the scope of our examination, wewere unable to express an opinion on the FS financialstatements. FS was unable to provide us with itsstatements and supporting documentation until morethan 4 months after the fiscal yearend. Despite thisdelay, our examination disclosed several materialmisstatements in significant line items, such as cash.Further, FS’ longstanding lack of accountability over itsreal property assets continued unabated. Audit testingdisclosed error rates that were so high we were unableto make valid projections of misstatements orunsupported capitalized values. As a result, we wereunable to obtain reasonable assurance that the realproperty balance of $4.5 billion was fairly stated.

Financial Management and Accountability

Our review of internal controls revealed that(1) inadequate controls over recording obligationsand expenses for firefighting resulted in a $274 millionviolation of the Antideficiency Act; (2) althoughimplementation of FFIS improved FS accounting, furtherimprovements are needed to ensure that financialaccounting data is complete, accurate, and reliable;and (3) additional improvements are needed toadequately safeguard assets.

We made a series of recommendations to strengtheninternal controls and improve compliance with laws andregulations.

FY 2000 CCC Financial Statements—Disclaimer ofOpinion

For the third consecutive year, we have been unable toissue a “clean” opinion on CCC’s financial statements.Although CCC and OIG continued to work with theDepartment’s task force to correct these reportedproblems, an extensive amount of work remains. ForFY 2000, CCC received a disclaimer of opinion becauseit was not able to provide sufficient and competentevidential matter to substantiate material financialstatement line items related to direct and guaranteedcredits to foreign countries and related activities withinthe timeframes established by the Department. Eventhough CCC provided us its financial statements nearly2 months late and after processing numerousadjustments, our audit coverage still disclosedsignificant errors for CCC foreign loan accountingoperations.

Despite 6 years of urging by OIG, CCC still needs tosubstantially overhaul or strengthen its internal controland quality assurance aspects over its foreign loanaccounting operations to correct the errors, omissions,and inconsistencies contained in its financialstatements. CCC staff lack the necessary knowledge,skills, and abilities to effectively and accurately performaccounting functions for the Corporation’s foreign loanoperations.

Unless actions are taken, achieving the reformsrequired by recent financial management legislation willnot be accomplished. Moreover, users of informationrisk making errant budgetary and operational decisionswhen they rely on questionable information reported ortaken from the underlying accounting systems. With

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assets of over $14 billion and costs of $30 billion, it isessential CCC make reforms.

We recommended that CCC obtain an outsidecontractor to assist it in evaluating its financialaccounting and reporting functions; improving thetimeliness and accuracy of its financial information; andstrengthening supervisory/management oversight overfinancial account reconciliation, accounting entries, andadjustments. We also recommended CCC obtainadditional outside resources to conduct its foreign loanaccounting operations in the interim.

FY 2000 Review of Internal Controls at NFC

Our review of the internal control structure at the Officeof the Chief Financial Officer’s (OCFO) NationalFinance Center (NFC) for FY 2000 resulted in aqualified opinion. We noted that actions taken by OCFOwere sufficient to reduce the risk associated withseveral previously reported weaknesses; however, wefound that some previously identified materialweaknesses persisted. Many of these weaknessesrelated to problems with the legacy Central AccountingSystem (CAS) and its feeder systems. The weaknesseswith the CAS general ledger are being mitigated by theimplementation of the FFIS for USDA agencies. In FY2002, all but two smaller agencies will use FFIS, andplans address the problems with the feeder systems.However, until these problems are corrected, materialweaknesses with the OCFO/NFC internal controlstructure will continue. Other material weaknessesnoted during our audit are described below.

• OCFO has not performed adequate evaluations orrisk assessments to address the changing financialmanagement environment at OCFO/NFC with theimplementation of FFIS.

• The integrity of the data in FFIS could be at risk dueto the need to strengthen reconciliations of data fromthe feeder systems to FFIS.

• OCFO has not yet been able to properly reconcile theFund Balance with Treasury general ledger accountsto those amounts reported by Treasury.

• OCFO had not adequately limited access granted toNFC’s users or appropriately segregatedincompatible duties in FFIS.

• OCFO continues to experience significant problemswith the reconciliation of suspense activity, both intimeliness and in properly clearing amounts from thesuspense accounts.

We made a number of recommendations to addressthese weaknesses, including that OCFO shouldestablish a “corporate level” approach to performing riskassessments of its operations following the TreadwayCommission’s “Model Framework” process.

Guaranteed Rural Rental Housing Loan ProgramHas Not Met Its Objective

The objective of the Guaranteed Rural Rental HousingProgram (GRRHP) is to increase the supply of decent,safe, and sanitary housing available to low- andmoderate-income residents in rural areas. Guaranteeauthority steadily increased from $13 million in FY 1996to $100 million in FY 2000. For the first 4 years,aggregate guarantee authority was $153 million, whichwas to be used to finance 106 projects with 4,866 rentalunits.

GRRHP has not achieved the success that RHSreported to Congress and OMB in annual budgetjustifications and Government Performance and ResultsAct of 1993 (GPRA) reports. Each year the RuralHousing Service (RHS) requested substantial increasesin GRRHP guarantee authority based on the number ofrental units for which guarantee authority was obligated,rather than the actual number of rental units built andfinanced. In April 1998, RHS reported to OMB thatGRRHP had produced 1,183 rental units. In subsequentappropriation requests to Congress for FY 1999 toFY 2001, RHS stated that GRRHP has great potentialand had been tremendously successful in its first3 years of operation. Further, from FY 1998 to FY 2000,RHS reported in its GPRA reports that RuralDevelopment had actually built 6,545 rental units.However, we found that as of August 8, 2000, GRRHPhad built and financed only 222 (4.6 percent) of the4,866 rental units reported for FYs 1996 through 1999.GRRHP has not met its objective.

We recommend that RHS (1) develop procedures toaccurately report in budget requests and GPRA reportsthe actual status of loan activity including the number ofloans guaranteed and units constructed and (2) workwith the stakeholders to determine if there is a need for

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GRRHP under its current structure. RHS should alsoperform a comprehensive evaluation of the program todetermine if it is feasible to improve its marketability,and develop accurate data of the units actually built andfinanced, to justify future budget requests. RHS eitheragreed with or proposed acceptable alternatives to thereport’s recommendations.

RHS Needs To Improve GPRA Reporting

In response to a congressional request, we initiated anongoing examination of agencies’ activities pursuant toGPRA. This period, we began a review of theimplementation of GPRA within FSA, and, as part of anaudit of the Guaranteed Rural Rental Housing Program,we compiled actual performance data and comparedthis with RHS’ GPRA reporting. As discussed above,significant variances were identified.

During this reporting period, we began an ongoingreview of FSA to (1) evaluate the system of controlsover GPRA performance reporting and to assess thevalidity and verifiability of reported performancemeasurement data and (2) evaluate the linkage of long-term (strategic) goals to annual performance goals andindicators.

FSIS Antideficiency Act Violations and StaffingDeficiencies

At the request of Congress, OIG reviewed the adequacyof FSIS financial and project management, specificallyto determine the impact of recent inspector shortagesand why Antideficiency Act violations occurred over thelast 2 years. We found that meat and poultry inspectorshortages occurred because FSIS does not have amethod of estimating staffing needs based uponmeaningful criteria; consequently, we were unable todetermine the actual shortfalls. The Antideficiency Actviolations occurred because of weaknesses in theagency’s accounting system, as well as the lack ofcompensating controls at operating levels to preclude ordetect, in a timely manner, these violations.

We recommended that FSIS develop procedures basedon applicable criteria to estimate inspector staffingneeds nationally and seek sufficient funding to fill thosepositions. We also recommended that FSIS (1) inconsultation with OCFO correct the problems that haveaffected the proper allocation of costs, (2) develop andimplement a process to timely reconcile the

discrepancies with Treasury, and (3) immediatelyresearch and correct the unsupported amounts cited.

PCMS Internal Controls Need Further Enhancement

Our review of a statistical sample of credit card andconvenience check transactions in the Department’sPurchase Card Management System (PCMS) disclosedno material problems with the transactions tested.However, while Departmental Administration hadestablished sufficient internal controls for transactions,we found implementation of these controls by theagencies needed strengthening. Of particular concernwas the lack of implementation of oversight tools toidentify suspicious transactions in PCMS by theagencies. We noted evidence whereby employeesexceeded their procurement authority by splittingpurchase transactions made to the same vendor intomultiple transactions.

