A progress update in resolving the difficulties in administering the Single Payment Scheme in England

Transcription

1 DEPARTMENT FOR ENVIRONMENT, FOOD AND RURAL AFFAIRS, AND THE RURAL PAYMENTS AGENCY A progress update i resolvig the difficulties i admiisterig the Sigle Paymet Scheme i Eglad REPORT BY THE COMPTROLLER AND AUDITOR GENERAL HC 10 Sessio December 2007

2 The Natioal Audit Office scrutiises public spedig o behalf of Parliamet. The Comptroller ad Auditor Geeral, Sir Joh Bour, is a Officer of the House of Commos. He is the head of the Natioal Audit Office, which employs some 850 staff. He, ad the Natioal Audit 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. At least 8 for every 1 spet ruig the Office.

3 Desig ad Productio by NAO Marketig & Commuicatios Team DP Ref: 7643VB This report has bee prited o Cosort Royal Silk ad is produced from a combiatio of ECF (Elemetal Chlorie Free) ad TCF (Totally Chlorie Free) wood pulp that is fully recyclable ad sourced from carefully maaged ad reewed commercial forests. The rage is maufactured withi a mill which is registered uder the BS EN ISO 9001 accreditatio, which provides the highest stadard of quality assurace.

4 Published by TSO (The Statioery Office) ad available from: Olie Mail, Telephoe, Fax & TSO PO Box 29, Norwich, NR3 1GN Telephoe orders/geeral equiries: Order through the Parliametary Hotlie Lo-call Fax orders: customer.services@tso.co.uk Textphoe TSO Shops 16 Arthur Street, Belfast BT1 4GD Fax Lothia Road, Ediburgh EH3 9AZ Fax The Parliametary Bookshop 12 Bridge Street, Parliamet Square, Lodo SW1A 2JX Telephoe orders/geeral equiries Fax Orders bookshop@parliamet.uk Iteret bookshop.parliamet.uk ISBN TSO@Blackwell ad other Accredited Agets A progress update i resolvig the difficulties i admiisterig A report by the Comptroller ad Auditor Geeral The Statioery Office the Sigle Paymet Scheme i Eglad

5 DEPARTMENT FOR ENVIRONMENT, FOOD AND RURAL AFFAIRS, AND THE RURAL PAYMENTS AGENCY A progress update i resolvig the difficulties i admiisterig the Sigle Paymet Scheme i Eglad LONDON: The Statioery Office Ordered by the House of Commos to be prited o 10 December 2007 REPORT BY THE COMPTROLLER AND AUDITOR GENERAL HC 10 Sessio December 2007

6 This report has bee prepared uder Sectio 6 of the Natioal Audit Act 1983 for presetatio to the House of Commos i accordace with Sectio 9 of the Act. Joh Bour Comptroller ad Auditor Geeral Natioal Audit Office 10 December 2007 The Natioal Audit Office study team cosisted of: Alex Clark, Sudip Dasgupta, Joe Griffiths, Christopher Joyce, David Raraty, Duca Richmod ad Leae Sheldo, uder the directio of Philip Gibby This report ca be foud o the Natioal Audit Office web site at For further iformatio about the Natioal Audit Office please cotact: Natioal Audit Office Press Office Buckigham Palace Road Victoria Lodo SW1W 9SP Tel: equiries@ao.gsi.gov.uk Natioal Audit Office 2007

7 contents SUMMARY 4 PART ONE Itroductio 8 PART TWO Resolutio of queries ad outstadig 10 work from the 2005 scheme The backlog of outstadig paymets for the scheme was virtually cleared by December 2006 Steps to quatify idividual errors i processig claims are ow substatially complete, but at least 4.4 millio of kow overpaymets have ot yet bee reclaimed Determiig the full fiacial impact of the 12 problems i processig the 2005 scheme is likely to take a log time PART THREE Progress i admiisterig the 2006 scheme 14 The Agecy met the target to pay 96 per cet of scheme fuds by the ed of Jue 2007 Farmers were more satisfied with the way their 15 claims were hadled Processig the 2006 claims proved resource 16 itesive ad led to some adverse impacts o the resources available to maage the Agecy s other work PART FOUR The Agecy s plas to stabilise the 19 scheme by April 2008 The Agecy had difficulties i extractig 20 reliable iformatio o the progress of claims before August 2007 The Departmet ad the Agecy have 21 stregtheed their goverace arragemets, but implemetatio remais high risk ad further Europea uio policy chages could derail progress Actios to improve relatios with the farmig 25 idustry have had some success, but the Agecy is ulikely to restore cofidece sufficietly util the sigle paymet scheme operates properly APPENDICES 1 Our methodology 28 2 Survey ad case examples of farmers 30 experieces of the secod year of the sigle paymet scheme 3 The key developmets the Agecy is makig 35 to its systems to stabilise admiistratio of the scheme 4 Iteratioal comparisos 36 Photographs courtesy of Alamy.com

8 SummARy 1 We reported i October o the problems experieced by the Rural Paymets Agecy (the Agecy) i admiisterig the 2005 sigle paymet scheme. 2 Farmers eligible to claim uder the secod year of the scheme (kow as the 2006 scheme) were due to receive paymet betwee December 2006 ad Jue This follow up report examies the progress made i resolvig those outstadig problems from the 2005 scheme, processig the 2006 scheme paymets ad i remedyig similar problems i future. 2 The sigle paymet scheme was itroduced by the Member States of the Europea Uio as part of Commo Agricultural Policy reforms which replaced 11 separate crop ad livestock based productio subsidies with a sigle paymet based o lad area. I the first year of the scheme (the 2005 scheme), the Agecy had experieced cosiderable difficulties i capturig ad processig the data required to process paymets, ad as a result failed to meet both its ow target to pay 96 per cet of the fud by the 1 The Delays i Admiisterig the 2005 Sigle Paymet Scheme i Eglad, HC 1631 Sessio , 18 October Scheme paymets are made i respect of caledar years, i a paymet widow which rus from December to Jue. Claims i respect of the 2005 scheme year should have bee paid betwee December 2005 ad Jue The bulk of claims i respect of the 2006 scheme year are payable betwee December 2006 ad Jue The Europea Uio regulatios require payig agecies to have paid per cet of scheme fuds i respect of ay year by the ed of Jue deadlie if late paymet correctios are to be avoided. 4 A PROGRESS update IN RESOLvING THE DIFFIcuLTIES IN ADmINISTERING THE SINGLE PAymENT ScHEmE IN ENGLAND

