Select Committee on Public Accounts Minutes of Evidence


Supplementary memorandum submitted by DEFRA and the Rural Payments Agency

Question 35: Can you clarify whether or not anybody who was involved with this at any stage was on some bonus system and whether or not they got a full bonus?

During 1994-95 and 1995-96 DEFRA operated a Service-wide Special Bonus Scheme. The IB operated a similar scheme during 1993-94 and 1994-5. It can be confirmed that no staff members connected with the processing of Mr Bowden's claims received any bonus under these schemes. The IB Chief Executive in each of the years from 1993-94 to 1996-97 and some members of the senior management team (in 1994-95) received an annual bonus payment linked directly to the achievement of key performance targets and personal performance assessment. These payments were not directly linked to processing of claims under a specific scheme.

Questions 44, 65-73, 148, 150, 156, 235-242, 254, 295 and 296: Information about tip-offs, and statistical breakdown of inspections, prosecutions, proven frauds, prosecutions per investigator and average time taken for cases from opening to conclusion of court proceedings?

All the questions on tip-offs and investigations have been grouped together. During the hearing there was some confusion about some of the data and interpretations being placed on the information provided, which we regret. The IB operated a freephone fraud line. On average they received about 2,500 calls a year but not all of these calls were in connection with suspected fraud. In addition to the fraud line, intelligence that may lead to investigation is received from a number of sources, mainly from operational sections, post payment scrutiny of traders' records and physical inspections.

Ex-IB Intelligence referrals

AgencyAg. Dept InformantScrutiny Verifi- cationMHS (a) MLC(b)/ LMC(c)Tech. Inspec. Other
1997652 54120   0012
1998443 65101 14314
1999483 67122 141  7
2000582 77132   32  6

Source: RPA CFCU Database.

(a)  Meat Hygiene Service

(b)  Meat and Livestock Commission

(c)  Livestock Marketing Commission

The following table shows for the last five years how many investigations were conducted. To explain in 2001 the 46 genuine calls (col E), after initial investigation, resulted in 11 viable pieces of intelligence (col C) that formed part of the intelligence referrals (col B) and were included in the investigations for the year (col A):

Ex-IB Investigations


Investigation cases opened A Intelligence Referrals BInvestigations from fraud line C Investigations from other sources D Possible genuine fraud related calls on fraud line E

137220   121913
1998  99211   411728
1999  87225   7  9121
2000161227   912832
2001  74216 11  6546

Source: RPA CFCU database. Some investigations lead to more than one prosecution.

There has been no perceptible percentage shift in investigations or prosecutions originating from tip-offs.

In preparing the additional information on prosecutions additional data on the number of possible fraud irregularities reported by the UK in 2000 has shown that there were 34 cases and not the one mentioned in paragraphs 14 and 242 of the PAC hearing transcript. It can also be seen from the data in Annex A that the number of successful prosecutions given in evidence at paragraph 150 needs to be corrected. Corrections are also needed to paragraphs 238, 240, 242, 245 and 254 where in evidence the number of annual prosecutions were understated.

Statistics on investigations carried out by ex-MAFF (now DEFRA) and the IB are attached at Annex A. In using these it should be noted that there is no direct correlation between the number of investigators and the number of cases taken to prosecution and subsequently successful. Among other things cases can vary substantially in size and complexity. In addition since it will often be well over a year from the date of the offence when the case may reach court, there is no direct match between the number of cases investigated within a year and the number prosecuted. The time which cases take to reach court can often be beyond the control of investigators and lawyers and can be dependent on the availability of court time and, if contested, the preparedness of the defendant. The work of the DEFRA investigation team extended more widely than just CAP/IACS related cases and it is therefore not possible to supply the requested statistics of the number of successful cases per investigator.

The purpose of any investigation is not necessarily to result in a prosecution, it is to find the facts. Those facts are considered in the light of the Code for Crown Prosecutors with which both DEFRA and IB lawyers have agreed with the Attorney-General to comply. Should the facts supply insufficient evidence for a prosecution they can still provide the foundation for other enforcement such as administrative penalties or debt recovery. They can also justify the rejection of a claim prior to payment. The fact that an investigation does not result in a successful prosecution should not therefore be regarded as a failure. In addition lawyers for both DEFRA and the IB are ready to issue warning letters where there is enough evidence but there is no public interest in taking the case to prosecution. For the IB ten such letters resulted in 2000 and five in 2001.

