Conclusions and recommendations
Improving the effectiveness of farm inspections
1. It
is of major concern that the level of discrepancies noted by the
Department's inspectors, when accompanied on farm visits by the
Audit Office, was many times higher than when they were not accompanied.
It appears to us that, by turning a blind eye to irregularities
during on-farm visits, some inspectors were complicit with farmers
in claiming more money than they were properly due. The Department
must ensure that all irregularities are reported by inspectors.
2. We were surprised
to find that payments were being made for sheep that had apparently
died, but which had not been reported or replaced. Decisions by
inspectors to ignore well-established rules cannot be justified.
It also sends out the wrong message to farmers, making it harder
to enforce the rules on future occasions. This practice must stop
immediately.
3. There is compelling
evidence that the vast majority of sheep losses have not been
reported, despite the requirement to do so. It is likely, therefore,
that many payments of premium which were not properly due have
been made. Given the large numbers of sheep involved, the overall
level of overpayment is probably substantial. The Department must
take action to ensure that all sheep deaths are reported, where
premium has been claimed. Where farmers fail to comply, penalties
should be rigorously applied.
4. We find the circumstances
surrounding the Department's 1998 decision to allow payments for
sheep at unnotified locations quite extraordinary. Not only was
this contrary to EU rules, but the Department has no record of
its decision, despite a senior official apparently travelling
to Brussels to discuss the matter. This is astonishing. Unauthorised
changes to EU rules are wholly unacceptable, not least because
they carry the risk of disallowance. We take a very dim view of
any breach of well-established rules, but especially where it
is compounded by such shabby administration. We also want to make
clear that this Committee will only accept explanations from Accounting
Officers where these are adequately supported by documentary evidence.
5. Despite all farmers
signing an undertaking to provide reasonable assistance during
inspections, there were a number of cases where farmers had refused
to help inspectors. Allowing farmers to get away with this is
indicative of the slack control regime the Department has been
operating. We welcome the Accounting Officer's undertaking that,
from now on, any farmer who refuses to co-operate will not be
paid.
Raising the standard of flock records and markings
6. We
find it disturbing that, some seven years after the European Court
of Auditors reported that flock records were in a lamentable state,
there appears to have been little improvement. It is utterly pointless
to instruct farmers to maintain proper flock records and threaten
to penalise them for non-compliance, but then fail to check and
enforce the requirement. The Department needs to get a grip on
flock records and demonstrate to farmers that any failure to comply
with the regulations will no longer be tolerated.
7. The Department's
failure to properly address the weaknesses in control, highlighted
by the European Court of Auditors in 1994, was a serious error
in judgement. Given the risk of disallowance for failing to enforce
EU controls, the Department's disregard for the auditors' recommendations,
especially on flock records and markings, was irresponsible. The
Department has to understand that ignoring EU requirements is
not an option as it creates a liability which the taxpayer may
have to repay.
8. We regard flock
records as an extremely important control, with benefits over
and above sheep annual premiumfor example, they are a key
source of information during disease outbreaks, as was demonstrated
during Foot and Mouth in 2001. Because of these wider benefits,
checks on flock records should not be confined solely to the retention
period, but should take place throughout the year.
9. It seems to us
that the Department's system of checking flock records is rendered
completely useless by allowing a delay of up to 10 days to complete
the check. In our view, the Department should make clear that
it is up to farmers to ensure that their flock records are held
on the farm and are available at all times for inspection. Failure
to comply should result in some form of sanction.
10. Flock markings
is another control measure where the Department appears to have
paid scant regard to the findings of the EU auditors in 1994.
We recognise that flock marking is not foolproof, but it can provide
added assurance at inspection, as a counter to the fraudulent
'borrowing' of sheep. As with flock records, the Department needs
to send a clear message to farmers that flock marking is obligatory
and failure to comply with the regulations will no longer be tolerated.
11. While we welcome
the Department's decision to introduce the individual tagging
of sheep, we are concerned that the timetable for implementation
appears open-ended. Although there could be some advantage in
waiting for EU guidance, the resulting delay means that it may
be some time before a system of tagging is fully developed and
operational. We expect the Department to progress this issue at
an early juncture.
Improving payment controls
12. We
find it worrying that the weaknesses in the Department's land
identification systems leave it vulnerable to fraud. While the
Department thinks it highly unlikely that there are major fraud
problems in the database, we are not persuaded. Bogus land declarations
have already been discovered and, with some 375,000 records still
to be validated, the potential for other irregularities exists.
With validation of the remainder of the database scheduled to
take more than 10 years, the Department needs to consider how
this exercise can be speeded up.
13. We welcome the
Department's decision to introduce an automated 'Geographical
Information System' to record and validate land holdings. We expect
the Department to ensure, however, that the range of concerns,
identified within its existing land identification systems, are
not repeated when the new system is implemented.
