UNCORRECTED TRANSCRIPT OF ORAL EVIDENCE To be published as HC 121-iHouse of COMMONSMINUTES OF EVIDENCETAKEN BEFOREENVIRONMENT, FOOD AND RURAL AFFAIRS COMMITTEE
Defra's Departmental Report 2009
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This is an uncorrected transcript of evidence taken in public and reported to the House. The transcript has been placed on the internet on the authority of the Committee, and copies have been made available by the Vote Office for the use of Members and others.
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Transcribed by the Official Shorthand Writers to the Houses of Parliament: W B Gurney & Sons LLP, Hope House, Telephone Number: 020 7233 1935
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Oral Evidence
Taken before the Environment, Food and Rural Affairs Committee
on
Members present
Mr Michael Jack, in the Chair
Mr James Gray
Patrick Hall
Lynne Jones
David Lepper
Miss Anne McIntosh
Dan Rogerson
Dr Gavin Strang
David Taylor
Paddy Tipping
________________
Witnesses: Dame Helen Ghosh KCB, Permanent Secretary, Ms Katrina Williams, Director General, Food and Farming, Department for Environment, Food and Rural Affairs, and Mr Tony Cooper, Chief Executive, Rural Payments Agency, gave evidence.
Q148 Chairman: Good afternoon, ladies and gentlemen. This is the second half of the Committee's inquiry into matters connected with Defra's annual report, with particular focus on the Rural Payments Agency. Can I then re-welcome Dame Helen Ghosh, the Permanent Secretary at Defra, and today she is joined by Tony Cooper, who is the Chief Executive of the Rural Payments Agency, and Katrina Williams, who is Defra's Director General of Food and Farming, and the person in charge of the review into the Rural Payments Agency. You are very welcome. Before we go on to the Rural Payments Agency, this morning on the BBC programme Farming Today there was a concerning report about eggs from Spain which were said to be contaminated with salmonella coming into the United Kingdom. Representatives of the poultry industry, for which your Department, Dame Helen, is ultimately responsible, expressed concern about this and were asking some pertinent questions about what could be done to try and stop it. They recognised the strictures of the single market, but it would appear, based on the report on the programme, that the source of the infectivity could be identified. I think the question that a lot of people would ask is: if that is the case, what can be done to try and prevent eggs with salmonella coming in from within the single market area, particularly in the light of the public health implications?
Dame Helen Ghosh: Clearly, this is a concern both to the public, in terms of possible health implications, but, also, as you say, to the poultry industry, and we need to work closely with our colleagues at the Food Standards Agency, for whom, obviously, since this is a public health matter, they have the primary responsibility, and we will certainly, in the light of that report and the concerns, make sure that we co-ordinate with them and come back to you. Clearly, as you will know very well, Chairman, the fact that we operate within European rules is a very positive thing, in terms of there being a clear structure in which these things are picked up and action is taken in a way that respects single market rules, and we would have to operate within those rules. Katrina knows more about that than I do.
Ms Williams: Yes. The monitoring systems that the EU has are a very good way of helping you to identify these problems, and indeed where they have come from. As part of normal business we would expect to work very closely with the Food standards Agency to make sure that cases like this were followed up wherever they occurred.
Q149 Dr Strang: Just very briefly, because I listened to the programme as well, as I saw it, the key issue was, obviously, the inspections. There is nothing to stop us inspecting anywhere in this country, or is there some difficulty? In principle, could we inspect at the ports, if we wanted to? I am not saying we want to, but I take it there is no constraint legally on where we are inspecting the eggs?
Ms Williams: No, there are no legal constraints about inspection.
Q150 Chairman: We appreciate the fact that you are going to come back to us. Rather than perhaps go through the rather more formal process of writing the Committee a letter, bearing in mind, as you rightly observe, there may be an input from the Food Standards Agency, I wonder if we could persuade you to use the modern means of communication and email us with a statement as soon as possible. Having raised it the Committee would be minded to put something on its own website for the benefit of those who are concerned about it, but the quicker the better. Let us move on to the main focus of our gathering this afternoon. I suppose, in a sense, I almost got a sense of déjà vu; the fact that we were back here again asking more searching questions about the Rural Payments Agency. You have been given, I suppose, a good going over about the retrospective element of a lot of what has happened by the Public Accounts Committee, and I do not think we would be minded to try and go over all that again, although inevitably there will be some points that I will want to raise which do have a sort of historic perspective to it; I think the Committee are more interested to know about the future and what is going to be done once and for all to get this organisation fettled. That said, I went back and had a look at David Hunter's report which was produced as the aftermath of the last time that we looked at this matter, and Hunter produced, almost, quite a soft report; it was gentle in the recommendations that it made, it did not go around beating anybody up, it gave some general directions of travel, it made some recommendations about cost reductions in the Agency, it talked about focus on the core activities, and you would say: "There's nothing, really, there that you could fundamentally disagree with". I know that Mr Cooper came on board, I suppose, roughly, on a par with Hunter coming out, so he will be very familiar with that, and he did not turn the job down because Hunter had set such a demanding agenda that it could not be achieved, but here we are, towards the end of 2009 going over it all over again. Given that Hunter set out, to use modern parlance, something of a road map, why are we here going over it again? Why have you now had to agree to have a further review of the RPA? We will go into that in detail, but I really do not understand what went wrong - between Mr Cooper coming on board, Hunter and now - that we have to go over it all over again.
Dame Helen Ghosh: I think that is a very interesting question, and it depends what you define as "something went wrong". We were delighted to hear today (and this is absolutely hot-off-the-press news, which Tony has just discussed with Jim Fitzpatrick, and Hilary is aware of) that yesterday, as you know, being 1 December, the payment window for SPS09 opened and it is the case that 80 per cent of farmers will have already received their single payment for 2009. That is by comparison with, I think it was, 65 per cent by the end of December last year, and 47 per cent by the end of December in 2007. So if your criterion is: "Are we paying farmers more quickly?" we have succeeded, and I am sure Jim and Hilary would like to pay tribute to the Agency for achieving that. So the very clear criterion that Ministers set both the previous Secretary of State and the current Secretary of State to the Agency was to pay farmers more quickly, and I think the success of this year's payments in terms of speed is a tribute to that. As I said to the PAC, that was the priority clearly sent to the Agency. At the same time, they have reduced costs, they have reduced their numbers of staff, their admin budget was 355 in 2005-06, it is 304 this year and it will go down further next, and they have got almost 3,000 fewer staff than they had. So there are all sorts of parts of the RPA story that are highly successful. This is where, in the review which Katrina is leading, we need now to focus on to make sure (a) that we deal with the comparatively small proportion (if you look at the value of the fund as a whole) of overpayments, which we really need to get sorted out because of the impact and uncertainty for the farmers concerned - that is the key stage 1 of the review currently going on - and we need to make sure that the Agency, both in terms of its financial systems, its operational systems and its leadership capability, is ready for the next few years. I would say all sorts of things have gone absolutely right since the David Hunter review, but there are things that, for all sorts of good reasons, we left to one side which we really need to focus on now.
Q151 Chairman: Again, I refresh my memory of our own involvement in this, and it goes back to 2003, and we forecast at the time management issues, IT issues, staffing issues - we revisited those en masse in the light of what happened in the first year. That is why I come back to the fact that here we are, six years later, after our first predictions, almost discussing the same agenda and the same language that you have used about the things that need to be strengthened. This is a £2 billion payment business; it is big business; it is serious; it underpins the wellbeing of a great number (100,000 or so) of farmers who receive this, together with all the other myriad responsibilities which the RPA has. You would have thought, given that, and some of the other issues about disallowance (which we will come on to look at in a bit more detail), that somebody would have focused on this a bit earlier. I know you focused on it, but have you not done a little bit of analysis to say what was wrong in the Defra management psyche that, again, leads us to where we are at the moment?
Dame Helen Ghosh: Absolutely nothing was wrong
in the Defra management psyche, and if you looked (and I am sure the Committee
does not want to go through this exhaustively) at the decisions we took every
year about what we would focus on, they were absolutely the right things to
focus on. So, to take an example, in the
last 12 months the issues which were clearly the priority for us were, firstly,
to make sure that the health check of the CAP did not compound complexity and
create and offer Tony and the team insuperable delivery issues, and we had
much, much closer, thanks to our new governance and relationship issues,
relationships with the RPA at every stage in the negotiation, and, secondly, to
focus on making sure that the disallowance costs to the taxpayer arising out of
2005 and 2006 were minimised. So the Department
was putting a great deal of effort into those two things. If you go back and say: "What is the key thing
that has caused a lot of cost and a lot of operational challenge to us?" it is
actually the IT system. Again, we
discussed this at length with the PAC the other day; we made a deliberate
decision in 2006 that we would not throw away the existing IT system. The advice that we had was that the
disruption to farmers and to the business of starting afresh was greater than
making incremental improvements to an IT system, which as we have discussed on
a number of occasions, was not fit for purpose.
Once you have made that decision then a number of things about the costs
and the costs per payment are built in to your processes. So if you were to look back and say: "What
could we have done significantly differently that would have meant that we were
in a different place on some of those other issues?" it would have been deciding
(which I do not think would have been the right thing to do) we would start
afresh on the IT and, more radically (again, we have discussed this), was there
any possibility at the time that we would revert from the dynamic hybrid to a
simple historic system? As I think Jeff
Rooker said, either to this Committee or to the PAC: "We did consider that but,
again, the disruptive effects, the extreme challenges of getting that through
Q152 Chairman: Is the IT system fit for purpose now?
