Detailed Information on the
Direct Crop Payments Assessment

Review and implement the new Farm Bill including developing rules and regulations

Continue to lower improper payments

Improve information sharing with other USDA agencies.

Measure: Reduce the percentage of farm revenue from direct payments for covered commodities and peanuts (%)

Explanation:The data required for this measure is: 1) market revenue; and 2) direct payments. The market revenue is reported by the NASS in their crop values report. The direct payments are reported by the FSA Budget Division in the BUD 45 report. The market revenue and direct payments are calculated by crop year, and the derived percentages are reported in the table below by fiscal year

Measure: Maintain or reduce direct payments as a percentage of cash expenses

Explanation:The data required for this measure is: 1) cash expenses; and 2) direct payments. The cash expenses are reported by the ERS in their farm sector production expenses report. The direct payments are reported by the FSA Budget Division in the BUD 45 report. The cash expenses are calculated by calendar year and the direct payments are calculated by crop year, and the derived percentages are reported in the table below by FY. Calendar year 2006 cash expenses and crop year 2006 direct payment will be considered actual on September 30, 2007, and the derived percentages will be reported in the fiscal year 2007 row.

Measure: Reduction in Improper Payments (%)

Explanation:2006 percentage is based on statistical sample of Fy 2005 payments made for Direct and Counter-Cyclical payments completed in FY 2006. County Office Review Target Report. FSA changed the methodology for calculating the rate of improper payments effective FY 2006. Although "reduction in erroneous payments" was an annual output measure under the 2003 Direct Crop Payments PART assessment, due to the change in methodology, prior year results and targets are inconsistent with the new data.

Is the program purpose clear?

Explanation: The purpose of direct payments is to provide income support to farmers and landowners that have historically produced wheat, corn, grain sorghum, barley, oats, upland cotton, rice, soybeans, oilseeds, and peanuts. Direct payments are issued annually to eligible producers and landowners, regardless of market price, and are based on the farm's established historical base acres and yields for covered commodities and peanuts. They are designed to stabilize income to keep producers viable.

Evidence: Farm Security and Rural Investment Act of 2002, P.L. 107-171; Program Handbook 1-DCP, Direct and Counter-Cyclical Program Amend. 13, March 2003; Fact Sheet, Direct and Counter-Cyclical Payment Program, March 2006.

Does the program address a specific and existing problem, interest, or need?

Explanation: The success of an economically prosperous agricultural production sector depends on the economic well being of producers and their ability to increase production by farming additional acreage, maintaining farms and equipment, and utilizing tools to mitigate production and market risks. However, direct payments are provided to only 36% off U.S. farmers, 60% of whom have annual sales of at least $50,000. Though the program is only minimally production/trade distorting, it benefits only those farmers that own land that has historically produced program commodities --whether or not they currently produce any crop -- giving them a financial advantage over farmers not receiving direct payments. Also, there is significant evidence that direct payments are capitalized into land values and consequently increase cash rents. This occurs because direct payments are paid to owners of specific parcels of land, and since the payments are predictable (you receive them every year regardless of prices or production) they are bid into the price of land. Their sole impact is to increase the incomes of specific producers and land owners. Therefore, the payments limit beginning farmers' ability to get into farming and limit the ability of small farmers (particularly those not receiving direct payments) to expand their farming operations by farming additional acreage.

Evidence: ERS/USDA Agricultural Outlook, October 2000, p.10-14. "A Safety Net for Farm Households" USDA/ERS Agricultural Economic Report No. 788. 44pp, Dec 2000. Moss, Charles B. and A. Schmitz. "Government Policy and Farmland Markets: The Maintenance of Farmer Wealth." Iowa State University Press, 2003.

Is the program designed so that it is not redundant or duplicative of any other Federal, state, local or private effort?

Explanation: Direct payments are made to producers across the country who operate farms with established historical base acres and commodity program yields for DCP covered commodities and peanuts. There are no similar State, local or private efforts to provide income support to keep producers economically viable. Only Federal programs have such a widespread outreach. The DCP is not duplicative of other farm safety net programs. Direct payments are issued in addition to other farm safety net programs, such as the Non-Insured Crop Disaster Assistance Program (NAP), ad-hoc disaster programs, Milk Income Loss Contract Program, and Marketing Assistance Loan Program. Direct payments are issued annually to eligible producers and landowners. The payments are not based on producers? current production choices. CCP are issued to eligible producers and landowners only when the effective price falls below the target price for the covered commodities.

Evidence: Farm Security and Rural Investment Act of 2002, P.L. 107-171.

Is the program design free of major flaws that would limit the program's effectiveness or efficiency?

Explanation: The Administration addressed the shortcomings of the current DCP program in its 2007 Farm Bill proposal. The Administration's proposal addressed limitations on planting flexibility, aid to beginning farmers, and Adjusted Gross Income (AGI) provisions. Additionally, direct payments have been singled out by the WTO as distorting trade due to a Farm Security and Rural Investment Act of 2002 provision limiting planting flexibility by prohibiting the planting of fruit and vegetables (FAV) on base acres, with some exceptions for farms or producers with prior existing history of planting FAV. Specialty crop producers have traditionally been under-represented in farm policy. Five program crops receive 93 percent of direct cash payments, yet the value of U.S. specialty crops is equivalent to the combined value of these five crops. To ensure that direct payments will be considered non-trade distorting green box assistance, in the 2007 Farm Bill, Commodity Programs Title, the Administration proposed to eliminate the provision of the Act that limits planting flexibility on base acres to exclude FAV. During USDA Farm Bill Forums, the issue was raised that the DCP does not do enough to help beginning farmers get established. Beginning farmers face many challenges, including obtaining capital to purchase farmland and fund their operating costs. In addition, the rising cost of farmland, driven by increasing competition for farmland from urban development and for producing energy crops as well as by increasing farm payments, may make it difficult for beginning farmers to obtain land. Therefore, the Administration proposed providing beginning farmers a 20 percent increase in their direct payment rate for the first five years they are in production. The Farm Security and Rural Investment Act of 2002 added a $2.5 million Adjusted Gross Income (AGI) limitation. An individual or entity is not eligible for farm program payments if the individual or entity average AGI exceeds $2.5 million for the three tax years immediately preceding the applicable program year. However, an individual or entity is considered eligible to receive farm program payments regardless of the level of AGI if 75 percent or more of the average AGI is derived from farming, ranching, or forestry operations. Payment limits for direct payments have had limited effect because producers have used various legal and regulatory provisions to avoid being restricted by these limits. With only limited constraints on payments, a substantial percentage of payments go to large, high-income producers. The Administration's 2007 Farm Bill Proposal recommends decreasing the AGI eligibility cap for all farm commodity program payments from the current $2.5 million to $200,000 annually.

