The Delays in Administering the 2005 Single Payment Scheme in England

Transcription

1 DEPTMENT FO ENVIONMENT, FOOD ND UL FFIS, ND UL PYMENTS GENCY The Delays i dmiisterig the 2005 Sigle Paymet Scheme i Eglad EPOT BY THE COMPTOLLE ND UDITO GENEL HC 1631 Sessio October 2006

2 The Natioal udit Office scrutiises public spedig o behalf of Parliamet. The Comptroller ad uditor Geeral, Sir Joh Bour, is a Officer of the House of Commos. He is the head of the Natioal udit Office, which employs some 850 staff. He, ad the Natioal udit Office, are totally idepedet of Govermet. He certifies the accouts of all Govermet departmets ad a wide rage of other public sector bodies; ad he has statutory authority to report to Parliamet o the ecoomy, efficiecy ad effectiveess with which departmets ad other bodies have used their resources. Our work saves the taxpayer millios of pouds every year. t least 8 for every 1 spet ruig the Office.

3 DEPTMENT FO ENVIONMENT, FOOD ND UL FFIS, ND UL PYMENTS GENCY The Delays i dmiisterig the 2005 Sigle Paymet Scheme i Eglad LONDON: The Statioery Office Ordered by the House of Commos to be prited o 16 October 2006 EPOT BY THE COMPTOLLE ND UDITO GENEL HC 1631 Sessio October 2006

4 cotets INTODUCTION 1 This report has bee prepared uder Sectio 6 of the Natioal udit ct 1983 for presetatio to the House of Commos i accordace with Sectio 9 of the ct. Joh Bour Comptroller ad uditor Geeral Natioal udit Office 12 October 2006 The Natioal udit Office study team cosisted of: David araty, Tracey Paye, Christopher Joyce, Ke Forema, Madelie Guer, Sarah Mcvoy, Tim Pryce, ad oy Whiddett uder the directio of Philip Gibby Part 1 There were delays i payig farmers 10 Part 2 The implemetatio of the sigle 13 paymet scheme ecoutered difficulties that could result i the Europea Commissio imposig a sizeable pealty The gecy ecoutered a umber of difficulties 13 i implemetig the sigle paymet scheme that cotributed to the problems i makig accurate paymets o time There is a risk that the Europea Commissio will 16 impose a substatial fiacial correctio as a result of the delays ad difficulties experieced This report ca be foud o the Natioal udit Office web site at For further iformatio about the Natioal udit Office please cotact: Natioal udit Office Press Office Buckigham Palace oad Victoria Lodo SW1W 9SP Tel: equiries@ao.gsi.gov.uk Natioal udit Office 2006

5 Part 3 The difficulties i makig paymets 17 have caused distress to a sigificat miority of farmers ad udermied the farmig idustry s cofidece i the gecy sigificat miority of farmers experieced 17 stress ad fiacial costs as a result of the late paymets More effective liaiso with farmers ad 18 ladowers would have reduced the adverse impact o the idustry Part 4 The sigle paymet scheme has cost 20 more to implemet tha expected ad may of the fiacial savigs forecast are ulikely to materialise ppedices 1 The itroductio of the sigle paymet scheme 25 by differet Member States of the Europea Uio ad backgroud iformatio o the scheme adopted i Eglad 2 Our methodology 29 3 chroology of key evets i the developmet 31 of the sigle paymet scheme ad the processig of applicatios for Case examples of farmers experieces of the 35 sigle paymet scheme 5 Compliace requiremets for the sigle 41 paymet scheme 6 summary of the key risks to the project 42 idetified by the gecy ad the reviews udertake by the Office of Govermet Commerce Part 5 Better maagemet of the risks could 22 have reduced the disruptio experieced Despite limited cofidece that the system 22 would be ready o time, o cotigecy pla was ivoked I practice, arragemets for oversight proved 23 complex ad the key oversight boards lacked the ecessary tools to idetify ad address issues as they arose Photographs courtesy of alamy.com

6 itroductio INTODUCTION

7 itroductio 1 This report reviews the implemetatio by the ural Paymets gecy ad the Departmet for Eviromet, Food ad ural ffairs of the Europea Uio s sigle paymet scheme i Eglad. The implemetatio had cost millio by the ed of March The gecy ecoutered difficulties i processig paymets due uder the scheme, totallig aroud 1,515 millio, ad failed to meet its ow target to pay 96 per cet of that sum by the ed of March The factors cotributig to the difficulties experieced icluded: a b c the Departmet ad the gecy had ot fully appreciated the risks ad complexities ivolved i implemetig the Eglish model of the sigle paymet scheme. This was, i part, due to a lack of commo uderstadig of the scheme requiremets ad likely customer behaviours across all key teams withi the Departmet ad the gecy; a absece of clear metrics agaist which to assess progress o implemetatio led to over optimistic upward reportig, ad hece a failure to show the true state of progress. s a cosequece, the related risks of failure became apparet at too late a stage to eable effective alterative paymet regimes to be put i place; ad i implemetig the scheme at the same time as a wider busiess chage programme aimed at deliverig efficiecies, the gecy lost too may of its experieced staff ad, as a cosequece, the kowledge which wet with them. 3 Implemetatio has ot provided value for moey because the project has cost more tha aticipated ad is ot fully implemeted as scoped, plaed efficiecy savigs will ot be achieved, relatioships with the gecy s customer base have bee damaged ad there is a risk of substatial disallowace of expediture by the Europea Uio. 4 The previous Chief Executive was therefore removed from post o 16 March 2006 ad at the ed of September 2006 remaied o leave of absece o full pay of almost 114,000 a year. 1 The ew Chief Executive ad seior maagers at the gecy have demostrated a busiess-like approach to learig lessos from what happeed with the 2005 sigle paymet scheme ad are actig o the recommedatios we have made. The gecy is ulikely to be able to remedy all the problems i time for the 2006 sigle paymet, but the maagemet team is developig a recovery pla which they expect to be fully implemeted by pril This is less tha he was paid i as his pay i that year icluded a bous for performace i ad a housig allowace. The terms of his departure will be reported publicly whe they are settled. The Delays i dmiisterig the 2005 Sigle Paymet Scheme i Eglad 1

