Scottish Government

The Administration of Common Agricultural Policy Schemes in Scotland
Annual Report 2003

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1. Introduction

This is the second Annual Report covering the Scottish Executive Environment and Rural Affairs Department's (SEERAD) activity in administering European Union (EU) agricultural subsidy payments.

The report sets out our activity and performance in Common Agricultural Policy (CAP) administration and identifies our targets for next year. The report focuses on schemes we paid in 2003:

• the 2003 scheme year for arable, less favoured area and sheep schemes;

• the 2002 scheme year and part of the 2003 scheme year for the cattle schemes; and

• calendar year payments in 2003 for agri-environment and forestation schemes.

Financial details relate to the 2003/04 financial year; audit information also relates to financial years.

The report has been prepared by the CAP Management Board and approved by the Agricultural Programme Board and the SEERAD Departmental Management Board.

2. Abbreviations we have used in this report

3. What do we do?

The Scottish Ministers are responsible for all EU CAP schemes in Scotland. Our department administers most of the direct subsidy schemes.

The European Commission (EC) appointed SEERAD to be the Paying Agency in Scotland for all EU CAP schemes. We are responsible for administering a range of direct payment schemes to Scottish farmers, worth almost 500m per year. The EU European Agricultural Guidance and Guarantee Fund (EAGGF) wholly or partly funds all the schemes.

We process over 130,000 individual applications from almost 20,000 applicants each year under the seven main CAP schemes. Annex 1,3, 4 and 5 detail the claim volumes by scheme. (Note: Annex 1 shows the latest available claim and payment figures; the analysis provided in Annex 5 is based on earlier data and so totals differ slightly). We have over 11,000 participants in the three current agri-environment and afforestation schemes and in closed schemes with outstanding commitments.

The Rural Payments Agency (RPA) also administers certain schemes on behalf of the Scottish Ministers, through an Agency agreement. These include internal market trader based schemes such as milk quotas, the Over Thirty-Month Scheme, external trade schemes and intervention buying and selling. A breakdown of these payments is shown in Annex 2.

From 1 January 2005, a new system of farm payments will be introduced in Scotland following the EU decision to reform the CAP system. This will replace the seven main existing schemes with a Single Farm Payment scheme. There is considerable flexibility in how the scheme will operate. In February 2004, the Minister for Environment and Rural Affairs announced that the scheme:

• would be based on the 'historic' subsidy receipts from 2000 to 2002.

• may include a National Envelope.

• will include a modulation rate of at least 10% by 2007.

Implementing the new scheme will be a considerable task. It will involve derivation of entitlements for 20,000 claimants from historic records, new systems to track and manage entitlements, introduction of a National Reserve and new claim processes.

Our vision is:

4. Who is it for?

Key groups with an interest in CAP administration include:

• Farmer customers: Current and potential claimants, their agents, support bodies and lobby groups. They require high standards of service from us in administering the schemes, particularly on timely payments.

• The European Commission and its auditors require that we administer the schemes in line with European legislation, and with high standards of financial control. This is to minimise risk to the EAGGF. We are also audited by Audit Scotland and by Scottish Executive auditors. These organisations produce formal reports on their findings.

• The Scottish Parliament votes the resources for administering the schemes, amounting to some 19m per annum. Scottish Ministers are accountable to the Parliament for the efficiency of CAP scheme administration as well as the other aspects of scheme performance listed above.

This report sets out our performance under three main themes. These stem directly from our vision and relate to the main interests of our key stakeholders:

• Customer service

• EU and financial control requirements

• Efficiency of scheme administration.

This is a time of radical change for CAP scheme administration. The European Council of Ministers have agreed a Reform package for 2005, which will supersede the existing main CAP schemes. This Report sets targets for the coming year when, in addition to delivering the current system, work is required for the introduction of the new arrangements.

Changes were made to some schemes in 2003. Key policy and process changes were:

5. EU and Finance Control Requirements

The EU regulations for the CAP schemes are detailed and rigid. We administer the schemes in accordance with these regulations. The regulations specify details such as the deadline for submission of claims, the opening date for making scheme payments and the percentage of payments we have to achieve by set dates. The EC specifies actions that we must undertake in our administration of claims. These include administrative checks and on-the-spot inspections of a percentage of claims.

We provide detailed information to the EC on our activities and on payments made. We are also subject to regular audit scrutiny, both from EU auditors and from domestic audit services. If we fail to meet EU requirements, we can be disallowed a percentage of scheme expenditure. This could potentially cost the UK taxpayer many millions of pounds.

