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Examination of Witnesses (Questions
1-19)
WEDNESDAY 6 MARCH 2002
MR BRIAN
BENDER CB, MR
JOHNSTON MCNEILL
AND MR
HUGH MACKINNON
Chairman
1. Good afternoon. Welcome to the Public Accounts
Committee. This afternoon we welcome Mr Brian Bender, who is the
Permanent Secretary at the Department for Environment, Food and
Rural Affairs. Welcome to our hearing this afternoon. Would you
like to introduce your colleagues, Mr Bender.
(Mr Bender) Thank you, Chairman. On my right is Mr
Johnston McNeill, who is Chief Executive of the Rural Payments
Agency, and on my left is Mr Hugh MacKinnon, who is the Operations
Director of the RPA.
2. Thank you very much. I should say that obviously
today we are looking at the issue of agricultural fraud and we
are doing so particularly in the context of the case of Mr Joseph
Bowden. Perhaps I can ask you, Mr Bender, to turn to page 14 of
the NAO Report and have a brief look, which I am sure you have
already done, at paragraphs 2.22 and 2.25. What we read there
from the report and we know from the report is it was not your
own controls which uncovered this fraud, it was a tip-off, which
was in fact an inaccurate tip-off but a tip-off from a member
of the public. It was the memories of your staff, I think one
member of staff, who by chance moved around. It was that rather
than any systematic and routine checks that uncovered these frauds.
Why was there no cross check between payments made for the area
payments and the Fibre Flax Scheme?
(Mr Bender) Can I say, first of all, you are correct
in saying that the tip-off was the primary part of the intelligence.
Our predecessors had decided to introduce cross checks which would
have brought it to light but the tip-off led to the targeted inspection
that brought it to light sooner. On your direct question, why
were there no cross checks, that was, I think it is fair to say,
a control shortcoming. There should have been such cross checks
and that is something which is clearly a lesson which emerges
from this. If there are two schemes operated by different parts
of the organisation where there is a possibility for an individual
to exercise fraud between them then it is plainly a lesson that
there should be cross checks between them. That was being introduced
but not quickly enough to prevent the fraud. It is now in full
play since the fraud happened.
3. The obvious question following on from that
is probably now it is therefore impossible to commit a similar
fraud?
(Mr Bender) I believe so, Chairman.
4. It is very wise to put that caveat. Paragraph
3.8 on page 16, if we have a brief look at that. This relates
to the visits of two of your inspectors to Mr Bowden's farms to
check flax claims. They passed inspections as satisfactory. Were
they doing their jobs properly? Should there be a system of whole
farm checks? Surely the way, as a layman, I would have thought
checks should operate is that when you are sitting in your office
prior to visiting a farm, checking on your computer for Cold Comfort
Farm, say, you know all this has been grown on that farm so when
you visit it you can make a serious attempt to find out what is
going on or not going on.
(Mr Bender) At the time, Chairman, the inspector did
what the arrangements required him to do and, therefore, he confirmed
that the crop that was at question was being grown. I do not think
at the time he was guilty of not doing his job properly. The failure
was a systems failure of not having the cross checks between the
two, that is the first point. The second point, and Mr McNeill
can elaborate on this, is that there is now a single inspectorate
in the Rural Payments Agency rather than two different sets of
inspectorates from the former MAFF and the former Intervention
Board, and we are moving towards a whole farm plan approach, but
that was not the situation at the time. So, as I say, my own view,
having looked at these papers, is the failing was a systemic one,
not a failing by an individual as far as the inspection. He did
what he was asked to do, it just was not the right thing to be
asked to do.
5. You now have a whole farm scheme but does
that just cover arable crops? Say on Cold Comfort Farm I have
also got livestock and they are paid out of variable cow premiums
and all the rest, is that going in your new system or not?
(Mr McNeill) That is the intention, Chairman, but
it is not in place as yet. We only launched the new Agency in
October this year. Our inspectorate have been deflected on foot
and mouth disease for most of the year and so it has been rather
difficult to make these changes given the circumstances. Our intention
is that we will now start working with our inspectorate.
6. When will this come into operation?
(Mr McNeill) The intention is that the investment
programme that is in place of 130 million to develop the RPA into
the new organisation we all wish for should be completed by the
end of 2004.