Dame Helen Ghosh: It is a system which can cope
with the single payment and the other calls on it, but it will not be a system
that, looking forward to 2013 and
Q153 Chairman: That was not the question I asked. The question I asked was: is it fit for purpose now? "Now" is 2009 moving to 2010.
Dame Helen Ghosh: I was answering that, I thought, and to the next question. It is good enough ---
Q154 Chairman: The next question will come next. I want to ask the current question.
Dame Helen Ghosh: It is good enough for now. It still presents, because of the way it was operated, inevitably, in an emergency context in 2006, issues in getting data and audit trails of the historic kind we need, looking back at 2005, out of it, but in terms of processing payments now it is good enough I do not know if Tony would like to comment on that.
Mr Cooper: I would say that the investment we have made and the changes we have made to the system to corral the tasks and the activities that are needed to make sense from a farmer's or a customer's perspective and from the staff who are dealing with that farmer - that investment has now come good. With the system that we have got, we have paid 80 per cent of the farmers by 2 December, which really does demonstrate that it is fit for purpose and that it is now starting to allow the efficiencies that we thought would be driven out from the investments being made to be realised.
Q155 Chairman: Let us focus on that. Going back to Hunter, he highlighted (and I quote from paragraph 1.13 of his findings): "The delivery costs of the SPS, in particular, have been unsustainably high, at something like an average of £750 per claim process for the 2005 scheme." Obviously, he suggested you attend to that. Yet looking at the National Audit Office report, paragraph 7 on page 6, they say: "The complexity of the system has contributed to a very high average cost of £1,743 for administering each claim in 2008-09." That is almost, I suppose, two-and-a-half times more in terms of an increasing cost. It does not look as if you have sort of responded very positively to what Hunter said.
Dame Helen Ghosh: The figures (again, we discussed this extensively with the PAC recently) that they included, of £1,743 and the £750 figure in David Hunter's report, are not comparing the same thing. I am not an accountant; therefore, I will not go into the question of amortisation, but the £1,743 has, as it were, an accumulated cost of IT in it - so new development, policy change, and so on. It puts all those costs into that figure, whereas the £750 figure which David Hunter quoted was, as it were, the direct cost in that year of processing a claim. As I said to the PAC, the right figure to set as a target is somewhere, probably, in between those two figures, and I am sure we will be discussing that further with the PAC and with Tony, in terms of setting management targets for the coming year. We do think, by comparison with the £750, the figure now is lower.
Q156 Chairman: I would have thought that somebody would have been able to supply us with the information. I accept that there may be different numbers, and that is always regrettable when you are comparing apples and pears, but what is the actual cost?
Dame Helen Ghosh: We believe it is now nearer to £700.
Q157 Chairman: I asked Mr Cooper that question.
Dame Helen Ghosh: I am sorry.
Mr Cooper: Thank you, Chairman. It is in the region of £700 now. If I can give you an example, if we are
comparing the David Hunter figures in a similar way to today then the figure is
down to about £700. If I can give an
example of where we have reduced our costs, then we used to process the single
payment scheme at six sites and before we started processing 2009 claims we
closed the activity in
Q158 Chairman: I am presuming you do not disagree with the NAO's finding that, again, to quote from the same paragraph: "The high costs per claim is a reflection of the unforeseen addition in costs of £304 million incurred on the scheme by the Agency by 2005 and 2009."
Mr Cooper: I accept the figures that the NAO have produced. It is a method that they have chosen to use. The unforeseen costs are based on a business case that was produced in 2005 with an estimate of the numbers that would be required to run the Agency. As it transpires, as we all know, the Agency did not get down to that level of number of people that were required to run the services. So, inevitably, there are costs that go above that baseline, which the NAO report reflects.
Dame Helen Ghosh: I am sorry, Chairman, I have just realised when I was quoting the figures for the staff and budget reductions in the Agency I was caught by Defra figures. In fact, just to correct on the staff numbers, it was 4,500 in 2007 and it is 3,600 today and will be lower next year. That is the kind of efficiency that Tony is describing, and it was £228 million in 2005-06 and it is £202 million this year, and lower again next. I think that just supports Tony's argument about having found efficiencies across the RPA. I apologise for giving you the wrong figures earlier.
Q159 Chairman: Let us move on to the question of the review and the difficulties you are facing. The Defra Management Board minutes for 23 July contain a carefully worded sentence where it says: "The Board discussed some of the problems that the Rural Payments Agency had had with technical aspects of their accounts and the review going on to help prevent this in future years." Could you explain what that piece of Delphic drafting means?
Dame Helen Ghosh: Yes. We had had, in the month or so before the July Board meeting, significant challenges in closing our resource accounts, and we consolidate the RPA resource accounts and our own, so we can only move at the speed of the slowest ship in the convoy. There were, essentially, three issues that the NAO highlighted for us then: there was a straightforward technical disallowance for £92 million of disallowance that we paid in 2008 09, not related to the Single Payment Scheme but to historic schemes; there was what I gather is called a disagreement, which we could not resolve in time for closure of the accounts before the recess, about the application of a very specific accountancy rule about FRS23 (I think we discussed this briefly at our previous hearing, Chairman), and a - I think it is called - limitation of scope comment in that the NAO did not feel that the accounts reflected outstanding debtor balances appropriately. That is the overpayment issue. Of those three issues that we were debating right up to the wire, both the question about the technical application of FRS23 and the question about overpayments (an issue which, I have to say, Tony has discussed at length with our Ministers and our Ministers, too, are impatient to get to the bottom of it) - those two issues were ones that we were concerned about and made us believe this was an opportunity where we could not be in that position again for the accounts of the current year, and that we needed to make sure that the basic financial systems in the RPA were such that could produce accounts that met NAO standards on time, and that, for reasons in terms of customer service and, as I say, our own Ministers' impatience, we had to be able to draw a line under the 2005 and 2006 overpayments. That was the thing that moved us, as well as looking forward to getting the Agency in shape for 2013, to say: "Now is the moment to set up a review", which is already happening. So the first two phases of the review are already taking place. I think it is safe to say we have reached agreement with the NAO on the technical accounting treatment; we have put additional skilled staff in to reinforce "business as usual" on finance to make sure we can do our "soft" close at Christmas, and we are doing, with Deloitte support, both the work of Tony's teams to bottom out overpayments and from the Deloitte's team to do sampling on likely accuracy.
Q160 Chairman: Is your Department's audit and risk committee monitoring this progress regularly?
Dame Helen Ghosh: They are, indeed, and we are getting monthly reports from Katrina and, in one instance, from the review team to the management board. So we are taking a very close interest.
Q161 Chairman: Let us move on to this review, Ms Williams, that you are going to be in charge of. There was a press release put out on 2 September which told us that this was gong to happen. It told us, without naming you (top secret), that the director General of Food and Farming was going to chair it. Who else is doing it?
Ms Williams: A range of people, Chairman. We have a Project Director who is somebody who is very experienced in this field who is managing the review for us.
Q162 Chairman: So who is that?
Ms Williams: Names are not secret; his
name is
Q163 Chairman: Where does Mr Lane come from?
Ms Williams: He is somebody who is very experienced in terms of looking at organisations, doing reviews of organisational design and helping to conduct exactly this sort of investigation.
Q164 Chairman: You describe very adequately what he does, but is a self-employed person? Is he one of you? Where does he come from?
Ms Williams: He is independent, he is not an official of Defra, and he is not a civil servant.
Dame Helen Ghosh: He has done a lot of comparable work, for example, in the Department of Health. So he comes highly recommended.
Q165 Chairman: That is two of you. Who else is there?
Ms Williams: We have then, for the work streams, gone through a formal tender process. We need different skills for different streams of this. We have Deloitte working on the first of the work streams, which is around finance and the overpayments issue, and we have contracted PWC to do the second work stream, which is around looking at operations.
Q166 Chairman: I am intrigued that you decided to get two firms of accountants and not try and do one. Did you do that because they have different skill sets, so you felt one was more relevant than the other, or because you felt you ought to have some kind creative tension in the bidding process? Both of them are very fine companies and have great reputations in work in this kind of area. Why did you split the work streams between them?
Ms Williams: First of all, we were conscious we needed to stagger the work streams in terms of time because we did not want to jeopardise "business as usual" for the Agency. So we had two separate tender processes for these work streams. They were open tender processes and, in each case, we chose, as you always do with tender processes, on the merits of the case.
Q167 Chairman: So we have you and Mr Lane, sitting there waiting for meaty tomes from PWC and Deloittes. Who else is involved in this exercise?
Dame Helen Ghosh: Can I just pick you up on "meaty tomes". This is not a "meaty tomes" exercise; this is one where Katrina, David and we, the management board, get absolutely regular report backs, and when it is clear that action is needed we act.
Q168 Chairman: When did you last see something from an accountant that did not have a vast amount of documentation attached to it with the usual sort of two-thirds of the document a disclaimer telling you about what it does not say, and a relatively small part - the kernel - telling you what it does say?
Ms Williams: The way in which we have tried to structure the review is that it is a dynamic process. I think we said when we launched the review that what we would be doing is looking at information as it came out. I find it quite productive to talk to accountants, and that has been a very important part of the process that we are going through.
Q169 Chairman: Okay. We have got Deloittes and we have got PWC; we have got Mr Lane. So who else is there?
Ms Williams: That, at present, is it, Chairman.
Q170 Chairman: That is the review?