Performance on EU and financial control requirements in 2003

• Financial payment targets: For CAP schemes, the EU requires us to pay 96% of valid scheme claims by set dates. Our performance was as follows:

• On farm inspections: We carried out inspections on a sample of all claims for Agri-environment, Afforestation, LFASS, AAA/AAPS, Bovine Schemes and SAPS. We met the 5% or 10% minimum inspection levels laid down by EU regulations. We sampled from more than 112,000 applications. By combining inspections, we carried out approximately 5,000 visits between 1 January 2003 and May 2004. The overlap into 2004 is an annual feature and occurs because bovine scheme retention periods fall into the subsequent calendar year.

• Recoveries: The EU requires that we recover any undue payments identified. These recoveries may relate to payments for various scheme year and figures refer to activities undertaken during the period 16 October 2002 to 15 October 2003, which is the EU's 2002/03 financial year.

Excluding interest for arable and livestock cases; including interest for agri-environment and afforestation.

• Reporting to the EC: We provide several statistical returns to the EC via the UK Co-ordinating Body. These report on claim volumes, and the results of administrative checks and inspections. We sent the AAA/AAPS 2003 annual return by the end of March 2004. For livestock, we sent an interim 2002 return by the end of August 2003, followed by a revised return by end December 2003 - this incorporated the result of the cross-checks exercise.

• Audit: Audit activity of the annual schemes is a regular feature and continued in 2003/04. Generally our procedures were found to be sound and action is underway to implement recommendations. Reports are outstanding on a number of EU and ECA audits which may have significant outcomes.

The audit of the 2003 Guarantee Accounts confirmed that we continued to meet all of the EU criteria for accreditation of CAP Paying Agencies. But our accounts were given a technical qualification due to the declaration of sums of overpayments yet to be recovered at the end of the accounting year. The declared sum (about 1.3m) is relatively small compared to the Department's spending on CAP Schemes. But the auditors found it to be materially mis-stated, with the actual sum outstanding probably significantly lower. We are investigating the reasons for the possible overstatement of sums yet to be recovered. We aim to correct the position in time for preparation of the 2004 Accounts.

• Disallowance: Disallowance of reimbursement of scheme expenditure is imposed by the EC when the EC regulations have been broken. Disallowance normally follows some years after the scheme year, following a formal audit and subsequent discussions. One formal notification of disallowance was made by the EC in 2003, a 2% disallowance on the bovine schemes 2000 due to failure to carry out cross-checks with CTS. There will be future disallowance due to our failure to meet the financial targets for the 2002 bovine schemes.

6. Customer Service

We aim to give a good service to Scottish farmers. Our service standards cover the provision of scheme information, customer relations and making payments promptly. We also offer an appeals service which offers a review of our decisions to ensure that they are consistent with EU regulations.

Customer service targets for payments are more demanding than the EC financial ones. For example, under SAPS the EC has set a six-month payment window but we aim to pay 90% of claims within two weeks of this window opening. We cannot pay all claims when the window opens because we need to make checks (such as mandatory scheme checks during the cattle retention periods) and resolve queries.

We met our target to publish an updated "Serving Scotland's Farmers". This set out our commitments to farms on standards of service. We wrote it to plain English standards and gained a Crystal Mark from the Plain English Campaign. We set customer service standards on aspects such as provision of information, politeness, promptness, appointments, privacy and openness. The payment targets identified both EC financial and internal customer service targets.

We exceeded our customer service payment standards for AAPS and LFASS. On SAPS, we narrowly missed our target due to a delay in introducing the payment program. The cattle scheme targets were not met due to the additional work arising from the "cross-check" requirements.

Communications. We made improvements generally to our scheme literature, and gained a Plain English Campaign "Crystal Mark" for the Serving Scotland's Farmer publication. We concentrated particularly on improving the language in the AAPS booklet.

Appeals. During the 2003 calendar year we received a large and steady volume of appeals and gave these careful consideration. Due to the high numbers received, we were unable to process these as quickly as we would like. We increased the appeals team in size to help address the backlog and are making good progress with this work.

* 1 of these was later withdrawn
~ 22 resolved due to legislative change - an EU relaxation on late notification of replacement animals for SCPS. 10 were resolved as a result of internal policy changes (BSPS - passport notification to BCMS acceptable), and LFASS cases logged as appeals but later found to require a policy response. The remainder were resolved by the Area Office or Scheme Manager.