8 Key Fidigs, Coclusios ad ecommedatios 5 The Europea Uio s sigle paymet scheme replaces 11 previous subsidies to farmers based o agricultural productio with oe ew sigle paymet based o lad area. 2 Ladowers ad farmers i Eglad who kept their lad i good agricultural ad evirometal coditio i 2005 could claim paymet from the ural Paymets gecy (the gecy accredited uder EU egulatios to admiister the sigle paymet scheme i Eglad). 3 Uder EU egulatios per cet of the gecy s sigle paymet scheme fuds of the estimated 1,515 millio had to be paid by the ed of Jue 2006 i order to be sure of avoidig late paymet pealties. 6 The Departmet for Eviromet, Food ad ural ffairs (the Departmet) regards the model of the sigle paymet scheme i Eglad as more forward lookig tha those i most other Europea coutries. EU egulatios offered some discretio to Member States over how to implemet the sigle paymet scheme ad, as ppedix 1 shows, Eglad ad Germay were the oly coutries to adopt the dyamic hybrid model for , 5 Miisters cosidered that this model was the most suited to givig farmers i Eglad greater freedom to respod to market demads for agricultural products, ad to reward evirometally friedly farmig practices. 6 The Departmet recogised that their approach had a high risk of ot beig delivered o schedule. 7 7 The gecy spet millio o implemetig the sigle paymet scheme as part of a wider busiess chage programme. The gecy deals with a rage of EU subsidies ad other activities, such as cattle tracig. From its iceptio i 2001 the gecy had embarked o a busiess chage programme to improve efficiecy but had to revise its approach i November 2003 to iclude the developmet of the sigle paymet scheme, which the became the key elemet of busiess chage. The way the scheme was implemeted was desiged to achieve efficiecy savigs by eablig staff i differet offices to work o ay tasks relatig to ay claim, rather tha for the same idividual or small team to process a whole claim from ed to ed. The gecy aticipated that this task based approach would eable faster processig ad improve staffig flexibility. 2 rable rea Paymets Scheme, Beef Special Premium, Extesificatio Paymet Scheme, Sheep ual Premium Scheme, Suckler Cow Premium Scheme, Slaughter Premium Scheme, Veal Calf Slaughter Premium Scheme, Dairy Premium, Dairy dditioal Paymets, Hops Icome id, ad the Seed Productio id. 3 EU egulatios defie a farmer as ay perso or orgaisatio whose holdig is situated withi Commuity territory ad who exercises a agricultural activity or maitais their lad i good agricultural ad evirometal coditio. Similarly, i this report we have used the term farmer to iclude all people with lad eligible for paymets, whether or ot they farm the lad commercially. 4 Uder the dyamic hybrid model chose i Eglad, the value of paymet etitlemets is based partly o claimats average subsidy receipts, if ay, betwee 2000 ad 2002, ad partly o a flat rate per hectare. Niety per cet of the Eglish fiacial ceilig was used to fud the historic elemet of etitlemet values ad 10 per cet to fud the flat rate elemet i year oe of the scheme, ad the weightig trasfers to the flat rate i icremetal steps of five per cet to 15 per cet each year (see ppedix 1). 5 Whereas, accordig to our cosultats, ND Europe, the Germa govermet set a 100 euro de miimis claim limit, the Departmet did ot adopt such a approach because all four UK Departmets (the decisio havig legally to be made at Member State level) cocluded that it was the calculatio of the etitlemet values that absorbed the processig effort ad that havig doe that work it was simpler to make the paymet. I additio, the Departmet itroduced three separate categories of lad i Eglad, each of which attracted a differet flat rate of grat. Set agaist that i Germay there was a differet flat rate i each of the Germa Lader ad differet paymet rates were set for grasslad ad arable lad. This was a optio cosidered i Eglad but ot adopted. 6 Secretary of State for Eviromet, Food ad ural ffairs statemet o CP reform: implemetatio of the Sigle Farm Paymet Scheme i Eglad, Hasard 12 February 2004, volume 417 Sessio , colums Partial egulatory Impact ssessmet o Optios for the Implemetatio of the eform of the Commo gricultural Policy: llocatio of the sigle paymet etitlemets, July 2004 (published at 2 The Delays i dmiisterig the 2005 Sigle Paymet Scheme i Eglad