Ms Williams: We have a further work stream which will be looking at IT systems, and which will be very much a joint exercise between Defra and the Agency. We have not yet opened the procurement for that work stream.
Dame Helen Ghosh: In terms of the sort of governance of the procedure, clearly, we are building it, as far as possible (and this picks up your earlier question), into existing governance. This is, in a sense, not a review that sits outside our normal processes; it is part of continuous improvement. I am not quite sure what else you would expect the review to look at.
Q171 Chairman:
I am
not questioning, if you like "what else"; you determine what the priorities are
and I am sure you have had a lot of discussion about it. I suppose what I am sort of groping towards
is coherence. In other words, bringing
all of these work streams together in such a way that what emerges will
integrate and make the Agency fit for purpose for the remainder of the time in
the current scheme and to prepare it for the unknowns of what may be in a
reformed
Ms Williams: He will be doing a lot of the work to pull the report together. In addition he has, from within Defra, support from our internal finance function, support from our IT expertise function, so he will not be doing the task solely on his own. As we have said, we have set it up as a dynamic process so that along the way the normal governance procedures that we have for the Agency are integrated into his thinking and what he is finding.
Q172 Chairman: Mr Cooper, if I ask you about this, you - being a good and loyal servant of both your Agency and the Department - will no doubt say: "This is absolutely wonderful and there are no holes in it". However, you are sitting there, you are running this operation and you see this review going on. Do you feel that it will provide, ultimately, the answers to, perhaps, some of the areas of weakness which you yourself know are in the Agency and would like some answers to? Do you think, in the way it is currently laid out, it is going to provide that? For example, if I am a farmer and I know that I have had the latest hiccup over the mapping exercise and I come along to you and say: "Mr Cooper, this review; it suddenly pops out of the woodwork in response to the current set of problems. Is it going to end my mapping problems?" For example.
Mr Cooper: I start from the point of view that I am very optimistic that the review will be very helpful, and myself and my management team have grappled with a number of issues over the last three years to good effect, but if I think of it then I think that what we have been doing is polishing a fairly rough stone and I think that it is absolutely right to look at the longer term and how we are positioned for 2013 and the changes that will be coming along as a result of reform of the Common Agricultural Policy. We certainly do not want to be in the same position that the RPA was in in the run up to 2005. I believe that this review will be helpful. It has certainly been helpful in terms of some of our immediate issues, such as in the area of the accounts and finance. We had great difficulty last year trying to agree the standards and how they should be applied to the accounts as a result of the international standards, and with the advice that we have now had from Deloitte and the agreement we have had on how that should be applied, and the additional support that we are getting from Deloitte in my finance team, there is no reason to think that we will not now apply that successfully and get the accounts cleared.
Q173 Chairman: So the dynamic element that Ms Williams mentioned is, effectively, feeding in, on a continuing basis, improvements that can be absorbed by the RPA on a continuing basis whilst, at the same time, developing a more coherent set of answers to the longer term issues. Do you not think you should have started the IT bit co-terminus with the beginning of that, because inevitably in a system which is heavily IT-based the IT persons, when they come on board, are going to be effectively running behind the others? Are they not?
Dame Helen Ghosh: I will ask Tony to comment, but we will anyway - I believe the Accenture contract concludes ---
Mr Cooper: December 2011.
Dame Helen Ghosh: --- in December 2011.
Q174 Chairman: They are still on board, are they? The designers of the original system - the one you said was not fit for purpose?
Dame Helen Ghosh: As I said to the PAC the
other day, Accenture built what they were asked to build; they built the system
that they were asked to build - the black box system - and it had the task-based
problems - assumptions about particular tasks like entitlements being fixed for
ever - built into them and actually that was in the commissioning, not in the
production. The point I was trying to
make, Chairman, was that we will, anyway, be having to think about ongoing IT
provision, both for
Q175 Chairman: I am going to bring Lynne Jones in, but one of the things that is totally missing is any kind of milestones in all of this. You almost describe an open-ended process which goes on until somebody comes along and says: "I've answered all the questions you asked me at the beginning." How are we going to know how you are doing, and when do you think the process is going to be drawn to a conclusion? At some stage in the next six months we will have a General Election; one does not quite know what is going to happen after that but we are going through a period, if you like, of governance uncertainty as to quite what is going on. This is very central to the proper running of the Single Payment Scheme and the other work the RPA does, and customers will want to have certainty rather than uncertainty. Ms Williams, could you enlighten us on the timetable?
Ms Williams: Chairman, the review is not open-ended; the review is designed to end in March 2010 and within the plan for the work there are milestones for the individual work streams, so that the one on finance and overpayments is very close now to concluding, and there are similar milestones for the other work streams. On your point about certainty, Chairman, I think what we would all like to have is certainty about the future. One of the challenges of deciding on the options for the future is the fact that we know there will be major negotiations on the future of the Common Agricultural Policy. Those will start with a high level paper from the European Commission in autumn next year, then with legislative proposals in 2011, and there will then be the normal process of negotiation in the Council and with the European Parliament. So absolute certainty is going to be a little way off. What I hope we can do, however, by virtue of the review, is look at the things that we know are the very complex features of the system, what are the things that we know cause bottlenecks in the system and costs in the system, and then we can plan our negotiations in the European arena with that in mind, so that actually we can have a very clear idea of the kinds of features that you would want the system to have and the kinds of features that you want to avoid.
Q176 Chairman: In March of next year, when the exercise is concluded, are you going to publish the report and will it be open for comment, particularly from the customers, as to whether they think what you say you are going to do will actually be able to deliver? In other words, will there be critical appraisal of your suggestions?
Ms Williams: One thing we are doing, Chairman, is we are building contacts with the customers and the people who represent customers into the review process, so that those contacts are happening already. I believe that there will not be, if you like, a process of "Big Bang" in March, at the end, (a) because we will be doing some actions as we go along and (b) because we hope to have this process of dialogue with the customers as we progress the review. That, in the customer experience, as you have identified, is extremely important.
Q177 Chairman: That did not quite answer my question - albeit that I am delighted to hear that there is customer input during the process. Are you going to be able to produce something which will benchmark the areas of improvement, even if some of them may yet be aspirational, as to what you are going to do because of the uncertainty of what the CAP will look like in 2013 and beyond? Are you going to produce a document so that people can say: "Right, this is the result of the review; this is what they say they are going to do", so that, ultimately, it is something on which you can be held accountable as to whether this review is actually going to deliver what it says on the tin?
Dame Helen Ghosh: The answer to your question is yes, as we have been consistently through this process. You were quoting from the Hunter review, and we have published that and we have been extremely open about what we are doing. This review is a lot about the input, it is a lot about process. I think customers will be particularly interested in the processes that one decides to adopt in terms of how to deal with claims. The highly relevant to them is the processing strand: how will we deal with the claim? What kind of impact will that have on the customer experience? I suspect they are less interested in how FRS23 is applied or whether people close their accounts by Christmas. So, clearly, we will want to focus that kind of customer input into the bits that affects them. In terms of what they can expect in terms of service, that is very much laid down in both the Ministerial targets, which I think we have already set for next year, and then the management targets which we give Tony in terms of things like: what would we expect in terms of the trajectory on the cost of individual claims? So it is not going to be a "and this is the service you can expect, customers, from the RPA"; it is an input report, but it will be published, as you say.
Q178 Lynne Jones: Mr Cooper, prior to the announcement of the review you were submitting your regular reports to the Departmental Board that the Permanent Secretary has mentioned. Did you identify, within your reports, issues where you were struggling; where you felt that you did need some outside help and expertise?
Mr Cooper: To some extent we have. For example, on the mapping update, quite clearly that was a very significant undertaking which we started to plan over two years, and partly because of the experience that was had in 2003/2004/2005 with the mapping everybody knew that was going to be a problem. I flagged that and, for example, asked for support in terms of understanding that, potentially, there would be some adverse commentary around the mapping work.
Q179 Lynne Jones: When was that?
Mr Cooper: That was in advance of us starting to rule out the bulk of the maps which started at the beginning of June this year.
Q180 Lynne Jones: Any other issues that were flagged up?
Mr Cooper: I have had regular discussions with Ministers and with the Department. We have already spoken about the overpayments and the recoveries, and, in reaching agreement on how we are approaching that and what sort of progress we are making, then we describe that in a fair amount of detail actually.
Q181 Lynne Jones: You would have identified where you, left to your own devices, could not actually solve the problems. What were you looking for this review to do to help you?
Mr Cooper: Where I would alert Defra to
issues I would also propose what I am doing about it. For example, in trying to drive out more
efficient ways of working we have used a supplier with an expertise in lean
working, which is a method of stripping out unnecessary work, and measuring for
productivity. So we have employed then
in taking forward new ways of working, where we have been quite successful in
making that work in
Dame Helen Ghosh: I suspect the drift of your question is: did Tony ask us for help and we refused to give it?
Q182 Lynne Jones: Not necessarily. I want to know what help he asked for and why he was not able to actually deal with the problems. After all, he most intimately knows the system - more so than other people - so he should have been able to flag up the problems and deal with them.
Dame Helen Ghosh: As Tony said, I think it is
almost impossible to overestimate the amount of day-to-day contact there is
between Tony and his team and the Department, both through Katrina and her Food
and Farming group but, also, the very, very close interest that Ministers take
in the customer service elements of the RPA.