We also found that two agencies had used thePurchase Card Program to improperly fund andestablish imprest funds without the Department’sapproval. Further, departmental policy and regulationsallow the use of purchase card and convenience checksfor disaster, indemnity, and other program payments;however, we believe this practice exposed theDepartment to inherent internal control risk and financialrisk. We estimate that two agencies made over$64.4 million in indemnity and disaster paymentsbetween October 1, 1998, and February 29, 2000. Wefurther found that a large number of employee spotawards and emergency salary advances paid withconvenience checks through the card program were notproperly accounted for through the Department’spersonnel/payroll system.

Among our recommendations was that the PurchaseCard Program be discontinued as an allowable methodto disburse program benefits to participants unless acomprehensive risk assessment is performed. OCFOgenerally agreed with our recommendations.

FS Needs To Improve Program, Financial, LegalIntegrity in Enterprise Program

The FS enterprise concept is intended to improvemanagement efficiencies through the use ofindependent, self-sufficient internal business units. TheFS Pacific Southwest Region developed the EnterpriseProgram and established it as a new activity within the

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FS Working Capital Fund. The FS Washington officeplanned to expand the program nationwide if theconcept was successful. As of September 30, 2000, 19approved enterprise units were generating grossrevenues of over $12 million.

A number of weaknesses in critical areas need to beaddressed before expanding the program. FS does nothave a system or the information to determine if theprogram is fulfilling its objective of improving theeffectiveness, efficiency, and accountability of FSprograms. Moreover, FS does not have a reliableaccounting system that can provide accurate and timelyfinancial statements to the Enterprise DevelopmentBank and enterprise units, nor does it have guidelinesfor limiting losses and terminating enterprises that arenot financially viable. The Enterprise Development Bankhas not maintained sufficient cash reserves to absorbfinancial losses resulting from enterprise failures.According to the Development Bank, 7 of the 19enterprises in the Pacific Southwest Region showed netlosses as of September 30, 2000.

FS generally concurred with OIG’s recommendationsand has made a commitment not to fully expand theprogram nationally until it adequately addresses all ofOIG’s concerns and recommendations.

INVESTIGATIVE WORK TO STEMFINANCIAL CRIME

Corporate Officers Get Prison Terms for $5.6 MillionContract Fraud

As previously reported, a Philadelphia corporation, itspresident, and vice president were indicted for contractfraud involving a $4.5 million renovation project at anAgricultural Research Service (ARS) research station inPennsylvania. The corporation also defrauded the U.S.

Navy on a $1.1 million renovation project. Thecorporation failed to pay subcontractors, resulting inconstruction delays. The president of the corporationpled guilty to the charges in July 2000. During thisreporting period, the vice president and corporationwere found guilty by trial in the Eastern District ofPennsylvania. The president and vice president havenow been sentenced to 12 and 33 months in prison,respectively. The officers and the corporation wereordered to pay nearly $2 million in restitution. Otheragencies that worked jointly on this investigationincluded the Naval Criminal Investigative Service, theSmall Business Administration OIG, and theDepartment of Labor OIG.

Former Housing Manager Pleads Guilty toEmbezzlement and Repays $64,350

The former project manager of a Wisconsin USDA-funded housing project was sentenced to 12 months’imprisonment, 3 years’ supervised release, and 300hours of community service, and ordered to pay$64,350 in restitution to the housing complex andUSDA. The former manager pled guilty to onemisdemeanor and two felony counts of theft/embezzlement for having embezzled approximately$64,350 from housing complex bank accounts from1990 to 1997. The housing complex received financingfrom Rural Development for 20 housing units for theelderly.

Former East Texas School Superintendent PleadsGuilty to Stealing

A former school superintendent in Fruitvale, Texas, pledguilty in Federal court to stealing from a federally fundedprogram. He embezzled more than $187,000 from theschool district he supervised, of which over $38,000came from the National School Lunch Program. Theinvestigation was worked jointly with the TexasEducation Agency and the Van Zandt County DistrictAttorney’s Office.

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Abuse of USDA Programs and Operations

PUBLIC CORRUPTION

Former AMS Inspector Sentenced for AcceptingBribes

In St. Louis, Missouri, a former Agricultural MarketingService (AMS) produce inspector with nearly 20 yearsof service pled guilty to accepting a bribe during theofficial conduct of his duties. The man was sentenced to4 months of monitored home confinement, 3 years’probation, and a $2,000 fine. For 15 years, the AMSInspector, in his official capacity, accepted bribes frompersons connected to the produce business in St. Louisin exchange for his intentional downgrading of produce.With the guilty plea, the man admitted accepting cashpayments and other things of value from personsassociated with several large produce brokerage firms.Two other produce company owners and two producebuyers subsequently pled guilty to felony chargesrelated to mail fraud and bribery. Eight other individualswho were involved in a peripheral capacity haveentered the Federal pretrial diversion program. All havereceived sentences of probation, home confinement,and/or fines. The investigation continues in concert withthe Defense Criminal Investigative Service, the FBI, andthe U.S. Postal Inspection Service. This case was oneof a number of public corruption investigations over thepast 6 months; they resulted in 11 convictions of currentor former USDA employees and 33 personnel actions.

WORKPLACE VIOLENCE

NRCS Employee Sentenced for PossessingBomb-Making Equipment

A search warrant executed at the residence of an NRCSemployee by Alcohol, Tobacco, and Firearms (ATF)special agents revealed 58 pipe bombs, bomb-makingmaterial, a firearm silencer, and a landmine. At therequest of the U.S. attorney’s office, OIG was called into assist ATF with the investigation. The resulting jointinvestigation included extracting data from theemployee’s Government computer and searching foradditional explosive devices at the workplace withspecialized bomb-sniffing dogs. The employee pledguilty to possessing destructive devices (pipe bombs)and was sentenced to 6 months’ home detention,3 years’ probation, a $1,500 fine, and a $100 specialassessment fee.

Workplace Violence Coordinator Guilty ofPossessing Dangerous Weapon

In June 2001, an ARS employee went to the OIG officein Maryland to be interviewed regarding aggressiveactions he had taken in the workplace. The employee, aworkplace violence coordinator himself, was onadministrative leave pending an OIG investigation of hisactions. When he entered the USDA facility for theinterview, the employee was found to possess a buckknife with a 4-inch blade and a pepper spray container.OIG agents arrested him 2 days later on a Federalwarrant charging him with possessing a dangerousweapon in a Federal facility. A court hearing was held inJuly, and the employee was released on bail under thecondition that he relinquish all weapons in hispossession to OIG. A search of his home revealed62 weapons, including assault rifles, riot shotguns, andsemiautomatic handguns. The employee was convictedin Federal court and has been sentenced to 2 years’probation, directed to participate in a mental healthprogram, ordered not to enter any USDA facility orpossess firearms while under probation, fined $500, andordered to pay a $25 special assessment fee.

Weapons relinquished by USDA employee, himself a workplaceviolence coordinator. OIG photo.

Men Arrested Following Assault on FS Agent

One man is awaiting sentencing following an OIGinvestigation into an assault on FS law enforcementpersonnel during a drug investigation. After a lengthysurveillance by FS agents and county law enforcementpersonnel of a methamphetamine lab operation in theMark Twain National Forest in southern Missouri, threesubjects attempted to elude capture once a law

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enforcement presence was announced. As the mainsubject fled, he fired a 9mm pistol at law enforcementpersonnel and an FS special agent. The three werequickly apprehended and arrested. The main subjectwas charged with manufacturing methamphetamine,discharging a firearm during a drug trafficking crime,and assault on a Federal officer. He subsequently pledguilty to two counts and is scheduled for sentencing inDecember 2001.

FARM PROGRAMS

Three Thieves Sentenced to Long Jail Terms forVictimizing Farmers; $600,000 in Stolen PropertyRecovered

In August 2001, 12 members of an organized groupwere arrested in the Dayton, Ohio, area for theirparticipation in a conspiracy to steal farm equipmentand other items from farmers in Ohio, Kentucky, andIndiana. Three of the gang members have recentlybeen sentenced to jail terms of 9 years, 6 years, and2 years. Beginning in July 2000, OIG and othermembers of the Ohio Organized Crime InvestigationsCommission Task Force 00-3, Dayton, infiltrated thecriminal organization. The investigation found that thecriminal organization was responsible for over $5 millionin farm-related thefts. The task force has recovered over$600,000 worth of the stolen property.

