Directorate-general for agriculture and rural development

17.8.United Kingdom — England — Natural Handicaps and Agri-environment under the Rural Development Plan 2007-2013 (EAFRD)

Enquiry No: RDG/2008/006/GB

Legislation: Council Regulation (EC) No 1698/2005 and Commission Regulations (EC) No 1974/2006 and No 1975/2006

Date of mission: 16-20 June 2008

Observation letter: Ares(01773) dated 26.1.2009

Member State’s reply: CL/401 dated 26.3.2009

Invitation to bilateral meeting: Ares(231959) dated 19.08.2009

Member State’s reply to invitation: CL/401 dated 17.09.2009

Bilateral meeting: 01 October 2009

Minutes of bilateral meeting: Ares(45457) dated 28.01.2010

Reply to minutes of bilateral meeting: CL/401 dated 30.06.2010

Conciliation letter: Ares(412645) dated 13.04.2011

Request for conciliation: CL/401 dated 27.05.2011

Conciliation reference: 11/UK/487

Your letter to the Conciliation Body Ares(692603) dated 28.06.2011

Conciliation Body’s opinion: Ares(1066411) dated 06.10.2011

Final letter: Ares(336562) dated 22.03.2012

17.8.1.Main findings

Verifiability of AEM commitments in the 2007-2013 programming period (AEM)

It was found that the control systems for the verifiability of the AEM commitments should be improved in UK. The UK Authorities were invited to present the procedure manual for the inspectors on the verifiability of AEM commitments for the campaign year 2008.

During the bilateral meeting, the English Authorities insisted on the fact that actual improvements on verifiability and controllability of the AEM commitments were already in place in 2008. The improvements as from 2009 were focused on the recording of the verification by the inspector in order to demonstrate that the checks were carried out appropriately.

As from 2009, control reports and instructions confirm that controls and the recording of the controls are in line with the recommendation. However, in the view of DG AGRI, there was a lack of traceability of controls carried out on the spot for the campaign year 2008. This concerns the quality of an ancillary control and therefore a 2% flat-rate correction is justified on the expenditure declared in relation to the 2008 claims under the AEM scheme (AEM new schemes).

On-the-spot checks – timing of the visit (AEM)

The English authorities were requested to ensure that the verifiability of all the commitments the beneficiaries entered into was assessed during the on-the-spot controls. They were invited to provide the documentation which reflects the changes in the procedure during the bilateral meeting giving assurance that the best period to assess on the spot the respect of most commitments was taken into account.

During the meeting, the UK authorities provided statistics of 2009's inspections. They identified roughly 10% (114 cases) of AEM beneficiaries having options that needed a second inspection visit in order to verify all AEM commitments. In addition, 10% of those 114 cases were selected for a follow up visit using a risk based approach. Similar percentage was communicated for the campaign year 2008. However, no second inspection took place for that campaign year.

DG AGRI welcomed the process of monitoring and foreseeing a second inspection visit. On the basis of above, DG AGRI considered that for the claim year 2008 there is not sufficient guarantee that the on-the-spot controls were carried out within the required optimal timeframe weakening by that the quality of the controls. The scope of the controls was not fully compliant with Article 14(2) of Regulation 1975/2006. Deficiencies in the quality of a key control would imply a 5% flat-rate correction to the expenses concerned by this deficiency (i.e. 5%*10% of AEM expenses for the FY 2008 & 2009). The correction would amount in total to 98.583 eur. However due to the fact that a 5% correction is calculated on other weaknesses, the details of the calculation is not shown.

Payments claims / Payments in advance (AEM)

The English authorities were reminded to respect the date of 15 of May as deadline for the submission of payments claims as stated in Article 11 § 2 of Regulation (EU) 796/2004 to which Article 8 of Commission Regulation (EU) 1975/2006 refers to.

They were also asked to respect the provisions of Article 9 § 1 of Commission Regulation (EC) 1975/2006 related to the new programming period 2007-2013, which states that "No payment for any measure or set of operations falling within the scope of this Title shall be made before the checks of this measure or set of operations with regard to eligibility criteria, as referred to in Section I of Chapter II, have been finalised. However, Member States may decide, taking into account the risk of overpayment, to pay up to 75 % of the aid after finalisation of the administrative checks provided for in Article 11. The percentage of payment shall be the same for all beneficiaries of the measure or set of operations".

The English authorities explained that the existing scheme procedure which has been in place since the start of the Environmental Stewardship (in 2005) is compliant with the new controls legislation introduced for the 2007-2013 programme. The UK authorities considered that the deterrent effect of their controls is maintained by ensuring that from the pool of applications signed each month at least a 5% sample is inspected and no payment at the 12 month period is made to any members in that pool until all the inspections relating to that sample have begun.

DG AGRI maintained its position and considered that the payments have to be treated in coherence with the IACS system, i.e. they have to be received once a year before 15^th of May (Article 8 of Regulation 1975/2006) and not any time of the year in order to be in conformity with the IACS requirements, and to get an efficient control system. Moreover, no full payment can be executed before all the checks related to agri-environment have been finalised (Article 9 of Regulation 1975/2006). This concerns the quality of a key control and therefore a 5% flat-rate correction is justified on the expenditure declared in relation to the financial years 2008 and 2009 (AEM new contracts under the programming period 2007-2013).