Evidence: Farm Security and Rural Investment Act of 2002, P.L. 107-171; ERS, Amber Waves February 2007; USDA 2007 Farm Bill Proposal; http://www.usda.gov/documents/07sumbeginningfarmers.pdf; http://www.usda.gov/wps/portal/!ut/p/_s.7_0_A/7_0_1UH?contentidonly=true&contentid=2007/04/0098.xml; Release No. 0131.07, Johanns Highlights USDA's 2007 Farm Bill Proposals for Specialty Crops, Proposes $5 Billion in Additional Targeted Funding; http://www.usda.gov/documents/07sumspecialtycrops.pdf; GAO-07-1130 Beginning Farmers; "Report of the Commission on the Application of Payment Limitations for Agriculture" The Office of the Chief Economist, USDA, Washington, DC, August 2003; ERS "Farm and Commodity Policy Trade Issues and Agreements"; 7 Code of Federal Regulations (CFR) Part 1400.301.

Is the program design effectively targeted so that resources will address the program's purpose directly and will reach intended beneficiaries?

Explanation: Direct payments are not targeted to those that need them the most, rather they are tied to land that has historically produced program commodities and are made annually regardless of need. This has led to unintended subsidies. Most of the value of U.S. agricultural production comes from large family farms. By contrast, most U.S. farms are small family operations with less than $250,000 in sales. Direct payments are not targeted to farms of a certain size or net income level, although caps may apply to the size of the program payment a farm or an individual farmer can receive. Nevertheless, large farms are more likely to receive direct payments and, as a group, they receive the bulk of payments simply because direct payments are paid per acre. Current payment limits affect a very small percentage of farms. Three-quarters of large family farms receive farm program payments, compared with just over half of small commercial farms and a third of residential/retirement farms. There currently is no AGI limit for farmers (earning more than 75% of their income from farming) and the AGI limit for persons with off-farm income is $2.5 million. Because of this, the bulk of payments go to large farmers. As previously mentioned, direct payments drive up land values, making it harder for small and beginning farmers to expand their operations and helping large farmers expand their operations. As currently designed, even dead people can receive direct payments. Most estates are allowed to collect farm payments for up to two years after an owner's death, giving heirs time to restructure their businesses and probate the will. After that, local USDA officials must certify every year that the estate is still farming and has remained open for reasons other than simply collecting subsidies. However, the GAO found that the USDA depends on heirs and businesses to alert the agency to deaths and does not use other sources, such as Social Security records, to confirm eligibility. Consequently, the GAO found that a number of estates were receiving payments long after the owner's death.

Evidence: Robert Hoppe. "The Importance of Farm Program Payments to Farm Households" Amber Waves, June 2007. Federal Farm Programs: USDA Needs to Strengthen Controls to Prevent Improper Payments to Estates and Deceased Individuals (GAO-07-818, July 9, 2007). www.gao.gov/cgi-bin/getrpt?GAO-07-1137T. E Douglas Beach, Roy Boyd and Noel D Uri. "The Effect of Eliminating Direct Payments to Farmers on Land Values" The Journal of Real Estate Finance and Economics, 1997, vol. 15, issue 3, pages 239-60

Does the program have a limited number of specific long-term performance measures that focus on outcomes and meaningfully reflect the purpose of the program?

Explanation: The purpose of the program is to provide income support by providing financial liquidity and improving access to capital to mitigate production and market risk. The program helps keep producers economically viable. The DCP (direct payments) has two long-term outcome performance measures. Both performance measures tier down from the FSA Strategic Plan, Goal 1, Supporting Productive Farms and Ranches. Under Strategic Plan Goal 1, the DCP links directly to Objective 1.2, Mitigating Market Losses. The FSA Strategic Plan Goal 1 is directly aligned with USDA Strategic Plan Goal 2, Enhance the Competitiveness and Sustainability of Rural and Farm Economies, Objective 2.3, Provide Risk Management and Financial Tools to Farmers and Ranchers. The two long-term performance measures directly reflect the purpose of the program by focusing on farm revenue and cash expenses, both important measures of economic viability. The first long-term performance measure, "reduce the percentage of farm revenue from direct payments for covered commodities and peanuts (%)" reflects the purpose of the program in that direct payments provide a minimum level of income support for producers of DCP covered commodities and peanuts. Long-term and annual targets have been formulated with a declining trend to reflect the goal of reducing dependence on direct payments for continued support. Farm revenue data are derived from the National Agricultural Statistics Service (NASS) Crop Values Report, in conjunction with direct payment reports from the FSA. The second long-term performance measure, "reduce direct payments as a percentage of cash expenses," assures that producers are financially able to manage production and market risks. Direct payments provide a supplement to producers for the ongoing costs involved in operating a farm operation, while reducing dependence on the funding. The goal is not to provide a large income supplement to support the operation, but to provide income support to partially cover production expenses incurred before the commodity is harvested. The direct payments provide a steady, predictable income source to pay expenses and assure lenders that the producer has income to repay operating loans. The data source for cash expenses is the USDA Economic Research Service (ERS), Farm Income and Costs Farm Sector Income Forecast. The data source for direct payments is derived from FSA budget reports. According to the program performance data for crop years 2003 through 2006, producers have become less dependent on direct payments for revenue, as demonstrated by the decreasing proportion of direct payments relative to farm revenues. As illustrated by the first long-term performance measure, if farm revenue increases while direct payments are stable, the producers are staying economically viable. The first measure shows that direct payments do not increase farm revenue in and of the payments themselves. Revenues are increasing because of higher commodity prices, higher yields, and increased plantings. Direct payments simply provide a base level of income support. The second measure shows similar results. Direct payments provide baseline support for operating expenses. The expenses are expected to increase as competition for inputs intensifies to meet the increased demand for both biofuels and food. The direct payments provide a reliable source of income support, without adding an extraordinary supplement to producer income.

