Directorate-general for agriculture and rural development

(4) Fuerza mayor en el sector del azúcar (Andalucía)

Organismo pagador	Línea presupuestaria	Tipo de corrección	Moneda	Importe corregido
Ejercicio financiero de 2007
ES01	050301010000002	Única	EUR	-107 390,07
Ejercicio financiero de 2008
ES01	050301010000003	Única	EUR	-136 846,50
Ejercicio financiero de 2009
ES01	050301010000005	Única	EUR	-157 667,86
TOTAL EUR				-401 904,43

TOTAL = - EUR 16.029.904,13

12.2.UNITED KINGDOM — England

Enquiry No	AA/2009/23
Mission dates	11-15/5/2009
Observation letter	Ares (2010) 5465 dated 6.1.2010
Reply Member State	CL/399 dated 9.4.2010
Invitation bilateral meeting	Ares (2010) 639694 dated 29.9.2010
Conclusions bilateral meeting	Ares(2010) 4970496 dated 20.12.2010
Reply Member State	Letter dated 18.3.2011
Conciliation letter	Ares(2012) 128136 dated 3.2.2012
Request for conciliation	N/A
Conciliation reference	N/A
Conciliation Body’s opinion	N/A
Final letter	N/A

12.2.1.Main findings

12.2.1.1.Weaknesses related to the LPIS-GIS

To be useful for the farmer when lodging his claim (cf. Art.12 of R.796/2004) and effective for the administration when performing the necessary checks to establish eligibility of areas claimed for aid (cf. Art.23, 24, 29 and 30 of R.796/2004), it is essential for the information in the LPIS-GIS (cf. Art.20 of R.1782/2003 / Art.17 of R.73/2009) to be accurate in terms of identifying the parcels and the eligible area and the boundaries of the reference parcels. This means (in principle) that reference parcels must be stable and that the information as regards their boundaries, the total area and the area of ineligible features must be correct and up-to-date. In particular, any land cover change involving non-agricultural, wooded, built-up or non-arable areas must be identified effectively and the LPIS-GIS updated.

Previous audits (cf. enquiries AA/2006/09 and AA/2007/14) revealed that the maximum eligible area in the LPIS-GIS is not always correct. It was found that the LPIS-GIS does not provide the correct maximum eligible area of the parcel (instead it provides the reference area based on the Ordnance Survey data) and that only following farmers’ requests or following SPS Land Eligibility inspections permanent boundary changes are updated within the LPIS-GIS. This was found not fully satisfactory in that it affects the quality of the cross- and on-the-spot checks.

The LPIS-GIS Data Refresh Project was carried out in 2008-2009. The updated data has been used for control purposes in claim year 2010, i.e. post audit.
Consequently, the issue of the LPIS-GIS not being accurate and up-to-date affects claim years 2007, 2008 and 2009.

Moreover, the audit established the following shortcomings in respect of the Refresh Project carried out.

The Refresh Project concerned ''permanent'' ineligible features based on the classification by the UK authorities.
DG AGRI is of the opinion that some of the features classified as ''temporary'' by the UK authorities are rather of a permanent character (like dense bracken, scrub or woodland preventing undergrowth, in cases where their presence is visible on the archive ortho-photo, for example) and thus should be excluded from the maximum eligible area in the LPIS-GIS. The procedure in place entails that, in cases where there has been no inspection or no notification of a change by the farmer, these types of features are not deducted from the area communicated to the farmer in the pre-populated application form and from the area claimed. Thus DG AGRI concludes that in these cases the area communicated to the farmer / the area claimed might be over-stated and payments might be affected.

In conclusion, the information on the maximum eligible area held in the system in place (RLR/ LPIS-GIS, RITA) remains deficient. This affects the information provided to the farmer (cf. Art.12 of R.796/2004) and inhibits the effectiveness of administrative cross-checks (cf. Art.24 of R.796/2004) and on-the-spot checks (cf. Art.29, 30 and 32 of R.796/2004).

Retro-active recovery of undue payments and over-establishment of entitlements

As to the Refresh Project revealing cases of over-payments of aid and cases of potential over-establishment of entitlements, the UK authorities have decided not to proceed to systematic retroactive recovery that would be required pursuant to Art.73 of R.796/2004.