9 itroductio 8 The gecy ecoutered difficulties i processig paymets uder the sigle paymet scheme, ad failed to meet its ow target to pay 96 per cet of the moey due to farmers by the ed of March s at 31 March 2006 the gecy had paid 225 millio (represetig 15 per cet of the 1,515 millio sigle paymet scheme fuds) to 31,040 farmers (27 per cet of the 116,474 claimats). The gecy made paymets of 515 millio by the ed of pril 2006 by streamliig processes for authorisig paymet oce claims had bee validated. Takig ito accout the risk that the remaiig paymets could otherwise have bee deferred beyod the ed of Jue 2006, the gecy made partial paymets of 730 millio i May 2006 with the agreemet of the Departmet ad Miisters. 8 The gecy paid out 1,438 millio (95 per cet) agaist a EU deadlie of per cet by the ed of Jue 2006, ad 96 per cet of sums due by the ed of July. By the ed of Jue most farmers had bee paid, except for 8,586 farmers (seve per cet) who had ot received ay moey, ad 16,168 (14 per cet) who had received partial paymets amoutig to 80 per cet of their claim. The delays, i particular the gecy s failure to meet its target for paymets i March, led to the removal from post of the Chief Executive ad icreased Parliametary iterest i the performace of the gecy. This report examies the impact of the difficulties experieced by the gecy, the evets that led to the delay i payig farmers, ad what lessos ca be leared ad applied i future. Overall coclusios 9 The sigle paymet scheme is ot a large grat scheme compared to some govermet programmes, but the complexity of the EU egulatios, the complex way i which the Departmet plaed to implemet them i Eglad, combied with the deadlies required to implemet the scheme for 2005, made it a high risk project. By choosig to itegrate the scheme ito a wider busiess chage programme, the gecy added to its already cosiderable challeges. May of the gecy s difficulties arose, however, from: uderestimatig the scale of the work eeded to implemet the scheme; over optimistic progress reportig; ad goverace structures which, i practice, proved overly complex, ad the absece of clear metrics, arisig from the lack of appropriate maagemet iformatio that would have allowed the oversight boards to measure progress objectively. 8 The partial paymets represeted 80 per cet of what the gecy estimated would be the total amout of each claim. The paymets were made to those farmers who had ot already received a paymet ad who had a claim of over 1,000. The Delays i dmiisterig the 2005 Sigle Paymet Scheme i Eglad 3

10 itroductio By the ed of March 2006 implemetatio of the sigle paymet scheme had cost 46.5 millio more tha the gecy had aticipated i its November 2003 busiess case. The implemetatio of the sigle paymet scheme ad the wider busiess chage programme had cost millio, will ot achieve the level of savigs forecast, ad there is risk of substatial costs for disallowace by the Europea Commissio. The farmig idustry has also icurred additioal costs, 20 per cet of farmers have experieced stress ad axiety as a result, ad five per cet of respodets to our survey said they have cosidered leavig farmig. 10 The gecy has begu processig the 2006 sigle paymet scheme claims ahead of the Europea Commissio s paymet widow from December 2006 to Jue I view of the large umber of chages required, the gecy has cofirmed that it is ulikely to be able to remedy all the issues highlighted i our report i time for the 2006 sigle paymet scheme. s a cosequece, our recommedatios iclude actios that the gecy should take to improve performace i the loger term as well as i We have also idetified a umber of recommedatios with broader applicatio to reduce the likelihood of other projects ecouterig similar problems i the future. The impact of the difficulties experieced by the gecy 11 The difficulties i makig paymets have caused distress to a sigificat miority of farmers. Twety per cet of the farmers surveyed by Ipsos MOI o our behalf said that the delays had caused distress ad axiety for them ad their family. For some, such as may hill farmers, the sigle paymet scheme is a sigificat proportio of their family icome. We estimate that the delays have cost farmers betwee 18 millio ad 22.5 millio i iterest ad arragemet fees o additioal bak borrowig. The wider kock o effects o the farmig sector are difficult to quatify, but some farmers claim to have postpoed purchases, sold crops ad livestock early or delayed paymets to their suppliers. The Secretary of State for Eviromet, Food ad ural ffairs aouced o 22 Jue 2006 that, calculated from 1 July 2006, the gecy would pay iterest to farmers i respect of delayed paymets at oe per cet above the Lodo Iterbak Offered ate We idetified a umber of errors ad procedural weakesses by the gecy i makig paymets to farmers i The gecy s systems were desiged to make most paymets by automated bak trasfer ad i a umber of cases the gecy used other systems to speed up farmers receipt of fuds, especially where hardship was ivolved or regulatory deadlies were approachig. The gecy foud that oe batch of payable orders (amoutig to 14.6 millio) had ot take accout of partial paymets which had already bee made. The gecy took immediate actio i respose to the review ad stopped all the payable orders before farmers could cash the moey. However, the gecy has yet to recover a further 5.4 millio of overpaymets that were made as a result of a error itroduced i the computer system. I additio, as at 15 September 2006 we had idetified 34 overpaymets ad 79 uderpaymets i our sample of 363 cases which, if replicated across the whole populatio, are most likely to result i errors of 6.5 millio ad 17.4 millio respectively. 10 May of the mistakes arose from errors i iputtig data oto the computer system. I 105 of the 113 cases, the error related to the flat rate per hectare elemet, which represeted oly 10 per cet of the value of claims i Errors ad procedural mistakes i admiisterig the scheme i Eglad have created a risk that the Europea Commissio will impose a fiacial correctio, for which the Departmet has recogised provisios ad cotiget liabilities totallig some 131 millio i its accouts. The Europea Commissio ca disallow expediture if the gecy has ot wholly complied with its regulatios, leavig the Departmet to bear the cost. The figure of 131 millio represets the Departmet s prudet estimate based o the guidace 9 House of Commos, Oral swers to Questios, 22 Jue 2006, colum The overpaymets ad uderpaymets represet our estimate of the most likely error based o our sample testig as at 15 September We ca be 95 per cet sure that the maximum overpaymet would ot exceed 20.2 millio ad the uderstatemets would ot be more tha 37.1 millio. The gecy are still ivestigatig our queries o a further 33 cases from our sample of 363 cases. I these cases, however, the gecy has ot yet processed the fial paymets ad ay errors foud ca be rectified beforehad. The Delays i dmiisterig the 2005 Sigle Paymet Scheme i Eglad

