1 Progress in administering the scheme
1. The Single Payment Scheme entitles farmers
to claim payment for maintaining their land in good agricultural
and environmental condition subject to complying with the relevant
European Union regulations. The sums involved each year are considerable,
with payments to farmers in England through the 2008 Single Payment
Scheme amounting to £1.63 billion. The Rural Payments Agency
(the Agency) administers the scheme on behalf of the Department
for Environment, Food and Rural Affairs (the Department).[2]
2. The implementation of the scheme in England
in 2005 was beset with problems. We reported previously how the
Department's decision to introduce the most complex model available
for the scheme alongside a wider business change programme in
the Agency caused considerable problems and resulted in many payments
not being made before the European Commission's deadline of 30th
June 2006. We reported again in July 2008 on the continuing errors
made by the Agency in processing claims and the need for more
urgency in recovering overpayments from farmers. The follow up
examination from the National Audit Office in October 2009 is
one of the most damning reports that this Committee has received
and shows this scheme to be a case example of misadministration.[3]
3. Since the initial problems with implementation,
the focus of the Department and the Agency has been on improving
the service to farmers. In April 2007 the Department allocated
£40.1 million to the Agency for a three year Recovery Campaign
which involved a fundamental redesign of the IT systems so that
customers could expect to receive earlier and more accurate payments.
The changes have had limited success in bringing forward the timing
of payments to farmers. As Figure 1 shows, the Agency managed
to reach the European Commission target of 96.14% of payments
under the 2008 scheme by 13th May 2009, nearly seven weeks ahead
of the end of June deadline. The Agency has not managed however,
to reach the target set out in its Recovery Campaign to make 96.14%
of payments by value by 31st March 2009. The timing of payments
remains a long way behind the standards set in Wales, Northern
Ireland and Scotland. By the end of December 2008 the Agency had
paid out 59% of funds compared with between 76% and 87% in the
other home countries.[4]
4. At a previous hearing on the Single Payment
Scheme in January 2008 we received assurances from the Accounting
Officers for the Department and the Agency that the problems with
this scheme were being resolved and that good progress was being
made in recovering overpayments.[5]
We received no satisfactory explanation of why so little progress
has been made in the last two years,[6]
although the findings from the C&AG's report[7],
and the acknowledgement from witnesses at our hearing on 26th
October 2009 established that the Department and Agency had significantly
underestimated the scale of the work needed to resolve the problems.[8]Figure
1: Payment of Scheme Funds by the Agency
Source: C&AG's Report, Figure 5
5. The original IT system was fundamentally flawed.
At the January 2008 hearing however, the witnesses indicated that
the IT faults had largely been rectified and that the four upgrades
in the Recovery Campaign would resolve outstanding issues quickly.[9]
It is true that the systems are more stable than previously, but
a review by Gartner in 2009 established that system design has
improved very little.[10]
6. The National Audit Office estimated that IT
expenditure on the scheme had reached some £350 million[11]
although the Department and the Agency indicated that a large
part of this sum was on day-to-day operations rather than expenditure
under the recovery campaign. Whatever the purpose of the expenditure,
the costs of this IT system are unacceptably high and continue
to add up. The Agency remains heavily reliant on its main contractor,
Accenture, to keep the IT systems operating and had paid £84
million to Accenture in total over the least two financial years.
The Department and Agency were not able to provide the Committee
with a satisfactory explanation of these costs, nor were they
able to convince us that they could achieve a competitive price
for any subsequent contract renewal.[12]
7. As a result of the considerable IT expenditure
the Agency has ended up with a cumbersome system that is difficult
to maintain. The two main systems supporting the scheme, RITA
and Oregon, have been heavily customised such that ongoing maintenance,
repair and upgrades are likely to be expensive and challenging.