Question 64: Provide a list of people to whom administrative penalties have been applied?

IACS penalties which range from reductions in aid payments to complete loss of entitlement for one or more years are prescribed by regulation. These penalties are applied to claims that are submitted late, contain errors, or after inspection/checking are found to be incorrect. In cases of serious negligence and fraud further penalties may be applied. RPA does not hold information on penalties in a format that allows the recipients of a penalty to be listed. This information could only be provided through considerable re-programming of existing IT systems and therefore at disproportionate administrative cost (it has been calculated as taking up to 15 man-weeks and at a cost of £75,000). Attached at Annex B are the penalty figures for 2000. This is information that is annually provided to the European Commission and which in future years we intend to publish.

Questions 111-113: In respect of projects that involve construction, are these subjects to tender, does the Department follow local government practice which is to insist on any grant being given for construction purposes being properly tendered?

The provision of competitive tendering was not a requirement under the Objective 5b programme. The assessment and scoring of applications by technical staff had embedded within it a judgement on cost benefit analysis. This included seeking confirmation that the most cost-effective options had been identified. In practice, when dealing with capital projects, this will usually have involved the application of competitive tenders.

In respect of the ERDP programme, during the lifetime of a project we would only expect formal tendering to be undertaken by large capital projects (details of these tenders are made available to our office staff). This is in accordance with EU rules concerning the use of EAGGF funds for capital works and Treasury rules on the use of UK funds. As a general rule, for construction projects, three quotations are required. However, in exceptional cases, it may not be possible or reasonable to expect the applicant to provide three written quotations. Should such circumstances arise, applicants are required to demonstrate reasonable cost and good value for money by alternative means.

The principle behind requiring a number of quotes is to ensure that the project costs are justifiable, can be accepted as reasonable and realistic, and provide good value for money for the public funding requested. Whilst applicants do not necessarily have to base their costs on the cheapest quotation, there should be good transparent reasons for not accepting the lowest tender, for example: where the quote is significantly lower than the other bids but it is clear that the job cannot be completed for that price, or where it would force an unacceptably significant delay to the project. Other considerations such as local supply and quality of service may mean that the best value is obtained by opting for a more expensive provider.

The tendering process used by a project for capital works is one of the areas subject to close examination as part of the In Depth Monitoring procedures. This is to ensure that all procedures have been undertaken in accordance with EU rules.

Questions 119 and 120: Could you provide a note on the cost of administering each scheme that DEFRA has under its control and the cost of the total payments made over the last ten years?

Attached at Annex C is a schedule of expenditure from 1991-92 to 2000-01. Where the information is available, it includes both the administration costs and scheme costs. The administration costs include only those costs directly attributable to each scheme (or group of schemes) listed. They do not include any overhead costs or other costs that are normally regarded as one-off. Over the period schemes (and the operational structures that administer these schemes) have changed, new schemes have been introduced and others have ended. This has required some of the costings to be amalgamated into respective commodity groups rather than summarised by scheme as requested by the Committee. Collecting this data has been difficult, particularly where the data has had to be drawn from separate ex-IB and ex-DEFRA systems and accounts. It should be treated as indicative only.

Question 175: What system of specimen taking and lab inspection of crops is now incorporated into your process of inspection, notification, verification and payment?

At the time, and subsequently after a processing requirement was introduced, any requirement for laboratory analysis was not considered necessary. The IB controls consisted of on-the-spot inspections selected by risk analysis following submission of the sowing and harvesting declarations and notification that the crop had been cut; and examination (verification) of stock records of the delivered and processed straw at the contractor /processor. There was no Scheme requirement for either the harvested straw or the fibre produced to be subject to quality standards (ie moisture level, fibre strength) so the need for any laboratory sampling was not seen as necessary. This remains the position now that fibre flax is an AAPS crop.

In relating to what Mr Bowden had grown, the IB investigators took witness statements from the contractors who had sown and harvested the crop of what they believed to be flax. They saw documentary evidence (invoices) that Mr Bowden purchased flax seed, but no evidence that he purchased linseed. The investigators also took a 25 page witness statement from the loss adjustor. All the evidence therefore pointed to Bowden growing and harvesting flax.

Question 200: Do you have a figure for the total subsidy given to Mr Bowden over the years?