Evidence: FSA FY 2005-2011 Strategic Plan; USDA Strategic Plan for FY 2005-2010; NASS Crop Values Report, August 2007; USDA FSA Budget Division BUD 45 Report; USDA ERS "Farm Income and Costs Farm Sector Income Forecast"; PART long-term measures for this PART.

Does the program have ambitious targets and timeframes for its long-term measures?

Explanation: The timeframes and targets are ambitious for the long-term performance measures. Each of the two measures has targets through FY 2013. The first of the two long-term measures is "reduce the percentage of farm revenue from direct payments for covered commodities and peanuts (%)." FSA uses the NASS Crop Values Annual Summary to assist in the data collection of this measure. Based on market revenue as reported by the NASS, direct payments as a percentage of farm revenue are declining. The measure uses declining annual targets as a representation of the goal to reduce dependence on direct payments for continued support as farm income increases. The targets are ambitious because farm revenue could be negatively affected by external factors, including adverse weather, a downturn in the global economy, a shift away from government policies that support expansion of biofuels, a shift toward more restrictive trade policies, and the value of the dollar. The second long-term measure is "reduce direct payments as a percentage of cash expenses." The farm cash expense data is provided by ERS in the Farm Income and Costs Farm Sector Income Forecast. Direct payments as a percentage of cash expenses show a declining trend. The ambitious declining targets reflect the goal of the program to provide reliable income support, while serving as a safety net for producers. Cash expenses are forecast to increase, and producers must be able to sustain their operations in order to remain economically viable. The direct payments are not intended to pay a greater portion of expenses, but to provide a minimum level of support. The expenses predictably rise due to external factors including adverse weather, a downturn in the global economy, a shift away from government policies that support expansion of biofuels, a shift toward more restrictive trade policies, and the value of the dollar.

Evidence: FSA FY 2005-2011 Strategic Plan; See the PART measures in this PART.

Does the program have a limited number of specific annual performance measures that can demonstrate progress toward achieving the program's long-term goals?

Explanation: The program has an annual performance measure that can demonstrate progress toward achieving the program's long-term goals. In addition, annual targets for long-term measures have been developed, which ensure the linkages required to demonstrate progress towards achieving the Program's long-term goals and ensures that progress is monitored in annual and long-term cycles. The annual efficiency measure, "reduction in improper payments," has a direct link to efficient DCP operation. As provided in the USDA Strategic Plan for FY 2005-2010, the Department is working to strengthen its management through vigorous execution of the President's Management Agenda (PMA). Better management will result in more efficient program operations that offer improved customer service and more effective stewardship of taxpayer funds. The FSA Strategic Plan for FY 2005-2011 cites a cross-cutting management objective to "maintain or increase percentage of proper payments." Risk assessments of improper payments for DCP have been performed the last two years. The program has been working at all levels to reduce the number of improper payments made, and to recover, where possible, overpayments made to individuals and organizations. Reduction in improper payments is a representation of efficient management of the program. The two long-term measures have also been developed to demonstrate annual progress toward achieving the program?s long-term goals. They are "reduce the percentage of farm revenue from direct payments for covered commodities and peanuts (%)," and "reduce direct payments as a percentage of cash expenses." As described in the response to Question 2.1, both measures reflect the goal of the program of providing a minimum level of reliable income support for producers of DCP covered commodities and peanuts, while using declining annual targets as a representation of the goal to reduce dependence on direct payments for continued support. This helps FSA to meet its strategic goal of "supporting productive farms and ranches."

Evidence: USDA Strategic Plan for FY 2005-2010; FSA FY 2005-2011 Strategic Plan; Government Performance and Results Act (GPRA); USDA FY 2007 PAR; FSA Strategic Plan and Business Framework; The annual measures for the DCP are "acres participating in DCP as percent of eligible base acres," "reduction in improper payments," "reduce the percentage of farm revenue from direct payments for covered commodities and peanuts (%),"and "reduce direct payments as a percentage of cash expenses." The data are captured on the 2007 DCP Enrollment Report (DCP-01). The actual data for this measure are lagged a year e.g. the percentage of eligible acres enrolled in 2007 DCP will be reported for FY 2008.

Does the program have baselines and ambitious targets for its annual measures?

Explanation: The DCP does have a baseline, but does not have ambitious targets for its annual measure. FSA has not developed ambitious targets for its annual efficiency measure, reduction in improper payments (%). The target for 2008 is higher than the 2007 actual rate, therefore it is not ambitious.

Evidence: Targets for "reduction in improper payments (%)" are 0.41 % for FY 2008 through FY 2013, as reported in the USDA 2007 Performance and Accountability Report (PAR); http://www.ocfo.usda.gov/usdarpt/pdf/ipiapres.pdf; FSA 2005-2011 Strategic Plan; USDA FY 2007 PAR; USDA OIG Audit 03601-0014 "Farm Service Agency's Progress to Implement the Improper Payments Information Act of 2002," March 2006.

