6 RECOVERY OF IRREGULAR PAYMENTS UNDER
THE COMMON AGRICULTURAL POLICY
(25969)
12681/04
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| Special Report No. 3/2004 by the Court of Auditors concerning the recovery of irregular payments under the Common Agricultural Policy
List of cases with the highest reported values, and weaknesses in procedures for recording and recovering debts
Commission Reply
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| Legal base | Article 248(4)EC
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| Deposited in Parliament |
29 September 2004 |
| Department | Environment, Food and Rural Affairs
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| Basis of consideration |
EM of 25 October 2004 |
| Previous Committee Report |
None |
| To be discussed in Council
| No date set |
| Committee's assessment | Politically important
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| Committee's decision | Cleared, but relevant to the debate on the 2003 Annual Report of the European Court of Auditors
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Background
6.1 The Community spends more than €40
billion a year on the Common Agricultural Policy (CAP), with responsibility
for managing this expenditure being shared between the Commission
and Member States. Thus, almost all payments under the CAP are
made by paying agencies in the Member States, which are in turn
required to satisfy themselves that payments are properly made,
to notify the Commission of any irregularities and outstanding
debts, and to recover sums improperly paid. They also have to
establish a "debtors ledger" showing a list of debts
due to the Community under the CAP, and to notify the Commission
if any recipients have received irregular payments totalling over
€100,000
in a year (the "Blacklist").
6.2 The cost of irregular payments which Member States
do not recover is borne by the Community budget, unless non-recovery
is the result of negligence by the Member State concerned, in
which case it has to bear the cost. The decision on which of
these courses should apply normally awaits a Member State's proposal
for write-off, but is then taken by the Commission's Directorate-General
for Agriculture under the clearance of accounts procedure, having
been preceded by a recommendation from the Commission's Anti-Fraud
Office (OLAF).
The current document
6.3 This Special Report by the Court of Auditors
examines the role of the Commission and the Member States in the
management and monitoring of recoveries of irregular payments.
This involved consideration of whether, once frauds and irregularities
have been detected, Member States correctly notified cases to
the Commission, established related debts, and took recovery action.
It did not examine how well Member States' control and fraud investigation
agencies detected irregularities.
6.4 The report notes that, according to OLAF, the
cumulative total of irregular payments notified by the Member
States between 1971 and the end of 2002 was €3,139
million:[12] of that
sum, €538
million (17%) had been recovered from claimants, €142
million (4.5%) had been charged to Member States, and €100
million (3.5%) written off against the Agricultural Guidance and
Guarantee Fund (EAGGF), leaving €2,349
million (75%) still to be recovered. Of the overall figure of
€3,139
million, €122
million (3.8%) related to expenditure in the UK, and the report
notes that the figures are "dominated, and distorted, by
those from Italy", which had not only reported 55% of all
irregular payments, but had the lowest cumulative rate of recovery.[13]
The report also notes that about a quarter of irregularities
relate to the fruit and vegetable sector and between one third
and a quarter to export refunds, but that they arise relatively
infrequently in spending on area aid under the Integrated Administration
and Control System (IACS), largely (it says) because of the high
level of cross-checks. Finally, the report observes that, as at
the end of 2002, 29 of the irregularity cases accounted for 40%
of the total amount to be recovered.
6.5 The report acknowledges that no system will achieve
100% recovery of irregular payments, and that some backlog is
inevitable. It also suggests that the Commission's cumulative
total for reported irregularities overstates the actual position.
Nevertheless, it highlights a number of shortcomings, as follows:
- although Member States are
required to report irregularities involving payments of more than
€4,000
within two months of the end of each quarter, some 65% of those
arising in 2002 were not reported on time, and, over the years,
notification had on average taken place more than a year after
discovery;
- Member States have interpreted
in different ways the point at which they should report irregular
payments, and the information which was supplied contained some
significant inconsistencies of definition and coverage;
- there appeared to be discrepancies between the
data held by Member States and that on the Commission's database,
raising doubts over the latter's reliability, completeness and
accuracy;
- the main reasons for the low recovery rate are
the slowness of the administrative and judicial systems in some
Member States, the frequent suspension of recovery procedures
pending the outcome of associated fraud cases, the lack of preferential
status given by some Member States to CAP debts (there being no
Community requirement on them to give priority to these), the
Commission's reluctance to accept offers of partial settlement,
and the inadequate use of procedures to offset debts against other
CAP payments which are due;
- since the Commission cannot intervene in Member
States' administrative and judicial proceedings, it has limited
power to influence the way in which they carry out their recovery
responsibilities;
- only 10% of reported payments have been written
off, partly because Member States have put forward few cases as
irrecoverable, and partly because the Commission has been slow
to take action on long-standing irregular payments;
- the Commission has had no adequate criteria for
deciding whether sums written off should be charged to Member
States or borne by the Community, and also has inadequate information
on whether write-off decisions are carried out correctly;
- the sharing of responsibilities within the Commission
for irregular payments between OLAF and the Directorate-General
for Agriculture has led to misunderstandings;
- the Commission does not make systematic use of
the information it obtains about irregularities when managing
and proposing changes to the CAP;
- the "Blacklist" does not work; and
- the separate arrangements by which Member States
report all debts due to the Community in respect of the CAP have
been improved in recent years, but they still have a number of
weaknesses, and it is not possible to reconcile the data produced
with those for irregular payments.