Applying penalties for irregularities
14. We
were surprised at the extent to which the level of penalties actually
applied for claims irregularities in Northern Ireland has been
lower than anywhere else in the British Isles. Penalties, properly
applied, can provide a strong deterrent effect to farmers who
might otherwise fail to observe the rules of the scheme. We welcome
recent improvements and expect the Department to rigorously enforce
the EU rules at every opportunity.
15. We regard the
Department's decision not to introduce penalties for poor flock
records and markings as very poorly judged. Given the high level
of non-compliance with these key controls, the Department needs
to toughen-up enforcement right away. When this Committee looked
at the Sheep Annual Premium Scheme in England, we recommended
a separate system of graduated penalties for shortcomings in flock
records. We are in no doubt that the introduction of a similar
system in Northern Ireland, to include flock marking, would go
a long way to raising the overall standards.
16. We are keen that
recommendations which we make for England are translated across
to Northern Ireland. However, this has not been happening as effectively
as it should have been. While we expect the Department of Finance
and Personnel to play a pivotal role, we would also encourage
Northern Ireland departments to liaise closely with their GB counterparts
on all Public Accounts Committee reports.
Combating fraud
17. Prior
to the Audit Office examination, the Department's record in combating
fraud was pretty abysmal. We welcome the Accounting officer's
assurances that procedures are now much improved and we expect
that, in future, every case of suspected fraud will be properly
investigated; that decisions on all cases will be fully documented;
that every realistic opportunity to prosecute will be vigorously
pursued; and that successful prosecutions will be widely publicised
as a deterrent to other would-be fraudsters.
18. It is worrying
that one of the cases where no sheep were found at inspection
involved an employee of the Department. We are disappointed that
prosecution was not recommended, due to concerns about the standard
of evidence. In a case where a civil servant deliberately seeks
to exploit the rules within his own Department, we are of the
firm opinion that the Department must make a particular effort
and be seen to take strong action. This should always include
disciplinary proceedings and, wherever possible, prosecution.
19. With some 230
of the Department's 3,750 staff currently claiming agricultural
subsidies, the requirement for all staff to make a conflict of
interest declaration is a useful procedure. We expect the Department
to carefully consider each situation where a potential conflict
of interest exists and ensure that the risks are fully addressed.
20. Even though the
Department has rotated 20% of inspectors each year, we are not
convinced that collusion between farmers and Departmental staff
has not been an issue. There were far too many situations where
non-compliance with the rules was ignored by the Department. We
expect the Department to ensure, through close supervision and
monitoring, that any pattern of possible collusion is picked up
at the earliest opportunity. Other measures, such as a programme
of selected re-inspections should also be considered.
21. The degree of
fraud discovered in the wake of Foot and Mouth was a quite staggering
state of affairs, particularly in one of the affected areas where
at least 58% of claimants had been attempting to cheat the system.
We are not at all persuaded that this was a one-off situation.
In our view, the Department's risk analysis is fundamentally flawed
and needs to be re-examined as a matter of urgency.
22. While the Department
estimates fraud in the scheme at £0.5 million each year,
we think this figure is almost certainly understated. We saw plenty
evidence of irregularities, including shortfalls of sheep, that
went unreported. In our view, the actual fraud figure is likely
to be substantially higher than £0.5 million. We would strongly
urge the Department to look again at this matter.
23. Over the past
10 years, the Department has spent almost £1.4 billion on
livestock subsidies. With such enormous sums of taxpayers' money
at stake, the Department must make fraud a decidedly unattractive
proposition, by ensuring that it has an effective inspection process,
a rigorous prosecutions policy and penalties that far outweigh
the potential gains from fraud.
24. We commend the
Livestock and Meat Commission for drawing attention to the substantial
inaccuracies within the Department's statistics on sheep marketings.
We note the Department's assurances that it now has actual data
on all marketings and no longer needs to produce an estimate.
25. Our overall impression
is that the Department has in the past been soft on fraud and
this has contributed to unacceptably high levels of fraud within
Northern Ireland agriculture. Indeed, having carefully examined
the evidence, we are convinced that many fraudsters would have
regarded an attempt to cheat the scheme as a risk worth taking,
given the slackness in control and the Department's poor record
of prosecution. We welcome the Accounting Officer's assurances
that his Department now operates a policy of zero tolerance to
fraud and that attempts to cheat the system are being tackled
in a much more vigorous way.
26. It is clear that
this scheme has not received the close management and supervision
that it deserves. The most damning aspect of the Department's
handling is the extent to which key requirements of the scheme
were repeatedly ignored, over a long period of time. Non-compliance
was not confined to unscrupulous claimantsthere is evidence
that Departmental staff were at times complicit in turning a blind
eye to the rules. As a result, the integrity of the scheme has
been undermined. With non-compliance often leading to overpayment
of premium, we can only conclude that the Department has been
failing in its duty as custodian of the public purse.
27. We want to emphasise
that a '£' of EU subsidy is as much taxpayers' money as any
other form of voted moneythis Committee makes no distinction
between the rigorous safeguards we expect to see operated for
EU subsidies and any other form of grant payment. The Department
must be in no doubt that we expect all of its schemes to be administered
in line with best practice.
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