Do all partners (including grantees, sub-grantees, contractors, cost-sharing partners, and other government partners) commit to and work toward the annual and/or long-term goals of the program?

Explanation: Recent reviews of the program have shown that the Agency needs to improve its working relationship with its partner NRCS. In its 2007 annual Management Challenges report, the USDA OIG stated that "USDA could reduce improper payments in conservation and farm programs through improved coordination between agencies." NRCS and FSA have agreed to work together to develop mutually agreeable procedures to overcome these deficiencies. Specifically, NRCS and FSA agreed to correct agency-specific findings and have established a working group to identify and remove all impairments that have prevented them from ensuring that landowners permanently reduce their existing crop base acres where appropriate. NRCS issued a directive which mandated that the NRCS staff secure from the landowner a completed FSA form used to reduce crop base. FSA issued a notice which addressed the actions to be taken by NRCS and FSA as partners to share information in order to prevent improper payments. NRCS has agreed to conduct monthly programmatic and administrative training for staff to address the importance of notifying FSA regarding easements that might affect crop base acres used to calculate DCP payments. In November 2006, NRCS and FSA completed a Memorandum of Agreement (MOA) for implementation of the CRP. Because CRP enrollment reduces base acres for the DCP, this expertise and interaction is critical to reducing improper payments under the DCP.

Evidence: USDA FY 2007 PAR; OIG Audit 50099-11-SF "Natural Resources Conservation Service and Farm Service Agency, Crop Bases on Lands with Conservation Easements in California"; Notice DCP-181 ?DCP and Conservation Program OIG Findings,? October 2007; 7 CFR, Part 12; OIG Semi-Annual Report to Congress FY 2007; Program Handbook 6-CP "Highly Erodible Land Conservation and Wetland Conservation Provisions? (Revision 3) Amendment 2, March 2007; NRCS, NB.390.6.1, "Audit Response for Wetlands Reserve Program (WRP)? January 2006; Memorandum of Agreement (MOA) between Natural Resources Conservation Service (NRCS), Farm Service Agency (FSA), and Commodity Credit Corporation (CCC) For Implementation of the Conservation Reserve Program (CRP) Through December 31, 2007, November 2006.

Are independent evaluations of sufficient scope and quality conducted on a regular basis or as needed to support program improvements and evaluate effectiveness and relevance to the problem, interest, or need?

Explanation: Independent evaluations have been conducted regularly to support DCP program improvements as needed. Taken together, the evaluations provide the scope and quality needed to address program improvements. Studies have investigated the relationship between direct payments and farm outcomes. One such study, written by Dr. Paul Westcott and Dr. Edwin Young, economists for the ERS, analyzed how direct payments keep land in agricultural uses by providing income support without influencing planting decisions or distorting trade. Dr. Westcott and Dr. Young wrote that the 1996 Farm Act fundamentally redesigned income support for major crops with the termination of acreage reduction programs and the introduction of decoupled PFC payments (now called DCP). Direct payments offer almost total planting flexibility by providing greater freedom for producers to make production decisions based on market signals. A study that analyzed how direct payments help producers gain access to capital was written by Dr. Barry Goodwin, a Professor of Agricultural Economics at North Carolina State University. Dr. Goodwin wrote that in imperfect capital markets, some producers are credit-constrained and would prefer to expand production but are unable to obtain the financing to do so. The receipt of direct payments may allow them to expand or otherwise alter production. Dr. Goodwin also wrote that if producers? risk preferences are such that additions to wealth changes their risk aversion (e.g., decreasing absolute or relative risk aversion), they may choose to take on more risk in response to the payments. This may result in changes in production through additional acreage or changes in the use of other farm inputs. In 2007, the U.S. Department of Treasury, Federal Consulting Group and Claes Fornell International (CFI) Group collaborated with FSA to develop several questionnaires using American Customer Satisfaction Index (ACSI) methodology. The survey measured satisfaction with DCP programs. A key finding revealed satisfaction with the DCP is significantly higher than the December 2007 ACSI Federal government aggregate. The Customer Satisfaction Index for DCP is 75. ACSI Federal Government Index is 67.8. Additionally, the survey found payments to be the key driver of satisfaction for DCP. The payments were found to be accurate and timely for most. The ASCI survey revealed areas of improvement. Customers said clarity of program terms and eligibility requirements are areas for improvement with DCP. The General Accounting Office (GAO), USDA OIG, and the FSA, County Operations Reviewers (CORs), also conduct regular reviews. OIG monitors the program delivery and payment systems and conducts or contracts for annual audits of CCC programs. An appointed COR, under County Office Operations Review Program (CORP) protocols developed by the national office, periodically reviews DCP delivery in county offices. If significant discrepancies are found, State or national level program managers may request a national target CORP review focusing on a particular issue or set of issues. These reviews are conducted by the COR independently as they report directly to the State. In response to a GAO audit completed in 2007, FSA has initiated eligibility reviews of all estates older than two years and request program payments. FSA also implemented a data-matching process between all program participants of record that received payments in FY 2007 with the Social Security Administration data to identify individual program participants that died prior to the date of payment issuance. Based on the results of this data-match, FSA determined which payments were improper, and initiated the appropriate actions for recovery. The data-match process is now in place to generate reports on a quarterly basis in FY 2008 to assist all FSA State and field offices in the prevention of improper payments.

Evidence: Notice DCP-182, ?CORP Review for Improper Payments?, November 2007; OIG Audit Report No. 50099-11-SF, ?NRCS and FSA, Crop Bases on Lands with Conservation Easements in California? August 2007; OIG Audit Report No. 10099-3-SF, ?NRCS Wetlands Reserve Program, Compensation for Easements,? August 2005; OIG Audit Report No. 03099-196-KC, ?FSA Direct and Counter-Cyclical Program? April 2006, closed as OIG stated ?Nothing came to our attention during the audit to cause us to believe that the system of management controls over establishing yields was not adequate?; GAO-07-818 Farm Program Payments USDA Needs to Strengthen Controls to Prevent Improper Payments to Estates and Deceased Individuals, July 2007; Notice DCP-181, DCP and Conservation Program OIG Findings October 2007; Notice PL-158, Estates and Deceased Individuals, May 2007; USDA Farm Service Agency Customer Satisfaction Surveys, March 2007.