I think you had been discussing, almost on a daily basis, with Jim
Fitzpatrick, for example, the issues around mapping, and the implications for
the 2010 scheme and how we can make sure that we are all communicating in the
same way and supporting farmers and sending their returns, and so on. So very, very close working there - lots of
very close working on policy issues that will assist Tony. The
Ms Williams: I think the negotiations on the health check of the Common Agricultural Policy in 2008 were a very good example of that because Tony was challenging us that what he needed was clarity about what would happen in the health check negotiations. We were saying: "Well, you may not get that clarity till the end game", but we did good work together to work out what were the things that you had to aim for in those negotiations that would be most important, that would most help, and then we were able to create a set of shared assumptions that allowed us to get the preparatory work under way - and, indeed, to work out what extra funds the Agency would need to do that, and indeed to make those funds available at the right time so that we could implement the changes.
Q183 Lynne Jones: You have got these big problems with mapping, with overpayments, which we will come on to discuss later, and most of all with your IT system. I am assuming that this review is actually looking for solutions to those problems that can get you back on track so that you have systems that are efficient and are not constantly having to be amended and upgraded.
Dame Helen Ghosh: Can I just say that with the exception of the very specific instance where we have asked Deloitte to work alongside Tony and the team to look at overpayments (because we are as keen as anybody to say: "Can we draw a line under overpayments in 2005/2006 and make sure that both customers and the Department are clear what the position there is?"), we are tasking the review to say: "Now look at all these other particular aspects of the service and come up with a set of recommendations about that." I am sure we shall come on to discussing the issue about mapping - in fact, I would say that, in many ways, it has gone as we would have anticipated given the normal amount of noise in the system in terms of changes in land. So we are not specifically saying to the review: "Will you look at mapping?" but what we will say is: "What are the fundamental operational systems - the approach we take, how we build teams, how we look at tasks, and so on - to make it a flexible and sustainable organisation for the future?"
Mr Cooper: I was just going to add that when I look at the significant issues that the Agency has to deal with it is things like mapping, but it would be a significant issue for any organisation to deal with. We do have complex systems, in terms of process, legislation and IT, but where we have come from in the last two years, those are now working. They might be still a little bit rough at the edges but they work, as has been demonstrated by the number of people that we have paid. When I look at some of the key measures that I have been using to track the progress of the Agency, and when I see that customer satisfaction has virtually doubled since 2006, where it is now 76 per cent satisfied, then I take some reassurance from these sorts of measures, and I can see, internally, which has perhaps not been made visible to people outside of the Agency, the amount of progress that has been made within the Agency. If I give one example, four weeks after I arrived the system was upgraded and the new screens that my staff were expected to access and use, there were no instructions for them, because the people that were going to write the instructions saw those screens for the first time the day it went live. Now, that is nothing to do with the IT, that is to do with how change has been managed in the organisation. If I am absolutely brutal about it, the organisation at that stage was in chaos. So we have come a long, long way since then.
Q184 Lynne Jones: Can I ask, in terms of staffing, is it correct that you have 3,050 staff in Defra excluding agencies, and you have 3,440 in the RPA? Do you recognise those figures?
Mr Cooper: No. Within the RPA I have currently got 3,600 staff.
Dame Helen Ghosh: The total number of staff in the current year in Defra, including all those executive agencies, is 10,536. I think I have got about 2,485 staff in the core Department, and the difference is everyone out in the executive agencies. Of that, Tony's figure for this year, which I think is about ---
Mr Cooper: 3,600.
Dame Helen Ghosh: --- 3,600, is also part of the 10,536.
Q185 Paddy Tipping: Could I ask about the cost of the review? How much is it costing and where is the budget provision for the review? Is it in Defra or is it in the RPA?
Ms Williams: The budget provision is in Defra, and we have allowed an envelope for the review which we think will come in between £3 million and £5 million. I should make clear that is not simply people reviewing things; we have made some provision in there for the kinds of early interventions that we have described - for example, the interventions around the finance systems. So some of that sum is actually money that will help to make the situation better.
Q186 Paddy Tipping: The two accountancy firms and Mr Lane, are they on a fixed price contract? Will you write to us and let us know what that is if you will not reveal it in public?
Ms Williams: We can certainly write to you on that.
Q187 Paddy Tipping: Mr Cooper, you have a good reputation, you have made a lot of change and done extremely well. You know what the problems at the RPA are - why can you not sort it out?
Mr Cooper: Thank you, first of all. It is not so much problems; as I said, I think that there are very significant changes that are required. If I use mapping as an example, then we recognised at the outset it was going to be a two-year programme, and in talking to some of my counterparts in other Member States they are also grappling with exactly the same issues and are, broadly, spending equivalent sums of money. They are also concerned about how the results of the mapping update might cause additional rework as you have to, perhaps, go back and correct something back to 2005, if, for example, somebody has forgotten to identify the exact size of a piece of land or a new building has gone up and we have not been told about it. There are all sorts of examples where it can cause significant rework. As I say, all Member States that are engaged in mapping updates are having to grapple with the same sort of issue. It is a complex area; it is very precise under European rules, but the mapping work is one of the most significant causes of disallowance risk and, therefore, not attending to it really is not an option; we have to do that to make sure that the taxpayer does not end up paying significant sums of money in disallowance.
Q188 Paddy Tipping: Just remind me about Accenture. It is certainly a long time since we had a discussion about Accenture and the difficulties around the contract. What is the state of the relationship now? Are there claims and counterclaims against each other?
Dame Helen Ghosh: No, there are no claims and counterclaims. As I was saying earlier, and as I said to the PAC recently, the relationship with Accenture in late-2005/early-2006 between the Agency and Accenture was, really, rather a distant one; there was no sense of partnership, there was no sense of co-design of what the new system would look like and, therefore, the IT system that Accenture built was one that was, as we have discussed before, very task-based and disposable elements based, I think, on a fundamental misunderstanding of what actually the new SPS would look like, and failed, therefore, to deliver in the way we have discussed on previous occasions. In the light of that, I think Accenture was extremely keen in terms of reputation and, indeed, customer service to work much more closely in partnership. I think with Tony's arrival and the arrival of the new IT Director - and in 2006 I, with Tony and Mr Hallsey, were having regular meetings with the European head of Accenture - we moved the relationship on to a much more partnership kind of basis, where it has remained. Clearly, again, as we have discussed, we have to invest more money in making changes to the original system to get it into the fit state that it is now, but there is no element in that which is claim and counterclaim because of the history of the project. I know that they work very closely with Tony and the Board now.
Q189 Miss McIntosh: Can I turn to the disallowances? Since you have been grappling with these issues since 2005, why do you appear to have so little understanding of the way the Commission operates?
Dame Helen Ghosh: Well, as you know, some elements of disallowance have been crystallised - not for 2005 and 2006 basic SPS but we have paid, I think, £92 million in disallowance for previous schemes. In terms of the process for disallowance for SPS, the wheels of the EU always grind extremely slowly, and Katrina will know much more about this than I do, but we, just like all other Member States, have been going through a process with the Commission of trying to identify likely levels of disallowance for those two years. All the time we creep closer and closer to an understanding; we have made the provision that we have made on a realistic but, we hope, pessimistic basis, and we hope that we will be crystallising (as that is the technical term) some of these risks, really, quite soon, because I think in terms of certainty for financial planning for a difficult financial future that will be helpful. I am not quite sure what technical stage we are at in this process.
Q190 Miss McIntosh: Can I pursue one line of questioning and ask Katrina if I may, in a moment?
Dame Helen Ghosh: Yes, sure.
Q191 Miss McIntosh: Just to be clear: disallowance is a fine.
Dame Helen Ghosh: It means that they do not repay us as much as they would - they lop it off what they repay us for our payments out to farmers.
Q192 Miss McIntosh: Apparently, it represents a double loss to the UK because not just do you not have the money to spend but the Department, I understand (not the RPA) has to repay the money to the Commission.
Dame Helen Ghosh: I am not quite sure how the accountancy flows. It is a single penalty. We are, effectively, by the provision we have made, making provision for repaying the Commission money that they had paid to us. We are not losing twice; we are only losing that amount of money once.
Q193 Miss McIntosh: From which budget does the repayment come from?
Dame Helen Ghosh: I think this was also true
before
Q194 Miss McIntosh: So if you were asked to pay more fines for that period, from which budget will that come? Do you have to then go back to the Treasury to ask for a higher sum?
Dame Helen Ghosh: We do not anticipate, because we have made what we regard as a reasonable and probably pessimistic (at the 5 per cent end) provision on disallowance. That is how we calculated the provision we made. I am sure that the Treasury would come back to us, as they always do, but they quite rightly will in the coming period, and say: "Please find that from within your existing budgets". As you know, we now have, as a Department, a £50 million Departmental unallocated provision for, mainly, emergency use, and I imagine that that is something that we would look at in the first instance. However, we do not anticipate in the CSR07 period being asked for more. Of course, we will have to reopen negotiations for any future spending round.
Q195 Miss McIntosh: You opened the evidence session by responding to a question from the Chairman that your emphasis now was on bringing forward payments - you said a window had opened ---
Dame Helen Ghosh: Yes.
Q196 Miss McIntosh: --- to avoid penalties for late payment. By doing so, does it possibly open the potential for increasing the risk of error and overpayments?
Dame Helen Ghosh: Perhaps I mis-explained that. The reason we are so keen to bring forward payments and we are delighted that the Agency has achieved so well this year is the service to farmers. We do not have to pay; the window does not close until June, so this is purely a customer service issue. Beyond the first year, in 2006, where we did pay a straight-off late payment fine of, I think, £64 million, actually, we have not had a problem with paying everybody by the end of June. I can never remember the figures. Is it 96.4 per cent or 94.6 per cent? Yes, 96.4 per cent is our target, and we have not had a problem with it, so we have not had a straight-off, late payment fine since 2006.
