House of Commons - Public Accounts

Select Committee on Public Accounts Fifty-First Report

DEALING WITH FRAUD

Detection and prosecution

16. The initial investigation in 1996 by the Intervention Board focussed on Mr Bowden's claims under the two crop schemes. Once fraudulent activity had been suspected, there was no trigger to check for claims under other farming schemes. It was not until 1997 that his claim for Objective 5b monies began to be investigated, and that investigation was only triggered because of the chance movement of a member of staff.[21]

17. A report by our predecessor Committee in 1998-99[22] showed that almost half of the 25 cases of suspected fraud referred for investigation resulted from tip-offs to the Ministry's regional offices by farmers.[23] It recommended that the Ministry should do more to encourage the exposure of those trying to defraud the taxpayer, and to take account of the experience of other departments. It also recommended that the Ministry review its criteria for prosecution, such as the potential size of judicial penalties, the value of the irregularity and the claimant's past behaviour. It suggested taking account of the deterrent effect of prosecution on others tempted to abuse the system, and noted the approach of other government departments such as the Benefits Agency (now Jobcentre Plus, within the Department for Work and Pensions).[24] The Department had not acted fully upon these recommendations, particularly to compare its approach with those of other Departments and Agencies. It has now undertaken to do so.[25]

18. The Agency operated a freephone fraud line that received, on average, 2,500 calls a year based on the experience of the Intervention Board. Not all of these related to suspected fraud. For example, in 2001 only 46 freephone calls were identified as relating to possible fraud, and of these only 11 were found to be worthy of more detailed investigation with a view to taking action in the courts.[26]

19. In addition to tip-offs, investigations arose from other sources such as office checks and physical inspections. The Agency had seen no perceptible shift in the proportion of investigations originating from tip-offs, which on average is 6 per cent. The Agency did not pay incentives to those who provided information leading to savings in public money. It agreed to consider the experience of others, and the Department planned to consider extending the free phone fraud line approach beyond the Rural Payments Agency.[27]

20. Since 1997, the average time from start of an investigation to conclusion of court proceedings has increased from over one year to three years (Figure 4). The Department noted that the time taken could be beyond the control of investigators. Taking the figures for the last five years, 39 out of 558 investigations (7 per cent) had resulted in prosecution. A further 15 cases, 10 in 2000 and 5 in 2001, had resulted in warning letters to claimants where there was no public interest in taking the case to prosecution. Successful criminal prosecutions were publicised.[28]

21. The Department and Agency said that where the evidence of the case was insufficient for a prosecution, it could still provide the basis for other action such as administrative penalties. Penalties ranged from a specified reduction in aid payment to complete loss of entitlement for up to three years. Administrative penalties were summarised in the Department's annual report and accounts but there was no system to name offenders. The Agency is reviewing the scope for more frequent reporting of the level of administrative action taken.[29]

Figure 4: Investigations and prosecutions in 1997-2001

Year	Number of investigations started	Number of prosecutions (all successful)	Average time taken (in months) from start of investigation to conclusion of court proceedings
1997	137	6	14
1998	99	4	23
1999	87	8	30
2000	161	10	27
2001	74	11	37
Total	558	39

Note: Due to the time taken to investigate the cases prosecuted in a year do not necessarily relate to the cases investigated in that year.Source: Ex-Intervention Board prosecution statistics[30]

22. Figure 5 shows the administrative penalties applied in 2000 on the main Common Agricultural Policy Schemes, as reported to the European Commission. The Agency was unable to provide us with details of the people to whom administrative penalties had been applied.[31]

Figure 5: Administrative penalties applied on livestock and arable schemes in 2000[32]

Scheme	Number of Applicants	Penalties Applied
Livestock Schemes	171,145	12,979
Arable Area	73,059	7,662

23. The Committee questioned the success of the Anti-Fraud Unit given the time taken to bring prosecutions to court, and the small number of prosecutions. The Department noted that the Unit consisted of 60 people, of whom only a third were involved in investigations which might lead to prosecutions. There was no direct correlation between the number of investigations and the number of prosecutions, as shown in Figure 6. Out of 81 prosecutions by the Board in 1991 - 2001, 79 had been "successful".[33]

Figure 6: Number of investigators and prosecutions[34]

	91	92	93	94	95	96	97	98	99	00	01
Number of investigators	5	5	8	5	6	13	16	18	19	21	18
Number of prosecutions per investigator	1.4	1.4	0.9	0.6	1.2	0.9	0.4	0.2	0.4	0.5	0.6