Are Budget requests explicitly tied to accomplishment of the annual and long-term performance goals, and are the resource needs presented in a complete and transparent manner in the program's budget?

Explanation: Budget requests for direct payments are linked to FSA Strategic Plan Goal 1, ?Supporting Productive Farms and Ranches,? Objective 1.2, ?Mitigating Market Losses.? Resource needs are determined on a county basis and program levels and outlays are estimated and tracked each fiscal year. Budget estimates are based on forecasts from the Economic and Policy Analysis Staff (EPAS), as well as trend analysis from program staff and the Financial Management Division (FMD). Actual outlays are obtained from the accounting system. To achieve transparency, FSA Budget Division (BUD) keeps program staff informed of funding levels and outlays in monthly and annual reports and program staff keeps BUD informed of program changes. Furthermore, FSA has made sufficient IT investments to better track indirect cost.

Evidence: FSA FY 2005-2011 Strategic Plan 2005-2011; FY 2007 BUD45 report from CCC C.O.R.E accounting system; FY 2007 CCC Audit Explanatory Notes.

Has the program taken meaningful steps to correct its strategic planning deficiencies?

Explanation: FSA has developed a comprehensive FY 2005-2011 Strategic Plan and Strategic Framework that aligns with the USDA FY 2005-2010 Strategic Plan. The FSA Strategic Plan guides the way FSA carries out its mission, and is used to identify and justify the financial, personnel, and other resources necessary to best deliver its programs and measure results. FSA conducted extensive strategic planning stakeholder sessions to develop clear mission, vision, and goals. In-house personnel have conducted headquarters and field communications, strategy sessions, and planning meetings throughout each year. FSA re-engineered key goals to improve Agency mission effectiveness, identified workable strategies for accomplishing the goals across program areas, and established more meaningful, quantifiable, and outcome focused measures to help managers gauge progress more effectively and convincingly. The FSA FY 2005-2011 Strategic Plan lists the DCP as a contributing program in achieving Strategic Goal 1, 'Supporting Productive Farms and Ranches,' Objective 1.2, 'Mitigating Market Losses.' The DCP program performance measures align to FSA and USDA strategic goals. Furthermore, FSA has made sufficient IT investments to better track indirect cost.

Evidence: FSA FY 2005-2011 Strategic Plan; USDA Strategic Plan for FY 2005-2010.

Does the agency regularly collect timely and credible performance information, including information from key program partners, and use it to manage the program and improve performance?

Explanation: The Agency collects specific program data from various resources within FSA and from several USDA partners, including the NASS, ERS, and more recently NRCS to measure, manage, and improve DCP performance. Primary partners provide statistical data to help forecast program spending and outlays and gather individual commodity specific information. Program managers work closely with State Departments of Agriculture, commodity organizations, and State and field office FSA employees to identify deficiencies, make necessary policy clarifications, and ensure the program is properly being administered at all levels of government. FSA routinely relies on ERS reports to prepare annual budget estimates and program outlays. These reports are used to identify marketing and price trends for eligible commodities. Some of these concerns may require FSA to make administrative changes or clarification to the DCP. Information shared between agencies is used to help formulate policy decisions in carrying out other aspects of the program. Because CRP enrollment reduces base acres for the DCP, the expertise and interaction with NRCS is critical to reducing improper payments under the DCP. NRCS now provides information to FSA regarding easements. FSA uses the information to modify base acreage in order to prevent improper payments to producers participating in conservation easement programs. The two agencies have been working to enhance their cooperation and data sharing. Their interaction is greatly improved.

Evidence: ERS' Farm and Commodity Policy Program Provisions"Direct Payments"; ERS "Farm and Commodity Policy Trade Issues and Agreements"; NRCS, NB.390.6.1, "Audit Response for Wetlands Reserve Program (WRP)" January 2006; Memorandum of Agreement (MOA) between Natural Resources Conservation Service (NRCS), Farm Service Agency (FSA), and Commodity Credit Corporation (CCC) For Implementation of the Conservation Reserve Program (CRP) Through December 31, 2007, November 2006.

Are Federal managers and program partners (including grantees, sub-grantees, contractors, cost-sharing partners, and other government partners) held accountable for cost, schedule and performance results?

Explanation: Agency managers are responsible for implementing, improving, and monitoring program activities. Beginning in FY 2006, FSA implemented a new employee-performance management system. Under the new system, at least one element of the FSA employee performance plans must be linked to the FSA mission, goals, and outcomes in the Agency Strategic Plan. Program managers are responsible for accomplishing the objectives of the applicable statutory laws in the most cost effective manner while assessing potential impacts on producers, stakeholders, the agricultural economy, the Department, and the Administration. Producer accountability is evaluated through compliance checks throughout the duration of the program, while managers? performance indicators are evaluated routinely for responsiveness to the objectives and requirements of the Agency at each organizational level of the Agency through the Department level. Annual reports are provided to Congress detailing expenditures for the program. Reports of DCP activity are accessible for public inspection through the Agency website. Program costs are continuously monitored through the FSA Budget and Financial Management Offices, reported throughout the Department, and used to determine cost effectiveness of the Program. This information is analyzed and used by management to 1) project future program year budget projections, 2) identify possible market price distortions, 3) identify program administration deficiencies, and 4) develop and recommend information technology (IT) enhancements. Another area of enhancement is the collaboration between NRCS and FSA. More recently, NRCS has provided information to FSA regarding easements. FSA uses the information to modify base acreage in order to prevent improper payments to producers participating in conservation easement programs.