Q197 Miss McIntosh: What else are you doing to try and mitigate the risk of disallowance going forward?
Dame Helen Ghosh: Be more accurate and guard the fund, is the answer, which is the work that we are doing; trying to draw a line under 2005/2006 but, particularly, learn any lessons for the data going forward. Exercises like the mapping exercise also help us make sure that the base data that we are using is as good as it possibly can be, and that, again, will reduce the risk of disallowance for the future.
Mr Cooper: As you would expect, we have a regime where we perform various checks before payments are made to look at the accuracy of payments, and we assess that now quite rigorously across all of the sites and with all of the staff. So we take a view of the staff and the experience they have got and we look at the accuracy results that we see from that work and if the individual needs some additional coaching, learning or sponsorship by someone with more experience, then that happens, and the staff are now in a place where they are perfectly open to recognising where their weaknesses are and their lack of knowledge is. So we track that and at the pre-payment stage we look at what the error rate might be and we get errors in about three per cent of the cases that are looked at, but because it is pre-payment, obviously, then those are corrected and, therefore, we are driving up the level of accuracy each year.
Q198 Miss McIntosh: Have you got a high proportion of permanent staff in the Agency now?
Mr Cooper: We have a better position now. When I arrived, roughly half the organisation was temporary. The ratio now is about 15 per cent of people are temporary and 85 per cent permanent.
Q199 Miss McIntosh: How do you respond to the question of taking on school leavers at the end of the year? Do you take on sixth-formers to process the claims towards June?
Mr Cooper: We have done in the past in one particular location where we had no SPS processing. There was a new team set up (and this was back in 2007), and I think the local joke that we had was that we had absorbed the whole of the class of 2007. In actual fact, that class has come on in leaps and bounds and is now one of the most productive and most accurate locations that we have, but this year, quite clearly, with our efforts to reduce numbers, we are not recruiting people, with the exception of odd positions that are available. So we are not replacing people who now are leaving through natural wastage or because they choose to go off elsewhere.
Q200 Miss McIntosh: Katrina, why do you believe that England is performing so poorly in comparison with other European Union countries?
Ms Williams: When you say "performing poorly", do you mean in term of disallowance?
Q201 Miss McIntosh: I have a particular theory, and obviously it was a political decision that we have the most complicated and the most difficult to administer scenarios that probably led to all the difficulties in 2005/2006.
Dame Helen Ghosh: Indeed, as we have said.
Q202 Miss McIntosh: Involving devolved administrations as well. I think we have got the most complex system in the whole of the European Union.
Ms Williams: You are quite correct, we do
have a complex system, and I think we have acknowledged that in previous
discussions with this Committee and the
Dame Helen Ghosh: Katrina or Tony will give me the correct numbers, but with the figure of 80 per cent of farmers being paid yesterday, that now stands a very respectable comparison with the amounts being paid to farmers in countries which use purely historic systems, so the Scots or the Welsh.
Ms Williams: Indeed, the systems in
Dame Helen Ghosh: We have already produced 80, so, actually - back to the, "It depends how you define success" - I think we are getting to a good place.
Q203 David Lepper: I was going to ask a few things about the dynamic hybrid system. We have already gone on to that, but could I ask a question about disallowances first? You have acknowledged, Permanent Secretary, that the wheels of the European Commission grind slowly on these matters, and you have also been very careful, I think, in talking about disallowances to talking about the CSR07 period?
Dame Helen Ghosh: Yes.
Q204 David Lepper: Are there any bombshells further back in the history waiting to explode, in terms of disallowances, that have not been taken into account, or does your provision look back way beyond the CSR07 period and has taken into account. Is there anything else where deliberations are still going on in the EC?
Dame Helen Ghosh: This is where I will need to turn to my experts. The provision that we have got, broadly, now, the 246 million provision, has something like 205 million in it for SPS. It also has provision for export refunds, OTMS reconciliation, bovine and ovine premier, a disallowance relating to the devolved administrations, because we have to provide for that too, and, as you will know from the 92 million we have paid out in the CSR07 period, some of that was certainly historic. So we are all the time looking backwards as well as forwards and making reasonable provision for things that are coming up through the old systems as well as in the new, and then the issue we will obviously need to discuss with the Treasury when a future spending round is launched is on what and how we carry that forward into the next spending period.
Q205 David Lepper: Thank you for that reassurance. On the dynamic hybrid system, the picture that you have presented to us now, I think, is of England being in some respects ahead of the game, possibly, even though it may not have seemed like that, either from the RPA's point of view to some extent or, indeed, from the farmers' point of view. I think there are only two comparable systems. Only Finland and Germany have adopted a similar system, and neither of them are operating it at the moment.
Ms Williams: Not yet.
Dame Helen Ghosh: Not yet.
Ms Williams:
Q206 David Lepper: Are there any lessons to be learned from the way in which they are setting about operating it that you think might be helpful to the RPA for the future?
Dame Helen Ghosh: I think, again, an issue we have discussed in this Committee and with the PAC is the issue about how you phase in a new scheme, and I certainly think, looking back on the experience that we had with SPS, that in terms of the negotiations on CAP change we will be arguing for, as it were, depending on the precise nature of the change, a sensible transition to a new system rather than any kind of "big bang" or anything we regard as premature.
Ms Williams: But it is right that looking at the experience in other Member States is something that we want to do and, indeed, we will be doing that as part of the work of the review.
Q207 David Lepper: I think it is also true to say, is it not, leaving aside the system that the RPA has to operate, that most other European countries have not adopted the same sort of organisational structure that we have. I have read somewhere that most other European countries have adopted the sort of model that exists in France and Germany for actually administering the system, whatever that system might be. Are there any lessons to be learned there in terms of the organisation of the Agency rather than whether the dynamic hybrid was a good system?
Dame Helen Ghosh: Tony will know this from his contacts.
Mr Cooper: We are all organised
differently, I think, is probably the short answer to it. Certainly
Q208 David Lepper: The RPA is responsible for administering a number of other schemes, is it not, a whole range of other schemes, other than just the Single Payment Scheme?
Mr Cooper: Yes. In terms of my operational staff, roughly half of them are working on the Single Payment Scheme and half on other schemes.
Q209 David Lepper: You have talked about looking forward to 2013 and
changes in the
Dame Helen Ghosh: I suspect, but I will defer
to Katrina, who knows much more about the outline policy issues, that we will
have a lot to bring to the table about "do not over complicate any new system"
because we know what very complicated systems can do operationally. In a sense, we have one of the most powerful
sets of experience in
Q210 David Lepper: So we have led the way and we want others to learn from our mistakes.
Dame Helen Ghosh: We have made the first move at a disadvantage and, therefore, we have learned how complexity can give you operational problems. Certainly in the early phases, as you will know, the big strategic issues that face a CAP reform are not around operational things, they are around fundamental issues about the relationship between Pillar 1 and Pillar 2 and support for production and purchase of public goods. So I very much doubt if it will get down into that operational stuff in the early years.
Ms Williams: I do not think it will in
the early years. I would expect the first
phase, if you like, to be the high level phase.
That said, we are already preparing, and have been preparing for some
time, to do that most important thing that you have identified of influencing
the Commission and the other
Q211 David Lepper: One final question. When decisions were taken that England should have the dynamic hybrid system, we had a different secretary of state and a different permanent secretary. Do you think, Permanent Secretary, if you had been there then, you would perhaps have argued very strongly for a different system in England?
Dame Helen Ghosh: I do not believe in discussing, as it were, counterfactuals.
David Lepper: All right.
Q212 Dan Rogerson: When you talked to the PAC you defended the decision to go for the hybrid on the basis that it is a more equitable way of doing things. How do you square that decision with advice that you would be giving to other Member States? How could it have been done more simply but still meeting the same objective?
Dame Helen Ghosh: You mean, is there some way you could have decoupled without the complexities of dynamism? This is really where I look at my CAP experts. Is there something in between those two things?
Ms Williams: I suspect that you could have had solutions in between. I think the guiding principle for the next phase of the negotiations needs to be let us be very clear about the characteristics that you need a system to have let us be equally clear about the things that can really give you bottlenecks and costs, and let us try and design something that avoids the pitfalls and gives you the benefits of having a system which looks both at land area and what is actually happening on the ground. One of the ambitions that we have for the work that we are doing through the review is that we get a very good picture of where that happy middle ground of something that is simple but functional and that achieves your objectives might lie.
Dan Rogerson: So why did we not have that? Why did we have other systems?
Miss McIntosh: It was a political decision.
Dan Rogerson: Absolutely, but it was based, presumably, on advice and models that were put forward.
Chairman: Mrs Beckett thought it was a good idea really.
Dan Rogerson: Are you sure? There is the form of the system as well.
Q213 Lynne Jones: The Permanent Secretary also thinks it is a good idea.
Dame Helen Ghosh: I am sorry; what do I think is a good idea?