11 itroductio available, at this stage, of what the fiacial correctios could be. y disallowed amout is subject to clarificatio ad egotiatio with the Europea Commissio. The gecy ad the Departmet cofirmed that, o occasio, the Europea Commissio had subsequetly revised dow its iitial assessmet of potetial disallowace. I advace of discussios betwee the Departmet ad the Europea Commissio it is ot certai, however, what disallowace might be icurred o the 2005 sigle paymet scheme. 14 There appears to be little prospect that the Departmet ad the gecy will achieve much of the 164 millio efficiecy savigs they had forecast betwee ad The gecy is hopeful that savigs could be made i future, but it has yet to develop a revised busiess case specifyig how this ca be achieved. The gecy had aticipated that its ew task based system could reduce the umber of staff employed by 1,800 posts from a baselie of 3,950 posts. The gecy met its target to reduce its headcout of permaet staff by 1,000 posts by the ed of March 2006, at a cost of 38.9 millio. t this date, however, there were 2,140 permaet staff, plus 838 casual staff ad 1,351 cotract staff to deal with outstadig claims for the 2005 sigle paymet scheme. Sice the, the gecy has abadoed its task based approach to processig the sigle paymet scheme ad, although the volume of work associated with the 2005 scheme may subside, revertig to a cliet based approach, which is aimed to speed up paymets, will ot ecessarily geerate sigificat savigs. Corve Cosultig, commissioed by the Departmet to review the sigle paymet scheme, reported i Jue 2006 that they have idetified potetial savigs of 7.5 millio achievable by March The project to implemet the sigle paymet scheme has cost 46.5 millio more tha aticipated, ad further cost icreases are likely. ccordig to the gecy s fiacial data, the outtur cost at March 2006 of millio (compared to a origial budget i November 2003 of 75.8 millio) does ot take accout of the deferral of some key elemets of the system, such as the software required to extract maagemet iformatio. The gecy are also cosiderig plas to commissio further developmet work to improve the performace of the computer system. By March 2006 the implemetatio of the sigle paymet scheme ad costs relatig to the wider busiess chage programme totalled millio. 16 The former Chief Executive was removed from post i March 2006 ad at the ed of September 2006 remaied o leave of absece o full pay. The Departmet has yet to determie the terms of his departure. 11 The evets that led to the delay i payig farmers 17 The timetable for the implemetatio of the sigle paymet scheme became very tight followig required chages to the origial specificatio of the computer system. The gecy had aticipated that the developmet of the core IT ifrastructure would be complete by December By this date, however, the gecy had idetified 23 chages to the computer systems uder developmet, largely to icorporate chages to EU egulatios ad legal clarificatios of those egulatios, Miisterial decisios ad other chages idetified. 12 The gecy cosidered that failure to implemet these chages would have exposed the Departmet to a sigificat risk of disallowace by the Europea Commissio. I accordace with EU egulatios the Departmet had already otified the Commissio of the Uited Kigdom s decisios o implemetatio of the sigle paymet scheme by 1 ugust 2004 ad did ot cosider that deferral to 2006 was a optio. The revised timetable aticipated completio by September 2005 ad deferred the date of the first paymets from December 2005 to February The terms of his departure will be reported publicly whe they are settled. 12 example of the other chages was amedmet to the layout of the applicatio form. The Delays i dmiisterig the 2005 Sigle Paymet Scheme i Eglad 5

12 itroductio 18 To keep to the timetable, the gecy implemeted key aspects of the IT system without adequate assurace that every compoet was fully compatible with the rest of the system ad supportig busiess processes. The gecy did ot have time to test the system as a whole before it bega makig paymets. Each key elemet of the system was tested before itroductio, but problems arose afterwards as the testig of each system i isolatio could ot fully simulate the real world eviromet. The claim validatio ad ispectio system, for example, had issues outstadig whe it was implemeted (such as computer screes freezig ), ad the gecy reported that the system had subsequetly proved ustable. cceture ad the gecy cofirmed to us, however, that the problems experieced i July ad ugust 2005 have ow bee overcome ad that the system is ow stable. 19 The gecy uderestimated the work ivolved. The gecy did ot adequately pilot test the process of registerig farmers, accurately mappig their lad ad cofirmig eligibility. It had expected to record 1.7 millio parcels of lad, but had to deal with 2.1 millio parcels. Some of the lad related to ew claimats, of whom some had very small ladholdigs, but 36 per cet of the icrease arose whe existig farmers registered additioal lad. The gecy cosider that most of this additioal lad should have bee registered i previous years uder the EU egulatios goverig the subsidy schemes that the sigle paymet scheme replaced. 20 The gecy did ot have adequate maagemet iformatio to moitor progress ad forecast future work effectively. The gecy had deferred the developmet of software to draw out key iformatio o the progress of each claim i order to focus resources o parts of the system it cosidered would icrease the chaces of meetig the tight deadlie. s a cosequece, the gecy foud it difficult to determie how much work remaied outstadig o claims each week ad how much time it would take to complete them. 21 The gecy had to rely o temporary ad agecy staff to process claims, but may lacked experiece i dealig with such work. The gecy cofirmed that it had a iductio programme for everyoe brought i to work o claims, but our iterviews idicate that the traiig team struggled to deal with the volume of work ad some temporary staff had to rely o advice from colleagues ad experts i each office o how to deal with claims. The gecy spet 14.3 millio o agecy staff i to process 2005 sigle paymet scheme claims. 22 Despite limited cofidece that the system would be ready o time, developmet work o the computer system cotiued ad o cotigecy pla was ivoked. I Jue 2005, the Departmet iformed the Secretary of State ad the Miister of Farmig that a OGC Gateway review had assessed the programme as red, meaig that the Chief Executive of the gecy was recommeded to take urget remedial actio to address the issues which had bee idetified. The Departmet also advised that there was oly a 40 per cet cofidece that paymets would i fact commece, as plaed, i February The same OGC Gateway review, Gate 4b, recommeded that actio was take to idetify ad aalyse fallback optios to safeguard paymet deadlies. However, the Departmet ad the gecy assessed that cotiuig developmet of the existig computer system provided a greater possibility of meetig the paymet target tha relyig o the cotigecy system uder developmet by Sugard ad Xasa. The Departmet did ot therefore recommed ivokig a cotigecy system or, because it did ot believe it was a available optio, delay use of the ew computer system util The Delays i dmiisterig the 2005 Sigle Paymet Scheme i Eglad

