Supplementary memorandum submitted by
the Rural Payments Agency (RPA) (RPA Sub 17)
1. DISALLOWANCE
The Committee asked for a note to clarify how
Defra had accounted for possible disallowance—financial
penalties imposed on the UK by the European Commission for not
implementing the requirements of Single Payment Scheme fully or
for making payments after the deadline.
Defra and the RPA jointly assess the risks of
disallowance arising from the administration of CAP programmes
in a working group chaired by Defra. Since Defra makes up the
shortfall if penalties have been imposed, the Department makes
provision for disallowance in their accounts. Defra made provision
in its recently published 2005-06 accounts for £150 million
in relation to possible penalties for payments funded by the European
Agricultural Guidance and Guarantee Fund. This includes but is
not confined to the Single Payment Scheme. The provision also
covers EAGGF schemes funded by the devolved administrations.
The actual extent and timing of any disallowance
is not known since there are considerable negotiations between
the Commission and Member States about possible disallowance.
Where agreement cannot be reached, the Member State may request
that the matter be referred to the independent Conciliation Body
and, thereafter, to the European Court of Justice as the final
arbiter. This process can take up a number of years. Defra have
made a provision in their 2005-06 accounts based on RPA's performance
on SPS 2005 during 2005-06. (ie the risk was identified at the
time of the year end).
The disallowance process has already begun for
SPS 2005—RPA received a letter from the European Commission
recently proposing disallowance following the EC's audit on inspections
and the control environment in September this year. Based on recent
audit results etc—the timeframe for the application of disallowance
is between two to three years. Following results of the Conciliation
Body the EC normally apply the appropriate disallowance correction—it
is only after that that Member States can apply to the ECJ. So
Defra will pay out disallowance monies before the results of an
ECJ case are known.
The estimate which underpins the provision in
the Defra accounts is based on all cases where the EC has notified
that a financial correction is being considered in respect of
UK EAGGF administration and a UK appraisal of possible weaknesses
in our administration of the Single Payment Scheme.
The financial corrections vary depending on
whether the matters concerned are considered to be key or ancillary
controls and the extent to which Member States are deemed to have
failed to comply.
The key weaknesses in implementing SPS 2005
issues which could lead to disallowance include defining entitlements
prior to validating all claims; a high level of keying errors
resulting in incorrect payments to producers; inaccuracies in
the Rural Land Register; a shortfall of 1.5% in the application
of Extensification Premium Scheme scale-back has resulted in small
overpayments to a third of SPS claimants. Ancillary control weaknesses
include that RPA has discovered that some penalties may have been
applied incorrectly.
In addition to the £150 million mentioned
above, the Defra accounts also include contingent liabilities
of £63.5 million in relation to late payments and partial
payments under the Single Payment Scheme made before claims were
fully validated.
The provision and contingent liabilities in
the Defra accounts are based on an assessment of the risk of disallowance.
The contingent liabilities are based on an assessment of risks
that are considered less likely than those for which provision
has been made in the accounts. The £63.5 million includes
an additional possible penalty in respect of partial payments
but is included as a contingent liability because action taken
by the RPA may mitigate the risk of disallowance.
2. RPA BUDGET
The committee asked for a note clarifying how
the 2005-06 budget for the Agency compares to the 2006-07 budget
and whether the additional funds the RPA received this year were
above the 2005-06 baseline.
The RPA's final allocation for 2005-06 was £227.8
million. This included additional funds made available to the
RPA during the year to assist with implementation of the Single
Payment Scheme.
The initial allocation for RPA for 2006-07 was
£190 million. The planned reduction in RPA funding included
anticipated savings resulting from the RPA change programme. The
problems in delivering SPS 2005 mean that these savings will not
now be achieved.
The RPA's operating business plan explained
that the RPA had at that point a running cost budget of £197.1
million but that additional funding of £46 million had been
agreed with Defra which would be split between running costs (to
cover staff costs associated with processing SPS claims) and capital
costs (including software development to support the 2006 and
2007 schemes). Defra has recently agreed a £27 million running
costs/£19 million capital costs split for the additional
£46 million funding.
3. MANAGEMENT
INFORMATION
The committee asked for a note clarifying what
management information is still manually collated and when this
will be collected automatically.
Whilst the majority of data is now recovered
through auto capture, the following management information currently
remains produced manually ie not stored on one of the RPA's systems
(together with the date where they will be automated) are listed
below:
Data capture: (Automation of data capture
will occur by May 2007)
— Initial checks on receipt of claims.
— Progress through scanning.
— Optical Character Recognition/Intelligent
Character Recognition quality checks.
Initial (level 1) validation: (December
2007)
— Quality checks (Peer and management
checks).
— Productivity (FTE component).
Detailed (Level 2) validation: (January
2007)
— Productivity (How many full time
equivalents are working on claims per day).
— Progress of claims through the additional
checks which are not recorded on the main SPS system "RITA".
Claims payment:
— All key management information is
automatically produced.
Representations, Appeals and Complaints:
(December 2007)
— Capture of the number of representations,
appeals and complaints Inspectorate: (April 2008).
— Inspection tasks completed.
4. DEFRA CORVEN
CONSULTANCY COSTS
The committee asked for a clarification of the
costs of the Corven consultancy element of the Hunter Review.
Defra paid Corven £557,331 for this work.
5. GARTNER REVIEW
OF RPA INFORMATION
TECHNOLOGY
The Committee asked for details of the costs
of the RPA's contract with Gartner Inc to review the Agency's
information technology systems:
(a) The cost of the contract is £265,000
excluding VAT and expenses.
(b) The project began on 25 September 2006
and is due to be completed by 18 December 2006.
(c) 13 consultants have been working on
the project and have been additionally supported by five research
analysts.
December 2006
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