During undercover conversations, one subject of thecriminal organization boasted that he targeted farmsand rural communities because he knew that there arefewer law enforcement officers in rural communities andthat farmers rarely secure their property. The subjectfurther boasted, “A man’s home is his castle, but hisbarns are mine.” OIG positively identified 30 farmsparticipating in FSA programs that this criminalorganization victimized in 12 counties in Ohio, 5counties in Indiana, and 1 county in Kentucky. Propertystolen included tractors, automobiles, generators, tools,weapons, and all-terrain vehicles. Much of the stolenproperty was collateral for farm-owned property oroperating loans and/or business and industry loans. It isanticipated that additional FSA farm victims will beidentified, with a number of additional subjects to beindicted and arrested in the near future.

The task force consists of agents and officers from OIG;the Montgomery County, Ohio, Sheriff’s Office; the

Centerville, Ohio, Police Department; the Miamisburg,Ohio, Police Department; the Moraine, Ohio, PoliceDepartment; the Dayton, Ohio, Police Department; theNational Insurance Crime Bureau; and the FBI.Numerous other law enforcement agencies supportedthe task force.

Louisiana Businessman Sentenced in ‘Check-Kiting’ Scheme

A Louisiana man who owns several farms, a cotton gin,and a cotton shipping company was sentenced inFederal court to 41 months in prison and ordered to payrestitution of more than $3 million. As previouslyreported, the businessman “kited” hundreds of checksrelating to his cotton shipping business between his

Another piece of equipment to be returned to the farmer from whom itwas stolen by an organized theft ring. OIG photo.

Some of the $600,000 worth of stolen property recovered aroundDayton, Ohio. OIG photo.

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checking accounts at two Louisiana banks fromNovember 1998 through August 1999. During 3 days inAugust 1999, the businessman deposited checkstotaling more than $5.5 million for which there wereinsufficient funds. After the check-kiting scheme wasdiscovered, he repacked nearly 1,000 bales of 1998cotton and falsely identified it as cotton he grew in 1999.He received over $216,000 from CCC in commodityloans and payments on the repacked cotton. Thisinvestigation was worked jointly with the FBI.

Five Plead Guilty in $2 Million False WeightCertificate Scheme

Six subjects were charged in Federal court in aconspiracy to issue false weight certificates in excess of$2 million for grain that was never delivered, but insteadused to defraud a grain company. The indictmentcharged them with conspiracy, issuance of false graininspection and weight certificates, and filing falseincome tax returns. Five of the six subjects have pledguilty. One of the subjects was a former NRCSemployee in Arkansas. This investigation wasconducted jointly with the Arkansas State Police;Phillips County, Arkansas, Sheriff’s Office; and IRS CI.

Attempt To Hide Assets Backfires Against WyomingCouple

A Federal court issued a default judgment of more than$380,900 against a Wyoming couple for making falsestatements to FSA concerning their financial status inorder to influence a debt settlement offer. The coupleconducted their farming business under a corporationname to conceal their true assets and income fromFSA.

Individual Convicted of Unauthorized Disposition ofMortgaged Property

A farmer in Greenville, Kentucky, converted to his ownuse nearly $248,700 worth of corn and soybeans, whichwas pledged as collateral to CCC pursuant to a farmstorage agreement. The farmer pled guilty to one countof unauthorized disposition of mortgaged property andwas sentenced to 5 years’ probation and ordered to pay$30,230 in restitution. The remaining funds due USDAwill be collected through a wage garnishmentmechanism already in place.

Disaster Assistance Programs

• Unsupported Claim in Texas —For 1998 cropinsurance losses, producers were generally eligibleto receive both crop insurance indemnities throughthe Risk Management Agency (RMA) and disasterassistance program payments through FSA. FSAwas to refer suspected cases of program abuse toRMA for review and for correction of anycorresponding crop insurance information. We testedthe effectiveness of this dual program delivery inTexas and concluded that the two agencieseffectively resolved differences in production. In oneinstance they did not. Two producers were overpaidabout $56,000 in indemnities because their claimwas based on unsupported information and improperloss adjustment procedures. RMA agreed to recoverthe overpayment from the insurance company.

• Uncorrected Data —FSA and RMA programmanagers did not promptly share corrections made torecords common to the crop insurance and disasterprograms. FSA approved over $19 million in CropDisaster Program (CDP) applications for watermelonand nonirrigated corn based on indemnities known byRMA to be excessive. Another $1 million in 1999 and1998 disaster payments were made based onindemnities RMA corrected after the disasterprogram payments were issued. We recommendedFSA and RMA implement interagency procedures to(1) identify RMA program design flaws that result inexcessive indemnities and (2) exchange data whenreviews identify payment errors.

• Planned Audits of Farm Assistance Programs —As a result of our preliminary review of the farmassistance programs authorized under theAgriculture, Rural Development, Food and DrugAdministration, and Related Agencies AppropriationsAct of 2001, we will review in depth (1) the QualityLoss Program for all crops, as well as apples andpotatoes, (2) CDP in Florida, and (3) countycommittee changes to RMA data.

Payment Limitation Determinations for MajorityStockholders Were Not Correct

FSA procedures require a stockholder owning morethan 50 percent of a corporation (majority stockholder)to be combined with the corporation as one “person” for

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payment limitation purposes. Nationwide, we identified68,425 corporations with majority stockholders for 1998and 1999 (some duplication, because they are countedseparately each year). We found 24,946 (about36 percent) were not combined in FSA’s automatedsystem, because either the FSA county committees didnot properly combine the corporations with their majoritystockholders or county office employees did notcorrectly enter “person” determination data into theautomated system.

CROP INSURANCE

Producer Inappropriately Allowed To Participate inthe Crop Insurance Program

RMA issues written agreements to producers forobtaining crop insurance on insurable crops whencoverage or rates are unavailable in the county wherethe crop is to be grown. For the 1999 crop year, RMAapproved 198 written agreements in Texas coveringcounties without an actuarial table for the applicablecrop with 58 producers accepting agreements. Wereviewed the five largest claims, of eight paid, whichtotaled about $2.1 million, and determined that a fatherand son significantly overstated self-certified productiondata as a means to illustrate they had an actuariallysound production history. Based on the misrepresentedproduction, RMA improperly issued written agreementsto farm potatoes for the 1999 crop year, which in turnresulted in the father and son collecting improper croploss indemnities totaling almost $1.5 million. Werecommended that RMA take administrative action torecover the crop insurance indemnities and pursue anyother appropriate civil remedies.

Texas Watermelon Claims Were Not ProperlyAdjusted

In August 1998, FCIC approved a watermelon pilot cropinsurance program for the 1999 through 2001 cropyears for 15 counties in 7 States. However, inSeptember 1999, RMA suspended the pilot program forthe 2000 crop year to make it more market neutral. Wejudgmentally reviewed 13 of the 80 policies in Texasthat received indemnities, involving 11 producers whofiled 18 claims totaling about $20 million. Wequestioned payments totaling $1.5 million on five claimsfiled by three producers because crop insuranceeligibility requirements had not been met. We

recommended that RMA collect the $1.5 million inoverpayments.

North Texas Crop Adjuster, 3 Producers PleadGuilty to Crop Insurance Fraud

A former crop insurance adjuster pled guilty tosubmitting false claims to RMA for 1999 multiple perilcrop insurance loss claims paid to six producers totalingnearly $719,000. None planted the crops, but claimedlosses on their insurance. Three producers have pledguilty to this fraud, and criminal action is pendingagainst the other three. This investigation wasconducted with the assistance of the RMA ComplianceOffice.

Elevator and Manager Plead Guilty to MisgradingWheat

A North Dakota elevator manager pled guilty in U.S.District Court to conspiring to defraud RMA bymisgrading 169,692 bushels of durum wheat so thatproducers could qualify for over $500,000 in paymentsto which they were not entitled under their CropRevenue Coverage. The manager was sentenced toserve 2 years’ probation. The elevator company hasentered into a pretrial diversion agreement whereby itwill be audited every 6 months for 18 months and willpay over $14,000 to USDA as reimbursement for thecost of the OIG investigation. More charges are pendingagainst the numerous producers involved in thescheme.