Q214 Dan Rogerson: We are trying to square what you said to the PAC, which is that the whole principle was likely to go with the decision---
Dame Helen Ghosh: What I said was that the basic policy approach was that it was inequitable, particularly over time, that farmers this year would be getting subsidies based on what they produced in 2002, and that would mean, for example, as you get into some other Member States people are sitting in villas in Spain living on subsidies and have long, long ceased to be farmers. I think, as I also said to the PAC, that did not mean that one should necessarily leap to a highly complex system introduced very swiftly, which none of the participants, I suspect (and Brian Bender has said it and ministers have said it), understood in terms of the administrative complexities. So, in a sense - back to counterfactuals - I do not think they looked at a lot of other schemes because they thought this was one deliverable, and I think that was true of the RPA, it was true of the OGC looking at the project and it was true of the Department, and I think it is that perception of whether it was deliverable that was the error, not that some kind of dynamic hybrid was undeliverable if you did it the right way.
Q215 Lynne Jones: Are we able to understand why, in the first year, you did not stick to the historical base and, in the first year, just stick to the old data until you were ready to actually move?
Dame Helen Ghosh: I think that is the transition point. The decision was made that you could move, you could start being dynamic, in the first year, you would start your tapering off in the first year, and that is the kind of lesson that we need to learn for next time.
Q216 Chairman: I am going to move on to Patrick Hall in a second. Just a quick question. If disallowance comes in under the amount that you have put in for Defra's budget, do you get to keep the extra?
Dame Helen Ghosh: No - I am shaking my head, sadly - but it goes off to excellent causes out there. It will build some schools and some hospitals and things. It is ring-fenced money, and if we do not spend it, or the overall disallowance comes through under that figure, it would go back to the Treasury, but, clearly, as we were discussing, because this process of crystallising disallowance is one that goes on all the time, actually the trick is to know how much provision you need to make for the next year and the next year. In terms of 2007 and 2008, for example, we are assuming that we will revert to something like normal business, which is provision for about two per cent, and that is what we have got built in, but we would need to really look at that as we go into the next spending round.
Q217 Patrick Hall: You will all be familiar with the second progress update on the administration of the Single Payment Scheme.
Dame Helen Ghosh: Yes.
Q218 Patrick Hall: That was published on 15 October by the National Audit Office, which is actually the third review by the NAO of the Single Payment Scheme. Do you have some general comments on this report and its recommendations?
Dame Helen Ghosh: As I said to the Public
Accounts Committee, we recognise that, through the history of what we have done
since 2005, we deliberately, for the reasons I have outlined, gave priority to
speed of payment to farmers and to protecting the position through things like
the
Q219 Patrick Hall: When you set up the review in September, did you know what the recommendations were that were published in October?
Dame Helen Ghosh: In fact, we set up the review in July because of the set of circumstances I described about the accounts. At that stage we had presumably seen early drafts of the report, so we knew what kinds of issues it was raising, so the two things came together.
Q220 Patrick Hall: I am sorry, I wanted to check because I thought I heard September mentioned.
Dame Helen Ghosh: No, there was a September press notice which announced the review. I cannot remember whether it was you or Miss McIntosh that raised it. It was you. The Management Board decision that we would do a review was one that we took in July.
Q221 Patrick Hall: The review is ready and waiting, as it were, for the further recommendations published in October?
Dame Helen Ghosh: Indeed.
Q222 Patrick Hall: Could I look at the question of overpayments. This report from the NAO says that it thinks 17,000 farmers have been overpaid. Do you agree with that?
Mr Cooper: The 17,000 is an estimate that the NAO came up with. In November 2008 we actually said to ourselves: "What do we think the position is?", plus we had identified a number of overpayments at that stage, which was just over 16,000, and, of those cases that were over paid (and recognised as being overpaid at that time), we have, I think, about 1,500 cases that we are still looking at. The reason we are looking at them is because sometimes they are genuinely overpaid and we have to seek recovery, or sometimes it is not actually overpaid, it is just that there has been some miscalculation and when we review it and reset it, the overpayment actually is removed. So we have made quite a lot of progress. I think we have recovered £32 million from people that have been invoiced and, therefore, we are continuing to make progress against that particular number of overpaid cases that the NAO identified.
Q223 Patrick Hall: Why would the NAO think that there were 17,000 overpayments? Surely you would know and could tell them. You are identifying overpayments and then, at some point, entering into a discussional process of recovery. Surely you must know how many overpayments are in the system at any point in time.
Mr Cooper: We do. In November 2008 we knew there were 16,237. What I think I need to explain is that overpayments largely occurred in 2005 and 2006, caused by a range of things such as making partial payments and then making top-up payments which were not necessarily fully taking account of partial payments.
Q224 Patrick Hall: Is the figure of 16,000 from a year ago and the estimate of 17,000 in October this year historical? Does that include on-going discussions about overpayments that arose some years earlier or are they current, or, should I say, are they new?
Mr Cooper: No, they are not new.
Q225 Patrick Hall: So they are ongoing?
Mr Cooper: It incorporates the 16,000, but since then, of course, we have done further work reviewing various cases and we have identified some additional overpayments. So part of the work that Deloitte is doing is to look at some of the data that we had in 2005 and 2006 to make sure that our estimate of overpayments is absolutely correct. I should also say that overpayments arise, not just because of an error by the RPA on an ongoing basis, but they can happen because a farmer can tell us the wrong information on the form, the land that is there may change and we may not know about it in the year that is relevant. So there is a range of things that can happen that can cause overpayment.
Q226 Patrick Hall: What is your broad estimation, or maybe even more accurately than an estimation, of the categories of overpayment - some are due to farmer error; others are not - and are there some other categories? You started to mention that. Could I ask you to do that, and, if you cannot, could you write to us about it?
Mr Cooper: It is difficult to categorise them in the way that you are asking.
Q227 Patrick Hall: What proportion would be farmer error?
Mr Cooper: We would need to look at individual cases to make that judgment.
Q228 Patrick Hall: You knew about 16,000 of them a year ago so you have had a year to be able to categorise them.
Mr Cooper: That is right, but what we have not done, necessarily, is categorise them in the way that you have asked.
Q229 Patrick Hall: Can I stop you on that. Of course, customer error is something that arises in all businesses, but if there is a significant proportion of errors that comes from your organisation, it is absolutely vital to know that so that you can put it right.
Mr Cooper: Yes.
Q230 Patrick Hall: So why do you not know?
Dame Helen Ghosh: To pick that up, that is precisely the kind of analysis that we are doing now, looking at those historic overpayment cases and saying from what does the error arise? It is actually extremely difficult because of the amount of data, the lack of management information data there is in the system going back to 2005 and 2006. We were doing so much stuff so quickly in 2006 to get partial payments out, to get top-up payments out that actually the record is pretty poor in a lot of cases; so actually the analysis is quite difficult to do.
Q231 Patrick Hall: So the analysis is not yet complete.
Dame Helen Ghosh: The analysis is not yet complete, but is part of the work that Deloitte's is doing.
Q232 Patrick Hall: I do not want to put words in your mouth, but is the review going to suggest how that analysis should be done, or is the review going to carry out the analysis?
Dame Helen Ghosh: The combination of the work that Tony is doing to get to the bottom of the total bill and numbers for 2005/2006, which, as I said, we are collecting as we go along, will help. The Deloitte's analysis will help, because it will look at a sample of cases and say, "This appears to be what went wrong in this case", and, "This appears to be what went wrong in that case", as I understand it. So it will enable us to say, if you look at any group of cases, that seems to be where the main error was made. It may be that that circumstance will never arise again and, therefore, we do not have to take it into account going forward, or it may be an issue that will arise again and we need to make sure that we do take it into account going forward.
Q233 Patrick Hall: This will take some time, whoever is precisely doing it, guided by the review, and that will take us past January.
Dame Helen Ghosh: No. Back to the hearing with the
Q234 Patrick Hall: You will have carried out negotiations with customers who may have some arguments or discussions, but you will do that before the EU regulation changes in January, will you?
Mr Cooper: Can I answer that? When we invoice a farmer, we provide them with information about what the likely cause of the overpayment has been and we give them a break down of the calculation. One of the things that we did not get right at first when we started to invoice farmers was the provision of that information. So, on an ongoing basis, where people have come back and said, "I want a break down of how you have calculated this", we provide that information, and it is a piece of work that we have been doing over the last number of months. In terms of the January change, that does not actually affect what happens to these cases. I am assuming you are referring to Article 137 where the arrangements change after 1 January.
Q235 Patrick Hall: Yes.
Mr Cooper: Where we have work already in hand, then that work will complete, and even after January it does not mean that we can stop calculating overpayments if they occur. We still have to do that.
Q236 Patrick Hall: Who will be liable for those overpayments then, work on which will continue into January and February perhaps?
Mr Cooper: It will depend on the circumstances of the overpayment. If the overpayment is because of a penalty because of a breach in a rule, then quite clearly the farmer is liable for that. If there is some information they have provided, or if there is land or a building has been erected that we do not know about, then, again, that is for the farmer.
Q237 Patrick Hall: But is it not realistic to expect that Defra may be liable to repay money to the EU, and what is your estimate of that?
Dame Helen Ghosh: We already have made, as it were, an advance repayment to the EU of, I think, something like £85 million and, clearly, if we are not able to recover all of that sum that proves to be the overpayment, then we would have to consider how to allow for that in our accounts.
Q238 Patrick Hall: Could I ask about underpayments, or alleged underpayments? What is your estimate of the number?
Mr Cooper: In a way underpayments is a very similar position to overpayments. The number that I remember is that we have about 500, which represents the large underpayments, and those cases are being reviewed currently. We are aiming to complete that review by the end of January and, where there is money owed then obviously we will make those payments.
Q239 Patrick Hall: You will pay it just as quickly as you would seek to recover from others?
