Amyas Morse, the Comptroller and Auditor General, has for the first time since 2007-08 provided a clear audit opinion on the accounts of the Department for Environment, Food and Rural Affairs and the Rural Payments Agency (RPA). He has warned, however, of the likelihood of the European Commission’s imposing significant penalties on Defra in future, possibly leading to the qualification of future accounts.

Overpayments and underpayments under the Single Payment Scheme

Today’s report explains that the Department and RPA have made good progress in identifying, quantifying and rectifying past overpayments and underpayments made to farmers and other claimants since the Single Payment Scheme began. This progress, alongside a significant and sustained improvement in payment accuracy during the last three years, has allowed the C&AG to remove his previous qualification of the completeness of Single Payment Scheme trade payables and receivables.

Financial penalties arising from EU schemes

The European Commission imposed on Defra penalties of £42 million in 2013-14 (£20 million in 2012-13) because the Department had not applied EU regulations correctly in the processing of EU schemes. While the C&AG considers £42 million to be a significant level of cost to the taxpayer, it is not material in the context of the £3.4 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, however, that the accounts include a provision of £84 million (2012-13: £133 million) for future penalties, which are subject to challenge, but demonstrate that significant future penalties are likely. Penalties for the current EU schemes, which run to 2014-15, will not be fully calculated and settled until 2019-20. Once finalised, these penalties could lead to the qualification of future accounts.

Reform of the Common Agricultural Policy

The Common Agricultural Policy (CAP) is currently being reformed. The new schemes are more complex and current plans are based on regulations which are not yet fully confirmed. In addition, the IT element of the programme is in development with several outsourced 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.

“I am pleased to note the good progress made by the Department and RPA in rectifying past overpayments and underpayments to farmers, and in processing payments more accurately. The Department faces a number of significant risks in implementing impending CAP reform, however, 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.”