Two Plead Guilty Following Third Day of Trial

During a criminal trial in Federal court, a Minnesotafarmer pled guilty to making false statements and falseclaims regarding crop insurance. He and his motheralso pled guilty to mail fraud in a related scam todeprive lenders of their security interest in crops. TheGovernment proved that the farmer directed thepresident of a processing company, which processesone-third of the Nation’s kidney beans, to create falsedocuments and provide them to an insurance adjusterin support of phony crop insurance claims. The farmerand his mother agreed to pay restitution to RMA of morethan $100,300. The farmer and his mother also soldover $200,000 in grain under another family member’sname during a 4-year period in order to defraud aprivate lender of its security interest in crops.

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Insurance Agent Indicted for False InsuranceClaims, Brother Guilty of Theft

Two Kentucky brothers, one a tobacco farmer and cropinsurance agent and the other a tobacco farmer, wereinvestigated for submitting false statements to RMA inorder to receive indemnity payments for which theywere not entitled. The insurance agent/farmer wasindicted and is awaiting trial on two counts of falsestatements resulting in $58,670 of unentitled indemnitypayments. The other farmer pled guilty to one count oftheft of Government property, involving unlawful receiptof crop proceeds from RMA, because of incorrectlyreporting production for his farm. He was sentenced to2 years’ probation, restitution of $15,880, and avoluntary 1-year exclusion from the Federal cropinsurance program.

Insurance Agent Pays Civil Fine

The owner of one of the country’s largest cropinsurance agencies paid $260,000 as part of a civilsettlement following charges that he filed, and assistedothers to file, false claims for crop insurance indemnitypayments. In 1996 and 1997, the insurance agent filed,and caused others to file, false prevented planting andreplant claims.

NUTRITION PROGRAMS

Enhanced Funding Proper

We reviewed the quality control (QC) process for theFood Stamp Program (FSP) in the Food and NutritionService’s (FNS) Southwest Region to determinewhether the region properly granted enhanced fundingto Texas and Arkansas in FY 1999. The QC error weidentified in Arkansas resulted only in an immaterialincrease (.02 percent) in the payment error rate.Therefore, we concluded the two States were entitled tothe $32 million in enhanced funding received. Werecommended Arkansas be informed of the minorincrease in the payment error rate, which was done.

Inaccurate FSP Administrative Costs Claimed byState of Washington

The Department of Social Health Services (DSHS)administers FSP in the State of Washington. For FYs1998 and 1999, we questioned $4.4 million of the

administrative costs claimed by DSHS for fraudinvestigations, the State attorney general, and indirectcosts. USDA reimbursed the State for about 50 percentof these costs, or $2.2 million. FNS agreed to recoverfrom DSHS a total of about $2.2 million.

Operation Talon Arrests Continue To Climb

Operation Talon was designed and implemented byOIG to locate and apprehend fugitives, including violentoffenders, who are current or former food stamprecipients. As of September 30, 2001, Operation Talonhad resulted in 7,894 arrests of fugitive felons duringjoint OIG, Federal, State, and local law enforcementoperations throughout the country. On the Federal level,we are working with the U.S. Marshals Service toapprehend Federal fugitives. Serious crimesperpetrated by those arrested include homicide-relatedoffenses (murder, attempted murder, manslaughter),sex offenses (child molestation, rape, attempted rape),kidnapping/abduction, assault, robbery, and drug/narcotics violations.

Bank Pays $100,000 Settlement for MishandlingFood Stamp Redemptions

A major bank in California paid $100,000 in settlementof a civil suit filed as a result of the improper handling ofdeposited food stamps and redemption certificates. Ourinvestigation determined that bank personnel altered 10redemption certificates used by 5 Los Angelesmetropolitan area authorized retailers to deposit foodstamps. Besides the monetary settlement, the bankissued a detailed internal bank procedure outlining theappropriate manner in which food stamps and theirattendant documentation are to be handled by bankofficials and employees.

Management Companies Profit at Expense ofSchools’ Food Service Programs

FNS permits school food authorities (SFA) to contractwith food service management companies to operatetheir nonprofit food service operations under theNational School Lunch Program (NSLP) and the SchoolBreakfast Program (SBP). Our nationwide audit ofmanagement company operations found problems inMichigan, Illinois, and Missouri. In Michigan, themanagement company improperly received andretained benefits through purchase discounts valued atalmost $237,000 during school years 1998 through

22

2000. This company is now under OIG investigation. InIllinois, the management company failed to creditschools with the value of donated commodities itreceived and used for the schools’ NSLP and SBPoperations. For school years 1993 through 1998, thiscompany retained over $2.9 million that should havebeen passed along to the schools. This managementcompany is also under OIG investigation. In Missouri,one SFA did not maintain a nonprofit school foodprogram, did not properly identify school food programmonies, and permitted the company to control the cashcollections from meals and reimbursements, which isprohibited by Federal regulations. The school could notbe assured the food service programs benefited fromthe $756,000 it received in annual checks from thecompany, in excess of their payments to the company,for school years 1998 through 2000.

Food Wholesaler Settles Qui Tam Lawsuit

A large food service provider agreed to pay $325,000 inorder to settle a qui tam (the private party filing onbehalf of the Government shares in the recovery)lawsuit brought in regard to NSLP claims, filed inFederal court in New Mexico. The Governmentsubsequently joined the private suit, and the U.S.attorney’s office asked that we conduct a fullinvestigation of this matter. Allegedly, the firm haddefrauded NSLP by submitting inflated claims to schooldistricts for operating costs of employee-relatedexpenses and insurance costs.

NATURAL RESOURCES AND ENVIRONMENT

FS and NRCS Controls for Grants and AgreementsNeed Improvement

FS and NRCS unnecessarily advanced almost$3 million to the National Fish and Wildlife Foundation(NFWF), a private nonprofit organization established byCongress, and incurred an interest cost of almost$66,000. FS and NRCS did not use specifiedadministrative controls, such as requiring NFWF tosubmit forms that report award advances. Contrary toregulations, NRCS advanced almost $3 million in 2000before needed by the recipient. The agencies also didnot ensure that $279,000 in interest earned by NFWFon fund advances from one NRCS and three FSagreements would be used for program purposes.

CCSP Needs Improvement

We found that FS had not clearly defined the ChallengeCost Share Program (CCSP) or instituted adequatemanagement controls over it. CCSP makes awards tooutside parties for the completion of planned projects.FS was unable to provide information on 5,210(92 percent) of the CCSP agreements funded inFY 1999. Further, FS was unable to adequately accountfor the activities of CCSP and was unable to determinehow much of the $35.8 million budgeted for FY 1999was expended. We recommended that FS developregulations containing guidelines and controls forCCSP, implement procedures to capture expenditures,apply existing regulations on cooperative agreements toCCSP agreements, and track CCSP agreements in itsexisting systems.

FS Paid $1.1 Million in Excess of Appraised Valuefor a Conservation Easement

The Forest Legacy Program, through the use ofconservation easements and other mechanisms, isintended to protect environmentally important forestareas that are threatened by conversion to nonforestuses. The State of Vermont used Federal funds to pay$1.1 million in excess of appraised value for aconservation easement. We recommended FS recoverfrom Vermont the $1.1 million in excess of the appraisalconducted in accordance with Federal appraisalstandards.

FS Improperly Uses Cooperative Agreements ToSell Timber

FS’ Northeastern Forest Experiment Station improperlyused cooperative agreements to sell timber, resulting inan unauthorized retention of $2 million and failure topay West Virginia $342,000. FS incorrectly determinedthat the McSeeney-McNair Act of May 22, 1922,allowed the agency to use cooperative agreements andretain the proceeds collected from the sale of harvestedtimber. However, the Forest and Rangeland RenewableResources Act of June 30, 1978, repealed this Act. FSmay have violated laws prohibiting the augmentation ofappropriations by retaining approximately $2 million oftimber proceeds during the period FY 1988 to FY 1999.

We recommended the FS experiment station award andadminister timber sales for the station through theMonongahela National Forest, and return to the

23

Treasury $2 million for timber sale proceeds that hadbeen retained by the station for salaries and expenses.

FS Continues To Improve Controls Over LandExchanges

As reported previously, OIG has taken a proactive rolein monitoring FS’ efforts to improve controls over itsland exchange activities in response to congressionaland Secretarial concerns. FS has also taken an activerole in implementing nationwide controls to correctdeficiencies in its land exchange activities. However,some problems persist. During this period, OIGcompleted a review of 10 land transactions at theSiuslaw National Forest (Oregon) in Region 6. Thereview concluded that the land staffs for the forest andregion did not effectively analyze the feasibility of aproposed $1.6 million land exchange. Land staffpersonnel were not familiar with the objectives of theForest Plan. In other areas, FS has made significantprogress. OIG observed the effectiveness of the FSNational Landownership Adjustment Team reviews inRegions 1 and 3, and participated in regional landstraining workshops held by the FS Washington Office todiscuss the newly established controls.

