1.  The Rural Payments Agency has not yet managed to bring the administration of the Single Payment Scheme properly under control. The extent of payment errors within the 2005 and 2006 Schemes had not been completely resolved at the time of our hearing, and data submitted subsequently by the Agency showed that nearly 20,000 farmers' entitlements for those years were incorrectly calculated. The Agency has increased its calculation of more than 12,600 entitlements by a total of £28.6 million, and decreased nearly 7,300 entitlements by a total of £29.2 million.

2.  The Agency has been slow to investigate possible overpayments, and only began taking action to recover excess payments made under the 2005 Scheme in November 2007. The Agency estimates that, under the 2005 Scheme, more than 10,000 farmers were overpaid by some £20 million in total. In addition, around 7,000 farmers were overpaid for the 2006 Scheme by over £17 million. The Agency and the Department had yet to determine options for recovering sums overpaid, adding to uncertainty for many farmers. In 19 cases, mainly large agribusinesses, overpayments were for £50,000 or more. Such recipients were likely to have known that they had been overpaid, and yet the Agency took no action to recover the funds quickly. The Agency should notify each farmer of the extent of any overpayment made, as well as agree a method of recovery and a deadline for when this would be achieved.

3.  By mid November 2007, the Agency had reviewed 33,592 claims, but had failed to keep an accurate central record of overpayments made under the 2005 and 2006 Schemes. Without such a record it would be difficult to manage the recovery process effectively. The Agency should compile an accurate record of overpayments so that the Agency's Management Board and the Audit and Risk Committee can review progress in recovering the sums owed each quarter.

4.  The Agency's failings in implementing the Scheme have led to the risk of significant disallowance of expenditure and the imposition of penalties by the European Commission, and added to the Agency's business change project costs. The Department's 2005-06 and 2006-07 accounts included total provisions of some £220 million for disallowance, and £70 million accruals and contingent liabilities for possible late payment penalties in respect of the Single Payment Scheme in England. The cost of the business change project, through which the Scheme was implemented, is expected to exceed £300 million, some £50 million above that anticipated at the outset.

5.  The Agency's service to farmers is still undermined by weaknesses in its IT systems, such as its inability to provide farmers with a predicted amount and payment date to assist them with their financial planning. Restoring farmers' confidence will depend on the Agency's ability to process claims promptly and to provide accurate information on the progress of each claim, including the likely payment date. The Agency should give higher priority to processing claims from farmers with greater dependency on the Scheme payments, for example hill farmers and those running smaller operations.

6.  The average cost of processing claims exceeded the value of over a third of the 106,000 claims under the 2006 Scheme, making improvements in the Agency's efficiency essential. Currently, it costs around £750 to process a claim. Reducing that cost depends on greater automation in processing small, standard claims, use of e-channels and reductions in staff costs through reduced overtime and shift working. The Agency's future business plans should set targets for the implementation of its efficiency measures and the savings it expects to achieve.

7.  In preparing policy papers for Ministers, the Department had not drawn sufficient attention to all the risks to implementing the complex dynamic hybrid scheme and the likely impact on delivery timescales.[3] For the future, the Department should consider whether it has sufficiently robust processes to scrutinise and challenge the underlying assumptions in its policy proposals. Utilising an external or peer challenge process would assist in providing appropriate emphasis to all risks so decision makers have the best information available to inform their choice of options.