At least 29 out of 54 software and hardware elements of the scheme
will no longer be supported by the end of 2009. The Agency has
estimated that it will cost around £12 million to support
RITA and Oregon until 2012, but it is still exploring options
to procure extended support. In the meantime, it is difficult
to assess the seriousness of the risk as the complexity of the
systems makes it difficult to determine the extent of interaction
between them.[13]
8. The data held on the IT systems continue to
contain inaccuracies which undermine the credibility of the Agency
and thus the Department. Whilst the inaccuracies might appear
relatively small in relation to the total scheme payments of £1.63
billion, some of the overpayments to farmers were considerable
and are likely to be repeated each year until corrected. The Chief
Executive had previously assured us in January 2008 that he was
much more confident that subsequent payments by the Agency would
be more accurate.[14]
Yet the Agency estimated that its overpayments since February
2008 had amounted to £25 million.[15]
9. The Agency underestimated the extent of the
data inaccuracies and despite our previous concerns over the level
of overpayments, neither the Department nor the Agency had subsequently
given sufficient attention to the issue. The Department has since
commissioned Deloitte to establish the likely extent of debt arising
from overpayments and will report the outcome of their work to
our Committee by the end of January 2010.[16]
10. Progress in recovering overpayments has been
slow, disorganised and haphazard. The Agency is likely to have
made overpayments of between £55 million and £90 million
but had only recovered some £25 million.[17]
The exercise to recover overpayments did not effectively begin
until January 2008 and the Agency did not commence recovery of
even straightforward duplicate payments made in August 2006 until
April 2008, some 20 months later.[18]
11. Even with such a slow start to recovering
overpayments, the approach adopted by the Agency has been unacceptable.
Letters arriving out of the blue with baffling calculations have
caused concern and anxiety for farmers and necessitated further
work to try and check the amounts due. Farmers had little option
other than to agree on a 'without prejudice' basis to avoid holding
up payment of the remainder of their 2008 claim. We would be surprised
if the average ex gratia payment to farmers of £250 reflected
the stress and anxiety experienced and additional costs they might
have incurred as a result of the uncertainties.[19]
12. In 2008-09 each claim cost, on average, £1,743
to process, compared with just £285 per claim 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. Staff numbers
working on the scheme have decreased by approximately 470 full
time equivalent posts since 2006-07 but we cannot see how these
reductions have led to the improvements in efficiency claimed
by the Department. Drawing on the figures reported by the Agency
in its financial accounts each year, total staff costs for all
its schemes have reduced by some £0.9 million between 2005-06
and 2008-09. This has been more than offset by an increase in
other running costs of £29 million over the same period (see
Figure 2). In addition, on the basis that 72% of the Agency's
IT costs are on the single payment scheme, the National Audit
Office established that amortised and running cost expenditure
on IT has remained broadly constant at around £63 million
a year between 2005-06 and 2008-09.[20]Figure
2: Staff and other running costs incurred by the Rural Payments
Agency
Source: Rural Payments Agency Annual Accounts
for 2005-06, 2006-07, 2007-08 and 2008-09
2 C&AG's Report, para 1.1 Back
3
Qq 74, 104 and 161; Committee of Public Accounts, Fifty-fifth
Report of Session 2006-07, The Delays in Administering the
2005 Single Payment Scheme in England, HC 893; Committee of
Public Accounts, Twenty-ninth Report of Session 2007-08, A
progress update in resolving the difficulties in administering
the Single Payment Scheme in England, HC 285; C&AG's Report,
para 2.15 Back
4
Qq 12, 55, 70, 73, and 75-76; C&AG's Report, paras 2.2, 2.9,
2.16 and 2.18 Back
5
Qq 19, 37, 65-68, 71 and 146; Committee of Public Accounts, A
progress update in resolving the difficulties in administering
the Single Payment Scheme in England Back
6
Qq 8-9, 69 and 70 Back
7
C&AG's Report, para 17 Back
8
Q 7 Back
9
Q 71; Committee of Public Accounts, A progress update in resolving
the difficulties in administering the Single Payment Scheme in
England Back
10
Q 7; C&AG's Report, paras 2.3-2.4 Back
11
C&AG's Report, para 2.8 Back
12
Qq 1, 6-7, 37, 39, 50, 129 and 158-159; C&AG's Report, para
2.4 and 2.10 Back
13
C&AG's Report, paras 2.6-2.7 Back
14
Q 37; Committee of Public Accounts, A progress update in resolving
the difficulties in administering the Single Payment Scheme in
England Back
15
Q 9; C&AG's Report, paras 3.3, 3.7, 3.9 and 3.17 Back
16
Qq 8-9, 68 and 160-161 Back
17
C&AG's Report, para 3.3 Back
18
Q 49; C&AG's Report, paras 3.3, 3.7 and 3.10 Back
19
Qq 49 and 134-135; C&AG's Report, paras 11, 3.7, 3.10 and
3.18 Back
20
Qq 1-5, 16, 55, 68-70, 73-74, 76 and 116; C&AG's Report, paras
2.12-2.13 Back
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