9 summary ed of March 2006 ad the Europea Uio legislative requiremet to pay per cet of the fud by the ed of Jue 2006 to avoid late paymet correctios. May farmers experieced fiacial hardship as a result ad the the Chief Executive of the Agecy was removed from post. The Agecy made a commitmet to pay outstadig paymets o the 2005 scheme by the ed of December 2006 ad to implemet its recovery pla by April The Departmet agreed to provide a additioal 40 millio to help the Agecy recover ad make chages to its IT ad processes. Overall Coclusio 3 Util the Agecy is able to routiely meet the 30th Jue deadlie each year ad is cofidet that it ca process paymets withi a acceptable tolerace of error, there is a risk that, as with other EU fuded schemes, it will icur fiacial correctios (effectively pealties) from the Europea Commissio ad farmers may ot have complete cofidece i the Agecy s admiistratio of the scheme. The ew maagemet team has istilled a clearer sese of directio ad drive amogst the staff to improve performace. The Agecy has also udertake a substatial exercise to review cases where etitlemets used for the 2005 scheme year may be icorrect, ad this exercise is scheduled to be completed substatially by the ed of December I the iterim, however, the errors i the first year of the scheme (the 2005 scheme) would have bee largely repeated i the secod year (the 2006 scheme) ad the Agecy has ot yet paid all those claimats who were uderpaid i the first year, or recovered the sums from those farmers who were overpaid. As a cosequece, the Agecy was ot able to admiister the 2006 sigle paymet scheme i a fully cost-effective maer. 4 Further work is scheduled to streamlie the claim process, clease data, improve the quality of maagemet iformatio available, ad fully support whole case workig. The Agecy has orgaised its work i this area through a series of major IT releases, together with mior system ad process ehacemets. These have bee staged pieces of work allowig the Agecy to deliver system improvemets progressively so as to reduce risk. The first three projects have already bee implemeted, with the fourth release due i two stages betwee Jauary ad April 2008 ad subsequet project stages plaed at the ed of 2008 ad durig There is a small residual risk of havig to accommodate the possibility of further, ukow, policy chages made by the Europea Uio, although where sufficiet detail about policy chages is kow they have bee cosidered as part of the major IT releases that are i had. 5 Our key fidigs are: O the progress i resolvig outstadig problems with the 2005 scheme paymets 6 Virtually all of the outstadig 2005 scheme claims were paid by the ed of December The Agecy maaged to pay the claims for all 24,730 outstadig 2005 claims (out of a total of 116,474), bar 24 claims with legal issues beyod the Agecy s ability to resolve, such as probate queries or divorce settlemets. 7 The Agecy idetified 34,499 cases as at risk ad eedig to be reviewed. Agecy idetified 34,499 cases where errors i the origial calculatio of farmers etitlemets to moey uder the sigle paymet scheme may have led to errors i the 2005 scheme paymets ad could result i recurrig errors i subsequet years uless corrected. By mid-november 2007, the Agecy had reviewed 33,592 cases, ad there were 907 cases for which etitlemets remaied to be reviewed. Officials cofirmed that, o the basis of the work doe to date, the Agecy had foud errors i a substatial umber of the cases reviewed, but it was uable to provide us with ay breakdow of the extet or rage of errors foud. The Agecy is curretly evaluatig the outcome of the review of these cases. 8 The Agecy has cofirmed that it plas to remedy the uderpaymets, which we estimated at up to 19.3 millio for the 2005 scheme, with the remaiig outstadig amouts due to farmers beig processed alogside the calculatio of paymets due for the 2007 scheme year, ad plas to commece recovery of overpaymets, which we had estimated as up to 6.8 millio for the 2005 scheme, i early Util the Agecy fialises its review, we are uable to determie the actual amout of each overpaymet ad uderpaymet to claimats for the 2005 scheme. A separate review was udertake of oe computer ru i August 2006, which is kow to have resulted i substatial errors. I this computer ru of 672 claims, duplicated paymets amouted to 4.4 millio, icludig six farmers who were overpaid by over 100,000 each. To avoid the eed to go back to farmers more tha oce to make correctios, the Agecy decided, early i 2007, that it would ot pursue these overpaymets util it had fialised its data review. Seior maagemet approved a more detailed strategy to deal with such cases i September 2007 ad cofirmed that it has ow started the process of recoverig overpaymets. A progress update i resolvig the difficulties i admiisterig the Sigle Paymet Scheme i Eglad 5