Evidence: FSA FY 2005-2011 Strategic Plan; USDA Strategic Plan for FY 2005-2010; FSA Notice PM-2584, FSA Performance Management Program; "Memorandum of Agreement between NRCS and FSA and CCC For Implementation of the CRP through December 31, 2007", November 2006.

Are funds (Federal and partners') obligated in a timely manner, spent for the intended purpose and accurately reported?

Explanation: The CCC funds for direct payments are disbursed when the DCP contract has been approved. Therefore, funds are obligated and disbursed simultaneously. During scheduled system maintenance periods, the processing time may increase. The direct payment funding is obligated and disbursed in a timely manner, spent for the intended purpose and accurately reported. The DCP contract must be received in the FSA Service Center Office on or before the signup deadline. The local county FSA office reviews the DCP contract for completeness and accuracy of signatures. The local county FSA office completes their determinations by reviewing eligibility for the DCP. Producer eligibility consists of running eligibility files and ensuring Debt Collection Improvement Act (DCIA) compliance through completion of the certification and review process. Direct payment disbursements correspond to the fiscal year resource funding schedules. Producers have the option to request their direct payments in two installments per year. The final direct payment made available in October of the FY after the FY in which the payment is earned. Producers who do not elect to take the advance direct payment will receive the entire direct payment in the second installment. County office employees are instructed to issue direct payments within 30 days after the last day of the month in which the producer requests that the payment be issued. The Financial Services Center (FSC) monitors program activity to ensure data integrity. FSC develops monthly Funds Status Reports (FSR) indicating obligation and disbursement balances. The FSC requires program managers to review and certify the information on the FSR, which is a key control in the OMB internal control assessment process. The improper payment rate for FY 2007 was 0.37%.

Evidence: See Funds Status Reports; OMB Circular A-123 Appendix A, "Management's Responsibility for Internal Control"; Accounting records are maintained in the CCC CORE accounting system; USDA FY 2007 PAR.

Does the program have procedures (e.g. competitive sourcing/cost comparisons, IT improvements, appropriate incentives) to measure and achieve efficiencies and cost effectiveness in program execution?

Explanation: The Agency has taken a number of steps to improve the program delivery efficiency by developing Web-based programs and processes. The Agency has developed new procedures to improve program management efficiency such as direct deposit, e-funds control, and Web-based sign-ups. The eDCP is a Web-based application process that has enabled producers to request program benefits online. This feature has helped to reduce the time associated with completing the DCP contract. Producers can choose payment options, assign crop shares, and sign, view, print, and submit their DCP contracts from any computer with internet access at any time. This service has been made available to all eligible producers for the FY 2005-2007 DCP signup and helps the Agency maintain participation rates for this program. While producers still have the option to sign up for the program in person at their local USDA Service Center, offering sign-up options through the internet helps the Agency meet its performance objectives, in line with the President?s Management Agenda and the USDA mandate to expand E-Gov options for program participants. FSA has developed ambitious targets for its annual efficiency measure, ?reduction in improper payments (%).? The targets represent the FSA goal to keep improper payment rates below 0.41% through 2013. The significant improvement in improper payments for FY 2006 to FY 2007 is due to FSA implementation of the FY 2007 DCP Corrective Action Plan (CAP). In 2007, FSA began piloting the Budget and Performance Management System (BPMS). The purpose of the BPMS is to measure and achieve efficiencies and cost effectiveness in program execution. BPMS is an IT improvement that is made up of the Activity Reporting System (ARS), Unit Reporting, and Program and Financial data. ARS tracks total hours worked. The Unit Reporting aspect compiles program outputs. Program and financial data is used to monitor program payments, and obligations and expenditures for personnel and operating expenses. The Enterprise Performance Management (EPM) is the software that ties all these components together to provide accurate reports to measure efficiency and cost effectiveness. The data components can be put together in different ways to provide: Budget Formulation Support, Resource Allocation Models, Cost Management Reports and Efficiency Reports. These reports will be used by all levels of management to measure and compare the effectiveness of their business processes. The reports also can be used to contrast and compare various organizational units to find ?best practices? for the agency that can then be extended or applied to other agency programs

Evidence: Targets for ?reduction in improper payments (%)? are 0.41 % for FY 2008 through FY 2013; eDCP Program, FSA?Direct and Counter-Cyclical Program; FSA FY 2005-2011 Strategic Plan ; BPMS Update Vol. 1, Issue 1; Notice DCP-182, ?FY 2007 National CORP Review for Improper Payments for DCP? November 2007; FY 2007 DCP Corrective Action Plan.

Does the program collaborate and coordinate effectively with related programs?

Explanation: In the DCP, direct payments work together with counter-cyclical payments (CCP). There is one sign-up for direct and counter-cyclical payments, common base acres to determine eligibility, and common payment provisions, in that the CCP payments are issued only if and when they are needed. They share a common field force, program management, and executive leadership in addition to logistical support throughout the organization. CCP are authorized only when the effective price for a commodity falls between the commodity's target price and its loan rate. Direct payment rates are added to the higher of the average market price or national loan rate in order to determine the effective price for a commodity.

Evidence: Fact Sheet Direct and Counter-cyclical Payment Program, March 2006

Does the program use strong financial management practices?

Explanation: Disbursement data are collected and reported in the financial statements of the Commodity Credit Corporation (CCC). These statements are audited every FY and disbursement procedures are in place to ensure that direct payments are made properly. However, for FY 2006 and FY 2007, the independent auditors found three material weaknesses, including "improvement needed in financial system functionality and funds control.

Evidence: Independent audit conducted by KPMG, "Commodity Credit Corporation?s Financial Statements for Fiscal Years 2007 and 2006", published November 2007.

Has the program taken meaningful steps to address its management deficiencies?

