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Difficulties encountered by a government agency in making payments under the EU’s Single Payment Scheme have caused distress to a significant minority of farmers, cost farmers money in additional interest and bank charges, and undermined the farming industry’s confidence in the agency, according to a report published today. The study by the National Audit Office found that the risks and complexities involved in delivery had not been fully appreciated. As a consequence the Rural Payments Agency underestimated the amount of work involved.

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The Single Payment Scheme is worth £1,515 million to 116,000 farmers in England. Defra and the Agency notified farmers that they aimed to start payments in February and make 96 per cent of payments by the end of March. The Agency encountered difficulties and by 31 March had paid £225 million (15 per cent) to 31,000 farmers (27 per cent). The Agency had processed 95 per cent of payments by the end of June, but in the interim the Chief Executive had been removed from his post.

The cost of implementing the scheme was budgeted at £76 million but, by March 2006, had reached £122 million, with further cost increases likely. Defra and the Agency had expected to reduce the Agency’s staff by 1,800 and make efficiency savings of £164 million by 2008-09, but difficulties in processing claims led to the recruitment of additional agency staff and there appears to be little prospect that much of the savings will now be realised in this timeframe.

The NAO identified 34 overpayments and 79 underpayments out of 363 claims tested. There is a risk that the errors and other procedural mistakes will result in the European Commission disallowing a substantial amount of the expenditure, for which Defra has had to make provisions and allow for contingent liabilities totalling some £131 million. The Agency is unlikely to be able to remedy all the problems identified in time for the 2006 scheme, the payment window for which starts in December 2006.

A survey carried out by the NAO found that 20 per cent of farmers said the delays had caused them distress and anxiety, with the problem particularly acute among those who rely on the scheme for a significant proportion of their income, such as hill farmers. The NAO estimates the delays cost farmers between £18 million and £22.5 million in additional interest and arrangement fees on loans.

The timetable to introduce the scheme was tight, and became tighter following changes to the original specification of the IT system to incorporate changes to EU Regulations, legal clarification of the Regulations, Ministerial decisions and operational changes such as the design of the application form. Nonetheless, difficulties within the Agency’s control contributed to delays in making payments. Each element of the IT system was tested, but the system was never tested as a whole before the scheme was introduced, and problems arose once it went live.

The Agency did not adequately pilot land registration and underestimated the amount of work involved in mapping the land. Instead of the expected 1.7 million parcels of land, it had to deal with 2.1 million, and instead of 200 maps a week it received 1,200. By September 2005 there was a backlog of 31,000 forms and 59 per cent of farmers reported difficulties in finalising maps. The Agency also underestimated the amount of work involved in processing each claim and had to rely on often inexperienced temporary and agency staff to clear the backlog.

Problems with the Single Payment Scheme were not picked up early enough, both by the Agency and Defra, for corrective action to be taken. Contingency plans were mothballed because continued work on them would have spread more thinly the limited staff with the necessary understanding of the scheme and technical skills, and because the Agency believed there was a better chance of making payments on time with the main system. Progress reports from the former Chief Executive of the Agency were unduly optimistic but, in the absence of adequate management information systems, robust and objective data showing the progress that had been made and the work that still had to be done were not readily available. This meant that clearer output measures (such as the cumulative number of maps registered or the progress of claims through the validation process) which might have triggered corrective actions earlier, could not be set.

“In paring back the work required to get the single payment scheme ready on time, the Agency underestimated the effort involved in processing claims, but also left itself without the management information it needed to take control of the situation. As a result, many farmers faced unacceptable delays before getting their money and the Agency made mistakes in paying out the correct amount. Unpicking what has gone wrong will take some time.

“Foremost among the Agency’s priorities now must be to determine if the administrative and computer systems for mapping land and processing claims are really up to the job. Until that happens, there is little prospect the problems will be remedied in time to deal with the 2006 claims.”

Sir John Bourn, head of the NAO

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