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APPENDIX 1
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
Year |
Agency | Ag. Dept |
Informant | Scrutiny
| Verifi- cation | MHS (a)
| MLC(b)/ LMC(c) | Tech. Inspec.
| Other |
| 1997 | 65 | 2 |
5 | 4 | 12 | 0
| 0 | 0 | 12
|
| 1998 | 44 | 3 |
6 | 5 | 10 | 1
| 14 | 3 | 14 |
| 1999 | 48 | 3 |
6 | 7 | 12 | 2
| 14 | 1 | 7
|
| 2000 | 58 | 2 |
7 | 7 | 13 | 2
| 3 | 2 | 6
|
| 2001 | N/A | N/A
| N/A | N/A | N/A
| N/A | N/A | N/A
| N/A |
| |
| | | |
| | | |
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
Year
| Investigation cases opened A
| Intelligence Referrals B | Investigations from fraud line C
| Investigations from other sources D |
Possible genuine fraud related calls on fraud line E
|
1997 | 137 | 220
| 1 | 219 | 13
|
| 1998 | 99 | 211
| 4 | 117 | 28
|
| 1999 | 87 | 225
| 7 | 91 | 21
|
| 2000 | 161 | 227
| 9 | 128 | 32
|
| 2001 | 74 | 216
| 11 | 65 | 46
|
| |
| | | |
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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