The Arable Area Payments Scheme was introduced in 1993. Under this Scheme Mr Bowden received a total of £80,413.34 (£40,858.91 in 1994 and £39,554.43 in 1995). Payments made under the Fibre Flax Scheme on crops grown by Mr Bowden but paid to contractors amounted to £141,443.00 (£53,364.00 in 1994 and £88,079.00 in 1995). The contractors will have passed the benefit of this subsidy back to Mr Bowden. It has not been possible to establish whether Mr Bowden received CAP schemes subsidies (ex-IB) prior to 1994. These schemes however were typically aimed at traders, processors and exporters rather than farmers.

Questions 227 and 275-280: Clarification of the cases allowed to "lie on the file", and whether a deal was done?

It is by no means exceptional in the criminal courts to accept guilty pleas to a selection of offences, whilst leaving others on the file. It meant that there was a representative spread of charges to ensure a likelihood of a sentence which would adequately represent the wrongdoing without incurring the risk of a long and expensive trial of all 18 counts on the indictment (which was the alternative), with no guarantee of the outcome. The prosecution of Joseph Bowden involved three prosecuting authorities working together, the IB, MAFF and the CPS. In August 2000 solicitors for Mr Bowden approached the prosecuting authorities with a plea of guilty on 9 of the 18 counts, five of deception and four of false accounting. These were acceptable to the prosecuting authorities on the basis that the defendant would face conviction on the guilty pleas and that the significant cost and time of a protracted court trial would be avoided. The CPS felt the offer was acceptable and would offer a high probability of a suitably severe sentence for Joseph Bowden.

In respect of the remaining nine counts, the judge directed that not guilty verdicts be entered in respect of three that were alternatives to the counts to which Bowden had pleaded guilty (on the basis it was alleged that one or other crop was grown on the land and must, therefore, have been harvested so it must be the case that these counts are alternatives). He also directed that not guilty verdicts be entered for the three counts of arson. The judge further directed that three counts be left on the file marked "not to be proceeded with without leave of this court or the court of appeal". Two of these related to insurance claim frauds (CPS) and one concerned Objective 5b funding (MAFF).

The prosecution view was that to have gone to trial on the offences left on file would have added nothing to the outcome. Such action would have added materially to the expense involved in the trial, which would then have been for all 18 counts instead of the 9 to which guilty pleas were entered. No money was paid to Mr Bowden under the Objective 5b programme.

The judge felt it appropriate to comment about the three counts of arson. He said that the circumstance in which agricultural barns were destroyed by fire, resulting in significant property being destroyed, had necessarily given rise to a considerable measure of suspicion. The evidence in relation to those matters was circumstantial. Bowden had pleaded guilty to substantial and significant offences of dishonesty. The judge did not regard it as his duty to undermine the basis of the arrangement between the prosecution and the defence. He explained that in light of Mr Bowden's pleas to other matters and bearing in mind the court's overall powers of sentence in respect of the matters to which he had pleaded guilty, the costs of a lengthy trial were not merited.

Decisions were taken at the time by the three prosecuting authorities, in consultation with counsel, an experienced practitioner who was one of the standing counsel to HM Customs and Excise. All concerned were agreed that it was extremely unlikely that a better sentence would have been handed down had the prosecution pressed for all 18 offences to be tried. Bearing in mind the cost and time of a protracted court hearing it was considered to be in the public interest to accept the defence plea on nine counts. The custodial sentence of 30 months was the highest ever handed down in relation to offences committed against CAP schemes administered by the IB or MAFF. This was a successful case and in his summing up the judge said that the message should go out loud and clear to others who may be tempted to cheat the system, that they will be punished.

Questions 230-232: What are the definitions of fraud and irregularity?

EU Definition of Fraud The Convention on the protection of the Communities financial interests (97/c/191/01) defines fraud, in relation to expenditure as:

  Any intentional act or omission relating to:

    —  The use or presentation of false, incorrect or incomplete statements or documents, which has as its effect the misappropriation or wrongful retention of funds from the general budget of the European Communities or budgets managed by, or on behalf of the European Communities.

    —  Non-disclosure of information in violation of a specific obligation, with the same effect.

    —  The misapplication of such funds for purposes other than those for which they were originally granted.

EU Definition of irregularity In EU legislation irregularity is defined as:

  Any infringement of a provision of Community law resulting from an act or omission by an economic operator, which has, or would have, the effect of prejudicing the general budget of the Communities or budgets managed by them, either by reducing or losing revenue accruing from own resources collected directly on behalf of the Communities or by an unjustified item of expenditure (Regulation 2988/95).

DEFRA and Rural Payments Agency

April 2002

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