Mishandled Exchange Previously Reported by OIGIs Resolved

As reported previously, during one land exchange atLake Tahoe, FS failed to obtain clear title to a$38 million property at Zephyr Cove, on the Nevadaside of the lake. As a result, a third party fenced off theproperty, restricted public access to it, and planned todevelop an upscale bed and breakfast lodging for itsprivate clients with continuing restriction for the generalpublic during most of the summer months. OIGrecommended that FS take action to assume fullownership control of the property from the third party toensure the public had unfettered access to it and couldenjoy its unique recreational setting.

On June 15, 2001, FS announced that it had boughtout the third party and regained full control of theproperty. FS plans to tear down the fences and unlockthe gates to ensure full and complete public access.FS also plans to involve the public in discussions ofthe future use of the property’s structures.

RURAL DEVELOPMENT

RRH Insurance Expenses Were Excessive

Four of five management companies we reviewed inMississippi had charged the Rural Rental Housing(RRH) projects they managed excessive andquestionable costs totaling over $595,000 forinsurance. In some of these cases, the managementagents had close relationships with the insurancevendors and provided them excessive policy fees thatwere inconsistent with the management agents’fiduciary responsibility to limit the expenses of theprojects to what was actual, reasonable, andnecessary. In other cases, management agentsexercised poor internal controls over project funds.The Mississippi Rural Development State office policythat the management fee include administrative costs,such as workers’ compensation, was inconsistentlyapplied by servicing officials and circumvented bythree management companies.

Sandy cove on the Zephyr Cove property. Previously, a third partyhad discouraged public access to this site. Recent FS actions havereturned this property to the public domain. OIG photo.

24

Because of the significant dollar value and theerroneous reporting, we referred one managementcompany for investigation. RHS agreed to the findingsand recommendations. RHS should ensure thatunallowable expenses are recovered and internalcontrols are strengthened to address the reporteddeficiencies.

Virginia Offices Did Not Perform RequiredManagement Control Procedures

The Virginia Rural Development State office and itsarea offices did not complete required managementcontrol reviews over RRH borrower operations. Ouraudit found that such management reviews wereneeded, as management companies were not properlyhandling tenant income certifications. Further, the Stateoffice did not conduct required State internal reviews forfour of its five area offices. State officials stated thatbudgetary constraints prevented the required level ofreviews being performed. State officials were not awarethat two area offices did not perform the requiredsupervisory visits at each RRH project. RuralDevelopment has agreed to take actions to correct thedeficiencies noted.

Montana Bank Returns Over $3.3 Million in LoanGuarantees

Following an OIG investigation, a Montana bankreturned three loan note guarantees to the RuralBusiness-Cooperative Service (RBS) that resulted in adirect savings to the Government of nearly $2.7 million.Our investigation showed that RBS issued the loan noteguarantees to the bank for Business and Industry loansthat were made to a local business. However, at theloan closing, the bank failed to inform RBS that the localbusiness had lost over half of its customer base andhad a large product recall before issuance of theguarantees. Less than 2 weeks after the guaranteeswere issued, the bank sent the loans to its specialcollections division, and the company was no longer inbusiness. According to RBS employees, the loanswould not have been guaranteed if they had beenaware of the true financial situation of the business.

Misuse and Mismanagement of Grant Funds byWECC

The Williamsburg Enterprise Community Commission,Inc. (WECC), is the lead entity for the WilliamsburgEnterprise Community, consisting of six census tracts inWilliamsburg County and one in Florence County, SouthCarolina. WECC was part of phase I of theEmpowerment Zone/Enterprise Community (EZ/EC)program, which at that time was primarily fundedthrough the U.S. Department of Health and HumanServices’ block grants, with program monitoringprovided by Rural Development. In response to arequest for assistance from the Rural DevelopmentState office, we found that WECC expended almost$222,000 on administrative expenses, although thefunds were intended for specific program projects. Aformer WECC official in written requests for block grantsfunds incorrectly stated that the funds would be used toimplement program projects.

WECC officials used almost $14,000 in block grants forunallowable expenses, such as entertainment, gifts, andunauthorized travel, and either lost or misfiled about$169,000 in financial documents that secured loans andsupported expenditures. WECC did not adequatelyadminister its grant programs for housing rehabilitationand repair, as well as community projects, and its loanprogram for business startups.

We recommended that Rural Development work withSouth Carolina to determine a resolution to themisdirected funds and recover all improper costs.Further, Rural Development should require WECC toenhance its management controls by updating itsmonitoring of the status of program performance,procedures for securing financial records, andexpenditure of Federal funds. We have reachedagreement on all recommendations in the report.

25

Statistical Data

FNS 03/14/01 1. CACFP Initiative - 13,163 9,567FY 2000 (27601-8-Te)

FSA 10/03/00 2. Jackson County, AR, 8,562,338 33,667FSA Office Operations(03006-18-Te)

Multiagency 01/02/01 3. Review of Controls Over 0 0Selected USDA AdministrativeSystems and Related Payments -Phase II (50099-19-FM)

02/26/01 4. Audit of the FY 2000 0 0Consolidated FinancialStatements (50401-39-FM)

OCIO 03/30/01 5. Security Over USDA IT 0 0Resources NeedsImprovement (50099-27-FM)

RBS 03/28/01 6 Northeast LA Delta Community 228,390 15,732Dev. Corp. Rural EnterpriseCommunity Loans and Grants,Madison Parish, LA (34099-4-Te)

RHS 12/18/00 7. RRH Program Insurance 924,751 924,751Expenses, MS (04801-6-KC)

RMA 02/28/01 8. FY 2000 FCIC Financial 0 0Statements (05401-1-Hq)

03/12/01 9. RMA/FCIC FY 2000 0 0Financial StatementsReport on Management Issues(05401-2-Hq)

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 an audit is pending judicial, legal, or investigativeproceedings 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)

26

03/14/01 10. Crop Insurance for 2,254,014 2,254,014Specialty Crops(05601-4-At)

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 11. Audit of J.A. Jones 160,233 160,233Management Services,CYs 1994 and 1995(02017-4-AT)

CCC 07/13/00 12. Audit of CCC 529,150,596 0Financial Statementsfor FY 1999 (06401-11-FM)

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)

03/31/98 18. National Research Initiative 32,757,862 32,757,862Competitive Grants Program(13601-1-At)

Amount WithTotal Value No Mgmt.at Issuance Decision

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

27

Amount WithTotal Value No Mgmt.at Issuance Decision

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

FNS 03/22/00 19. CACFP – National Initiative 319,279 0To Identify Problem Sponsors -Wildwood (27010-3-KC)

FS 03/31/97 20. Research Cooperative and 468,547 468,547Cost Reimbursable Agreements(08601-18-SF)

09/24/98 21. Assistance Agreements 7,098,026 200,795to Nonprofit Organizations(08801-2-Te)

FSA 09/30/93 22. Disaster Program, 5,273,795 1,482,759Nonprogram Crops, MitchellCounty, GA (03097-2-At)

09/19/95 23. Management of the 75,175,410 909,437Dade County, FL, FSAOffice (03006-1-At)

09/28/95 24. Disaster Assistance 1,805,828 1,672,929Payments, Lauderdale, TN(03006-4-At)

01/02/96 25. 1993 Crop Disaster 2,469,829 2,393,241Payments Brooks/Jim Hogg, TX (03006-1-Te)

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

09/30/96 27. 1994 Disaster Assistance 2,666,383 1,690,606Program, ME (03601-1-Hy)

09/30/98 28. Wool and Mohair Payment 2,432,112 2,432,112Limitation, Val VerdeCounty, TX (03099-20-Te)

03/30/99 29. Payment Limitation - Mitchell 881,924 881,924County, GA (03006-20-At)

08/22/00 30. LaFlore County FSA 228,764 228,764Office Disaster Programs(03006-20-Te)*

28

Amount WithTotal Value No Mgmt.at Issuance Decision

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

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)

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

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

09/29/99 35. Effective Implementation of 0 0FFIS Will Reduce USDA’sMany Financial ManagementSystem Problems (50801-07-FM)