Complaints. We reviewed our existing complaints procedure in light of current best practice. We prepared a guidance booklet for customers on the procedure and prepared guidance for our staff.

Common Business Change Form. In order to streamline our data and procedures, we have moved to a single set of holding and address information for use by both IACS and the agricultural census. This required new IT functionality, new procedures for allocation of holding numbers, a revised Business Change Form for farmers to notify changes, and data cleansing of existing data. The revision will make it simpler for farmers to notify us of changes and remove the need for temporary holding numbers. We issued the new change form in the AAA 2004 pack.

Overall customer satisfaction 2003. In 2002, we commissioned independent researchers to carry out a survey on how our customers view our service in administering grant and subsidy schemes. The researchers telephoned 1,000 Scottish farmers asking various questions about levels of satisfaction. We used this survey to benchmark satisfaction levels to help us with performance monitoring and target setting over time. In 2003 we repeated the survey. The results were very similar to the first survey and showed continuing high levels of satisfaction.

The survey determined our customer perceptions to be:

• Overall satisfaction was high - 93% of respondents were either satisfied or very satisfied with our administration. The mean overall score (out of 10) was 8.21. Customers with cattle tended to rate satisfaction lower than those without, reflecting the complexity of the cross-checking work.

• 19% felt that our overall service had improved since last year; 6% felt that it had deteriorated.

• A noteworthy feature was that all 9 service standards covered were assessed as very important and scored a mean importance mark over 9 (out of 10). The lowest ranked aspect was ease of contacting the appropriate person, while delivering payments ranked highest.

• Customers were most satisfied with our conduct of staff on inspections, accuracy of claim processing, and clarity of information provided verbally by staff. They were least satisfied with clarity of written information, ease of completing application forms and delivery of payments.

• Commonly provided explanations for any reasons for dissatisfaction included:

  • The application process and forms felt to be too long or complicated

  • Irregular, late or withheld payments

  • Too much paperwork (letters, forms, booklets)

• We have benchmarked our performance against another UK paying agency; we found that our customers were more demanding than theirs but also more satisfied.

Targets and priorities for 2004

2004 will be a challenging year. As well as meeting tough targets for the existing schemes, we need to develop the reformed CAP scheme for 1 January 2005. There will be some overlap since payments under the existing schemes will continue to mid-2005. Our targets are to continue with the same levels of performance on existing schemes as set out below. Our targets for introducing the new scheme have been discussed with external stakeholders, including farmer representative bodies.

* The target may be reviewed if there are substantial changes to LFASS 2005

7. Efficiency

We aim to deliver our services economically and efficiently. The CAP schemes cost us 19m to administer in 2003/04 an increase of 1.5% on the previous year. Our costs involve two main resources - people and IT.

We use around 545 staff to administer the Integrated Administration and Control System (IACS), agri-environment and afforestation schemes - this represents around half of the department's overall staffing. We are organised into three main groups:

• Scheme Management administrative staff - accounting for about 15% of the costs, including production of scheme forms and guidance booklets.

• Agricultural staff, including staff in 16 Area Offices throughout Scotland - accounting for about 55% of the costs.

• IT staff - accounting for around 25% of costs. This covers IT scheme support as well as developing our systems to meet the continually changing requirements.

Our average cost of administering the main CAP subsidies is 3p per of subsidy, and 10p per grant for agri-environment and afforestation schemes. Some of our schemes are more resource-intensive than others and the cost ranges from 1p to 11p per subsidy.

Our efficiency target for 2003/04 was to achieve an efficiency gain equivalent to 1% of scheme administration. We achieved this by a reorganisation in our IT division, which changed its team structure to meet a new business need to combine the data capture processes for bovine animals which resulted in fewer IT resources being needed.

On-line claims continued to increase, but at a slower rate than we would like. We received 5% of claims on-line for the 2003 AAA, SAPS and SCPS schemes, compared to 3% in 2002. The highest return was SCPS with 7% claiming on-line.

2004 will be a challenging year. We have allocated an additional 2m to meet the costs of developing the new scheme. Activity for the existing schemes will continue at the present levels. Managing the closedown of existing schemes will involve extra work, particularly IT, to meet audit and other requirements. Given this background, we have not set an efficiency target for this year.

8. Summary of targets for 2004

9. Main Risks to Delivering our Targets

We identified a number of main risks that may impact our ability to deliver our targets, and took steps to manage these during the year.

Prepared by: CAP Management Board

Date: July 2004