Department for Environment, Food and Rural Affairs and Rural Payments Agency Accounts 2012-13

"I welcome the good progress made by the Department and RPA in rectifying known past overpayments and underpayments to farmers, but the completeness of balances reported in 2012-13 is open to question and so I have had to qualify the accounts. The level of penalties paid by the Department to the European Commission for failing to comply with regulations has gone down, and I have been able to remove my qualification on the Department’s accounts this year. While this is positive, I and the Department understand that it is largely as a result of administrative delays in the Commission rather than improved compliance by the Department. Consequently, the cost of penalties arising from legacy issues is likely to increase again in future, and a qualified opinion may therefore be necessary. The Department faces a number of significant risks in implementing impending CAP reform, and it will need to manage these well if it is to avoid a repeat of the high penalties imposed following the previous reforms in 2005."

Amyas Morse, the Comptroller and Auditor General, has qualified the respective accounts of the Department for Environment, Food and Rural Affairs and the Rural Payments Agency (RPA).

Overpayments and underpayments under the Single Payment Scheme

Today’s report explains that the Department and RPA have prioritised and made good progress in quantifying and rectifying known past overpayments and underpayments made to farmers and other claimants since the Single Payment Scheme began. In consequence, the C&AG has not repeated this aspect of his previous qualification.

However, the C&AG has been unable to obtain assurance that balances in the 2012-13 financial statements reflect all past overpayments and underpayments, and has therefore limited the scope of his audit opinion in respect of the completeness of balances.

Financial penalties arising from EU schemes

The level of penalties imposed by the European Commission on Defra because the Department has not applied EU regulations correctly in the processing of EU schemes has gone down to £20 million in 2012-13 (from £46 million in 2011-12). While the C&AG considers £20 million to be a significant level of cost to the taxpayer, it is not material in the context of the £3.3 billion of Commission-funded expenditure managed by the Department. This has led the C&AG not to qualify his opinion on the regularity of the accounts, as he has done in recent years.

The C&AG has noted that the main cause of the reduction in the level of penalties is administrative delay by the European Commission, rather than underlying improvement in complying with EU scheme rules. The accounts include a provision of £133 million (2011-12: £125.4 million) for future penalties which are subject to challenge, but demonstrate that significant future penalties are likely. Once finalised, these penalties could lead to the qualification of future accounts.

Reform of the Common Agricultural Policy

The Common Agricultural Policy is currently being reformed. The new schemes are expected to be more complex, and current plans are based on unconfirmed regulations and subject to an uncertain implementation date. In addition, the IT element of the programme will involve outsourcing to multiple IT providers. There are, therefore, a number of significant risks relating to successful delivery of the new schemes. The Department will need to ensure these risks are managed and that it learns the lessons from the implementation of CAP 2005.

National Audit Office report: Department for Environment, Food and Rural Affairs and Rural Payments Agency Accounts 2012-13