13 itroductio The lessos to be leared 23 It may have bee expesive to develop ad maitai suitable cotigecy arragemets, but the high risks of the ew system beig developed, ad of the potetial cosequet disallowace by the Europea Commissio of the paymets made, might have warrated such costs. The gecy iitially developed a alterative, costig 8.4 millio, which adapted its legacy IT systems to make 2005 paymets. s the cotigecy relied o the same data as the ew system beig developed it was mothballed oce claims started to be processed usig the ew system. Cotiued developmet work to ru the cotigecy i parallel would have absorbed further resources ad spread more thily the limited umber of staff with the required kowledge of the scheme ad developmet skills. Furthermore, may of the difficulties with data accuracy would have arise with the cotigecy system ad the gecy cosidered that its ability to process them was uderstood less tha the mai system that had bee the focus of attetio. Nevertheless, as the cotigecy system would have processed paymets o a claim by claim basis, rather tha task by task, the gecy may have foud it easier to resolve outstadig data queries. fter mothballig that cotigecy system ad the adoptio of a EU egulatio i October 2005 which permitted partial paymets, the gecy decided to develop as a fallback a ew system to make partial paymets which was available from the ed of Jauary This fallback was ot ivoked because of the perceived progress to eable full paymets. decisio to implemet a alterative partial paymets system based o 80 per cet of claim values was take i pril Our cosultats, ND Europe, cofirmed that i Germay the Federal Miistry of Food, griculture ad Cosumer Protectio used its cotigecy scheme to make advace paymets i December 2005, ad fial paymets i pril to Jue Util the relevat auditor s report i Jauary 2007, however, it will ot be clear whether this paymet scheme complied with the Europea Commissio s requiremets. 24 The Office of Govermet Commerce udertook four OGC Gateway reviews betwee May 2004 ad February 2006, three of which assessed the programme as red. The reports focused o the leadership of the project ad Miisterial ivolvemet, IT issues ad relatios with the cotractor. There was some cosideratio of wider issues that would impact o the success of the scheme but more attetio could have bee paid to issues such as staff morale ad traiig, or the gecy s relatioship with farmers. The Office of Govermet Commerce is carryig out its ow case study review of the gecy s busiess chage programme, as part of which it is reviewig the role of the OGC Gateway process ad whether there is scope for possible improvemets, icludig the scope for carryig out more Gate 0 reviews durig a project, which are desiged to take a more holistic view. 25 The Departmet ad the gecy put i place appropriate arragemets to oversee progress, but as the deadlie got closer, the two key oversight boards took greater cotrol of implemetatio. We reviewed the structures for overseeig the project early i 2005 ad cofirmed to the gecy that, i priciple, they provided a soud basis o which to maage the project risks. I practice, however, as the programme etered its fial, critical, phase the distictio betwee the two oversight boards became less clear ad the coclusios of oe board (the CP eform Implemetatio Board) were typically referred to the other (the Executive eview Group) for approval. 13 The OGC Gateway eview recommeded i Jue 2005 that oe idividual should be give resposibility for maagig the decisio makig process. This recommedatio was ot adopted for the 2005 scheme, but the Executive eview Group agreed that this lesso should be leared for the 2006 scheme. 13 The CP eform Implemetatio Board was resposible for techical programme maagemet. It was chaired alterately by the Chief Executive of the gecy (who was seior resposible ower of the ural Paymets gecy chage programme) ad the Director Geeral for Sustaiable Farmig, Food ad Fisheries at the Departmet (who was seior resposible ower of CP reform). The Executive eview Group was chaired by the Permaet Secretary, ad its role was to provide a critical challege fuctio. The Delays i dmiisterig the 2005 Sigle Paymet Scheme i Eglad

14 itroductio 26 The Executive eview Group became embroiled i progressig the project rather tha exercise a obvious challege fuctio. Nearly all the members of the eview Group were seior officials withi the gecy ad Departmet with policy or operatioal resposibilities for the sigle paymet scheme, ad there was oly oe oexecutive member appoited. Our iterviews with seior officials cofirmed that the papers submitted by the gecy for each meetig were difficult to uderstad. Noetheless, those officials believe that they were still able to exercise a appropriate challege fuctio, although this was ot always clear from our review of the miutes. The former Chief Executive cofirmed to us his belief that the CP eform Implemetatio Board came to supercede his role as seior resposible ower of the delivery of the sigle paymet scheme, its decisios subsequetly beig ratified by the Executive eview Group. 27 Clearly defied metrics for the Executive eview Group would allow a more objective measure of performace. The former Chief Executive s progress reports to Miisters were uduly optimistic ad the progress reports ad other papers prepared by the gecy were overly complex, ad did ot spell out overall performace clearly eough. I the absece of adequate maagemet iformatio systems, robust ad objective data were ot readily available meaig that clearer output measures (such as the cumulative umber of maps registered or the progress of claims through the validatio process) which might have triggered corrective actios earlier, could ot be set. 28 The Departmet allowed the gecy too much discretio ad idepedece i implemetig the sigle paymet scheme give the potetial liability it faced ad the cosequet risks to its reputatio. Seior departmetal officials cofirmed that they had cocers i late 2005 about whether the gecy s maagemet team could deliver the sigle paymet scheme o time, but felt that makig chages at that time would have bee more disruptive ad raised the risk profile of the project eve higher. 29 s the pressure built, day to day commuicatios with farmers proved difficult ad a lack of iformatio o the progress of their claims led to stress ad frustratio amogst the gecy s primary customers. The gecy relies o farmers cooperatio to admiister the paymets scheme effectively. The absece of key iformatio o the progress of each claim hampered the ability of staff i the customer cotact cetre to resolve farmers queries. 30 We recommed that the gecy: a b c Udertakes a cost beefit review by the ed of March 2007 of the processes ad systems it has developed for admiisterig the sigle paymet scheme to determie whether each compoet is, ad is likely to remai, adequate for busiess eeds. eviews the high risk ad high value claims paid i 2005 to cofirm their accuracy, before it commeces the associated 2006 paymets. Fialise ad test plas for a partial paymet system for 2006 claims before the paymet widow commeces i December 2006 i case such arragemets prove ecessary. 8 The Delays i dmiisterig the 2005 Sigle Paymet Scheme i Eglad