12.2.1.2.Weaknesses related to the processing of aid applications and administrative (cross-) checks

Previous audits (cf. enquiries AA/2006/09 and AA/2007/14) revealed flaws in the general set-up and operation of the IT-system which rendered the administrative and control environment in place in England not to a standard that would ensure that the area based subsidies had satisfactorily been checked prior to payment and declaration to the Fund.

The UK authorities informed that as of claim year 2007 supervisory checks have been introduced. The checks consist of re-performing the administrative processing of aid applications and of the results of the administrative checks.

The supplied results of these checks on a sample of 794 claims for claim year 2008 show that errors without financial impact occurred in 6.04% of claims reviewed and errors with financial impact occurred in 1.89% of claims reviewed. In financial terms this represents 0.36% gross (positive and negative amounts) or 0.26% net (only negative amounts) of the total value of the sampled claims.
Moreover, the financial year 2010 Certifying Body's Report (concerning claim year 2009) contains findings related to erroneous claim processing that resulted in erroneous payments. Out of 230 claims reviewed, 17 over-payments were identified. Among the reasons were: failure to apply a penalty, failure to process a reduction following an inspection, payment greater than claim value, claim knowingly overpaid in order for the payment to be made, incorrect closure of a task, errors within entitlement values.

In light of the above, DG AGRI remains of the opinion that the quality of the IACS aid application database might not have been guaranteed by the system in place in claim years 2007, 2008 and 2009. In consequence, a proper system operation prior to payment, as required by Art.10(1) of R.796/2004 / Art.29(3) of R.73/2009, might not have been ensured.

12.2.1.3.Weaknesses related to the on-the-spot checks

Previous audits (cf. enquiries AA/2006/09 and AA/2007/14) showed that the on-the-spot checks carried out in England do not meet the requisites that would ensure the required standard of their performance.

The present audit revealed that the following weaknesses remain.

Since the areas recorded in the LPIS-GIS have not always been correct (cf. supra), their use for the deduction method leads to errors in the area determined. Cases were identified where the LPIS boundaries had been used (simply copied) even though they no longer corresponded to the field reality, despite the procedure in place. Moreover, ineligible areas have not always been correctly deducted.

The 21 parcels (out of the 73 visited during the audit) listed in the observation letter are examples of the above deficiencies where the difference established by the audit falls outside the tolerance. The cases raised by the audit concern mainly the remote sensing controls (out of the 21 parcels, 16 were subject to remote sensing controls and 5 to classical field visits).

The UK authorities disagreed with the audit observations on 4 of these 21 cases. They indicated that in 10 of the cases the impact on the area determined in the parcel is either minimal or zero.
However, the criticism relates to a general approach applied during the on-the-spot-checks, leading to over-estimation of area eligible for aid, which affects the total amount paid under the subsidy scheme.

These weaknesses also affect the correctness of the information in the LPIS-GIS used for cross-checks.

It was also established that areas found below the minimum parcel size were used for compensating over-declarations in other parcels. This is not in compliance with Art.14(4) of R.796/2004.

Thus, DG AGRI maintains its view that the on-the-spot checks have not been carried to the standards required by Art.23, 29, 30 and 32 of R.796/2004, in particular in case of remote sensing controls. This led to over-estimation of area eligible for payment.

12.2.1.4.Weaknesses related to payments and sanctions

1. Incorrect calculation of reductions and exclusions

Payments have been incorrectly calculated in result of non-use of the average value of entitlements (cf. Art.49(2) of R.796/2004) and application of sanctions in cases where the area determined exceeded the number of entitlements (cf. Art.50 of R.796/2004).

1. Exchange of on-the-spot checks results between 1^st and 2^nd pillar

The on-the-spot checks findings are taken into account for area determination under a pillar that was not subject to an on-the-spot check only when ineligible features classified by the UK as ''permanent'' are detected on the spot and introduced into the LPIS afterwards.
The UK authorities informed that SPS inspection results have indeed been applied to relevant LFA claims.
Thus, it remains that SPS inspection results have not been assessed on eligibility in the context of Agri-environment measures, in relation to both ''temporary'' and ''permanent'' features (to the extent to which they were not recorded in the LPIS-GIS in the years covered by the enquiry) (cf. Art.73 of R.796/2004).

