Select Committee on Public Accounts Minutes of Evidence

Examination of Witnesses (Questions 1-19)




  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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