On-the spot checks - control report (AEM and NH)

The English Authorities were required to better document the checks carried out in the control report and particularly regarding the counting of the animals.

The English Authorities have provided documentation showing that where a check on animals needs to be carried out proving that the agreement holder has met required stocking prescriptions, the inspection map will be annotated with the numbers and type of animals counted by the inspector. This will be attached to the control report. This is being introduced for the 2009 inspection programme.

DG AGRI welcomed the corrective action taken as from 2009 however maintained their position that in 2008 the scope of the controls was not fully compliant with Article 14(2) of Regulation 1975/2006. As concerns the check on livestock DG AGRI maintained its position that the number of livestock has to be counted/assessed (mostly by individual counting or at least by plausibility check) during on-the-spot check and the result documented in the control reports in order to provide assurance that the registers (on which the administrative checks are founded) are reliable. Due to the lack of traceability, it is proposed to apply 2% flat-rate correction on the expenditure declared in relation to the applications/claims of 2008 for both measures. As regard the AEM measures, the correction is applicable to agreements made under the old programming period.

17.8.2.Opinion of the Conciliation Body

For the scope of the payment claims/payment in advance, the Body is not competent with regard to the dispute concerning the interpretation of the relevant legal provisions. Nevertheless, it notes that the services' interpretation - which had been advanced in the course of the bilateral procedure - did not become clear beyond doubt before the minutes of the bilateral meeting were issued early in 2010. This raises the question whether the UK authorities were not until that moment excused in relation to their alternative interpretation and application of the relevant provisions. The Body invites the Commission's services to examine this point and to evaluate whether it might influence the proposal for a correction.

A proposal for a 5% flat rate correction is appropriate if a key control is applied in such a way that it does not provide sufficient assurance as to the regularity of the claim and that there is, therefore, a significant risk to the Fund. The Member State may demonstrate that the risk is lower or non-existent. The Body does not see the significant financial risk for the Fund arising from the English practice applied in the years concerned. It appears from the file presented to the Body that the only risk indicated by the Commission's service until their hearing is the risk of dual claims. According to the UK authorities, applications and claims are crosschecked against other claims and against previous SPS claims. These checks occur far more than only once a year and provide every time a complete up-to-date situation. Under this system dual claims for the same parcel of land are detected and dealt with. If a payment has been made before the detection of an anomaly due to a more recent application, recovery is undertaken. The Body is inclined to agree that the English system has all the necessary elements for providing sufficient assurance regarding the regularity of the individual application/claim. The Body therefore doubts whether the system actually leads to a risk for the Fund justifying a 5% flat rate correction and it invites the services to reconsider their appreciation of the risk to the Fund.

17.8.3.Final position of the Commission services

In its report, the Conciliation body was inclined to agree that the English system had all the necessary elements for providing sufficient assurance regarding the regularity of the individual application/claim. The Body doubted whether the system actually led to a risk for the Fund justifying a 5% flat rate correction, and it has invited DG AGRI to reconsider their appreciation of the risk to the Fund.

DG AGRI has considered, on the basis of the fact that the English authorities changed their system and that the non respect of two articles of the Regulation 1975/2006 had not generated a high level of irregularities, to reduce the correction for this issue from 5% to 2%.

As a consequence of above, DG AGRI in respect of this issue proposed a financial correction of 2% for AEM new schemes for the claim years 2007 and 2008.

The following total amounts of corrections have been determined:

Paying agency	Budget line	Correction type	Currency	Correction Gross amount	Correction Net amount (Effective financial impact)
Financial year 2008
GB09	050405012121001	2,00%	EUR	-354.553,69	-354.553,69
GB09	050405012122001	2,00%	EUR	-10.157,03	-10.157,03
GB09	050405012141001	2,00%	EUR	-1.949.114,39	-1.937.593,29
GB09	050405012142001	2,00%	EUR	-50.604,49	-50.603,74
GB09	050405012144001	2,00%	EUR	-871.525,52	-865.396,92
Financial year 2009
GB09	050405012144001	2,00%	EUR	-1.117.396,52	-1.112.568,36
	TOTAL			-4.353.351,64	-4.330.873,03

17.8.4.Co-ordination with other enquiries (deduction of previous corrections)

DG AGRI carried out an audit in UK into cross compliance in 2008 (XC/2008/02/UK). That audit also covered rural development area based measures such as NH and AEM, for which a flat rate correction was applied by DG AGRI.

The financial correction applied by DG AGRI already covers the financial correction above to be applied in the claim years 2007 and 2008, therefore, it was deducted from the 2% flat rate calculated.

There was a correction of € 1.123.931 for Rural Development measures covered by this present audit for the claim years 2007 and 2008.

However, in case the financial correction decided by the Commission in respect of the enquiry XC/2008/02/UK is subsequently partly or totally annulled by the Court of Justice of the EU, the part of the financial correction relating to the enquiry RD2/2008/06/UK, which was reduced as explained in the preceding paragraph, will be applied.