10 summary O the progress i processig the 2006 scheme 9 Meetig the paymet deadlie for the 2006 scheme reflects the cosiderable progress made by the Agecy sice the Natioal Audit Office s previous report i October Our report last year highlighted a umber of critical problems with the 2005 scheme i particular that the reliace o a task-based approach was hamperig maagemet efforts to idetify ad overcome obstacles delayig the paymet process. The Agecy maaged to process 98 per cet, by value, of paymets for the secod scheme year by 30 Jue 2007, largely through the drive of the maagemet team, availability of improved maagemet iformatio ad staff commitmet to review ad process each claim as a whole. Achievig the target meas that the Agecy will ot icur late paymet charges from the Europea Commissio i the secod year. 10 Overall, farmers satisfactio with the way the Agecy hadled their claims has icreased. Our survey of farmers reveals that 61 per cet of respodets are satisfied this year with the Agecy s hadlig of the scheme, a rise of some 22 per cet compared with last year (whe 39 per cet were satisfied with the Agecy s admiistratio of the scheme). 11 Although the Agecy met the Jue 2007 deadlie to pay claims for the 2006 scheme year, it had to defer completio of its review of etitlemets i order to help achieve this (see paragraph 7). The deadlie for the 2006 scheme was met with 10 days to spare ad havig deferred the review of etitlemets to allow staff to focus o processig 2006 claims. By April 2007, the Agecy decided to proceed with the 2006 paymets o those claims where it had ot completed its follow up review. 12 The Agecy relied o partial paymets whe it could ot make a full paymet to a farmer earlier i the year. I Wales, Scotlad ad Norther Irelad, like those i Germay ad Filad, farmers started to receive full paymets i December I Eglad, full paymet to farmers with fully validated claims bega i Jauary With Miisterial agreemet, the Agecy started makig partial paymets to other farmers i February 2007, some three moths earlier tha last year, to esure that farmers would ot experiece cash flow difficulties. Whilst farmers had previously budgeted o the basis that they would receive subsidy paymets earlier i the year, the Agecy is ot required to make the paymets util the ed of Jue each year. I Germay, two Läder made similar partial paymets, whilst admiistrators i the other Läder cocluded this would be uecessarily expesive because they believed they could make full paymets promptly. 13 The majority of farmers believe their etitlemet statemets were correct though some farmers cotiue to questio the accuracy of the data used to calculate their etitlemets. The Agecy is cofidet that the records o the Rural Lad Register are accurate. Our survey of farmers foud that 80 per cet of farmers believe the etitlemet statemets the Agecy had set them were correct but the remaider questioed the accuracy or did ot kow. The Agecy is depedet o the completio of its review of farmers etitlemets (see paragraph 7) i order to issue revised etitlemet statemets that should give farmers assurace that ay errors have bee corrected. O remedyig the remaiig problems with the paymet scheme 14 The Agecy has developed a detailed recovery pla to deliver improvemets, but implemetig the ecessary chages to busiess processes ad the ehacemets to computer systems eeded to support them remais challegig, ad there is little room for maoeuvre i case of ay sigificat uforesee evets. Future IT developmets focus o allowig the Agecy to admiister the scheme more efficietly, such as providig whole case workers with all iformatio relatig to a cliet, ad the plaed itegratio of key offlie databases ito the mai IT system to eable the Agecy to moitor the progress of claims more effectively. The Agecy s curret plas iclude the flexibility to accommodate kow amedmets to the scheme required by the Europea Commissio 3, ad it has already itegrated the ew sugar regime referece amouts ito the sigle paymet scheme ad made chages to procedures i aticipatio of future Europea Uio regulatory requiremets. A joit Policy Directorate, comprisig staff from the Departmet ad the Agecy, was established i summer 2006 to improve the relatioship betwee policy ad delivery teams. As a result, the Agecy has cofirmed that this joit workig has improved the impact assessmets for potetial policy chages ad early idicatio of the practical ad timig issues ivolved which iforms both developmet of the policy ad plaig for implemetatio. The Agecy is also improvig its IT systems ad busiess processes to make it easier to respod to previously uspecified policy chages. 3 Chages for the third scheme year (the 2007 caledar year) icluded itroducig the systems ad processes required to comply with EU requiremets o fiacial disciplie ad icorporatig requiremets arisig from reform of the EU sugar regime ito the mai IT system. 6 A progress update i resolvig the difficulties i admiisterig the Sigle Paymet Scheme i Eglad

11 summary 15 The Agecy is exposed to a cotiuig risk of disallowace correctios. I its fiacial accouts, the Departmet icluded a additioal 153 millio of provisios ad cotiget liabilities (i additio to 139 millio of provisios ad cotiget liabilities i its fiacial accouts) to cover for its best estimate of future fiacial pealty for the first two years of the sigle paymet scheme, based o the ogoig egotiatios with the Europea Commissio o a curret case example. The Europea Commissio s fial decisio o disallowace pealties ca take a umber of years to settle, however, so the actual amout may ot be kow for some time. 16 The Agecy ad the Departmet have stregtheed goverace arragemets, although this progress was hampered by a lack of reliable data o performace util July The Agecy replaced its goverace structure i favour of a ew Agecy Maagemet Board (AMB) to co-ordiate strategic issues, ad a Operatios Maagemet Team (OMT) to moitor scheme progress. Our review of AMB miutes shows it is takig its resposibilities to challege maagemet seriously. Both committees are depedet o reliable ad prompt maagemet iformatio to fuctio properly, but the Agecy had foud this difficult to provide whilst a sigificat umber of key systems ad databases were ot itegrated withi the mai IT system. The Agecy improved the reliability of its maagemet iformatio i August 2007, whe it icorporated oe of its critical databases withi the mai IT system. A further review of Goverace arragemets i autum 2007 has resulted i the OMT focusig o scheme progress ad a ew Agecy Executive Group moitorig day-to-day activities. 17 We recommed that the Agecy: a b c recovers high value overpaymets to farmers (such as those over 25,000) as soo as practicable; brigs its key offlie databases ito the sigle paymet scheme IT system to make its forecasts more accurate ad reliable; i the evet that the Europea Uio makes policy chages to the scheme, explores whether its existig IT systems would be able to accommodate such chages without the eed for major redesig of the applicatio. If the system is ulikely to be able to accommodate such chages, the Agecy should otify its Maagemet Board ad the Departmet of the risks accordigly ad update farmers oce a revised timetable ca be defied; d e draws o the good practices we idetified from the IT systems supportig the Germa model of the sigle paymet scheme o how to keep claimats iformed about the progress of their claims, ad the olie processes already available to Germa farmers to trasfer etitlemets; ad lears lessos from implemetatio of this IT system, to take accout of best practice. I particular, the Agecy should: use appropriate off the shelf rather tha bespoke software wheever practicable, after cosiderig busiess eeds ad scheme complexity, because bespoke software is costly to develop, eeds to be thoroughly tested, ad takes more time to implemet; avoid offlie systems, o which the mai IT system depeds; alig the system to busiess eeds, rather tha the busiess to the system eeds, applyig cautio to ay sigificat movemet away from tried ad trusted busiess methods to accommodate the IT system; ad esure the system specificatios retai a realistic level of flexibility to cope with future chages. 18 We recommed that the Departmet satisfy itself that it has: a b cosidered the adequacy of the Agecy s targets to reduce sigle paymet scheme disallowace to oe per cet by i the light of its curret review of etitlemets due to be completed by the ed of December 2007; ad adequate cotigecy plas i case the Agecy is uable to meet the demadig schedule this autum for correctig etitlemets ad processig ay outstadig etitlemet trasfers. A progress update i resolvig the difficulties i admiisterig the Sigle Paymet Scheme i Eglad 7