Explanation: The DCP has taken meaningful steps to address its management deficiencies. Based on data gathered by the USDA CORP, FSA has taken action to reinforce instructions and resolve problem areas identified during CORP reviews. NRCS and FSA are now working together to develop mutually agreeable procedures to improve communication and reporting. FSA improvements in improper payments from FY 2006 to FY 2007 were related to the actions described in the USDA 2007 PAR. The Agency provided training on improper payments awareness and responsibilities, ?Farm Programs Performance and Accountability? in the Aglearn system. Program checklists were implemented, reduction of improper payments was integrated into employee performance plans, and notices were published providing new instructions. By reducing the improper payment rate to 0.37% in FY 2007, FSA was able to show an overall improvement in the improper payments rate by over 92%. The eDCP service allows producers to enroll in DCP online. Producers can choose DCP payment options, assign crop shares, and sign, view, print, and submit their DCP contracts from any computer with Internet access at any time. This service has been available to all eligible producers for the 2005-2007 DCP program years and helps the Agency maintain participation rates for DCP. FSA is currently piloting a Budget and Performance Management System (BPMS) that will link budget, cost, and performance data, and make that data available to FSA managers at all levels. This integrated data will help FSA to better formulate and justify budgets, produce more accurate forecasts, and identify efficiencies. Work is well underway on implementation of each of the system components.

Evidence: OIG Audit 50099-11-SF ?Natural Resources Conservation Service and Farm Service Agency, Crop Bases on Lands with Conservation Easements in California? August 2007; DCP Notice 182, ?FY 2007 National CORP Review for Improper Payments for DCP,? November 2007; USDA FY 2007 PAR; Aglearn ?Farm Programs Performance and Accountability? improper payment training 2007; CCC-770 Checklist, Program Handbook 1-DCP

Has the program demonstrated adequate progress in achieving its long-term performance goals?

Explanation: The DCP has made progress in its long-term performance goals. The long-term measure, "reduce the percentage of farm revenue from direct payments for covered commodities and peanuts" is based on farm income data from NASS. Direct payments as a percentage of farm revenue are declining. Based on market revenue as reported by the NASS, direct payments as a percentage of farm revenue were 8.44% for 2003, 7.82 % for 2004, 7.11% for 2005, 7.18% for 2006, and 6.11% for 2007. The declining trend gives an indication of progress made to reduce dependence on direct payments. According to the program performance data for crop years 2003 through 2006, producers have become less dependent on direct payments for revenue as demonstrated by the decreasing proportion of direct payments relative to farm revenues. The long-term measure, "reduce direct payments as a percentage of cash expenses," has declining results as well. The farm cash expense data are provided by ERS in the Farm Income and Costs Farm Sector Income Forecast. Direct payments as a percentage of cash expenses show a declining trend. The portion of farm cash expenses covered by direct payments was 3.6% for 2003, 3.3% for 2004, 3.1% for 2005, 2.9% for 2006, and 2.8% for 2007. The declining trend shows the purpose of the program is to provide income support, serving as a safety net for producers. The program performance data for crop years 2003 through 2006 show producers have become more capital self-sufficient and capable of meeting the production expenses. The direct payments are not intended to pay a greater portion of expenses. They are only in place to provide a minimum level of support. As noted in question 2.1, direct payments provide baseline support for producers to pay operating expenses which are expected to increase. The direct payments provide a reliable source of income support, without adding an extraordinary supplement to producer income.

Evidence: ERS, Farm Income Data; Performance results for the long-term measure "reduce the percentage of farm revenue from direct payments for covered commodities and peanuts (%)," are 8.44% for 2003, 7.82 % for 2004, 7.11% for 2005, 7.18% for 2006, and 6.11% for 2007; Performance results for the measure "reduce direct payments as a percentage of cash expenses" are 3.6% for 2003, 3.3% for 2004, 3.1% for 2005, 2.9% for 2006, and 2.8% for 2007.

Does the program (including program partners) achieve its annual performance goals?

Explanation: Since the program does not have ambitious targets, the program cannot receive higher than a "small extent." However, the DCP has made progress in achieving its annual performance goal"reduction in improper payments." FSA exceeded its 2006 and 2007 impropoer payment performance targets. The results of the FY 2007 CORP review for improper payments for the DCP indicates that FSA has significantly decreased the percentage of improper payments from the FY 2006 CORP review. In FY 2007, the percentage of improper payments was 0.37%. FSA was able to show substantial progress in reducing its improper payment rates in FY 2007. There was a reduction of 4.59 percentage points from FY 2006 or a decrease of over 92%. The FSA long-term and annual measures "reduce the percentage of farm revenue from direct payments for covered commodities and peanuts (%)" and "reduce direct payments as a percentage of cash expenses" have also shown progress in achieving annual results. According to the program performance data for crop years 2003 through 2006, producers have become less dependent on direct payments for revenue as demonstrated by the decreasing proportion of direct payments relative to farm revenues, and to cash expenses.

Evidence: Prior year targets and actual results for the DCP performance measures as follows. 1) reduce the percentage of farm revenue from direct payments for covered commodities and peanuts (%): FY 2003 target 8.44% actual 8.44%; FY 2004 target 7.40%, actual 7.82%; FY 2005 target 7.30%, actual 7.11%; FY 2006 target 7.20%, actual 7.18%, FY 2007 target 7.10%, actual 6.11%; 2) reduce direct payments as a percentage of cash expenses: FY 2003 target 3.6%, actual 3.6%; FY 2004 target 3.3%, actual 3.3%, FY 2005 target 3.1%, actual 3.1%; FY 2006 target 2.9%, actual 2.9%, and FY 2007 target 2.8%, actual 2.8%; 3) reduction in improper payments (%): FY 2006 target 6.0%, actual 4.96%, FY 2007 target 0.41%, actual 0.37%; ERS, Farm Income Data and Farm Service Agency, Farm Programs; USDA FY 2007 PAR; FY 2007 DCP Improper Payments Corrective Action Plan; 2007 DCP Corrective Action Plan Status Report; Notice DCP-182, FY 2007 National CORP Review for Improper Payments for DCP November 2007; CCC-770 DCP, "DCP Contract Checklist", Program Handbook 1-DCP.