6.6 The Court therefore recommends that the Commission
should consider changes in the arrangements for reporting, recovery
and write-off of irregular CAP payments to remedy these weaknesses,
and in the division of responsibilities between OLAF and the Directorate-General
for Agriculture; and that it should consult Member States on the
future of the "Blacklist". In particular, it suggests
that the Commission should consider ensuring that Member States
interpret in a consistent manner the point at which they should
report irregular payments; increasing the €4,000
threshold for reporting cases; simplifying the number of definitions
of fraud; improving its own checks of the data supplied by Member
States; and taking action to reconcile its own figures with debtors'
ledgers. The Court also believes that, in order to encourage
recovery by Member States, the Commission should consider charging
to them irregular payments which have been outstanding for longer
than a specific period and for which no write-off proposal has
been received; ensuring that irregular payments are offset against
other Community payments due to the recipient; and asking Member
States to give at least the same priority to the recovery of CAP
debts as they do to the recovery of national subsidies. Finally,
it says that the Commission should establish clear criteria for
deciding whether irregular payments written off should be charged
to the Member State or borne by the Community.
6.7 In its response to the Court's report, the Commission
has put forward revised figures, showing that the total irregular
payments should now be €2.9 billion, of which €603 million
(20%) has been recovered, €297 million (10%) written off,
and the amount still pending is €2 billion (70%). It also
argues that the problems stem from the failure of Member States
to comply with their reporting obligations, and from the inconsistency
and unreliability of the data it receives. It says that it will
be seeking improvements in the system, and that it has set up
a Recovery Task Force.
The Government's view
6.8 In his Explanatory Memorandum of 25 October 2004,
the Parliamentary Under-Secretary of State (Farming, Foods and
Sustainable Energy) at the Department for Environment, Food and
Rural Affairs (Lord Whitty) says that the UK welcomes the Court's
report, which has done a helpful job in exposing weaknesses in
the system of recovering irregular payments, and has usefully
identified where the biggest problems lie. He adds that, although
it is important to remember that not all irregular payments are
frauds (most resulting from genuine errors), the UK will work
with the Commission to improve the systems, and would urge others
to do the same.
6.9 More specifically, he says that:
- the UK fully supports the Commission's
efforts to bring its database up to date, it being important that
old cases are finally closed off, and that the amounts still to
be recovered reflect the real position, and not the estimates
from when irregularities were first reported;
- the setting up of the Recovery Task Force has
the UK's full support, and that (together with other Member States)
it is co-operating in the examination and clearance of old cases;
- the UK would encourage the Commission to ensure
that the initiative to update the database continues, and that
the clearance of accounts process related to the initiative is
quicker;
- the UK fully supports action being taken against
Member States where it is clear that cases are being left with
no obvious debt recovery action being taken: however, there can
be genuine (and often legal) reasons why cases take a long time
to resolve, and the UK would prefer to work with the Commission
and experts from Member States to find a system which is practicable
and workable to improve the recovery of debts, it seeing difficulties
in agreeing a process where an automatic financial correction
is applied after a certain period; and
- along with many other Member States, the UK believes
that the "Blacklist" is practically and legally unsound,
and that placing a recipient on that list simply because they
are suspected of having committed an irregularity could well lead
to Court proceedings for slander.
Conclusion
6.10 We note the Court's view that 100% recovery
is impossible, that some backlog is inevitable, that the Commission's
figures may, for various reasons, somewhat overstate the sums
outstanding, and that not all irregular payments are the result
of fraud. Having said that, the Court has —
yet again —
identified an area of financial importance where the Community's
procedures are inadequate, their implementation by the Member
States is flawed, and the oversight exercised by the Commission
lacks rigour. In particular, there appear to be communication
problems both within the Commission, and between it and the Member
States. We were therefore glad to see that the Court has made
a number of recommendations aimed at addressing these shortcomings,
and that the Commission too will be seeking improvements in the
system. We very much hope that the UK will, as the Minister has
indicated, work closely with the Commission, and will do what
it can to encourage other Member States to do the same.
6.11 In the light of the action proposed, we are
clearing the document, but we regard it as relevant to the debate
which we are likely to recommend on the 2003 Annual Report of
the Court of Auditors.
12 The report suggests that this represented between
0.3% and 1.4% of the Community agricultural budget, according
to the year in which the irregularity was notified. Back
13
10%, as compared with the Community average of 17%, and the UK
figure of 40%. Back
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