09/28/00 36. Crop Loss Disaster 10,728,872 1,660,630Assistance Program(50801-3-KC)

NRCS 03/31/00 37. NRCS Contracting, 784,562 473,368Procurement, and DisbursementActivities (10601-1-Te)*

RBS 10/01/99 38. Business and Industry Loan – 595,511 595,511Indiana Farms (34099-3-Ch)

07/11/00 39. Rural Business Enterprise 1,620,256 1,620,256Grant-Vivero Caimito Project(34004-4-Hy)

RHS 08/10/98 40. Self-Help Housing Program – 0 0Grizzly Hollow Project, Galt,CA (04801-2-SF)*

01/08/99 41. RRH Program – Dujardin 195,694 195,694Property Management, Inc.,Everett, WA (04801-5-SF)*

03/25/99 42. Guaranteed Rural Housing 139,220,122 215,030Loan Program (04601-2-At)

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Amount WithTotal Value No Mgmt.at Issuance Decision

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

03/31/99 43. RRH – Nationwide Initiative 233,958 148,442in NE – Bosley Management,Inc., Sheridan, WY (04801-3-KC)*

04/20/99 44. RRH Program – Owner/ 346,685 346,685Manager, Olympia, WA(04801-6-SF)*

05/25/00 45. RRH Nationwide Initiative 4,922,879 483,288in MO, St. Louis, MO(04801-2-KC)

RMA 09/30/97 46. Crop Insurance on Fresh 15,082,744 0Market Tomatoes(05099-1-At)

12/16/98 47. Crop Insurance on 3,963,468 3,963,468Nurseries (05099-2-At)*

03/30/00 48. FY 1999 FCIC Financial 0 0Statements (05401-8-FM)

03/30/00 49. Audit of RMA/FCIC Financial 0 0Statements for FY 1999Report on ManagementIssues (05401-8-FM)

Rural 02/01/99 50. Audit of the FY 1998 9,529,862,000 0Development Rural Development

Financial Statements(50401-28-FM)

30

1. CACFP Initiative – FY 2000, Issued March 14,2001

We found that the sponsor was “seriously deficient” inits administration of the Child and Adult Care FoodProgram (CACFP), and questioned excess mealreimbursements for January 2000 of $13,163. The Stateagency concurred that the sponsor was seriouslydeficient and removed the sponsor from the program;payment of $3,596 of the questioned amount was offsetby the sponsor. We are working with the State agencyto recover the $9,567 balance.

2. Jackson County, Arkansas, FSA OfficeOperations, Issued October 3, 2000

Our joint review with FSA disclosed the FSA countycommittee and office staff allowed producers, generallythose with ties to one large producer, to use farmreconstitutions and improper “planted and consideredplanted” credit to build rice crop acreage bases (CAB).We recommended recovery or adjustment of$8,562,338 in deficiency, disaster, and productionflexibility contract payments and prompt paymentinterest for the 1992 through 2002 program years.During the audit, FSA corrected the improper CAB andyield adjustments for 1998 and future years to precludeabout $5 million in overpayments for 1998-2002.However, because of the apparent involvement ofcounty office personnel in making improper paymentsand because the cost of recovery would likely exceedany recovered amounts, FSA decided collection of prioryears’ (1992-1997) overpayments would not be pursuedunless criminal activity was found. FSA tookadministrative action against several county officepersonnel. To reach management decision, FSA needsto review program and payment eligibility for oneproducer and any related entities.

Audits Without Management Decision - Narrative for New Entries

3. Review of Controls Over Selected USDAAdministrative Systems and RelatedPayments – Phase II, Issued January 2, 2001

To reach management decision on onerecommendation, OCFO needs to strengthen thedevelopment and review of internal controls or providealternative methods to address the weaknesses noted.

4. Audit of the FY 2000 Consolidated FinancialStatements, Issued February 26, 2001

Management decision has not been reached on fourrecommendations. We need to review the detailed time-phased plan (1) to be developed by June 30, 2002, forimplementing the Corporate Administrative Systemstrategy, (2) for correcting the problems with the OCFO/NFC suspense account balances, and (3) for theDepartment to establish processes and systems to meetGovernmentwide cost-accounting requirements,whether single or multiple systems are used. Finally, weneed an estimated date for obtaining approval toconduct the market survey on potential replacements ofthe Property System and to review the plan for itsreplacement.

5. Security Over USDA IT Resources NeedsImprovement, Issued March 30, 2001

For three recommendations, OCIO needs to advise uson how it intends to require that agencies prepare andtest their contingency plans and make necessaryadjustments to plans based on the test results. We alsoneed timeframes for developing and implementing apolicy that requires agencies to implement firewallsbetween their networks and Internet access points.

31

6. Audit of Northeast Louisiana CommunityDevelopment Corporation, lssued March 28,2001

The audit found mismanagement of EC benchmarks,housing program violations, questionable use of ECearmarked loan funds, and potential conflict of interestinvolving a corporate entity. We have reachedmanagement decision on 12 of 13 recommendations.

7. RRH Program Insurance Expenses, MS, IssuedDecember 18, 2000

The review found improper, excessive, and unapprovedinsurance expenses totaling $924,751 charged to RRHprojects by two management companies. We havereached management decision on two of the ninerecommendations. For two others, we need more detailas to how RHS will improve its internal controls toeffectively use the Multifamily Housing InformationSystem database to ensure that insurance expensesare accurate, reasonable, and necessary. For theremaining five, the agency needs to bill themanagement companies.

8. FY 2000 FCIC Financial Statements, IssuedFebruary 28, 2001

We have not achieved management decision on arecommendation that noted RMA did not have adequatecontrols over the insurance companies’ claimsadjudication process. OIG needs RMA’s plans tostrengthen its controls over insurance companies’ claimprocessing.

9. RMA/FCIC FY 2000 Financial Statements Reporton Management Issues, Issued March 12, 2001

Seven recommendations remain without managementdecision, for which we need clarification and details onseveral IT issues and RMA’s reporting processes.

10. Crop Insurance for Specialty Crops, IssuedMarch 14, 2001

The audit disclosed weaknesses in RMA’s and theinsurance companies’ internal controls whichcontributed to improper and incorrect sales and lossadjuster activities for specialty crops. As a result,indemnities totaling $1.1 million were incorrect, and anunsupported $1.1 million was paid to two producers.RMA has not responded to the report and its eightrecommendations.

32

Between April 1 and September 30, 2001, OIGcompleted 269 investigations. We referred 161 cases toFederal, State, and local prosecutors for their decision.

During the reporting period, our investigations led to181 indictments and 172 convictions. The period of timeto obtain court action on an indictment varies widely;therefore, the 172 convictions do not necessarily relateto the 181 indictments. Fines, recoveries/collections,restitutions, claims established, cost avoidance, andadministrative penalties resulting from our investigationstotaled about $28.2 million.

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

Indictments and Convictions

Indictments and ConvictionsApril 1 - September 30, 2001

Agency Indictments Convictions *

AMS 1 12APHIS 2 7ARS 1 3CSREES 1 1FAS 0 1FNS 118 98FS 2 6FSA 28 20FSIS 6 8GIPSA 6 1NRCS 0 3RHS 9 8RMA 7 4

___ ___Totals 181 172

* This category includes pretrial diversions.

