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Sir John Bourn, head of the National Audit Office, today reported to Parliament on the problems in the administration of the Sheep Annual Premium Scheme in England which led to the European Commission refusing to reimburse £27 million in respect of payments to farmers in England for 1993 to 1996.

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The report examines how the difficulty arose and the action that the Ministry has since taken to tighten up its application of scheme controls.

The main problem lay in the Commission’s views about the timing and coverage of the Ministry’s farm inspections, following its audit in England in 1995 examining the application of scheme rules for 1993 onwards. At that stage, the Ministry was uncertain as to whether disallowance would be imposed and cautious about making significant changes to working practices and imposing additional burdens on the industry. By January 1997 the Commission confirmed that disallowance was to be imposed. With effect from 1996 the Ministry had started to take action to address the Commission’s concerns about farm inspections and the application of rules about flock records. By 1998, the Commission indicated that controls were compliant in areas of previous weakness.

Identification and recording of movements of livestock are of increasing importance for scheme control and animal health purposes and this is reflected in European and UK legislation with effect from 1996. As a physical check of numbers of sheep and flock records, and a deterrent against irregularity, farm inspections of ten per cent of claims each year are one of the controls required by the European regulations to ensure compliance with Scheme rules. In 1998, these and other checks by the Ministry led to some 2000 claims from farmers being reduced and 400 rejected because of irregularities. The value of these reductions and rejections was some £2.7 million. The largest number of cases of complete rejections (84 cases) was due to poor flock records.

There is some indication that unannounced inspections may identify higher proportions of errors or irregularity in claims. For example, 5.6 per cent of all inspections in England in 1998 found unsatisfactory results compared with 8.3 per cent where less than three hours notice was given.

The recommendations in the NAO’s report focus on the need for the Ministry to:

  • Clarify the Commission’s views on potential weaknesses in scheme controls at the earliest possible stage;
  • Assist farmers in adopting appropriate flock record formats, and ensure inspectors are consistent in their assessments of quality; and
  • Obtain more information about the conduct and costs of on-farm inspections in other countries, as a benchmark for performance; and analyse the results of its on-farm inspections to estimate the overall level and value of error in scheme claims.

These recommendations relate to the administration of the scheme by the Ministry but should also be useful to the authorities in Scotland, Wales and Northern Ireland where disallowance for 1993 to 1996 amounted to some £60 million of the UK total of £87.3 million. The UK figure was higher than the disallowance for any other member state on the scheme in that period.

It is the Commission’s normal practice to target its audits according to risk factors such as size of expenditure or previous difficulties. In view of the size of the Scheme in England and the UK, relative to other member states, it is important that attention is paid to weaknesses identified by the Commission. In addition, the Ministry already maintains close liaison with the other agriculture departments in the United Kingdom, and it expects this sharing of information to continue after devolution.

"I am pleased that the Ministry has in large measure addressed the problems of flock records and urge them to continue working with farmers to get it right. This will help to protect the taxpayer from the risk of losing reimbursement from European funds. It will also assist farmers in satisfying scheme rules so that they can get the benefit of a scheme which is providing valuable support at a time of crisis in the industry."

Sir John Bourn

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