7. Thank you very much. Now if we look at the
monies you recovered, and I refer you to paragraph 3.14. Let us
sum it up in broad terms. If Mr Bowden had managed to successfully
do all these frauds on a very small farm, 140 acres, he could
have got away with up to £600,000 roughly, £415,000
from the public sector, in fact he took away in his own pocket
£220,000, so a large sum of money. You only proceeded against
him for £141,000 and because you left it so late you only
got £1,000 of it—£1,000—out of a potential
fraud of anything up to £600,000. That does not seem a very
satisfactory state of affairs. Why did you not seek to recover
from him or the contractors any of the £141,000 paid under
the flax scheme?
(Mr Bender) I think, again, there are a couple of
questions in there. We sought to recover all the monies for which
he was considered to be guilty. The answer to your second question
is that the judge declared that for the Fibre Flax Scheme he was
not guilty on the grounds that he had grown something and therefore
the claim under the Fibre Flax Scheme was legitimate. So it was
the AAPS, the Arable Area Payment Scheme, for which there was
fraud and it was that, therefore, which the department sought
to recover. As table 3 on page 12 indicates, there was £80,000
of that which had been paid and the amount, therefore, the department
should have recovered on that was £111,000, £80,000
plus interest. The procedures for doing recovery have been tightened
up since that case, so there is no doubt now when recovery should
start and the situation is described in the NAO Report.
8. You are happy with the fact you only got
£1,000 off him?
(Mr Bender) No, I am not happy, Chairman. I am not
happy about that. The reason we did not get more was essentially
because the man did not have sufficient money.
9. You left it so late that by the time you
got your act together he did not have the money, did he?
(Mr Bender) As I just said, the procedures for when
we should begin recovery proceedings, we tightened up a few years
back, as is stated in the NAO Report. In the light of this report
we will be reviewing those procedures to ensure there is crystal
clarity within the organisation about when recovery procedures
should take place. I am not happy about it.
10. Is there any room, do you think, for collusion
between contractors and farmers on this fibre scheme?
(Mr Bender) My feeling is there are two lessons looking
at this. One is the one you have already brought out of a lack
of a joined-upness, and the second is that the Fibre Flax Scheme
was fundamentally flawed because it was open to abuse. That has
been recognised progressively over the years at EU level and now
the scheme has been wrapped into the IACS control scheme overall
and then has been ceased altogether. So we believe now that cannot
happen.
11. If you look at pages 11 and 12 of the report
you see there were very weak controls on the scheme. Do you want
to say a quick word about any other irregularities happening under
this scheme so we can draw some wider lessons for our report?
(Mr MacKinnon) The scheme, as the report shows, Chairman,
has evolved quite sharply since 1996 when these particular frauds
occurred. It changed in one particular way soon after the frauds
were perpetrated and that was to require the flax from the area
aided to be processed and we do have a current crop of investigations
and a pending prosecution relating to false declarations about
the amount of flax taken off the fields where aid was claimed.
One of those cases is sub judice and I think it is sufficient
here to say—
12. There was a report in last week's Farmer's
Weekly about this case, if people think this is just a one-off
case. It mentioned you prosecuted for conspiracy to defraud in
respect of payments relating to 1997-98-99 flax harvests, so this
was not a one-off thing correct.
(Mr Bender) Correct.
13. Paragraph 1.7, Mr Bender, refers to the
rising cost of administration of CAP schemes. Would you say a
little bit about how our administration relates to other countries?
I have got a table here of irregularities committed in other Member
States as a percentage of EGAF expenditure. It rises to, unsurprisingly,
5.62 per cent in Italy. I ask this question particularly because
I know that farmers following these proceedings will claim that
much more bureaucracy is loaded on them, these controls are not
followed rigorously in other EU countries. I am giving you the
opportunity to comment on this now.
(Mr Bender) Thank you, Chairman. Let me give you some
figures.
14. Are you really thanking me?
(Mr Bender) Well, I think I am, you can determine
afterwards. Let me give you some data. In the year 2000, for the
first time, Member States sought to distinguish fraud cases from
irregularities. Just to explain to the Committee, irregularities,
of course, may not be cases of fraud and the great majority involve
errors of one sort or another rather than a deliberate attempt
to deceive. In the year 2000 all Member States reported 2,967
such cases, the United Kingdom reported 393 cases of irregularity.
408 were suspected of fraud; there was the one alleged case of
fraud reported by the UK,[1]
which is the sub judice one my colleague referred to earlier.
Over the last three years or so the pattern has been similar,
so that the UK has reported ten to 13 per cent by volume of irregularities,
by number of cases, and two to five per cent by value. It is difficult
to reach a firm view of that but we believe it indicates that
our control mechanisms help to keep the scale of irregularities
in the UK to minimum levels and, indeed, that where problems and
errors have occurred we have been quite good at picking that up.