33

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 received1,026 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, 2001 (Total = 1,026)

Disposition of ComplaintsApril 1 to September 30, 2001

Figure 1 Figure 2

ParticipantFraud595

Bribery7

Health/Safety

29Opinion/

Information96

EmployeeMisconduct

211

Waste/Mismanagement

88

Referred toFNS for Tracking

223

Referred toUSDA Agencies

for Response470

Referred toState Agency

63

Referred toOther Law

EnforcementAgencies

3

Referred toOIG Audit orInvestigations

for Review59

Filed WithoutReferral-

InsufficientInformation

51

Referred toUSDA or OtherAgencies for Information-

No Response Needed

157

34

Number of FOIA/PA Requests Received 233

Number of FOIA/PA Requests Processed: 212

Number of Requests Granted in Full 110Number of Requests Granted in Part 35Number of Requests Not Granted 46

Reasons for Denial:

No Records Available 22Requests Denied in Full 14Referrals to Other Agencies 16

Requests for OIG Reports From Congressand Other Government Agencies

Received 117Processed 113

Appeals Processed 3

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

Number of OIG Reports/Documents 108Released in Response to Requests

NOTE: A request may involve more than one report.During this 6-month period, 41 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 toSeptember30, 2001

35

INVENTORY OF AUDIT REPORTS ISSUEDWITH QUESTIONED COSTS AND LOANS

DOLLAR VALUES

QUESTIONED UNSUPPORTEDa

NUMBER COSTS AND LOANS COSTS AND LOANS

A. FOR WHICH NO MANAGEMENT 53 $2,456,243,124 $43,023,943DECISION HAD BEEN MADEBY APRIL 1, 2001

B. WHICH WERE ISSUED DURING 24 $27,701,733 $7,805,903THIS REPORTING PERIOD

TOTALS 77 $2,483,944,857 $50,829,846

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

(1) DOLLAR VALUE OFDISALLOWED COSTS

RECOMMENDED FOR RECOVERY $3,974,841 $377,480

NOT RECOMMENDED FOR RECOVERY $453,412

(2) DOLLAR VALUE OF $2,267,156,268COSTS NOT DISALLOWED

D. FOR WHICH NO MANAGEMENT 55 $213,449,337 $50,509,289DECISION HAS BEEN MADE BYTHE END OF THIS REPORTINGPERIOD

REPORTS FOR WHICH NO 33 $186,034,717 $42,703,386MANAGEMENT DECISION WASMADE WITHIN 6 MONTHSOF ISSUANCE

aUnsupported values are included in questioned values.

Appendix I

36

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

NUMBER DOLLAR VALUE

A. FOR WHICH NO MANAGEMENT 25 $1,713,260,644DECISION HAD BEEN MADEBY APRIL 1, 2001

B. WHICH WERE ISSUED DURING 3 $5,749,444THE REPORTING PERIOD

TOTALS 28 $1,719,010,088

C. FOR WHICH A MANAGEMENT 14DECISION WAS MADE DURINGTHE REPORTING PERIOD

(1) DOLLAR VALUE OF $78,552,639DISALLOWED COSTS

(2) DOLLAR VALUE OF $1,479,260,826COSTS NOT DISALLOWED

D. FOR WHICH NO MANAGEMENT 14 $161,239,622DECISION HAS BEEN MADE BYTHE END OF THE REPORTINGPERIOD

REPORTS FOR WHICH NO 13 $161,060,181MANAGEMENT DECISION WASMADE WITHIN 6 MONTHSOF ISSUANCE

Appendix II

37

SUMMARY OF AUDIT REPORTS RELEASEDBETWEEN APRIL 1 AND SEPTEMBER 30, 2001

DURING THE 6-MONTH PERIOD BETWEEN APRIL 1 AND SEPTEMBER 30, 2001, THE OFFICE OF INSPECTORGENERAL ISSUED 58 AUDIT REPORTS, INCLUDING 5 PERFORMED BY OTHERS.

THE FOLLOWING IS A SUMMARY OF THOSE AUDITS BY AGENCY:

QUESTIONED UNSUPPORTEDa FUNDS BEAUDITS COSTS COSTS PUT TO

AGENCY RELEASED AND LOANS AND LOANS BETTER USE

AGRICULTURAL RESEARCH SERVICE 1FARM SERVICE AGENCY 5 $1,235,927RURAL HOUSING SERVICE 6 $841,621 $61,848RISK MANAGEMENT AGENCY 4 $3,096,983COMMODITY CREDIT CORPORATION 1FOREST SERVICE 6 $3,146,566 $1,100,000 $2,600,000RURAL UTILITIES SERVICE 1NATURAL RESOURCES CONSERVATION SERVICE 2 $179,441OFFICE OF THE CHIEF FINANCIAL OFFICER 1FOOD SAFETY AND INSPECTION SERVICE 1NATIONAL AGRICULTURAL STATISTICS SERVICE 1FOOD AND NUTRITION SERVICE 12 $9,318,151 $756,751RURAL BUSINESS-COOPERATIVE SERVICE 4 $8,768,316 $4,715,965MULTIAGENCY 11 $1,294,169 $1,171,339 $2,970,003RURAL DEVELOPMENT 1CHIEF INFORMATION OFFICER 1

TOTALS 58 $27,701,733 $7,805,903 $5,749,444

TOTAL COMPLETED:SINGLE AGENCY AUDIT 47MULTIAGENCY AUDIT 11SINGLE AGENCY EVALUATION 0MULTIAGENCY EVALUATION 0

TOTAL RELEASED NATIONWIDE 58

TOTAL COMPLETED UNDER CONTRACTb 5

TOTAL SINGLE AUDIT ISSUEDc 5

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

Appendix III

38

AGENCY - AGRICULTURAL RESEARCH SERVICE

02-017-0017-HY BIONETICS CROP INCURRED COST AUDITS FOR 2001/04/18 FISCAL YEARS 1997 AND 1998

TOTAL: AGRICULTURAL RESEARCH SERVICE 1

AGENCY - FARM SERVICE AGENCY

03-006-0007-SF DISASTER PAYMENTS TO PRUNE PRODUCERS IN $5212001/07/26 CALIFORNIA - PRODUCER B03-006-0009-SF DISASTER PAYMENTS TO PRUNE PRODUCERS IN $1,5132001/07/26 CALIFORNIA - PRODUCER E03-099-0027-TE FARM SERVICE AGENCY PAYMENT LIMITATIONS -2001/05/24 MAJORITY STOCKHOLDERS OF CORPORATIONS03-099-0042-KC 1999 CROP DISASTER PROGRAM $950,8942001/07/3003-601-0038-TE CROP DISASTER ASSISTANCE PROGRAM $282,9992001/07/16 PAYMENTS

TOTAL: FARM SERVICE AGENCY 5 $1,235,927

AGENCY - RURAL HOUSING SERVICE

04-004-0001-AT WILLIAMSBURG ENTERPRISE COMMUNITY $221,1792001/08/3004-004-0004-HY RRH TENANT INCOME VERIFICATION- VIRGINIA $23,7772001/09/0704-099-0001-AT GUARANTEED MULTI-FAMILY HOUSING LOANS2001/06/0104-099-0003-CH COMMUNITY PROGRAM LOANS TO RIVER VALLEY2001/06/21 HEALTH SYSTEM04-099-0011-TE MANAGEMENT OF RRH PROJECTS2001/06/2204-601-0004-KC RURAL RENTAL HOUSING PROGRAM-INSURANCE $596,665 $61,8482001/09/28 EXPENSES - PHASE II

TOTAL: RURAL HOUSING SERVICE 6 $841,621 $61,848

AGENCY - RISK MANAGEMENT AGENCY

05-002-0001-TE REVIEW OF WRITTEN AGREEMENTS $1,565,7302001/05/2105-099-0005-SF INDEMNITY PAYMENTS TO PRUNE PRODUCERS IN $7,1822001/08/15 CALIFORNIA - PRODUCER B05-099-0006-SF INDEMNITY PAYMENTS TO PRUNE PRODUCERS IN $17,4512001/05/08 CALIFORNIA - PRODUCER C05-601-0007-TE WATERMELON CLAIMS IN SOUTH TEXAS $1,506,6202001/08/17

TOTAL: RISK MANAGEMENT AGENCY 4 $3,096,983

AGENCY - COMMODITY CREDIT CORPORATION

06-401-0014-FM FY 2000 CCC FINANCIAL STATEMENTS2001/06/27

TOTAL: COMMODITY CREDIT CORPORATION 1

AUDIT REPORTS RELEASED AND ASSOCIATED MONETARY VALUESBETWEEN APRIL 1 AND SEPTEMBER 30, 2001

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

39

AUDIT REPORTS RELEASED AND ASSOCIATED MONETARY VALUESBETWEEN APRIL 1 AND SEPTEMBER 30, 2001

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

AGENCY - FOREST SERVICE

08-003-0007-SF SIUSLAW NATIONAL FOREST - LAND ADJUSTMENT2001/09/10 PROGRAM, CORVALLIS, OR08-007-0001-AT FS NORTHEASTERN EXPERIMENTAL STATION $2,046,5662001/05/29 ACCOUNTING FOR TIMBER SALES08-099-0009-TE CHALLENGE COST SHARE PROGRAM2001/06/2208-099-0011-TE FOREST LEGACY PROGRAM - THE HANCOCK TRACT $1,100,000 $1,100,0002001/04/2708-401-0011-AT FY 2000 FS FINANCIAL STATEMENTS2001/05/0408-601-0025-SF WORKING CAPITAL FUND ENTERPRISE SERVICES $2,600,0002001/06/22