12 Part Oe Itroductio 1.1 The sigle paymet scheme, itroduced by the Europea Uio as part of the reform of the Commo Agricultural Policy, replaced 11 separate crop ad livestock productio-based subsidies previously payable to farmers with a sigle paymet based o lad area. Farmers are etitled to claim the paymet subject to their maitaiig the lad i good agricultural ad evirometal coditio, ad complyig with Europea Commuity legislatio relatig to the eviromet, aimal ad public health, ad aimal welfare. 1.2 Europea Uio (EU) Regulatios offered some discretio to Member States over how to implemet the scheme. Eglad ad Germay were the oly two coutries to adopt a dyamic hybrid model 4 for 2005, although Filad itroduced the same model i However i Germay ad Filad the dyamic elemet will ot be activated util 2010 ad 2011 respectively. The scheme i Eglad required farmers to submit applicatios by 16 May 2005 so that the target per cet of the 1,515 millio paymets could be completed by 30 Jue The Rural Paymets Agecy, the Agecy resposible for the implemetatio of the scheme ad subsequet admiistratio of paymets to farmers, experieced cosiderable difficulties i developig the IT systems ad other procedures required i 2005 ad early 2006 to comply with the Europea Commissio s requiremets. Although the Agecy did maage to make 95 per cet of paymets, by value, by 30 Jue 2006, our report i October 2006 cocluded that the implemetatio had ot proved value for moey. The project had cost more tha aticipated, was ot fully implemeted, did ot deliver plaed efficiecy savigs, damaged relatioships with the Agecy s customer base ad created a risk of substatial disallowace of expediture by the Europea Commissio. 1.4 The difficulties experieced by the Rural Paymets Agecy led to reports critical of both the Agecy ad the Departmet, from the Eviromet, Food ad Rural Affairs Select Committee i March 2007 ad from the Committee of Public Accouts i September The mai criticisms of the two committees were: the Departmet s decisio to implemet the most complex optio for reform (a dyamic hybrid) i the shortest possible timescale (i year oe of the ew scheme), its decisio ot to implemet a de miimis claim ad the eed to accommodate 46,000 ewly eligible claimats, led to a series of risks which idividually would have bee severe but collectively proved umaageable for the Agecy; there were failures i project implemetatio, icludig iadequate pilot testig ad ot developig systems to extract maagemet iformatio; the goverace arragemets for the project led to blurred resposibility ad did ot adequately challege the iformatio comig from those resposible for sigle paymet scheme implemetatio; the Agecy s adoptio of a task-based approach to dealig with claims was fudametally usuitable ad hidered the Agecy s uderstadig of the degree of progress it was makig i dealig with claims; ad 4 I Eglad, i the first year of the sigle paymet scheme (claims relatig to lad held i 2005), 90 per cet of each paymet was calculated by referece to historic subsidy receipts. The remaiig te per cet was paid as a flat rate per hectare. For the 2006 scheme, 85 per cet was calculated o a historic basis, ad 15 per cet o a flat rate. Eligible lad i Eglad (although ot i the rest of the Uited Kigdom) attracted differet flat rates of grat for SPS 2006 per hectare depedig whether it was moorlad withi the uplad Severely Disadvataged Area ( 6.48 per hectare), lad i the rest of the uplad Severely Disadvataged Area ( per hectare), or lad outside the uplad Severely Disadvataged Area ( per hectare). The Euro/Sterlig coversio rate applied was (the value of the Euro as at 30 September 2006), ad the approximate Sterlig equivalet values of the flat rate paymets per hectare were 4.39, ad respectively. 8 A progress update i resolvig the difficulties i admiisterig the Sigle Paymet Scheme i Eglad

13 part oe ew IT systems were iitially slow ad ureliable ad the supportig busiess processes i the Agecy were isufficietly developed. As a result, the system as a whole was ot user friedly ad staff struggled to cope with the volumes of work ecoutered. 1.5 Our report i October 2006 oted that the Agecy s maagemet team was developig a recovery pla which the Agecy expected to be fully implemeted by April This follow up report examies whether the Agecy has: resolved the outstadig problems with claims for the 2005 scheme year; i the secod year, admiistered 2006 claims more effectively tha 2005; ad made progress to address the issues idetified i successive reviews, with a view to stabilisig the scheme by April Our methodology for this report is summarised at Appedix 1. A progress update i resolvig the difficulties i admiisterig the Sigle Paymet Scheme i Eglad 9

