Conclusions and recommendations
1 The Departmental and Agency Accounting Officers
have failed to get to grips with the issues, resulting in a lack
of any clear progress in addressing our concerns. This is wholly
unacceptable. In the
circumstances we have no option but to put the Department on report.
We insisted and the Department agreed to provide this Committee
with a clear action plan by the end of January 2010 that would
explain how they have addressed all of the National Audit Office's
recommendations and would provide evidence of what progress they
had made. We recommend that the Department sends us a progress
report on a three monthly basis thereafter, and that these reports
should be validated by the National Audit Office so that we can
avoid the Accounting Officers having to appear before us again
on this issue.
2 The Agency paid out over 96% of funds for
the 2008 scheme nearly seven weeks ahead of the European Commission
deadline, but this is still a long way short of their targets
and the standards achieved by other countries.
The progress has also been at the expense of improvements in efficiency
or accuracy. We recommend that the Department and Agency agree
more challenging targets for any new systems they introduce, but
in the interim the focus should now be on reducing the costs and
improving the accuracy of the payments made.
3 The £350 million IT systems are cumbersome,
overly complex and continue to soak up large sums of money.
The work required to keep the systems operational have moved above
and beyond what was originally specified in the Agency's Recovery
Campaign and, with £84 million expenditure on Accenture in
the last two financial years, the high spending looks set to continue.
The Department should prepare a business case to establish whether
it would be better to invest in a new IT system instead.
4 Neither the Department nor the Agency were
able to give the Committee a satisfactory explanation of the costs
of employing Accenture consultants to maintain the Agency's IT
system, though they had paid Accenture £84 million in total
over the last two financial years. We
therefore asked them to write to us to provide details of the
number of consultants involved in Scheme work, the role they play,
and their costs over the last 6 years. We expect the Department
to provide this analysis in the action plan and progress report
they have promised to send us by the end of January 2010.
5 Many of the IT software and hardware packages
used to process claims have already fallen out of support, thereby
increasing the risk of a system failure.
Earlier action would have allowed the Agency to avoid this situation
arising but now that it has, the Department and Agency should
prepare a risk assessment so that critical systems can be supported
but further expenditure can be minimised until we know whether
an alternative system would be more appropriate.
6 Inaccurate data in the Agency's systems,
weak management information and poor record keeping hinder effective
administration. The Department's commissioning of an external
organisation to develop an action plan to tidy up claimants' data
does not go far enough. The Department should commission an external
organisation to tidy up and clean each claim in readiness for
any new system, thereby freeing up the Agency to process 2009
claims.
7 Rather than put their energies into tackling
the high processing costs, the Department and its Agency have
muddied the issue by looking for ways to understate the true figures.
This Committee takes a dim view of such 'smoke screen' tactics,
which seem designed to play down the seriousness of a situation
by questioning the facts of a National Audit Office report when
there are no strong grounds to do so. The Department and the Agency
should acknowledge the full scale of their processing costs, including
the annual costs of the bespoke IT system. The Treasury should
reiterate to all public bodies the need to be transparent about
the full costs of their processes and systems and to measure performance
on the basis of all relevant cost elements.
8 The average cost of administering each claim
by the Agency in 2008-09 (£1,743) is around six times the
amount in Scotland. This difference is
partly explained by the decision to introduce a more complex scheme
in England but, even taking that into account, the administration
costs are unacceptably high. The time is right for a much more
fundamental re-think of how much is being spent on administering
claims by the Agency. The Department should draw up clear plans
of how it will reduce IT, staff and other administrative costs
in the Agency and should set firm budgets and improvement targets
for each of these three cost elements. In drawing up its plans,
it should consider how to reduce overheads and whether to develop
alternative IT systems or to contract out some functions.
9 The Agency's overpayment recovery has been
woefully slow, haphazard and ineffective, with only around £25
million recovered compared with around £90 million overpaid.
Farmers have received letters out of the blue with baffling calculations
to ask for repayment. Recoveries are typically made by offsetting
the sums from subsequent payments but there is a high risk of
inequitable treatment. Systematic recovery depends on tidying
the data and we recommend that the Department tasks an external
organisation with recovering overpayments where it is cost effective
to do so.
10 Poor leadership at the top of the Agency
combined with the frequent turnover of senior managers in recent
years have contributed significantly to the Agency's administrative
problems. The Department should assess
the Agency's management capability, reduce the demands on the
organisation by considering the transfer of other responsibilities
elsewhere and, if necessary, appoint someone with experience in
turning around failing organisations.
11 Despite the ongoing problems with this
scheme, the Department assessed the Agency's performance positively
in 2008-09 which enabled the Chief Executive to receive a performance
bonus. Remuneration of senior management should be more closely
aligned with the organisation's operational performance, including
its success in addressing this Committee's concerns.
12 The Department failed to scrutinise the
Agency's governance rigorously, assessed the Agency's performance
over-optimistically, and failed to hold the Agency to account
for key areas of performance, such as overpayment recovery and
IT operational risk. The Department should
introduce a new target regime which focuses on all the Scheme's
key risks, and uses a new and comprehensive set of metrics to
aid proper monitoring of performance. A clear and robust service
level agreement should be introduced between the Department and
Agency based on the new targets to formalise their respective
responsibilities.
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