Amyas Morse, the Comptroller and Auditor General (C&AG), has qualified his opinion on the 2015-16 accounts of the Department for Environment, Food and Rural Affairs (Defra).

Today’s report from the National Audit Office finds that £65.8 million of penalties were imposed by the European Commission on Defra in 2015-16 (in 2014-15, it was £90 million). These penalties are imposed by the European Commission when it believes member states have not complied with its requirements to control and administer payments properly under the CAP (Common Agricultural Policy).

Of the £65.8 million, the majority (£38.6 million) related to Single Payment Scheme payments, with smaller amounts (£13.3 million) from Rural Development, (£9.9 million) Cross Compliance penalties and the remaining (£4.0 million) other schemes.

The total value of disallowance penalties from the CAP 2007-13 scheme is now £661 million. Almost all payments in relation to the CAP 2007-13 schemes have been made but the Commission’s reviews have not yet been finalised.

European Commision audits of CAP 2014 – 2020 schemes are likely to result in further disallowance penalties, some of which will be applied after the UK has left the EU.

Disallowance penalties are expected to increase in future years as a result of more complex CAP schemes, changes to the method the European Commission applies to calculate penalties, and problems encountered implementing new systems under the CAP Delivery Programme.

The Department has experienced difficulties paying farmers accurately and is reviewing 13,000 payments made to farmers (15% of all claimants). Where there are differences between farmers’ claims and the information held on the Department’s systems, only the amount of the claim that matches the Department’s information was paid out. The Department deducted penalties from farmers, which were calculated on the assumption that all differences were due to errors made by farmers. The most common discrepancy is where the Department has not updated its systems to include all the information from the farmer. Although this reduces the risk of disallowance penalties, it also delays full payments being made to farmers. The Department estimates that farmers were due a further £25.3 million in relation to claims initially paid before 31 March 2016.

Farmers are also owed a further £16.9 million from Defra relating to Financial Discipline Mechanism (FDM) refunds.

“The Department continues to struggle with managing the complex CAP scheme in a way that ensures accurate, timely payments to farmers. As a result, it has incurred EU penalties of £65.8 million related to the CAP scheme in 2015-16, and estimates that it owes 13,000 farmers a total of at least £25.3 million.

Exit from the European Union will not, in the short term, reduce these penalties. The Department therefore needs to ensure its strategy for tackling these challenges is effective.”

Amyas Morse, head of the National Audit Office

Read the full report

Department for Environment, Food and Rural Affairs and Rural Payments Agency Accounts 2015-16

Notes for editors

  1. The Common Agricultural Policy (CAP) is the EU framework of agricultural subsidies and rural development programmes. In 2015-16 the Department received funding of some £2.3 billion (2014-15 £3.1 billion) from the European Commission (the Commission) to deliver the CAP and other initiatives. CAP schemes affecting the 2015-16 financial statements can be split into two programmes: new CAP schemes for 2014-20 that started during 2015; and old CAP schemes for 2007-13 that were being wound up. Most payments administered by Defra in 2015-16 for the Commission are under new CAP 2014-20 schemes.
  2. Disallowance penalties are determined in light of the European Commission’s review of the relevant CAP scheme year and any further evidence provided by the member states in response. The timing of the European Commission’s review and its outcome can affect the value of disallowance in any given year.
  3. The NAO considered the Department’s management of disallowance risk throughout CAP 2007-13 in the report ‘Managing disallowance risk’ (HC 306), published in July 2015. This report considered the underlying causes of disallowance in England, future disallowance risk and how the Department manages this risk.
  4. Financial Discipline Mechanism (FDM) refunds allows for a small proportion of larger claims to be withheld annually to form a reserve that the European Commission can use to respond to crises, with unspent funds refunded to farmers in the following year.
  5. Press notices and reports are available from the date of publication on the NAO website. Hard copies can be obtained by using the relevant links on our website.
  6. The National Audit Office scrutinises public spending for Parliament and is independent of government. The Comptroller and Auditor General (C&AG), Sir Amyas Morse KCB, is an Officer of the House of Commons and leads the NAO, which employs some 785 people. The C&AG certifies the accounts of all government departments and many other public sector bodies. He has statutory authority to examine and report to Parliament on whether departments and the bodies they fund have used their resources efficiently, effectively, and with economy. Our studies evaluate the value for money of public spending, nationally and locally. Our recommendations and reports on good practice help government improve public services, and our work led to audited savings of £1.21 billion in 2015.

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