The Committee of Public Accounts has agreed
to the following Report:
AGRICULTURAL FRAUD: THE CASE OF JOSEPH
1. In May 1996, an anonymous tip started a chain
of fraud investigations, which led to a farmer, Joseph Bowden,
pleading guilty to nine criminal charges and being sentenced in
October 2000 to 30 months imprisonment. The amount of money involved
in these nine charges was £157,000 (Figure 1). The sentence
was the highest ever imposed for such offences. The frauds were
committed against the Common Agricultural Policy Schemes in England
administered by the then Ministry of Agriculture, Fisheries and
Food, and the Intervention Board.
Figure 1: Number and value of charges for which
Mr Bowden was found guilty
4 charges of dishonestly obtaining or attempting to obtain money under the Arable Area Payments Scheme in 1994 - 1996 for growing linseed.
4 charges of false accounting on claims to contractors under the Fibre Flax Scheme in 1995 and 1996.
1 charge of dishonestly obtaining money by falsely claiming from an insurance company the contents of a barn destroyed by fire in 1995.
2. There were nine further charges relating to Mr Bowden's farming
activities in 1994-1996, as shown in Figure 2. The value of claims
made by Mr Bowden under the three agricultural schemes in the
period 1994 - 1996 was some £415,000.
The Arable Area Payments Scheme is the largest of the Common Agricultural
Policy Schemes operating in the United Kingdom. A total of £860
million was paid to farmers under this scheme in 2000-01. The
Fibre Flax Scheme was much smaller, paying out £8 million
to flax processors in 2000-01.
Figure 2: Charges not resulting in convictions
Pleaded not guilty, found not guilty
3 charges of false accounting under the Fibre Flax Scheme in 1994 - 1996.
3 charges of arson, destroying flax or straw in 1995 - 1996.
Pleaded guilty, charge to lie on file
2 charges of dishonestly obtaining or attempting to obtain £85,400 in insurance claims for the contents of a barn destroyed by fire in January 1996 and December 1996.
1 charge of false accounting in July 1996 in respect of an application under Common Agricultural Policy Structural Funds Objective 5b Scheme.
3. The irregularities against schemes administered by the Ministry
and the Board comprised three main elements:
- From 1994 to 1996 Mr Bowden claimed for subsidy payments on
some of the same land under both the Arable Area Payments Scheme
and under the Fibre Flax Scheme.
- He received or attempted to receive subsidy payments under
the Fibre Flax Scheme for the same area of land from two flax
processors in 1995 and from three flax processors in 1996.
- In 1997 the Ministry indicated a willingness to fund £84,000,
33 per cent of project expenditure, following a European Structural
Funds application (Objective 5b Scheme) from Mr Bowden. This included
the new construction of a barn which had already been built and
was not therefore eligible for grant.
4. In January 1995, January 1996 and December 1996 there were
fires at barns used by Mr Bowden which in each case destroyed
the barn and its contents. Each year Mr Bowden informed the contractors
for whom he was producing flax that harvested crops were destroyed
in barn fires and he was therefore unable to deliver processed
crops or seed.
5. In June 2001, the Department for Environment, Food and Rural
Affairs (the Department) took the place of the Ministry of Agriculture,
Fisheries and Food (the Ministry). In October 2001 the Rural Payments
Agency, a newly created agency of the Department, took over responsibilities
for all payments, inspections and accounting for Common Agricultural
Policy Schemes, including those previously managed by the Ministry
and the Intervention Board (the Board). On the basis of a Report
by the Comptroller and Auditor General, we took evidence from
the Department for Environment, Food and Rural Affairs and the
Rural Payments Agency (the Agency) on the Bowden case.
6. Our four main conclusions are:
- Joseph Bowden was able to perpetrate his frauds over a
number of years because controls operated by the Ministry and
the Board were weak. There was no cross checking of claims
between the Arable Area Payments and the Fibre Flax Schemes. And
until the tip-off, farm inspectors failed to identify that Mr
Bowden was claiming for different crops on the same piece of land.
Map references for fields were not always required or checked.
The ineligible claim under the European Structural Funds Objective
5b Scheme only came to light through the chance transfer of a
member of staff who was already aware of investigations into Mr
Bowden's claims under the two crop schemes. On identifying Mr
Bowden's crop related frauds, the Department failed to review
all its other grant schemes for claims by Mr Bowden.
- The Department and the Agency have taken steps to prevent
similar frauds occurring. They plan more sophisticated checks
based on new information technology systems expected to be in
place by 2004, but measures to improve the quality of inspections,
the verification of claims and cross checks between schemes need
to be implemented more quickly. These should include, for
example, checks on forensic evidence where crops claimed for are
said to be destroyed by fire, whole farm inspections to cover
all grant scheme claims, and inspections timed to take better
account of the stage of crop growth or harvest to provide robust
evidence of existence.
- The Department and the Board have not pursued irregular
claims with sufficient vigour. The Department recovered only
£1,325 from Mr Bowden due to delays in taking recovery action,
and due to a failure to question sufficiently rigorously where
funds obtained fraudulently by Mr Bowden had gone.
