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Select Committee on Public Accounts Twenty-Ninth Report

1 Resolving outstanding problems with the Single Payment Scheme

1. The Single Payment Scheme was introduced by the Member States of the European Union to replace 11 separate crop and livestock based production subsidies, as part of the Common Agricultural Policy reforms. The Rural Payments Agency (the Agency) experienced considerable difficulties in capturing and processing the data required to make the payments due by the end of June 2006 for the first year of the new scheme (the 2005 Scheme). Some 8,586 farmers had not received any payment by the end of June 2006, and there were errors and procedural weaknesses by the Agency in a number of the payments that had been made.[4]

2. By the 31 December 2006, almost all the outstanding payments due to farmers by the end of June 2006 had been made, except for 24 cases totalling £250,000. Of these cases, 19 could not be paid until probate had been resolved, and the remaining cases were outstanding because they were subject to divorce settlements, debt recovery or ongoing investigation. By January 2008, only nine cases, with a value of £70,000, remained outstanding.[5]

3. Errors occurred in the payments made by the Agency for a substantial number of claims from the first two years of the Scheme. The Agency had identified 34,499 cases considered to be at risk, some 32% of the number of claimants under the 2006 Scheme. Reviewing the status of each claim proved to be a complex and time consuming task. The process involved checking each farmer's entitlements, adjusting for any partial payments already made, and picking up any manual adjustments made at the time by staff to circumvent the deficiencies in the Agency's IT systems. The Agency estimated that each case typically took eight staff days to complete.[6]

4. By mid-November 2007, the Agency had reviewed 33,592 of the 34,499 cases and had expected to complete the exercise the following month. It was, however, unable to provide a breakdown of the extent or range of errors found until after our hearing in January 2008. The Agency had failed to keep sufficiently complete and reliable records on those cases where farmers had been underpaid and a subsequent top up payment made. In the absence of reliable records, it was not clear whether the Agency had correctly calculated and paid each farmer their full entitlement under the 2005 and 2006 Single Payment Scheme. The Agency was confident, however, that subsequent payments under the 2007 Scheme were correct, as farmers would have been able to estimate how much they expected to receive, and would have notified the Agency if the payment was significantly different. Very few farmers had challenged the 63,000 entitlement statements sent out by the Agency for the 2007 Scheme, although the statements covered only 58% of the 109,000 claimants under the 2006 Scheme.[7]

5. The Agency estimated that it had overpaid 10,299 farmers in respect of their 2005 Scheme claims by a total of £20 million, and 6,925 farmers by a total of £17.4 million for the 2006 Scheme. The overpayments were largely due to duplicate payments and interim partial payments which had exceeded the total sum due. The Agency did not have a breakdown of overpayments by individual farmer, but it estimated that in 4,700 cases the amounts overpaid were less than €100. Approximately 70% of cases were for overpayments of between €100 (equivalent to approximately £68) and £1,000, while in 0.8% of cases, the overpayment exceeded £50,000. Additionally, the Agency had known since August 2006 that 672 overpayments totalling £4.4 million had been made on one batch of payments. The error had arisen because of a change made to IT systems which had not been fully tested at the time. Some 68% of the overpayments had been for £500 or less, but nineteen were for over £50,000.[8]

6. The Agency had been slow to recover overpayments from farmers and was unable to provide reliable data on the progress made. The Agency had not finalised a strategy for recovery of the higher value overpayments as the Department intended to seek agreement with Ministers to an approach which minimised the adverse impact on farmers. Small overpayments might be written off altogether, whilst options being considered by the Department for recovering the larger sums included netting off amounts against the next year's payment, and offering repayment by instalments over a period of time. Recovery arrangements would take account of the pressures on the farming industry, such as harvest times, and the impact on farmers who were also receiving Hill Farm Allowance. There was a risk, however, that some farmers might have unknowingly spent the additional money, and demands for repayment could have a detrimental impact on their business.[9]

7. The largest overpayments were to sophisticated agribusinesses, whose financial systems should have enabled their senior managers to identify and return the overpayments quickly. The Agency had telephoned those with the highest overpayments as soon as it had become aware of the mistakes, and had written to others shortly afterwards. It was only in November 2007, however, that the Agency started to make arrangements to recover any of the money by issuing invoices to the farmers affected. By mid February 2008, the Agency had only issued invoices to two farmers overpaid more than £50,000, and in one of these cases the invoice had been queried and required further investigation.[10]

8. The Agency's review of 34,499 cases had sought to correct farmers' entitlements to minimise the risk of further mistakes when processing payments for the 2007 Scheme and subsequent years. The Agency estimated that it had amended the entitlements in some 58% of cases (Figure 1). The Agency increased 12,611 entitlements by a total of £28.6 million, while it decreased 7,281 entitlements by some £29.2 million. Having invested considerable resources to correct entitlements, the Agency was confident that subsequent payments would be accurate.[11]

Figure 1: The change in claim values following investigation by the Rural Payments Agency (number of claims)