The Sheep Annual Premium Scheme

A report published today by John Dowdall, the Comptroller and Auditor General for Northern Ireland, examines the Sheep Annual Premium Scheme, run by the Department of Agriculture and Rural Development. Between 1995 and 2002, some £170 million was paid under the Scheme in Northern Ireland. The Audit Office assessed the quality of the Department's 'on-farm' inspection programme, the adequacy of payments controls and the extent of penalties, fraud and subsequent prosecution.

The Scheme is a European Union support mechanism for sheep producers, who receive a 'headage' payment for eligible sheep. Farmers are required to keep the animals on notified land for a period of 100 days after the claim application deadline - the retention period - which runs from early January to April. During retention, the Department carries out a sample of on-farm inspections to verify the numbers of sheep claimed, that proper records are kept and that sheep are on notified locations and are properly marked. In the course of the review, Audit Office staff accompanied inspectors on 26 farm visits.

The Audit Office report highlights a number of areas in which the Department's procedures could be improved and makes recommendations for strengthening the on-farm inspections programme, the enforcement of EU requirements on flock records and markings and the handling of suspected fraud cases. The report notes that the outbreak of Foot and Mouth Disease, in 2001, raised a number of issues which proved very relevant to this study.

Main Findings

On-Farm Inspections (Part 2 of the Report)

The Department's policy is to carry out unannounced SAPS inspections - it sees this as the most effective way of combating fraud. However, the Audit Office considers that there are certain circumstances - such as where the terrain is particularly difficult or where an inspector is not familiar with the area - where the Department might usefully consider giving limited notice of an inspection visit, so that the farmer can assist the inspector, in the interests of efficiency and accuracy. By limiting the notice given, the scope for a fraudulent farmer to cover up a shortfall should be minimised (paragraphs 2.6 to 2.11).

Flock records and flock markings are key controls in the identification and verification of claimants' sheep, required by the EU. However, the Audit Office noted a number of instances of poor marking of sheep and unsatisfactory standards of flock records. The report urges the Department to take all necessary steps to encourage farmers to fully comply with record-keeping requirements and, where necessary, train farmers in the proper completion and maintenance of registers. The Department accepted that there had been lapses in enforcement of record-keeping requirements and said it will ensure that this is remedied forthwith (2.16 to 2.28).

The Department commented that it does not regard flock markings as a key control. The Audit Office found this "surprising" and considered that the Department should set up and enforce a system of registered flock markings whereby, within pre-determined districts, each flock has a distinctive and unique flock mark. This could considerably aid the efficiency and accuracy of identifying and counting sheep and act as a counter to potential fraud - the scope to cover up a shortfall in numbers by "borrowing" sheep for an inspection would be very much reduced (2.29).

The level of discrepancies (poor flock records and markings, sheep at unnotified locations and unreported sheep losses) identified during the 26 farm visits on which the Audit Office accompanied the Department's inspectors significantly exceeded those recorded in a separate sample of 180 Departmental inspection reports examined by the Audit Office. The variation raises a concern as to the extent to which final inspection reports may not be reflecting the actual position on the ground. The Department said that the variation was because its practice had been to record issues in an inspection report only where they were judged likely to lead to the imposition of a penalty. However, it told the Audit Office that, in the interests of greater transparency, it will revise its practice to record all discrepancies (2.31 and 2.32).

During the cull of animals in the South Armagh and Cushendall areas, following the outbreak of Foot and Mouth Disease, significant discrepancies were found in relation to the claims for premium by a number of farmers in these areas. Of the 206 applications submitted, 108 (52 per cent) had shortfalls between the number of sheep claimed and those counted during the cull. The Department subsequently revised its figures, reducing the shortfall cases to 80 (39 per cent of applications), with the discrepancy in sheep numbers dropping to 2,900 (9 per cent of sheep claimed). The Department considers, therefore, that over 90 per cent of the sheep for which premium was claimed in the cull areas was accounted for. However, the report notes that, in the revised cases, the records compiled by the Department were insufficient to enable the discrepancies between claims and sheep found at the time of the cull to be substantiated. The numbers of sheep recorded by the Department during the cull had not been confirmed in writing with the applicants, nor was there a cross-check against Scheme claims at the time of the cull (2.38 to 2.43).

While the findings in the cull areas may not be typical of Northern Ireland as a whole, the contrast in these areas between the numbers of sheep claimed and the numbers culled is striking. This raises a question as to whether the results of the normal inspection procedures accurately reflect the actual levels of error and fraud present. The report urges the Department to re-evaluate its approach to the checking of claims. The Department told the Audit Office that procedures were reviewed for 2002 and a number of changes adopted (2.47 and 2.48).

On Penalties, Frauds and Prosecutions (Part 4)

The report recommends that the Department sets up a system of graduated penalties, for owners who fail to keep proper flock records and maintain flock markings. The Audit Office also considers that the Department's enforcement of proper flock records and markings should not be confined solely to the retention period - maintenance of proper systems throughout the year will provide added assurance to that gained at inspection and will facilitate cross-checking on sheep movements throughout the year (paragraphs 4.8 to 4.11).

In the three years prior to 2000, 16 cases of suspected fraud were referred to the Department's Fraud Investigation Unit for investigation. In three of the cases, no further action could be taken because the cases had become statute barred. The main delay occurred in the time taken to refer each case to the Unit. The report urges the Department to take the necessary steps to ensure that all staff are made aware of, and properly enforce, the requirement to report suspected cases of fraud or irregularity on a timely basis (4.17 to 4.19).

Only one of the 16 cases referred to FIU resulted in a successful prosecution. In most of the remaining cases, the Department felt that there was insufficient evidence to proceed with a prosecution. The report urges the Department to review its criteria for pursuing prosecutions in order to ensure that every realistic opportunity to prosecute a fraudulent claimant is pursued. The Audit Office considers that this would be in keeping with the Department's stated policy of zero tolerance to fraud (4.26 to 4.30).

The Department accepted that there was a need to strengthen procedures to obtain a consistent approach and to increase the possibility of successful prosecutions of suspected cases of fraud. It said that some improvements had recently been put in place, including time targets for the submission of inspection reports and their despatch to payments division. It also said that an Anti-fraud Forum has been established and that it will consider establishing clear guidelines and procedures for matters such as checks and fraud referrals (4.23 to 4.25).

Due to limitations in the legislation, the Department was unable to secure prosecutions in relation to the Foot and Mouth cull cases where discrepancies were identified in claims. The report notes that the Department has now taken steps to strengthen the relevant legislation (4.31 and 4.32).