15 itroductio d e f Cotact those farmers who are kow to have bee overpaid for the 2005 sigle paymet scheme before the ed of October 2006 to agree arragemets to recover the moey. Draw to the attetio of farmers the paymets calculator available o the gecy s website so that they ca check the reasoableess of their 2005 paymet before the start of the 2006 paymet widow. This tool could help idetify those farmers who received less tha they were etitled to i 2005, ad eable ay uderpaymets to be remedied. Develop adequate maagemet iformatio systems by Summer 2007 to eable the gecy to track the progress of claims. 31 We recommed that the Departmet: a b c d eview the gecy s plas for partial paymets for the 2006 sigle paymet scheme to determie whether they are cost-effective ad likely to comply with EU regulatory requiremets. Drawig upo the results of the gecy s review of 2005 high risk ad high value claims, develop a robust case by the ed of 2006 that could be used i egotiatios with the Europea Commissio to miimise the extet of disallowace likely to be imposed. Simplify reportig arragemets betwee the gecy ad the Departmet so that i ay future projects there are clear lies of accoutability betwee them. Develop a clear set of metrics for this project ad ay similar projects i future that ca be used by seior officials ad members of project oversight boards to measure progress objectively. These metrics should iclude quatifiable, objective measures of outputs. I the cotext of the sigle paymet scheme it should be possible to relate these measures directly to progress processig farmers claims, such as the umber of maps registered each week compared to target. e f gree arragemets with delivery bodies at the outset of a project that, if the performace metrics dictate, the Departmet would istigate a review of progress to determie whether chages are required. Such reviews could be udertake by iteral audit, the Office of Govermet Commerce or, if appropriate, by ivitig the Natioal udit Office to examie progress. esolve the former Chief Executive s employmet status as soo as possible. 32 We recommed that the Office of Govermet Commerce: a b c For the key missio critical projects (where OGC has a direct itervetio role), use the Gateway eport, together with the wider evidece, to specify the circumstaces i which it would be appropriate for the seior resposible ower to otify the Permaet Secretary ad Miisters that a project should either be stopped or fudametally reviewed. For projects i geeral, OGC should make use of capability reviews of departmets programme ad project maagemet Cetres of Excellece (as beig piloted by OGC) to esure that departmets processes give them access to the full body of kowledge o projects so they ca take appropriate decisios o whether a project should be stopped or fudametally reviewed. eview, before the ed of 2006, how red reviews, ad i particular, multiple red reviews, are dealt with i future i terms of guidace to the seior resposible ower ad brigig them to the attetio of the Permaet Secretary. Examie whether existig OGC Gateway review procedures pay sufficiet attetio to the softer aspects of a project, such as staff traiig ad skills, ad customer expectatios. The Delays i dmiisterig the 2005 Sigle Paymet Scheme i Eglad 9

16 part oe Part oe There were delays i payig farmers 1.1 Farmers i Eglad are etitled to paymet from the Europea Uio s sigle paymet scheme as log as each etitlemet allocated to them is matched by a hectare of eligible lad ad other eligibility rules are met. Paymet may be reduced if farmers do ot keep their lad i good agricultural ad evirometal coditio or do ot comply with existig EU requiremets relatig to the eviromet, aimal ad public health, ad aimal welfare. The itroductio of the sigle paymet scheme, as part of the Commo gricultural Policy eforms i Jue 2003, replaced 11 existig subsidies based o agricultural productio. The chage i eligibility rules also opeed the scheme to some farmers ad ladowers who had ot previously bee able to claim support. 1.2 EU egulatios provided some discretio i how the sigle paymet scheme could be implemeted by the 15 older Member States. The Departmet for Eviromet, Food ad ural ffairs (the Departmet) agreed to itroduce a dyamic hybrid system for the sigle paymet scheme. Uder this model, paymets to farmers are based partly o their average subsidy receipts betwee 2000 ad 2002 ad partly o a flat rate per hectare based o the umber of hectares they declared o their applicatios i Niety per cet of each paymet is based o the historic subsidy receipts ad 10 per cet o the flat rate i year oe of the scheme, ad the weightig trasfers to the flat rate i icremetal steps of five per cet to 15 per cet each year. The paymets are admiistered by the ural Paymets gecy (the gecy). 14 ppedix 1 summarises the differet approaches to the itroductio of sigle paymet schemes by each Member State of the Europea Uio, provides further backgroud iformatio o the scheme itroduced i Eglad, ad compares the approach adopted with that i Scotlad, Norther Irelad, Wales ad Germay. 1.3 The umber of claimats is ot large compared to the umber of busiesses or idividuals affected by other govermet services, such as the tax or beefits systems, but the EU egulatios for the sigle paymet scheme are relatively complex. By way of illustratio, the basic applicatio form for the scheme i 2005 was 24 pages log, with supplemetary pages for farmers to detail each parcel of lad they had to register. Germay ad Eglad were the oly two coutries to adopt the dyamic hybrid model for 2005 (see ppedix 1). Whereas ND Europe, our cosultats, cofirmed that the Germa govermet set a 100 de miimis claim limit, the four UK griculture Departmets (this decisio havig legally to be made at Member State level) decided ot to adopt this approach. The Departmets cocluded that it was the calculatio of the etitlemet values that absorbed the processig effort ad that havig doe that work it was simpler to make the paymet. s Figure 1 shows, almost 14,000 claims i Eglad (12 per cet) were for less tha 100 ( 68). I additio, the Departmet itroduced three separate categories of lad i Eglad, each of which attracted a differet flat rate of grat. I compariso, i Germay there was a differet flat rate i each of the 19 Germa Lader ad differet paymet rates were set for grasslad ad arable lad. This was a optio cosidered i Eglad but ot adopted. 14 The gecy is accredited by the UK Competet uthority uder EU egulatios to admiister paymets. 10 The Delays i dmiisterig the 2005 Sigle Paymet Scheme i Eglad