14 Part two Resolutio of queries ad outstadig work from the 2005 scheme 2.1 The Comptroller ad Auditor Geeral reported i October 2006 that there were two mai outstadig problems with the 2005 sigle paymet scheme: Less tha 80 per cet of claims had bee fialised. Over 24,700 claimats had ot received their full paymet, three moths after the EU regulatory deadlie of 30 Jue Our testig idicated that there were errors i some of the Agecy s calculatios of the amout to which idividual claimats were etitled. At the time of our previous report we had idetified 34 overpaymets ad 79 uderpaymets i our sample which, if replicated across the whole populatio, were most likely to result i errors of 6.5 millio ad 17.4 millio respectively. Our previous report oted that these figures were provisioal util we had completed our audit of the fiacial records o behalf of the Uited Kigdom Coordiatig Body. After further audit work, we were able to report to the Europea Commissio that the overpaymets would amout to 6.8 millio at most, ad uderpaymets would ot exceed 19.3 millio. 2.2 The Europea Commissio ca withhold a proportio of fudig for the sigle paymet scheme from Member States if paymets have bee made late. If the Europea Commissio becomes aware of paymet errors or cotrol failures, or if it cosiders that agecies admiisterig the scheme have ot complied with the scheme regulatios i other ways it may disallow specific paymets or impose a flat rate pealty across a paymet populatio respectively. Our previous report highlighted the risk that, give the problems listed above, the Europea Commissio could impose a substatial fiacial correctio, which would i effect require the Departmet to fud a proportio of the paymets that were due to farmers. I view of the potetial risk, the Comptroller ad Auditor Geeral oted that, at the time of his report, the Departmet was proposig to iclude millio of provisios ad cotiget liabilities i its fiacial accouts i respect of paymets i Eglad. The backlog of outstadig paymets for the 2005 scheme was virtually cleared by December Some 8,586 claimats (seve per cet) had ot received ay paymet by the ed of Jue 2006 ad 16,168 claimats (14 per cet) had received partial paymets amoutig to 80 per cet of the value of their claims. I 3,255 cases, the value of the claims was relatively small (less tha 68 or 100) ad thus ulikely to have much impact o farmers. There were 10,123 outstadig cases, however, for claims over 10,000 (see Figure 1). 1 At the ed of Jue 2006 there were 10,000 farmers with claims over 10,000 who had yet to receive some of their paymet Value of 2005 claim Over 10,000 Betwee 682 ad 10,000 Betwee 68 ad 682 Uder Number of claims paid i full by 30 Jue 2006 Number of claimats (000s) Source: Natioal Audit Office aalysis of data from the Rural Paymets Agecy Number of claims 5 The Departmet s fial positio disclosed i its fiacial statemets was 139 millio comprisig millio provisios ad 63.5 millio cotiget liabilities i respect of disallowace arisig from the sigle paymet scheme i Eglad. 10 A progress update i resolvig the difficulties i admiisterig the Sigle Paymet Scheme i Eglad

15 part two 2.4 The Chief Executive of the Rural Paymets Agecy made a commitmet to the Committee of Public Accouts to resolve all outstadig cases (except those where legal issues such as probate may hold up paymet) by the ed of December I practice, the Agecy did maage to pay the outstadig claims. By that date, there were oly 24 claims, totallig 250,114, where the Agecy had made o paymet. Of these cases, 19 could ot be fialised util probate had bee resolved, ad the remaiig cases were outstadig because they were subject to divorce settlemets, debt recovery or ogoig ivestigatio. 2.5 The Farm Crisis Network oted that there were some farmers who had received o moey for their 2005 claims because they had made errors fillig i their origial forms. There had bee istaces where both ladlord ad teat had made a claim o the same parcel of lad, which meat that claims eeded to be ivestigated, but there were some istaces which farmers believed were geuie mistakes. The Agecy has a appeals process, but the Farm Crisis Network, Royal Istitute of Chartered Surveyors, Rural Stress Helplie ad Coutry Lad ad Busiess Associatio all criticised what they saw as a lack of trasparecy i the appeals process ad the legth of time it took to complete. This was particularly importat because farmers who had mistakes i the first year would receive o paymet i the secod year either util the issues were resolved. 2.6 The Departmet oted that the appeals system ca oly operate withi the cofies of EU legislatio. This does ot permit pealties to be removed simply because errors were geuie. The legislatio does permit removal of pealties where they are deemed to be obvious ; however the defiitio of obvious is costraied ad caot always be applied. Steps to quatify idividual errors i processig 2005 claims are ow substatially complete, but at least 4.4 millio of kow overpaymets have ot yet bee reclaimed 2.7 Our estimates of the most likely error i the 2005 paymets were based o a sample of 363 cases. Followig o from our testig, the Agecy has substatially completed a review of 34,499 cases which it had idetified as meritig further examiatio. The Agecy idetified some of the cases as high risk ad high value; a proportio arose from claimat queries, whilst the Agecy s IT system idetified others. The Agecy maaged to complete its review of some 8,000 of these cases (23 per cet) prior to makig 2006 scheme year paymets, ad by mid-november 2007 the Agecy had completed reviews of all but 907 cases. The Agecy expects to have substatially completed its review of these remaiig cases by the ed of December 2007, ad will adjust paymets for all relevat scheme years to correct errors idetified. 2.8 Reviewig each case ad resolvig ay mistakes foud proved to be resource itesive ad time cosumig. The Agecy estimated that it typically took staff eight days to complete the relevat procedures for a typical case. The task ivolved reviewig 16 separate steps i the processig of each claim, i a specific order, to clear each item. A umber of the steps required overight iterrogatio of databases which were ot directly liked to the core IT system used for the sigle paymet scheme. Sice August 2007, the Agecy has itegrated the review process ito the mai IT system, reducig the time to complete ay oe review from eight days to oe. Officials cofirmed that, o the basis of the work doe to date, the Agecy had foud errors i a substatial umber of the cases reviewed, but was uable to provide us with ay breakdow of the extet or rage of errors foud. The Agecy is curretly evaluatig the outcome of the review of these cases. 2.9 I additio to the errors metioed above, we oted that a operatioal error made o oe computerised paymet ru gave rise to duplicate paymets made i August 2006, which resulted i 54 overpaymets of over 25,000 (icludig six of over 100,000 each) ad a further 618 other overpaymets (see Figure 2). The overpaymets from this computer ru totalled 4.4 millio. The Agecy otified each of the farmers it believed it had overpaid i writig, but the letters did ot explai how the error had occurred ad did ot specify the precise amout of overpaymet each farmer had received. 2 Errors o oe paymet ru for the 2005 scheme led to 672 overpaymets, oe of which the Agecy has yet recovered Amout overpaid ( ) >0 < < <1,000 1,000 <5,000 5,000 <10,000 10,000 <25,000 25,000 <50,000 50,000 <100, ,000 <290, Source: NAO aalysis of data from the Rural Paymets Agecy 250 Number of overpaymets A progress update i resolvig the difficulties i admiisterig the Sigle Paymet Scheme i Eglad 11