Dame Helen Ghosh: Yes.
Q240 Patrick Hall: So they have been treated with equal significance?
Mr Cooper: We are dealing with both aspects of under and overpayments.
Q241 David Taylor: I am sad to say that I have been involved in designing and writing up systems not unlike this for four decades or so and I find it literally incredible that from day one there was no information kept in the prime records which would allow an analysis of the sort that my colleague has been trying to extract from you for sometime. It is an absolutely fundamental failure of management oversight of a system like this if you are going to have to go back and inspect records almost one by one to provide management information.
Dame Helen Ghosh: Yes.
David Taylor: It is utterly futile and defeats the whole object of the system. It is an observation, Chairman. We need to move on. I will pass over to you.
Q242 Dan Rogerson: Remapping, which we have referred to a couple of times already. Before embarking on the current exercise, you carried out pilots in three areas. What problems or issues were identified as a result of that and what changes were made to plans as a result? Was there time in order to implement all of those, or were there some things that you just were not able to get changed before the roll-out across the rest of the country?
Mr Cooper: Could I go back one stage as well? Before we got to the pilot, we actually conducted a trial with one of the larger claimants that we have and we spent some time working through what process would work, what should the communication be. We then took the results of that trial and we had a workshop with 40 farmers and explored various options on how we might best proceed, and they informed that and that formed the judgment on how we would do the pilot. The pilot included about a thousand claimants and the results that it provided gave us estimates of how many maps would need amendment and what the level of change would be, and, based on that, we then proceeded into the full roll-out. Where the pilot was really helpful was in terms of the information we were providing and the guidance that we were providing to get the language right and to get the information right. So when we started the roll-out and we came across a reaction which was, "This does not reflect my current maps", it came as a bit of a surprise because the pilot did not actually identify that. So, with hindsight, I can look back and I can see that the pilot was representative of the types of farms that exist and the land that exists but was not of sufficient quantity to give me the assessment. If there was one person in that situation it did not create the noise, it did not register with us. The pilots should have been a larger sample than we had used. When we went out with the full roll-out, the reaction was, "This does not reflect our maps." We took stock of that, recognised that, and what we did was we paused the roll-out, and we paused for probably about three weeks, and then realised that the solution we were going to apply to help farmers recognise the maps in the way they would expect was going to take a bit longer. So we then started to make available the maps that were in areas that were unaffected by the types of issues that we had, and then, at the tail end of the roll-out we implemented the---
Q243 Dan Rogerson: The trickier ones.
Mr Cooper: ---the trickier ones, and they were able to respond and certainly recognise how the maps worked.
Q244 Dan Rogerson: That is the generality, that farmers were saying, "This is inaccurate." What sorts of reasons were they giving?
Dame Helen Ghosh: It was things like soft boundaries, for example, which were not picked up by the satellite and other tracking that was in the new sets of maps. They could not see because the system did not see that kind of thing. It was that kind of issue.
Mr Cooper: It was. If they had split their field in three and given land to another farmer, say, there was no permanent feature that you could see, there was no post that you could see from a satellite. So when we were looking at the Ordnance Survey map and looking at the aerial photography, it just looked like one field, and some of the fields were very large. That is the sort of thing that came back. So we had to be careful about how we presented these maps back, because under the regulations it should be mapped to a physical boundary. So we put in lines that had a star against it to be able to demonstrate that was a guideline rather than a permanent boundary.
Dame Helen Ghosh: What really struck me, talking to Tony and the team about this at the time, was how many changes there are to farmers' land every year. In the 2009 scheme there were something like 25,000 changes to land notified as part of the application process, because everybody is building new slurry pits or putting in fences or giving a bit of land to somebody else. It is a very constantly changing picture all the time, but we have now got to a stage where, I think, they have all gone out, the first phase.
Mr Cooper: All of the maps have gone out.
Dame Helen Ghosh: And we get something like 55 per cent acceptance straight off and, obviously, about 45, 44 per cent that require some change. So actually the acceptance rate, given all the noise and the stuff that is going on on land anyway I think is pretty good.
Q245 Dan Rogerson: How do you assess these rights? Your system has said. "That is the situation", the farmer has said, "No, this is the situation." How do you adjudicate that and how do you settle it?
Mr Cooper: We aim to reach agreement with the farmer, obviously, if it is still in dispute . In 2004, when the Agency got into difficulty with mapping work, the tale I have heard is that maps were going to and fro, there were 14 maps being exchanged, et cetera, so we have said we are not going to do that. If we send a map to the farmer, he sends it back for changes, we send it out to him and he says, "There is still a problem with it", at that point we want to speak to that farmer, and that is the commitment we have given, either to visit or to do it over the telephone and, using technology nowadays, we can show them the map over the Internet, if necessary.
Q246 Dan Rogerson: So they can have it in front of them while you are talking?
Mr Cooper: Indeed.
Q247 Dan Rogerson: As long as they have access to the internet, of course, or Broadband.
Dame Helen Ghosh: Yes.
Q248 Dan Rogerson: I have recently visited a farm with Natural England, who cope with the stewardship schemes, and so on, particularly at the higher level. Have you talked to them about the process they have with Greenpeace? What has struck me since I have talked to this farmer, admittedly because it was arranged by Natural England so it was a farmer who was happy with Natural England and the relationship he had there, his major comment was, "God, I wish the RPA were like this and there was someone I could talk to face-to-face to go through this." I think it is that faceless side to things which, of course, comes up against the efficiency schemes you are trying to realise. Particularly, as you are identifying that these are the ones that are harder to resolve, are you identifying maybe we do need a resource there to do that?
Dame Helen Ghosh: Face-to-face.
Q249 Dan Rogerson: Yes.
Dame Helen Ghosh: Since you have half given the answer to that yourself, clearly in an HLS, where there is an awful lot of money at stake, both sides are very happy to have lots of face-to-face discussion because that is just the nature of the game. Again, I think one of the great things that Tony and the team have done is to do much more targeted face-to-face, to decide who really does need face-to-face and do much more of that. You could not afford it across every 106,000 claimants, but you can do it in a very targeted way, which we also do around completion of forms time, do we not?
Mr Cooper: We do. We have drop-in centres, and last year, I
think, somewhere in the order of about 30,000 claims were submitted face-to-face
within the drop-in centre. On the basis
that we try and find the time to have a quick cursory glance at them, then we
do that. We have also introduced now for
agents to be able to come in, and we had one come into the
Q250 Dan Rogerson: Have you made any estimates or considered talking to the NFU, for example, or the CLA, about what cost this is adding to the farmers' side by them having to dispute these things and employ their own consultants, or whatever, to support their case?
Mr Cooper: We have regular dialogue
with all of the farmers' representatives, including the National Farmers'
Q251 Dan Rogerson: In terms of ensuring that the maps you send out originally are as accurate as they possibly can be, has that process evolved as well, so that the system has been improved, or is it just a case of, "That is as good as we can get them", and then it is down to doing this negotiation, and so on? Remapping is an exercise with an end date, but have you been able to improve the accuracy of the maps as you have gone on through the year, the original maps being sent out?
Mr Cooper: Absolutely. Quite clearly, our aim is always to get the map correct. The 55 per cent that have been accepted are correct. Forty-five per cent, therefore, you could imply, need amendment and adjustment. A lot of the time, though, it is because something has changed on the farm that we do not know about. Twenty-five thousand farmers a year tell us about these changes that happen every year. To some extent we expected and anticipated that level of change in the pilot, and it has turned out to be roughly at about the right level.
Q252 Dan Rogerson: If things do not quite go to plan, for want of a better word, what contingencies are there, if everything is resolved in time?
Mr Cooper: Given where we are at the moment with all the first maps out (and we have now had 96,000 of those first maps back to us, 55,000 completed), we are well on track with it. We need the maps back to be able to pre-populate the claim forms for 2010, and pre-population of claim forms in 2010, we normally do it in the latter part of February, early March, and that is still our intention, and because of that we can phase this work so that we can continue to receive the updated maps. Those farmers that have already provided the updated maps will get their claim forms earlier.
Q253 Dan Rogerson: Finally, there are various courses for overpayment. How much of an impact do you think remapping should have on overpayment? How much would it reduce it by, if there are other reasons in terms of training and stuff that would help? How much of an impact will this have?
Mr Cooper: It is very difficult to put an estimate on it. We have looked at a sample of cases to see what the extent of change is above the de minimis that we have, and it is about five per cent. So there is five per cent of change. Does that mean there is an overpayment? I cannot give you that answer, but there is a change. Whether it is an under or an over, I do not know, and whether it actually affects the claim depends on things like whether the correct area has been claimed or not, but that is the best indicator I have got. What I am using that for is to assess the amount of work that we will have to do in 2010 as part of the processing of the claims in 2010.
Q254 Lynne Jones: What has been the total cost of getting from what the Permanent Secretary called a "not fit for purpose" computer system to one that at least is relatively stable?
Mr Cooper: I think it was in February 2007 that I went to the Defra Management Board and asked for an additional £40 million to invest. Not all of that money went into the IT, some of it went into introducing change. I cannot give you an exact figure for the investment that we have made to what I would call re-engineer the IT, but it is between £30-40 million.
Q255 Lynne Jones: The total cost, including the original cost and the re-engineering?
Mr Cooper: The total cost for the IT, including the policy changes and development of the system originally?
Q256 Lynne Jones: Yes.
Mr Cooper: It is of the order of 123, 129 million.