17 part oe 1 6 per cet of claims were more tha 50, per cet of claims were more tha 1,000 ( 682) ad less tha 50,000 Source: Natioal udit Office aalysis of ural Paymets gecy data NOTE large proportio of claims i 2005 were for a relatively small amout of moey Base: ll 116,474 claims. 12 per cet of claims were less tha 100 ( 68) 24 per cet of claims were more tha 100 ( 68) ad less tha 1,000 ( 682) 1.4 The gecy had a performace target to pay 96 per cet of sigle paymet scheme fuds by the ed of March I late Jauary, the Farmig Miister cofirmed that paymets would commece i February ad that the bulk of paymets would be made i March Paymets did start i February but by early March it was clear that the gecy was experiecig difficulties: its performace report cofirmed that oly 2,400 paymets had bee made i February, amoutig to just 19 millio of the total 1,515 millio that was due. O 16th March the Secretary of State expressed public cocers about progress ad replaced the Chief Executive, Johsto McNeill, with a iterim ctig Chief Executive, Mark ddiso. 16,17 t the ed of September the former Chief Executive remaied o leave of absece o full pay of almost 114,000 a year ad the Departmet had ot yet determied his terms of departure or whether ay performace bous for should be paid. 1.6 Our cosultats, ND Europe, cofirmed that i Germay, the federal states also experieced difficulties i processig paymets. Most of the problems appeared to be oe-off difficulties i gatherig accurate data. The Germa federal states made partial paymets i December 2005, ad fial paymets before the Europea Commissio s 30 Jue 2006 deadlie. The federal states expect to pay the full sigle paymets for 2006 by the ed of December s at 31 March 2006 the gecy had paid 225 millio (represetig 15 per cet of the 1,515 millio sigle paymet scheme fuds) to 31,040 farmers (27 per cet of the 116,474 claimats). The gecy paid 515 millio by the ed of pril 2006 by streamliig processes for authorisig paymet oce claims had bee validated. Takig ito accout the risk that the remaiig paymets could otherwise have bee deferred beyod the ed of Jue 2006, the gecy made partial paymets of 734 millio i May lthough the gecy paid out the bulk of the moey due to farmers i Eglad by the EU regulatory deadlie of the ed of Jue (see Figure 2 overleaf), ad 96 per cet by the ed of July, 8,586 farmers had ot received ay moey by the EU deadlie, ad a further 16,168 had received partial paymets amoutig to 80 per cet of their claim. There have also bee kock-o impacts o processig the separate Hill Farm llowace Scheme, which provides support to beef ad sheep farmers i Eglish Less Favoured reas. By late Jue oly 6,800 of the 10,500 eligible claimats for this scheme had bee paid (64.8 per cet). 1.8 This report examies the evets that led to the difficulties experieced, the impact of the delays o farmers, the impact o the gecy s iitiative to make efficiecy savigs, ad what lessos might be leared to improve the maagemet of such projects i future. ppedix 2 summarises the data collectio ad aalysis techiques we used to support this report. 15 House of Lords debates, 24 Jauary 2006, colum House of Commos Writte Statemets, 16 March 2006, Colum 104WS. 17 Mark ddiso took early retiremet i 2006 ad has bee replaced by Toy Cooper. 18 The partial paymets represeted 80 per cet of what the gecy estimated would be the total amout of each claim. The paymets were made to those farmers who had ot already received a paymet ad who had a claim of over 1, Uder EU egulatios, per cet of the gecy s sigle paymet scheme fuds have to be paid by the ed of Jue each year i order to be sure of avoidig late paymet pealties. The Delays i dmiisterig the 2005 Sigle Paymet Scheme i Eglad 11

18 part oe 2 By 30 Jue 2006 cumulative paymets by the gecy amouted to 1,438 millio Total amout paid ( m) Proportio of moies paid (%) 1,515 1,400 1,200 1, March gecy s target to pay 96% 28 March % Source: Natioal udit Office aalysis of ural Paymets gecy data EU regulatory deadlie to pay 96% pril May Jue July ugust NOTE The dates o the horizotal axis refer to the days whe the gecy measured progress. s a cosequece, there are variatios i the itervals betwee each date. 12 The Delays i dmiisterig the 2005 Sigle Paymet Scheme i Eglad

