A second progress update on the administration of the Single Payment Scheme by the Rural Payments Agency - Public Accounts Committee Contents

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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