Farm Agency’s Huge Loss Laid to Bosses

The federal agency that writes insurance to protect farm crops has lost $1.2 billion over the last five years, largely because of poor management and a too-rapid expansion of operations, congressional investigators said Tuesday.

Brian P. Crowley, a senior investigator for the General Accounting Office, described to a House subcommittee a system in which the Federal Crop Insurance Corp. used seat-of-the-pants guesses instead of sound documentary data to come up with optimistic forecasts of income and losses.

Forecasts of premium income averaged 33% higher than was realized during the period from 1981 through 1985, Crowley said. Losses were estimated based not on actuarial data or loss history, but on the corporation’s hope that they would not exceed 90% of income, he said.

Payments Suspended

The cost per acre of administering and operating the insurance program grew from $1.43 in crop year 1980 to $4.15 last year, a GAO report said. Financial difficulties forced the agency to suspend payments to farmers four times in 1985 and this year, it said.

At times, when the GAO asked for data on which to base an audit or to judge past management decisions, there was no such data, Crowley said.

“Because these forecasting decisions are made by the manager based largely on meetings with the staff rather than on documented quantitative data and analysis, we could not determine the specific bases for the decisions that were made,” the report said.

Losses have had to be made up with supplemental appropriations by Congress, borrowing from the Treasury, exhausting the corporation’s capital stock and using money that had been earmarked for other uses, the GAO said.

‘Like a Crapshoot’

The report “leads me to the unfortunate conclusion that the Federal Crop Insurance Corp.’s decision-making process . . . has been more like a crapshoot than a legitimate, thoughtful and businesslike procedure,” said Rep. Ed Jones (D-Tenn.), chairman of the House Agriculture subcommittee that commissioned the GAO study.

Jones noted, however, that the corporation has installed new management and is attempting to improve its operations.

E. Ray Fosse, the agency’s new manager who also was on its board of directors during the period reviewed by the GAO, promised to do a better job of forecasting and said income projections for this year already had been scaled back.

He said part of the corporation’s problems have stemmed from Congress’ 1980 mandate that it expand from a limited insurance program to a nationwide network as soon as possible after policy-makers decided to substitute crop insurance for federal crop disaster programs.

“We are working in uncharted waters, given the size and complexity of the factors involved in the expansion mandated by Congress,” Fosse said.