- The Department had failed to follow up recommendations
made by our predecessor Committee in its 25th Report
of 1998-99 (MAFF: Arable Area Payments Scheme); and in particular
our predecessors' recommendation to compare fraud prevention and
detection measures with those of other Government bodies. The
Department should now compare its fraud prevention and detection
measures with other Departments and Agencies such as Jobcentre
Plus (now within the Department for Work and Pensions) including
systems to encourage the reporting of potentially fraudulent claims.
7. Our more specific conclusions and recommendations are set out
On steps to prevent similar agricultural frauds in the future
(i) To prevent a farmer making irregular claims for
different schemes on the same area of land, schemes relating to
land usage should require map references to be provided. These
should be subject to full checks and discrepancies investigated.
(ii) Farm inspectors should be aware of all claims made
by a farmer under Common Agricultural Policy schemes before an
inspection visit is made. Additional guidance and training should
be provided to inspectors on crop recognition, particularly crops
which are difficult to distinguish at certain stages of growth.
Inspectors should be encouraged to seek laboratory tests if in
doubt about the nature of the crop.
(iii) The Department should compare its systems for controlling
Common Agricultural Policy payments with those of agencies responsible
for making grants under European Structural Funds, to ensure its
systems meet best practice.
(iv) When considering applications for grants for structural
projects like Mr Bowden's barn, the Department should check that
quotations submitted for the works have been subject to competitive
tendering, that companies submitting them are genuine, and that
any relationship between the applicant and a firm carrying out
the works is identified. They should also consider whether site
inspection is warranted if significant public funds are to be
paid, or obtain confirmation through an independent third party.
On detecting and prosecuting fraud, and recovering monies from
(v) When a farmer is suspected of committing fraud under
one scheme, other schemes should be checked immediately to identify
any claims made by the farmer under those schemes, which should
then be subject to review.
(vi) The Department should review its use of criminal
prosecution to determine whether it is taking a sufficiently robust
approach as a deterrent to others. Where administrative penalties
are applied instead of prosecution, the Department should consider
publicising appropriate details to help other claimants avoid
making similar errors and to encourage applicants to give due
attention to the proper completion of claims.
(vii) The Department and the Agency should monitor which
scheme applicants have made errors in their claims in order to
assess which future claims may be more susceptible to error, and
hence more worthy of review, and to undertake cross checks across
schemes for other irregularities by the same applicant.
(viii) Where a farmer has submitted irregular claims
and eligibility for payment has not been proved, the Department
should consider whether such action should jeopardise all claims
by the farmer.
(ix) The Department should review whether its revised
guidance on recovery procedures has led to more timely recovery
action, and hence an increase in such receipts.
How were the frauds discovered?
8. The frauds began to be uncovered in 1996 following
a tip-off to the police that Mr Bowden was growing potatoes, rather
than linseed, in fields claimed for under the Arable Area Payments
Scheme. Fortunately, the Ministry sent the same inspector who
had visited the farm the year before to check fibre flax claims
on behalf of the Intervention Board. The allegation about potatoes
was untrue but the inspector noticed that Mr Bowden might have
been claiming for different crops on the same area of land. The
discovery of the European Structural Funds application only emerged
when a member of staff working on the Arable Area Payments Scheme,
and aware of the investigation into Mr Bowden's claims under the
crop schemes, moved into the branch approving Objective 5b projects.
On hearing of Mr Bowden's approved grant application under the
Objective 5b Scheme, the staff member alerted managers who suspended
Mr Bowden's application.
Why did standard checks not identify irregularity?
9. Until 1996 there were no cross checks between
claims made under the Arable Area Payments and the Fibre Flax
Schemes. The two schemes were administered by, respectively, the
Ministry and the Board using separate systems. At that time, it
was therefore possible for an individual to make duplicate claims
for the same area of land under the two schemes hoping they would
be one of the 95 per cent of arable claimants who were not selected
for an inspection visit. Inspectors had failed to identify the
duplicate land usage on two separate visits to Joseph Bowden's
farm in September 1994 and April 1995 to check fibre flax claims.
10. The Department said that in-house and external
training was given to inspectors but their task was not always
straightforward. In September 1994 it might have been difficult
to differentiate between linseed and the variety of flax which
Mr Bowden was claiming to grow because, for example, of the stage
of crop growth. At the April 1995 inspection the crop would have
been harvested. However, a barn fire in January 1995 had apparently
destroyed the processed crops, which were not therefore available
for inspection. In such cases, the inspection report that flax
had been grown would have been based on a review of seed invoices
or stubble. The Department regarded this as satisfactory. The
Department and Board were unable to say whether the inspectors
would normally be aware of incidents such as fires prior to inspection
or whether successive barn fires in 1995 and 1996 would have increased
the likelihood of Mr Bowden's farm being selected for inspection.
11. The inspectors were not required to carry out
whole farm checks to inspect all the crops for which grants were
being claimed. The Department acknowledged that if inspectors
had been given more complete information about the schemes and
crops being claimed for by the farmer in advance of inspection
visits, fraudulent claims might have been identified earlier.