Does the program demonstrate improved efficiencies or cost effectiveness in achieving program goals each year?

Explanation: The annual/efficiency measure for direct payments is "reduction in improper payments %." This measure demonstrates FSA efforts to maximize efficiency and improve resource utilization. In FY 2006, the DCP program had an improper payment rate of 4.96%. By FY 2007, the DCP, the percentage of improper payments was 0.37 %. FSA was able to reduce the rate of improper payments by over 92%. The significant improvement in improper payments for FY 2006 to FY 2007 is due to the implementation of the Corrective Action Plans that included training on key controls to field personnel, and education on the importance of control procedures and the potential noncompliance risks. The Plans provided for individual accountability of controls by performing quarterly control testing on each employee's program related payment transactions. Five producer payment activities performed by each county office employee are selected for testing each quarter. Results from these quarterly tests are to be included as part of the employee annual performance plans for the county offices, district employees, and the State Executive Director. The results are integrated into the annual performance rating for each employee. The Plans reinforced current program policies regarding program compliance through the issuance of national notices to State and county office personnel.

Evidence: FSA efficiency measure "reduction in improper payments %" targets and prior year actual results are: FY 2006 target 6.0%, actual 4.96%, FY 2007 target 4.1%, actual 0.37%; DCP Notice 182 FY 2007 National CORP Review for Improper Payments for DCP November 2007; Corrective Action Plan FY 2007 Review Cycle; FSA FY 2007 Improper Payments Corrective Action Plan Status Report Direct and Counter-Cyclical Program (DCP).

Does the performance of this program compare favorably to other programs, including government, private, etc., with similar purpose and goals?

Explanation: The Goverment provides a number of programs that are designed to help keep American farmers viable. The majority of those programs are designed to provide support when producers suffer a loss. However, Direct Payments are designed to support the incomes of a select group of farmers, solely for owning specific tracts of land. Payments are based on historical production, and there is no requirement to produce any agricultural commodities to collect a payment. These payments are made regarless of need, and have been shown to increase land values and rental rates, inhibiting the entry of new farmers. However, direct payments have also been shown to be less trade distorting than Marketing Assistance Loan payments and Counter-cyclical Payments since they are not tied to prices. Other programs designed to support farmers include Government subsidized crop insurance programs protect producers from crop loss risk. The Marketing Assistance Loan Program provides eligible producers with a maximum of ten months of temporary financing when market prices tend to be low during and following harvest, and provides payments to producers when market prices are lower than statutory levels. Like Direct Payments, the Counter-cyclical Payment Program is not tied to current production, but rather to the enrolled farm's historical production base of covered commodities. Counter-cyclical payments are only issued if the effective price for a commodity is below the established target price for the commodity. Other programs provide subsidized loans to certain producer, such as Direct and Guaranteed Operating Loans that are aimed primarily at beginning, minority, and women farmers, are based on cash flow determinations, and are recourse in nature.

Evidence: Uruguay Round of the World Trade Organization?s Agriculture Agreement; http://www.ers.usda.gov/Briefing/WTO/; FSA fact sheet, ?About the Commodity Credit Corporation,? which may be found at: http://www.fsa.usda.gov/FSA; http://www.ers.usda.gov/Briefing/WTO/domsupport.htm; http://www.ers.usda.gov/Briefing/wto/domestic.htm; Farm loan program information is available at http://www.fsa.usda.gov/FSA/webapp?area=home&subject=fmlp&topic=landing; Price Support information is found at http://www.fsa.usda.gov/FSA/webapp?area=home&subject=prsu&topic=landing; Direct and Counter-cyclical program information is found at http://www.fsa.usda.gov/FSA/webapp?area=home&subject=dccp&topic=landing; Federal Agriculture and Reform Act of 1996, P.L. 104-127 (1996 Act)

Do independent evaluations of sufficient scope and quality indicate that the program is effective and achieving results?

Explanation: A number of independent evaluations have been conducted to determine the effectiveness of the Direct Paymet Program. A number of them have shown that because direct payments are dependable (you know you will receive them every year) they have been capitalized into land values and consequently land rental rates (see Moss and Schmitz or Beach, Boyd, and Uri). This has made it harder for small farms to expand, and for young people to get into farming. However, studies, such as one by Paul Westcott and Dr. Edwin Young, economists for the ERS, found that direct payments keep land in agricultural uses by providing income support without influencing planting decisions or distorting trade. Another study, by Dr. Barry Goodwin, found that direct payments help producers gain access to capital allowing them to expand or otherwise alter production. Dr. Goodwin also wrote that if producers? risk preferences are such that additions to wealth changes their risk aversion (e.g., decreasing absolute or relative risk aversion), they may choose to take on more risk in response to the payments. This may result in changes in production through additional acreage or changes in the use of other farm inputs.

Evidence: Charles Moss and Andrew Schmitz, "Government Policy and Farmland Markets: The Maintenance of Farmer Wealth," Ames: Iowa States University Press, 2003; E Douglas Beach, Roy Boyd and Noel D Uri. "The Effect of Eliminating Direct Payments to Farmers on Land Values" The Journal of Real Estate Finance and Economics, 1997, vol. 15, issue 3, pages 239-60; Westcott, Paul C. and Young, C. Edwin, Farm Program Effects on Agricultural Production: Coupled and Decoupled Programs, Agricultural Economic Report No. 838, Chapter 1, November 2004; Goodwin, Barry, "Another Look at Decoupling: Additional Evidence on the Production Effects of Direct Payments," American Journal of Agricultural Economics, Volume 87, Number 5, November 2005.