Q257 Lynne Jones: A little earlier there was some discussion about the actual cost per payment, whether it is 1,700, as the NAO say it is, and you are saying it is 700. Could you give us a note on what the differences are, and could you also comment on what proportion of that 700, 1,700 cost, whatever it is, is attributable to the IT system per claim?
Dame Helen Ghosh: Yes, we can certainly do that.
Q258 Lynne Jones: Can you give me that figure now?
Dame Helen Ghosh: No. We would need to go back and look again at how the NAO calculated their 1,700 figure, because, as I say, it involves things like amortising the IT costs. We will be happy to give you a note comparing the two figures.
Q259 Lynne Jones: The Scottish system is something like £290.
Dame Helen Ghosh: Eighty-five is quoted in the NAO report, yes.
Q260 Lynne Jones: Is it purely complexity that is the difference, or is there a difference in the procurement approach?
Dame Helen Ghosh: I think it is purely
complexity. We have obviously had
extensive discussions with
Q261 Lynne Jones: Perhaps you could comment on that in comparison with other government schemes that pay out money - the cost per payment. The NAO has advised that you should work out exactly what IT is going to cost you over the next five years. Are you doing that, how far have you progressed and are you looking at the business case for a complete new IT system?
Dame Helen Ghosh: Back to the discussion we had earlier about the review and thinking about the question of reprocurement of an IT system. That is exactly what we will be doing. I very much doubt if at this stage we will be able to say, "And it will cost us this much going forward", but it will at least give us some kinds of benchmarks for what that should be, depending, of course, on the outcome of the CAP review and, we hope, lack of complexity there.
Q262 Lynne Jones: In September 2008 it was stated that in your risk register seven out of ten of the top ten risks were assessed as red and three as amber. What is the current situation on that?
Mr Cooper: I would have to send you a note to tell you what colour they are. We have a top ten list of risks and I would have to send you a note.
Q263 Lynne Jones: How accurate a picture do you, at senior level, have about what is really going on? In January 2008 you said that you were on top of things, and that proved not to be the case. Do you really know what is going on within your own Agency, within your own Department, in terms of what the Agency is telling you?
Dame Helen Ghosh: I think in January 2008 that was a very specific statement in relation to overpayments. That was what we said we thought we were getting close to pinning down, and I think a lot of work went on through 2008, but, rather as the discussion we were having earlier, with every stone you place down, as it were, you turn another one up and you discover, for all sort of reasons to do with the complexity of the system, and (back to Mr Taylor's point) the management information you have not got, you discover that the ground has shifted. So I think that statement was only in relation to overpayments. In fact, I think the Agency recovered something like £25 million in overpayments in 2008, so we did take work forward, but we then discovered additional problems. I think that is the challenge that we have, which is why this exercise to say, "Enough, let us draw a line under that and get a complete picture and move on", is so important.
Q264 Lynne Jones: Do you think you have now got a complete picture of what the issues are, or are we waiting until the review?
Dame Helen Ghosh: What we are waiting for (and, as Katrina said, it will be with us in a matter of weeks) is that by January we will be able to report to the House on what the findings of that review are.
Q265 Lynne Jones: Are you doing anything about the situation that was reported in the Farmers Weekly of one payment of a penny being made to a farmer? How many such payments take place? Whether it is £700 or £1,700, it is an awful lot of money to pay out a penny.
Mr Cooper: It is one of those frustrations that exist, not surprisingly, the odd penny payment. You say to yourself, "Can we not just stop that? It is not cost-effective to do it", but then you start to look at what you would do with that penny. Do you invest in making a change to the IT to identify when anything under a pound is paid, and then how do you account for that money and, actually, the cost of making that change was more than allowing those payments to go out and now that we make payments into bank accounts directly, electronically, it is actually quite an easy thing to do and the number of penny payments has reduced drastically with the cessation of modulation payments having to be made this year.
Q266 David Taylor: I find that an astonishing answer, Chairman. Again, I have been involved with systems. The sieve at the end of the line for ludicrously low de minimis payments, if you like, in a financial system is always there and to somehow suggest that the cost of abandoning the payment at that point would be less than just going through the system and shoving a cheque for a penny in a 30 pence stamped envelope and the negative impact that will have in a publicity sense, I find an astonishing answer. Of all the answers I have heard from civil servants over 13 years in this place that is the pantheon, the silver medallist.
Dame Helen Ghosh: We are delighted to get awards of any kind. In that case I am sure the answer is that, if you had built it in from the beginning, it would, indeed, have been a cost-effective thing to do, but I think a BACS payment costs something like a penny itself, perhaps less than a penny, and, therefore, you would have to have an awful lot of instances like that which are bad in publicity terms but, actually, how many times have you received - I certainly do - nice envelopes from HMRC which say, "You us owe us nothing, we owe you nothing and here is a cheque for nothing"? The idea that this is a problem which is unique to the RPA is, I think, wrong.
Q267 David Taylor: I have no problems, Chairman, with the force of that, the confirmation of "I owe you", that is fine. I would accept a zero statement. That would be okay. I do not believe that there are zero cheques.
Dame Helen Ghosh: I have received cheques for nothing.
Lynne Jones: I think that what is particularly amazing, though, is that you have such a large manual element already in the system.
David Taylor: Why?
Q268 Lynne Jones: You have to do a lot of manual interventions because the functionality in the system is not there. Is that not correct?
Mr Cooper: Not significantly, no. By and large, our systems now work in the way that you would expect them to do. There are some additional controls that are applied, which means that we take some cases (because of the nature of those cases) to one side and deal with them and then put them back on to the system, but it is not an enormous job. I think this year, not surprisingly perhaps, our highest number of cases (and it is 40,000-odd or something) went through the system without any clerical intervention at all. So the number of cases that we are processing automatically, without any intervention, is increasing, and what that paves the way for is we have an electronic channel, an online system, where farmers can claim online, and that allows them to do some fairly simple but early validation so that the common mistakes and common errors that we get with the wrong codes going in on the form are prevented, so we can actually help the farmer make sure their claim is in a better state when it comes in. That reduces the amount of work we have got to do and, in addition to that, we are going to be able to make claims statements, entitlement statements available online. I accept the point about how many farmers actually use the internet, but there is a growing number and we are going to encourage them to use those sorts of services.
Q269 Lynne Jones: At some point in the NAO Report there was a comment that for each correction it took eight days of work to change the correction which required manual intervention. Is that correct?
Mr Cooper: That was specifically on overpayments, and the elapsed time of eight days came down to one day. There was a change in that period.
Q270 Lynne Jones: So there has been an improvement in the amount of manual intervention.
Mr Cooper: There has, and one that the NAO recognised in one of their earlier reports.
Q271 Lynne Jones: Could you send us a note on to what you attribute that improvement?
Mr Cooper: Yes.
Q272 Dan Rogerson: I certainly look forward to Defra making an even stronger case across Government for rural broadband and the cost-effectiveness of that?
Dame Helen Ghosh: I can assure you we are doing that very thing. We are having month-by-month focuses in the Department on particular aspects of our business. We had a farming month recently and the Management Board, each of us, takes turns to do weekly diaries, and we had some guests. We had two farmers who were guest diarists, very high hit rates across the Department, but the first one, who was in Staffordshire, the first point he made was, "If only I had broadband." So we are arguing that very, very strongly in the Digital Britain context.
Q273 Chairman: I think every farmer will have noted with keen interest that the Department for Environment, Food and Rural Affairs has now spent one month on farming, so that has increased the profile of farming in the Department.
Dame Helen Ghosh: It has indeed, and we are doing food in February. We have pictures of farmers all over the department.
Q274 Chairman: Good. If you are doing food in February, I hope you will invite us all round for your sampling exercise.
Dame Helen Ghosh: Yes, we shall.
Q275 Chairman: I am going to wind things up now because, Permanent Secretary, I know that you have another engagement to go to. For the reassurance of farmers who are still waiting to know where they stand with reference to the 2005-2006 year, when do you think that will finally be drawn to a conclusion? For some it has been a bit like the financial sword of Damocles hanging over their heads.
Dame Helen Ghosh: As I say, one of the purposes of the review and of the commitment I gave to the PAC was that we should, indeed, be able to finalise the overpayments - indeed, that is specifically about overpayments, but that does not mean we are not concerned about underpayments - through this review and be able to reach a view by January about what they were and how we were going to handle them. I would not say we will definitely do that in January because there will be some issues about negotiations with individuals and discussions about de minimis limits, and (back to the point earlier) if there is an issue about writing off debts we will not recover, clearly that will need careful discussion with the Treasury, but early next year.
Q276 Chairman: I am pleased to hear that. We look forward as a Committee to seeing the outcomes of the review, and I can but hope, as I will not be chairing the Committee in the next Parliament, that whomsoever takes on this onerous role will not find themselves doing yet another inquiry into the Rural Payments Agency. What would be genuinely nice to see is an appropriate section in Defra's Annual Report which points to the full implementation of the positive things that you are going to be doing and that customer satisfaction continues to rise, that all the old problems are sorted out once and for all and that you will be in a fit and proper state to deal with 2013 and beyond. So, I suppose, in terms of this short inquiry, we have put the benchmarks down, you are going to supply the solutions as a result of the review and we look forward very much to seeing that. May I thank all three of you for your contribution this afternoon. The Committee wishes you well in the future, if not for your own sakes but also for the many thousands of farmers whose interests you have at heart. Thank you.
Dame Helen Ghosh: Thank you, Chairman.