19 part two Part TWO The implemetatio of the sigle paymet scheme ecoutered difficulties that could result i the Europea Commissio imposig a sizeable pealty The gecy ecoutered a umber of difficulties i implemetig the sigle paymet scheme that cotributed to the problems i makig accurate paymets o time 2.1 The implemetatio of the sigle paymet scheme ivolved the developmet of a rage of systems ad chages i workig practices. The system devised by the gecy was complex, reflectig the requiremet to comply with the various EU egulatios ad because the system ivolved a task based approach to processig claims. We idetified three major factors wholly or partly withi the gecy s cotrol that cotributed to the difficulties i makig accurate paymets o time: Chages durig the developmet of the IT systems to icorporate EU egulatios ad other policy chages reduced the time available for testig before the system wet live. The gecy uderestimated the work ivolved i mappig farmers lad. I the absece of adequate maagemet iformatio, the gecy uderestimated the work ivolved i processig each claim. ppedix 3 provides a chroology of the mai evets durig the project. i) Chages durig the developmet of the IT systems to icorporate EU egulatios ad other policy ad operatioal chages reduced the time available for testig before the system wet live 2.2 I its November 2003 busiess case, the gecy set milestoes for the delivery of the core IT ifrastructure by December The work o developig the IT systems durig 2004, however, icluded a umber of assumptios about what the fial policy o the sigle paymet scheme would ivolve ad o the detail of the fial regulatios from the Europea Commissio. The former Chief Executive cofirmed that he had highlighted the risks i fialisig detailed scheme requiremets. By December 2004, the gecy had idetified 23 chages to be made to the computer systems, largely as a result of subsequet revisios to EU egulatios ad legal clarificatio of those egulatios, ad partly from Miisterial decisios ad other chages idetified. 20 These chages also led the gecy to revise its forecast of the umber of farmers who would be eligible for fudig from 90,000 to 120, Failure to implemet the ew regulatios would have exposed the Uited Kigdom to greater risk of disallowace by the Europea Commissio. I accordace with EU egulatios the Departmet had already otified the Commissio by 1 ugust 2004 of the Uited Kigdom s decisios o implemetatio of the sigle paymet scheme ad did ot cosider that deferral to 2006 was a optio. 20 The chages icluded a ew aex to the form to provide the data ecessary to allocate horticultural authorisatios, ad the fuctioality to apply a ew regulatory pealty for uderdeclarig lad. There were also chages to the layout of the applicatio form. The Delays i dmiisterig the 2005 Sigle Paymet Scheme i Eglad 13

20 part two However, icorporatig the chage requests led the gecy to revise their implemetatio timetable so that the key IT systems would be ready by September 2005 (see Figure 3) ad to defer some parts of the origial system desig. For example, it had desiged applicatio forms suitable for machie readig, but scoped this out ad substituted maual data etry (elease 3a0) istead. 21 t the same time the gecy revised its probability of success from 90 per cet to 70 per cet ad deferred the forecast date for makig the first paymets from December 2005 to February lthough the gecy ad its cotractor (cceture) kept to this ew timetable, our aalysis of evets idicates that the pressure to meet deadlies led the gecy to proceed without sufficiet evidece of the robustess of the overall busiess systems. 2.4 The decisio to accept IT compoets before full testig had bee satisfactorily completed may have appeared a pragmatic approach to eable paymets to commece o time. However, oce itroduced ito the live processig eviromet, some of the systems ecoutered problems that delayed the processig of claims. The gecy did ot have the time to test the system as a whole before itroductio. Each key elemet of the system was tested before itroductio, but problems arose afterwards as the testig could ot fully simulate the live eviromet. 22 ii) The gecy uderestimated the work ivolved i mappig each farmer s lad 2.5 I order to determie what lad is applicable to each farmer s claim uder the sigle paymet scheme, the gecy used a computerised database: referred to as the ural Lad egister, which the gecy cofirmed had bee developed to meet pre-existig CP subsidy rules. The switch from productio based subsidies to paymets based o lad area uder the Eglish model of the sigle paymet scheme exteded the lad area to be captured o that egister. EU egulatios specified that the miimum size of a parcel of lad which ca be claimed should ot be set at more tha 0.3 hectares. 23 Whe trasposig this rulig ito Uited Kigdom legislatio, however, the Departmet for Eviromet, Food ad ural ffairs specified a miimum size of 0.1 hectares, which the Departmet has cofirmed was i lie with rules that existed uder the old CP schemes The plaed ad actual delivery dates for the core elemets of the IT systems for the sigle paymet scheme IT compoet Target date evised target date ctual delivery date 3 Source: Natioal udit Office aalysis of ural Paymets gecy data (at November 2003) 1 (at December 2004) 2 elease 1a: ural Lad egister pril 2004 ugust 2004 September 2004 elease 1b: Customer egister pril 2004 February 2005 February 2005 elease 2: Claim to pay software December 2004 Merged with elease 3a1 July 2005 elease 3a0: High volume data capture 4 Not part of the May 2005 May 2005 origial busiess case elease 3a1: Claims validatio October 2004 July 2005 July 2005 ad ispectio elease 3a2: Etitlemets ad ed paymets October 2004 September October 2005 NOTES 1 Delivery dates plaed at the time of the gecy s November 2003 Busiess Case for the Chage Programme. 2 evised delivery dates are, except for mappig the lad, those targeted at the begiig of 2005 whe the delivery schedule for the sigle paymet scheme was ameded to accout for CP reform decisios ad clarificatios made at the ed of The timetabled delivery date for the ural Lad egister is that give i July 2004 plas. ll of the delivery dates, except for the ural Lad egister, were o the project timetable s critical path. 3 The actual delivery dates refer to whe the Iformatio Techology became operatioal ad could receive ad process data. These dates are take from the records of the Executive eview Group. 4 The high volume data capture refers to the maual iput of every claim form oto the computer system. 5 cceture cofirmed that the gecy agreed to revise the target completio date to October Maual data etry has bee replaced with scaig for the 2006 scheme. 22 O 11 May 2005 the high volume data capture system had to be withdraw to avoid further disruptio to processig, ad data capture was progressively reitroduced from 17 May ccordig to the gecy s papers, elease 3a1 teded to cause computer screes to freeze ad the system suffered major stability ad performace problems i July ad ugust rticle 14 of EC egulatio Oe hectare is 10,000 square metres, equivalet to approximately 38 teis courts, or approximately the same size as Trafalgar Square i Lodo. 14 The Delays i dmiisterig the 2005 Sigle Paymet Scheme i Eglad