16 part two 2.10 Some farmers have repaid the Agecy the amout they believed they had bee overpaid. However, so that it oly approached farmers for refuds oce, the Agecy decided to defer pursuig the other outstadig amouts util the review of etitlemets had bee completed. A policy paper for pursuig the overpaymets was fialised i September 2007 ad ay correctios are due to be offset, where possible, agaist the 2007 scheme paymets to be processed betwee December 2007 ad the ed of Jue Determiig the full fiacial impact of the problems i processig the 2005 scheme is likely to take a log time 2.11 The Commissio draws o idepedet auditors reports ad o its ow compliace checks i order to assess whether accredited payig agecies have complied with its requiremets i processig the sigle paymet scheme. I order to justify disallowace, the Commissio does ot eed to demostrate exhaustively that checks carried out by atioal authorities are iadequate, or that there are irregularities i the figures supplied by them, oly that there is evidece of serious ad reasoable doubt o its part regardig those checks ad figures. The pricipal reasos why the Commissio may impose such fiacial correctios, called disallowaces, are failure to make paymets o time, miscalculatio of paymets which have bee made, or poor fiacial cotrols The Natioal Audit Office audits the processig of the sigle paymet scheme i the Uited Kigdom o behalf of the Europea Commissio ad submits a aual report o the results. I Jauary 2007, we reported the results of our audit of a sample of 363 cases ad associated systems review related to the 2005 scheme. Our report cocluded that the fiacial accouts were correctly stated, ad fairly reflected the charges to the Europea Fud ad that the overall fiacial iterests of the Commuity Fud were protected. We also reported the errors we had foud. For these istaces, we recommeded that: paymets should oly be made o the basis of fully validated data. If claims are ot fully validated at the time of paymet, the the Payig Agecy should esure this does ot result i risk to the Fud; the Agecy should review its data capture methods ad esure that appropriate cotrols are i place to capture all data completely ad accurately; ad the Agecy should implemet procedures to esure that all amedmets to claimats files are documeted fully ad that a clear ad robust audit trail exists for the etire process of determiig the paymet made. To date, the Europea Commissio has ot idicated whether it would impose a pealty arisig from the results of this work The Europea Commissio has deducted some 81.7 millio from its reimbursemet of the Agecy s expediture claim for Jue 2007 because of late paymets i the first scheme year. The Agecy is expectig the Commissio to deduct a balace of some 19.6 millio as the remaiig correctio for late paymets Two bodies, the Europea Court of Auditors (ECA) ad Europea Commissio auditors, also audit the sigle paymet scheme paymets ad cotrol processes i Member States. The results of the auditors work idicated cotrol weakesses over data quality, as well as the effectiveess of cross checks of claim data agaist the Rural Lad Register, ieligible features etered oto the Rural Lad Register, icosistecies i map data, ad problems with the cotrols over ispectios i terms of measuremet of declared lad area, ad timely completio of ispectios. The Europea Commissio has idicated that the results of the audit of the Agecy may lead to a fiacial correctio i due course, i relatio to amouts already paid to farmers The Agecy has sought to defed its positio, iitially with discussios with the Europea Commissio ad, if appropriate, will cotiue to do so through cociliatio with a view to reducig ay pealty that may be proposed. O 11 Jue 2007, the the Secretary of State for Eviromet, Food ad Rural Affairs discussed the pealty regime with the Agriculture ad Rural Developmet Commissioer i Brussels. He was cocered that strict adherece to the rules could result i pealties which were ot proportioate to the risk to the fud, ad cited the Arable Crops remote sesig case as a example (see Figure 3) Last year, the Departmet reported i its accouts a provisio ad cotiget liabilities of some 139 millio. It believed this to be the best estimate at the time, usig its experiece of the Arable Crop case as a basis. The estimate withi the accouts icludig a assessmet for potetial pealties from the secod scheme year, agai usig the Arable Crop case as a basis, raises the potetial correctio to some millio. 6 The 81.7 millio deductio was equivalet to 55.3 millio at a exchage rate of At the same exchage rate, 19.6 millio would be equivalet to some 13.3 millio, although this has ot bee fialised ad will deped o the exchage rate at the time. 7 This value of total potetial correctio comprises provisios ad accruals valued at 285 millio ad cotiget liabilities of some 7 millio. 12 A progress update i resolvig the difficulties i admiisterig the Sigle Paymet Scheme i Eglad

17 part two 3 Case Study: Equiry No AC/2004/16 ito arable crop paymets The Europea Commissio is required to complete a umber of audits aually o its programme expediture. Oe of these audits related to oe of the schemes the sigle paymet scheme replaced (the arable area aid paymets scheme), i which the Commissio s auditors check that the Agecy has completed its ispectios of farms appropriately. The Commissio s auditors foud that: the timig of ispectios was too late to accurately determie a cropped area; ad the quality of the satellite images was poor which lead to differeces i determiig accurate lad sizes. Where a Member State has failed to follow the EU Regulatios, ad where auditors feel uable to isolate a error because it relates to a cotrol rather tha a idividual farm, the Commissio s Regulatios provide that it may impose a flat rate disallowace (or pealty) agaist a whole expediture stream rather tha apply a pealty agaist the particular paymet subject to testig. The Commissio judged that this case should warrat a five per cet flat rate disallowace pealty of some 55 millio because i its view the Agecy s checks did ot provide a sufficiet level of assurace of the regularity of claims ad therefore that the risk of loss to the Europea Agricultural Guaratee ad Guidace Fud (EAGGF) was sigificat. The Agecy completed checks ad told us it cosidered the rate of differece to be withi toleraces further stipulated i EC regulatios; cofirmig its view that Remote Sesig procedures provide a satisfactory meas of cotrol. The Agecy recalculated the error applyig it oly to the paymets affected by the cotrol failures rather tha all the paymets i the scheme populatio, ad usig the actual rate of differece it had observed rather tha 5 per cet flat rate that the Commissio auditors had used ad put a case forward to the EC proposig that disallowace be lowered to 4.7 millio. The Europea Commissio iitially rejected the Agecy s case, but the appeal was heard by a cociliatio pael i July I October 2007, the pael cofirmed it was uable to brig the views of the two parties together withi the prescribed timescale, but ivited the Commissio to cosider the Agecy s argumets o the extet of the risk to the Fud. The Europea Commissio has cofirmed that a correctio will be made i the ear future, however this decisio could be challeged should the Payig Agecy feel the case warrats such actio. Source: Natioal Audit Office A progress update i resolvig the difficulties i admiisterig the Sigle Paymet Scheme i Eglad 13

