Select Committee on Public Accounts Third Report

1  Improving the effectiveness of farm inspections

1. In line with EU requirements, the Department conducts a programme of farm inspections during the retention period, on a sample of claims. Inspectors are required to verify that sheep numbers are as claimed (sheep are not individually identified and tend to be moved in groups), that sheep are on notified locations, are properly marked and that proper flock records are kept. An inspection report is prepared, which enables, prevents or reduces payment of subsidy. The C&AG's Report highlighted a wide range of weaknesses in the Department's inspection programme.[4]

Raising the quality of inspections

2. The level of discrepancies noted by inspectors when accompanied by the Audit Office was many times higher than when they were not accompanied. When we suggested that inspectors had been turning a 'blind eye' to irregularities, we were told that they had been recording only those issues which they deemed likely to lead to the imposition of a penalty. We found this explanation wholly unconvincing—in the case of anomalies in sheep numbers, which is a penalty offence, over four times as many irregularities were noted when the Audit Office was present. The Accounting Officer accepted that the practice had been wrong and said that inspectors are now required to record all anomalies noted at inspection. It appears to us that, by turning a blind eye to irregularities during farm visits, some of the Department's inspectors were complicit with farmers in claiming more money than they were properly due. This is completely unacceptable.[5]

Identifying sheep losses

3. During the retention period, farmers are required to report, within 10 days, the deaths of all sheep on which premium has been claimed, otherwise a penalty will be applied. We were surprised to note, therefore, a case highlighted by the C&AG where payment was made on 12 sheep that had apparently died, but which had not been reported. The inspector involved decided to accept the farmer's explanation that the deaths had occurred within the previous 10 days, during lambing, even though there was no evidence that these sheep had actually existed. Unfortunately, this was not an isolated case.[6]

4. In our view, the inspector's decision 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. The Department said that now, in such cases, it requires farmers to show the inspector the carcasses of the dead sheep. However, if carcasses can be produced, then it is clear that the farmer is aware of the sheep losses and should have reported them.[7]

5. In this particular case, there had been a total shortfall of 25 sheep, some 8% of a total claim of 303. If this was a typical level of loss during retention, we would expect annual sheep losses across Northern Ireland as whole to amount, at the very least, to some 96,000 (based on an eligible flock size of some 1.2 million sheep) and probably much higher. We asked how many notifications of sheep deaths the Department had in fact received. Data provided after the hearing, showed that, over the past five years, an average of 877 sheep losses per year had been reported. On average, reports of losses had been received from only 59 farmers each year, out of a total of some 9,500-10,000 claimants. This is in stark contrast to the findings of the Audit Office, which noted a shortfall in the numbers of sheep held in 35% of the farm inspections which it accompanied.[8]

6. In our view, there is compelling evidence that the vast majority of sheep losses have not been reported, despite the requirement under the scheme rules to do so. We are amazed that this shortcoming has not previously been picked up by the Department and acted upon. As a result of its failure to do so, many payments of premium which were not properly due are likely to have been made. What is particularly worrying is that, given the large numbers of sheep involved, the overall level of overpayment is probably substantial.

Applying the Unnotified Locations Rule

7. EU rules require eligible sheep to be held at 'notified' locations. However, in 1998, the Department changed this policy, because it felt that other UK regions and Member States were not stringently applying the rule. Sheep at unnotified locations were therefore considered eligible in certain circumstances. We asked by what authority the decision was taken not to apply the EU penalties in such cases. The Department said that it had believed that it had lawful authority for this decision, based on what it described as a policy established in Great Britain following an EU audit. We do not accept this explanation. It is clear from the C&AG's Report that this was not an established policy in Great Britain and that the EU rules should have been properly applied.[9]

8. The Department had told the Audit Office that its change in approach had been discussed and agreed with the EU auditors before being implemented, but that no evidence of this was available. It explained that the head of the policy branch had gone to Brussels to discuss the policy change, but no record was made of the meeting. We find this explanation astonishing. Maintaining proper records is standard procedure within the public sector and yet, in this case, which involved an extremely important change of policy and a senior official travelling to Brussels, we are asked to accept without proper explanation that there is no record anywhere. This is a disturbing insight into administrative practice within the Department.[10]

9. 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 poor 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.

Securing the co-operation of farmers at inspection

10. All farmers sign an undertaking on the scheme application form that they will provide reasonable assistance during the inspection. Despite this undertaking, there were a number of cases where farmers had refused to help inspectors. This causes particular problems where the terrain is difficult, the weather inclement and an inspector is not familiar with the area. We asked why the Department had let farmers away with this and what it was doing to firm up its approach—did it, for example, disqualify the claim in such circumstances? We were told that the Department was reviewing its procedures for next year, with a view to requiring farmers to give more co-operation, and that sanctions would be considered.[11]

11. We considered this a weak response to the problem. On pressing the issue further, we found that the Department actually had the power to disallow a claim for lack of co-operation, but had never applied it. This was yet another example of the slack control regime which 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.[12]

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4   C&AG's Report, Part 2 Back

5   Qq 4-10, C&AG's Report, paras 2.31-2.32 and Figure 9 Back

6   Qq 127-130, C&AG's Report, paras 2.33-2.35 and Case A Back

7   Q 128 Back

8   Qq 174-176; Ev 17 Back

9   Qq 51-55; C&AG's Report, paras 2.49-2.53 Back

10   Qq 56-61; C&AG's Report, para 2.53 Back

11   Qq 159-160; C&AG's Report, para 2.13 Back

12   Qq 161-167 Back

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Prepared 18 December 2003