24. In the year 2000, for the first time, European Union member states were required to report fraud cases separately from cases of irregularity. Irregularities involve errors or omissions, rather than intentional attempts to deceive. In 2000 member states reported 2,967 irregularities amounting to some £298 million. 393 of the cases, worth £12 million, related to the United Kingdom. Of the 408 cases identified as suspected fraud in that year 34 related to the United Kingdom. Further analysis by the Department showed that the United Kingdom generally accounted for 10 to 13 per cent of the volume of irregularities but only two to five per cent by value. The Department suggested that these figures showed that control mechanisms were minimising irregularities in the United Kingdom, and that where problems and errors occurred, controls were effective in identifying them.[35]

RECOVERY OF MONEY

25. If Joseph Bowden had succeeded in all his applications for payments during the period 1994 to 1997, he might have received up to £415,000 from public sector schemes. (Figure 7). In fact he received only £221,000 since doubts about his claims were discovered in time for some payments to be withheld.[36]

Figure 7: Value of applications by Mr Bowden and amounts paid 1994-1997[37]

Source

Claims

Actually paid

Arable area scheme

Fibre flax scheme

Objective 5b

120,000

211,000

85,000

80,000

141,000

Nil

Total

415,000

221,000

26. The Ministry did not immediately attempt to recover the £80,000 paid to him under the Arable Area Payments Scheme, awaiting criminal court proceedings. By 1998, however, Mr Bowden was in financial difficulty and sought an Individual Voluntary Arrangement with his creditors. This enabled him to continue in business whilst seeking to pay off a portion of his debts. The Ministry, holding 38 per cent of his debt, voted in favour of the proposal. In the event, the Ministry received only £1,325 under the arrangement. It wrote off the debt, together with accrued interest thereon amounting by 2001 to some £111,000.[38]

27. Before supporting the Individual Voluntary Arrangement proposed by Mr Bowden, the Department ought to have reviewed the financial position of Mr Bowden and related parties. Mr Bowden's application for Objective 5b monies included a tender from a trading company with an address where the council tax was paid in the name of Bowden; and J H Bowden & Son was one of the trading names used in his dealings with contractors under the Fibre Flax Scheme. Mr Bowden was, however, on the verge of bankruptcy by 1998 despite having received significant income fraudulently from the private and public sector. The Department said that they had no evidence of money being hidden away.[39]

28. The Department had not sought to recover from Joseph Bowden any of the £141,000 he received via flax processors operating the Fibre Flax Scheme. Inspection reports in 1994 and 1995 had indicated that he was growing flax, and the Judge had directed that not guilty verdicts be entered in respect of charges of false accounting under the Fibre Flax Scheme. The claims in respect of land on which he had entered into contracts with more than one flax processor amounted to some £11,000. This had been written off as irrecoverable, and no claim had been made for recovery from the flax processors, on the grounds that the processors had believed the claims to be in good faith, and that it was not in the public interest to seek recovery from them.[40]

29. We asked if the Department could penalise farmers caught defrauding under one scheme by stopping all other claims. The Department acknowledged this happened within discrete elements of Common Agricultural Policy schemes. For example, if there was a fraudulent claim within livestock subsidies the farmer would jeopardise all his livestock claims. The farmer could, however, still claim successfully for crop subsidies. The difficulty in extending penalties beyond the scheme under which a fraud had been proved lay partly in the need to prove intent to defraud.[41]

30. Procedures for beginning recovery proceedings had been tightened since the case. The Department's guidance was amended in 2000 to ensure action would be taken promptly to recover money. The Department was now reviewing the clarity of this guidance.[42]

21 Q145 Back

22 25^th Report from the Committee of Public Accounts, MAFF: Arable Area Payments Scheme (HC 306, Session 1998-99) Back

23 ibid para 48 Back

24 25^th Report from the Committee of Public Accounts, MAFF: Arable Area Payments Scheme (HC 306, Session 1998-99), paras 6, 7(x), 7(xi) Back

25 Qs 38, 55, 125-129, 288-289 Back

26 Qs 41-43; Ev 26-27, Appendix 1, ref. to Qs 44, 65-74, 148, 150,156, 235-242, 295, 298 Back

27 Qs 45-51, 156 Back

28 Ev 26-27, Appendix 1, ref. to Qs 44, 65-74, 148, 150,156, 235-242, 295, 298; Ev 30, Annex A Back

29 Qs 56-58 Back

30 Ev 30, Annex A Back

31 Qs 59-64; Ev 27, Appendix 1, ref. to Q 64 Back

32 Ev 31, Appendix 1, Annex B Back