Weaknesses in controls and action taken
12. As part of its investigation the Ministry undertook
a 100 per cent cross check of Arable Area Payments and Fibre Flax
Scheme claims from 1993, the date of introduction of the schemes.
No other duplicate claims had been found. The Department considered
it was highly unlikely that a similar fraud could be committed
now. There were, however, a number of investigations in hand and
a prosecution pending about misdeclarations in respect of flax
harvest claims made in the period 1997 to 2000.
13. The Department said that when introduced by the
European Union in 1993, the Fibre Flax Scheme had some weaknesses
which made it open to abuse. Action was taken from 1997 onwards
to address the flaws, as shown in Figure 3.
Figure 3: Weaknesses in the Flax Scheme and action
Before 1997 payment was not dependent on the processing of crops and could still be paid even if crops were destroyed by fire.
From 1997, the European Union made it a requirement that flax was processed, unless prevented by exceptional weather conditions. The Department considered it unlikely that if the crops had been destroyed by fire after 1997 a payment would have been made to the contractor and thence to the farmer.
Farmers were expected to identify fields only by name; and if grid references were provided they were not checked in detail. While the final digits of the references Mr Bowden invented fell within normal ranges, the initial digits, if examined by experts, would have located the fields in Greenland, the North Sea and the sea between Scotland and Iceland.
The Board did not have systems which could check whether a farmer had made multiple contracts under the same or similar names, with more than one flax company, or which could identify duplicate claims by one or more farmers for the same area of land.
In 1999, the Fibre Flax Scheme been taken under the umbrella of the Integrated Administration and Control System, already applied to the Arable Area Payments Scheme, a computerised system incorporating automatic checks. Since 2001 there has been no separate Fibre Flax Scheme. These changes mean that full map references are now required for all crops, and references are subject to automatic validation.
14. The checks on Mr Bowden's Objective 5b application were insufficient
to identify that the barn was already built or that the claimant
was under investigation for fraud in connection with other schemes.
The Department said that formal competitive tendering was not
a requirement for small capital projects. However, confirmation
by technical staff that the most cost-effective options had been
identified would normally have been demonstrated by applicants
having sought tenders. The Ministry also failed to detect that
the construction company Joseph Bowden proposed to use to build
the barn was connected to himself. The Department noted that the
Objective 5b Scheme had ended in 1999 and had been replaced by
support under the England Rural Development Programme. Under this
Programme, a fuller assessment of applicants' finances was made
in determining the eligibility for grants.
15. Other organisational changes and improvements were planned
although new systems and structures were unlikely to be fully
in place until 2004. These include:
- The consolidation, in October 2001, of the payment functions
of the former Ministry's Regional Service Centres and the Intervention
Board into a single body, the Rural Payments Agency, was expected
to improve joined up administration.
- The Rural Payments Agency is responsible for all Common Agricultural
Policy schemes in England previously managed by the Ministry and
by the Intervention Board. There is now a single inspectorate
and there is some movement towards a "whole farm approach"
to monitoring claims under agricultural schemes. The Agency was
not responsible for the England Rural Development Programme, which
was managed by the Rural Development Service, although the Agency
would make the payments for this scheme.
- The Department and the Agency still had several separate databases
which could not make automatic checks for duplicate names or aliases.
However, the Agency was developing a system of business identifiers,
which farmers would use to identify a farm or a particular field.
This system would be in place by 2004.
- The Agency was also creating a land register based on a digital
database of 1.7 million parcels of land, to enable the identification
of multiple applications. The register would be able to check
every land parcel and identify its correct geographical place
on a map.
- Other planned actions included investment in new information
technology systems costing some £130 million which, amongst
other things, would increase the level and ease of automated checking
C&AG's Report, Agricultural fraud: The case of Joseph Bowden
(HC 615, Session 2001-02), paras 1.1, 2.22 and Figure 1; Ev 28-29,
Appendix 1, ref. to Qs 227, 275-288 Back
C&AG's Report, Figure 1 and para 3.14 Back
ibid, paras 1.2-1.4 and Figures 1, 2 Back
C&AG's Report, paras 2.5-2.20 and Figure 1 Back
ibid, paras 2.13-2.15 Back
C&AG's Report, paras 2.21-2.25 Back
Qs 2, 180-190 Back
Qs 91-107, 168-174, 221-222 Back
Qs 4, 28 Back
Qs 2-3, 10-12, 17, 223, 229 Back
Qs 10-11 Back
Qs 166, 215-218, 250-251 Back
Qs 218-220 Back
Qs 16, 29-30, 83-88, 135-142, 272-274 Back
C&AG's Report, para 3.7 Back
Qs 185, 249; C&AG's Report, para 13 and Box 1 Back
Qs 19-27, 111-114; Ev 27-28, Appendix 1, ref. to Qs 111-113 Back
C&AG's Report, para 12 Back
Qs 18, 157-161 Back
Qs 6, 15, 143-144, 206-211 Back