TOTAL: FOREST SERVICE 6 $3,146,566 $1,100,000 $2,600,000

AGENCY - RURAL UTILITIES SERVICE

09-401-0005-HQ FISCAL YEAR 2000 RURAL TELEPHONE BANK2001/04/05 MANAGEMENT ISSUES

TOTAL: RURAL UTILITIES SERVICE 1

AGENCY - NATURAL RESOURCES CONSERVATION SERVICE

10-017-0002-HY KAJAX ENGINEERING,INC., INCURRED COST2001/04/26 FYE DECEMBER 31, 199710-017-0005-KC ALLIED RECLAIMING SERVICES, $179,4412001/07/31 AUDIT OF CONTRACT CLAIM

TOTAL: NATURAL RESOURCES CONSERVATION SERVICE 2 $179,441

AGENCY – OFFICE OF THE CHIEF FINANCIAL OFFICER

11-401-0007-FM FY 2000 NATIONAL FINANCE CENTER REVIEW OF2001/07/11 INTERNAL CONTROL STRUCTURE

TOTAL: OFFICE OF THE CHIEF FINANCIAL OFFICER 1

AGENCY - FOOD SAFETY AND INSPECTION SERVICE

24-601-0001-FM REVIEW OF FSIS STAFFING AND BUDGETARY2001/04/04 MANAGEMENT

TOTAL: FOOD SAFETY AND INSPECTION SERVICE 1

AGENCY – NATIONAL AGRICULTURAL STATISTICS SERVICE

26-099-0001-FM SECURITY OF NASS INFORMATION TECHNOLOGY2001/05/14 RESOURCES

TOTAL: NATIONAL AGRICULTURAL STATISTICS SERVICE 1

AGENCY - FOOD AND NUTRITION SERVICE

27-002-0003-TE FSP - QUALITY CONTROL2001/05/0827-010-0023-SF LOS ANGELES UNIFIED SCHOOL DISTRICT’S2001/09/28 ADMINISTRATION OF CACFP27-017-0020-HY FY 1998 & 1999 ABT ASSOCIATES INCURRED COST $440 $4402001/08/10 AUDIT

40

AUDIT REPORTS RELEASED AND ASSOCIATED MONETARY VALUESBETWEEN APRIL 1 AND SEPTEMBER 30, 2001

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

27-099-0013-HY EBT SYSTEM - DISTRICT OF COLUMBIA2001/06/1927-099-0014-SF EBT SYSTEM DEVELOPMENT - STATE OF WASHINGTON2001/04/1327-099-0015-SF FOOD SERVICE MANAGEMENT COMPANIES2001/04/1227-099-0016-SF FOOD STAMP PROGRAM ADMINISTRATIVE COSTS - $2,207,6622001/06/12 STATE OF WASHINGTON27-099-0017-SF STATE OF HAWAII - EBT SYSTEM DEVELOPMENT2001/09/06 REVIEW27-099-0018-HY FNS SECURITY OF INFORMATION TECHNOLOGY2001/09/05 RESOURCES27-601-0012-KC FOOD SERVICE MANAGEMENT COMPANIES $3,572,137 $756,3112001/05/1127-601-0024-CH NSLP - FOOD SERVICE MANAGEMENT COMPANIES-MWR $3,537,9122001/09/0627-601-0026-CH FSP CONTRACTS WITH PRIVATE VENDORS FOR ON-2001/04/04 SITE RETAILER VISITS

TOTAL: FOOD AND NUTRITION SERVICE 12 $9,318,151 $756,751

AGENCY - RURAL BUSINESS-COOPERATIVE SERVICE

34-099-0002-AT BUSINESS AND INDUSTRY LOAN PROGRAM OMNIVEST $4,052,3512001/09/14 RESOURCES INC.34-601-0002-SF LENDER SERVICING OF B&I GUARANTEED LOANS - $2,350,965 $2,350,9652001/08/31 LENDER IN ARIZONA34-601-0004-SF LENDER SERVICING OF B&I GUARANTEED LOANS $2,365,000 $2,365,0002001/09/12 - LENDER B IN ARIZONA34-601-0005-SF LENDER SERVICING OF B&I GUARANTEED LOANS2001/06/11 - CALIFORNIA - LENDER B

TOTAL: RURAL BUSINESS-COOPERATIVE SERVICE 4 $8,768,316 $4,715,965

AGENCY - MULTIAGENCY

50-018-0010-HY PUERTO RICO DEPARTMENT OF AGRICULTURE, A-128,2001/05/29 6/30/9650-020-0015-CH SINGLE AUDIT - MICHIGAN DEPT. OF EDUCATION $114,000 $114,0002001/07/1150-020-0078-HY VIRGIN ISLANDS, 9/30/95, A-128 $1,057,339 $1,057,3392001/06/0650-021-0002-HY COMMONWEALTH OF PENNSYLVANIA, A-133,2001/06/01 6/30/200050-021-0004-SF A-133 AUDIT - CITY OF SAN JOSE FOR FYE2001/07/12 JUNE 30, 200050-099-0002-TE RESOLUTION OF PRODUCTION DIFFERENCES FOR CROP $56,8962001/05/14 INSURANCE AND LOAN DEFICIENCY PAYMENTS50-099-0003-TE GRANTS/AGREEMENTS WITH THE NATIONAL FISH AND $65,934 $2,970,0032001/07/20 WILDLIFE FOUNDATION50-099-0026-FM PURCHASE CARD MANAGEMENT SYSTEM2001/08/1650-099-0030-FM REVIEW OF PRIVACY CONSIDERATIONS WITHIN USDA2001/05/01 AGENCY INTERNET SITES50-099-0032-FM FY 2001 USDA GOVERNMENT INFORMATION SECURITY2001/08/31 REFORM ACT REPORT50-601-0003-CH ASSESSMENT OF APHIS & FSIS INSPECTION2001/07/23 ACTIVITIES TO PREVENT THE ENTRY OF

FOOT AND MOUTH DISEASE

TOTAL: MULTIAGENCY 11 $1,294,169 $1,171,339 $2,970,003

41

AUDIT REPORTS RELEASED AND ASSOCIATED MONETARY VALUESBETWEEN APRIL 1 AND SEPTEMBER 30, 2001

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

AGENCY - RURAL DEVELOPMENT

85-099-0001-HQ COOPERATIVE AGREEMENT-WASHINGTON STATE DEPT2001/09/10 OF COMMUNITY, TRADE, AND ECONOMIC DEVELOPMENT

TOTAL: RURAL DEVELOPMENT 1

AGENCY - CHIEF INFORMATION OFFICER

88-099-0003-FM FY 2000 NITC GENERAL CONTROLS REVIEW2001/09/21

TOTAL: CHIEF INFORMATION OFFICER 1

TOTAL: RELEASE - NATIONWIDE 58 $27,701,733 $7,805,903 $5,749,444

Abbreviations of OrganizationsAMS Agricultural Marketing ServiceAPHIS Animal and Plant Health Inspection ServiceARS Agricultural Research ServiceATF (Bureau of) Alcohol, Tobacco, and FirearmsCCC Commodity Credit CorporationCR Office of Civil RightsCSREES Cooperative State Research, Education, and Extension ServiceDCIS Defense Criminal Investigative ServiceDSHS Department of Social Health Services (Washington State)FAS Foreign Agricultural ServiceFBI Federal Bureau of InvestigationFDA OCI U.S. Food and Drug Administration, Office of Criminal InvestigationsFNS Food and Nutrition ServiceFS Forest ServiceFSA Farm Service AgencyFSIS Food Safety and Inspection ServiceGIPSA Grain Inspection, Packers, and Stockyard AdministrationIRS CI Internal Revenue Service, Criminal InvestigationNASS National Agricultural Statistics ServiceNFC National Finance CenterNFWF National Fish and Wildlife FoundationNITC National Information Technology CenterNRCS Natural Resources Conservation ServiceOCFO Office of the Chief Financial OfficerOCIO Office of the Chief Information OfficerOIG Office of Inspector GeneralOMB Office of Management and BudgetRBS Rural Business-Cooperative ServiceRHS Rural Housing ServiceRMA Risk Management AgencyUSDA U.S. Department of AgricultureWECC Williamsburg Enterprise Community Commission, Inc.