18 Part three Progress i admiisterig the 2006 scheme The Agecy met the target to pay 96 per cet of 2006 scheme fuds by the ed of Jue The Agecy maaged to pay 98 per cet by value of claims by 30 Jue 2007, which was withi the paymet widow, so avoidig late paymet pealties. Achievig this target proved very challegig, but was met by 20 Jue, 10 days before the deadlie. I May 2006 Lord Bach aouced that the deadlie for farmers to submit claims for 2006 would be exteded from 15 May to 31 May, ad this was later exteded agai, at EU level, to 10 Jue, because there had bee difficulties issuig applicatio forms. I autum 2006, the Agecy predicted that it would have difficulty makig full paymets, to all claimats, that complied with all the scheme regulatios util close to the last date allowed by the regulatios. I November 2006, Miisters gave approval for the Agecy to make partial paymets to farmers i cases where it could ot make a full paymet straight away. 3.2 By the ed of Jauary 2007 the Agecy had made 21,940 paymets i full, totallig 201 millio (amoutig to 13 per cet of the 1,520 millio scheme fuds). The Agecy started makig partial paymets of 50 per cet of claim values i February 2007, three moths earlier tha it had doe the previous year (see Figure 4). By the begiig of May 2007 it had paid farmers early 80 per cet of the total scheme fud, compared to some 30 per cet by May By 20 November 2007 the Agecy had completed processig 109,025 claims ad made paymets totallig 1,520 millio. Of those cases, 105,971 farmers have received full paymet, ad 3,054 claims were processed but o paymet was due. A further 110 claimats had received partial paymets by that date, ad 115 farmers with more complex claims had received o paymet. The Agecy will pay iterest to claimats o moey paid after 30 Jue o the same basis as i respect of 2005 claims, subject to a miimum iterest paymet level of Performace i 2006 represets a substatial improvemet o the previous year, ad reflects the hard work ad dedicatio of those staff ivolved i the paymet process. Other coutries have processed their 2006 claims more quickly, ofte completig the majority of paymets by December 2006 (at which poit o paymets had bee made to farmers i Eglad), although the Agecy s processig of 2006 claims was affected by the outstadig issues from the 2005 scheme year. I Germay, thirtee Läder admiister the Germa scheme regioally ad pay farmers locally. The Germa authorities reported that oly two Läder chose to make partial paymets for the 2006 scheme, ad betwee them the 13 Läder had paid 97 per cet of the scheme fud by 31 December However i Germay ad Filad the dyamic elemet will ot be activated util 2010 ad 2011 respectively. I Filad, which adopted a dyamic hybrid scheme from 2006, officials explaied to us that 99.3 per cet of farmers had received their paymets by the ed of December without the eed to make partial paymets. Amog the three home atios i the rest of the Uited Kigdom (oe of which adopted the dyamic hybrid model), by the ed of December 2006, 75 per cet of scheme fuds had bee paid i Wales, 65 per cet i Norther Irelad ad 82 per cet i Scotlad. The Welsh Assembly Govermet ad Scottish Govermet delayed makig fial paymets to the 400 farmers i Eglad whose lad straddles the Welsh ad Scottish borders. 8 The iterest rate is oe percet above the 3 moth Lodo Iterbak Offered Rate (LIBOR), calculated (i respect of claims for the 2006 scheme year) from 1 July A progress update i resolvig the difficulties i admiisterig the Sigle Paymet Scheme i Eglad

19 part three 4 The Agecy paid 98 per cet of fuds for the 2006 scheme year by the ed of Jue 2007 Percetage of scheme expeded % of Natioal Ceilig Jue scheme 2005 scheme Ja Feb Mar Apr May Ju Jul Aug Moth (start) Sep Source: Natioal Audit Office aalysis of Rural Paymets Agecy data Farmers were more satisfied with the way their claims were hadled 3.5 Farmers do appear more satisfied with performace tha they were i We followed up our survey of farmers i 2006 by cotactig the same people agai i summer 2007 to determie the impact o claimats. Out of the 500 resposes we received, 61 per cet said they were satisfied with the way the Agecy had admiistered the 2006 sigle paymet scheme, compared to just 39 per cet the previous year for the 2005 scheme. Almost a third of farmers said that there was othig the Agecy could have doe this year to improve customer service, compared with just two per cet last year (Figure 5 overleaf). The Natioal Farmers Uio also commeted that it was aware of the improvemets the Agecy was makig to its systems, ad appreciated that the effects of these chages may take some time to reach farmers. 3.6 Some 43 per cet of farmers we surveyed said they had ot kow whe to expect paymet for the 2006 scheme, ad the feedback we received suggested lower expectatios of whe paymet would be made: a commo phrase we received was that paymet would come whe it comes. Noetheless, farmers were more likely to express satisfactio with the way the Agecy hadled their claims if they were kept well iformed about them, irrespective of whether the iformatio they received was positive or egative. Ucertaity about whe they would be paid was of far more cocer to farmers, because it made it more difficult to pla their busiess. Our survey showed that those farmers who felt iformed about the progress of their applicatio were less likely to icur additioal bak or cosultat charges tha those who felt uiformed. I the first year of the scheme oly 45 per cet of farmers surveyed thought they were well iformed about progress of their claim, compared to 55 per cet this year. The results from the survey show a sizeable improvemet of some 20 per cet compared with last year, although this still leaves a sigificat miority for whom this elemet of customer service could be improved. A progress update i resolvig the difficulties i admiisterig the Sigle Paymet Scheme i Eglad 15