15. Thank you for that. You previously held
the job that is currently held by Mavis MacDonald in the Cabinet
Office. Would you like to say a quick word about the lack of joined
up administration in this case?
(Mr Bender) This concerns joined-up government within
two parts of an organisation that reported to the same ministers,
so the Intervention Board and the Ministry of Agriculture, although
the IB was a separate department, it reported to the Minister
of Agriculture. The situation of the lack of joining up is clearly
something that is very much to be regretted. The establishment
of the Rural Payments Agency brings together the payment functions
of the former MAFF Regional Service Centres with the Intervention
Board into a single body, so whatever went wrong in terms of lack
of joining up in this sort of case in the past ought to have been
firmly closed and locked as a result of the creation of the RPA,
quite apart from the other control measures.
16. The most extraordinary part of this whole
sorry saga and what the public and farmers will pick up on, and
this is described in paragraph 3.6, is this farmer apparently
had farms for which he was claiming and you were giving him grants
and these farms were in the middle of Greenland, in the middle
of the North Sea and in the sea somewhere between Scotland and
Iceland. This is barely credible, is it not, that the farmer was
getting away with this and you, or your predecessors, were passing
these claims through without checking that the digits on his map
references were entirely fictitious. What is your answer to that?
(Mr McNeill) Chairman, there was no requirement for
the farmer on the Fibre Flax Scheme to actually indicate using
map references to which fields he was referring, he could have
called it anything, long meadow, low meadow, whatever. Under the
Arable Payment Scheme there was a requirement for the farmer to
tell us the proper field numbers, etc., for checking. He was required
to submit a map, he was required to identify where he was growing
the fibre flax so that we could, where required, inspect it. As
such, Mr Bowden went to some extraordinary lengths to try to adjust
the current field identification system to his own purposes.
17. Nobody smelt a rat, nobody checked these
grid references. The fact that you say he was not required to
do this was a totally unsatisfactory state of affairs because
he could claim for low pasture or high field or something and
there was very little checking. The obvious way is to require
the farmer to give their map references, which I believe you do
now. It beggars belief that you could let a farmer get away with
doing this.
(Mr McNeill) Chairman, that was the scheme requirement
at that time. I agree with you, it was far from satisfactory but,
as Hugh has mentioned, it was not a very satisfactory scheme from
inception. The position is that he was not required to identify
fields. It would have taken substantial resources for us to put
that under the IACS umbrella to arrange proper checks to be put
in place, as is the case for other arable schemes. The decision
was taken that should not be done. There was an element of manual
checking that took place but obviously not sufficient. Then in
1996 when we actually went through an extensive manual checking
going right back to 1993 when this scheme started we were able
to identify that, in fact, Mr Bowden was the only one who had
taken this approach and as a consequence was prosecuted.
18. A final question from me. Will you reassure
this Committee now that this will never happen again and that
you have now got systems in place to ensure that you discover
this kind of fraud, or similar fraud, earlier on?
(Mr Bender) I can certainly reassure the Committee
that this type of fraud will not happen. The changes to the scheme,
the changes within the UK, the new control arrangements, the way
we are establishing the Rural Payments Agency and two additional
things we are doing within the RPA, creating a single business
identifier so that devices like changes of names would not work
and a digitised land register which will check every land parcel
and put it in its correct geographical place on a map, those changes
will shut the stable door very firmly and keep it locked for this
sort of fraud. I think it would be rash of me to say with full
confidence there will never be any more frauds against the CAP
in this country but this is an issue that, of course, we take
very seriously and we believe that the controls that we have introduced,
and are further introducing, will minimise the risk of them.
Chairman: Thank you very much. Mr Ian Davidson.
Mr Davidson
19. I wonder if I could just start by looking
at paragraph 2.20, the story of the barn which I think is just
absolutely wonderful in some ways. As I understand it, you offered
a grant of £84,000 for a project, part of which was to fund
the construction of a new barn, but the barn had already been
built. Can you just clarify why exactly it was nobody spotted
this?
(Mr MacKinnon) Mr Bowden made an application under
what was then known as Objective 5b aid.
1 Note by witness: The information given here
is incorrect. Of the 408 cases of suspected fraud reported by
Member States to the European Commission in 2000, 34 were actually
referred by the United Kingdom. Ref Q 242 where the incorrect
figure is also quoted. Back
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