20 part three 5 Farmers were cosistetly more satisfied with the Agecy s customer service i 2006 compared with 2005 Q What could the Rural Paymets Agecy have doe to improve the quality of their customer service? Noe/othig Make process simpler/easier More competet/kowledgeable staff Better commuicatio/iformatio Provide paymets o time Sigle poit of cotact Speed up service Improve aswerig of phoes/respod faster Percetage 2006 SPS 2005 SPS Source: Ipsos MORI survey of farmers carried out o behalf of the Natioal Audit Office 3.7 Further progress will be required if the Agecy is to deliver a acceptable quality of service. Respodets to our survey complaied that cotiued problems i admiisterig the sigle paymet scheme were havig a adverse impact o their levels of stress (10 per cet) ad o their persoal fiaces (11 per cet). The Natioal Farmers Uio told us that as far as the majority of claimats are cocered, the Agecy is still a failig orgaisatio. Farmers were particularly frustrated that the Agecy was still uable to provide basic iformatio to claimats such as their outstadig balace due, ad complaied that it rarely ackowledges writte correspodece for a umber of moths. Noetheless, the Natioal Farmers Uio believed that the Agecy was geerally o the right track with a sese of what eeded to be doe ad a greater customer focus. The Agecy cofirmed that 80 per cet of correspodece is ow aswered withi a 15 day target. Oe specific example cited by the farmig charities: Farm Crisis Network; ad the Rural Stress Helplie, was that the Agecy has started to prioritise validatio, approval ad paymet of claims i istaces where it has become aware of fiacial hardship, which was idicative of a more cosidered attitude to processig applicatios. Processig the 2006 claims proved resource itesive ad led to some adverse impacts o the resources available to maage the Agecy s other work 3.8 The Agecy had origially sought, through its Chage Programme, to deliver aticipated efficiecy savigs by reducig staff umbers i by 1,000 posts. I practice, however, the difficulties with the 2005 scheme required additioal resources, ad our previous report highlighted that the Agecy had to maitai umbers at about 4,329 people, largely by relyig o casual ad cotract staff. 9 The Agecy has sice had to retai staffig at broadly similar levels ad approximately 2,000 of the 4,600 staff i the Agecy i 2007 were ivolved i processig 2006 sigle paymet scheme applicatios. 9 I March 2006 the Agecy had 2,140 permaet staff, 838 casual staff ad 1,351 cotract staff. 16 A progress update i resolvig the difficulties i admiisterig the Sigle Paymet Scheme i Eglad

21 part three 3.9 The cotiued reliace o large umbers of staff has had a kock-o impact o costs ad the Agecy s other work. Our discussios with key staff cofirmed that i order to meet the Jue deadlie, additioal staff had to be draw from other parts of the orgaisatio, such as the British Cattle Movemet Service (BCMS) busiess area. I additio, the Agecy offered overtime to staff ivolved i processig sigle paymet scheme claims who were willig to work extra hours over the peak period i order to avoid exposure to late paymet pealties by the Europea Commissio. Accordig to the Agecy s fiacial data, the Agecy paid 1.45 millio i overtime for staff workig o the sigle paymet scheme betwee April ad August 2007, as show i Figure 6. The Huter review estimated that it cost aroud 750, o average, to process each sigle paymet scheme claim for the 2005 scheme year The cost of overtime peaked i May 2007, as Agecy staff processed paymets for the 2006 scheme year Total cost of overtime ( '000) April 07 May 07 Jue 07 July 07 Aug 07 Source: Natioal Audit Office 3.10 Despite the large umber of staff workig o 2006 claims i April 2007, the Agecy cocluded that it would oly be able to achieve the target to pay per cet of fuds by the ed of Jue deadlie if it deferred its review of remaiig queries o the 2005 claims. Perhaps as a result, our survey showed that of those farmers who cotacted the Agecy i both years oly 43 per cet of farmers cosidered their query was resolved i full for their 2006 claim although this is a improvemet over the previous year whe just 28 per cet held this view. Twety per cet cosidered that their issues were ot resolved, ad 14 per cet said that the Agecy had actually further complicated the issue for their 2006 claim The Agecy s decisio to defer work o its review of the remaiig 77 per cet of the 34,499 etitlemets cosidered to be likely to cotai mistakes has ievitably raised the risk that ay errors i payig 2005 claims will have bee replicated i 2006 claims. Accordig to our survey of farmers, 18 per cet of respodets idicated that they thought their lad holdigs were ot listed correctly o the Rural Lad Register for their 2006 claim, ad 26 per cet said they had experieced problems with registerig their lad for the 2005 claim. The Agecy is cofidet that its review of 2005 claims ad etitlemets will have rectified ay errors ad, therefore, should eable farmers to have greater cofidece i the accuracy of their etitlemets ad paymets received There is a fixed umber of etitlemets to sigle paymet scheme paymets, correspodig to lad area, that was established i Eglad i EU Regulatios permit farmers to trasfer (sell or lease) etitlemets to sigle paymet scheme paymets. Such trasfers of etitlemets betwee farmers could oly start takig place i the secod year of the scheme, oce all the etitlemets withi the scope of the scheme had bee defiitively established. The Agecy s computer system did ot iclude features able to hadle etitlemet trasfers before 23 April Prior to the, the Agecy issued icorrect etitlemet statemets to some farmers, ad made icorrect partial paymets for these farmers i sprig Our survey of farmers foud that 15 per cet of farmers believe the etitlemet statemets the Agecy had set them were icorrect. The most commo error farmers cited was that the umber of etitlemets recorded was icorrect. 10 Departmet for Eviromet, Food ad Rural Affairs review of the Rural Paymets Agecy, March 2007 (Huter Review). A progress update i resolvig the difficulties i admiisterig the Sigle Paymet Scheme i Eglad 17