1. Intentional non-compliance

The procedures in place in England for intentional over-declaration concern cases of over-declaration >20%. This implies that farmers with a lower level of over-declaration would not be investigated.
The official statistics indicate that in claim years 2007, 2008, 2009 there have been no farmers subject to intentional non-compliance sanctions.

DG AGRI thus concluded that the procedure in place to detect, evaluate and pursue cases of intentional non-compliance remains deficient and thus the sanctions under Art.53 of R.796/2004 have not been applied in all necessary cases.

12.2.2.Member State’s arguments

12.2.2.1.Weaknesses related to the LPIS-GIS

The UK authorities argued that, in the years concerned, for parcels where the area claimed in the current claim year exceeded the eligible area determined in the previous year, additional checks were undertaken to confirm the correctness of the area claimed. This compensatory control has been implemented for both ''permanent'' and ''temporary'', according to the UK classification, ineligible features identified.
This argument is accepted in respect of the ineligible features identified in the system. What remains is that in absence of farmer's notification or inspection ineligible features remain undetected and thus there is a risk.

Retro-active recovery of undue payments

The UK authorities analysed the potential risk to the Fund by comparing the SPS claims in a given claim year with the refreshed LPIS data. They have concluded that the maximum potential over-claim, and thus the risk to the Fund, is very low (cf. reply to IVB). They stated that, in view of the scale of the estimated risk, no systematic retrospective action is planned with regard to applicants who could be identified as overpaid in result of the Refresh Project. They quoted Art.32(6) of R.1290/2005 (''if there is justification for doing so, the Member State may decide not to pursue recovery […] if the costs already and likely to be incurred total more than the amount to be recovered'').

Over-establishment of entitlements

As regards the LPIS Refresh Project revealing cases of potential over-establishment of entitlements, the UK authorities are of the view that in light of Art.137 of R.73/2009 and Recital 49 (''taking into account the time that has elapsed […], the necessary correction would lead to disproportionate legal and administrative constraints''), it may no longer be possible to take action to recover over-allocations of entitlements, even if the potential over-establishment was investigated and established in reality. It is thus understood that no recovery is planned in this respect, except for the 35 cases identified as overpaid (cf. pt. 10.1).

12.2.2.2.Weaknesses related to the processing of aid applications and administrative (cross-)checks

The UK authorities believe that the supervisory checks are an effective tool to pro-actively improve the quality of claim processing and ensure correct payments. They informed that in claim year 2009 the net error in financial terms resulting from these checks was 0.063%, as compared to 0.26% in claim year 2008. They underlined that almost all of the identified over-payments had been related to entitlements corrections and had been detected prior to the completion of the supervisory checks. They consider that only one over-payment had actually been identified by a supervisory check, which reduces the error rate to almost zero.
The above results of the supervisory checks would suggest that the situation has improved in claim year 2009. However, the Certyfying Body's Report and the mission in 2011 still found problems in the claim processing that could affect payments, at least until claim year 2010 (cf. supra).

The UK authorities underlined that applications for the 2^nd pillar aid are processed separately.

12.2.2.3.Weaknesses related to the on-the-spot checks

The 21 parcels listed in the observation letter correspond to 11 on-the-spot checks, i.e. 9 remote sensing controls and 2 classical field visits. The UK authorities informed that, with regard to the 11 claims concerned, the impact of the differences established by the audit was either zero (in 6 claims) or minimal (from 0.08% in the claim subject to a classical field visit and from 0.09% to 0.47% in the 5 claims subject to remote sensing controls). Thus they believe that though there are some weaknesses in the on-the-spot checks, the risk to the Fund is low.

The UK authorities provided the figures on cases incorrectly used for off-setting: 18 cases in claim year 2007 corresponding to 0.45ha and €99; 8 cases in claim year 2008 corresponding to 0.38ha and €120; 8 cases in claim year 2009 corresponding to 0.33ha and €63 (cf. MIB).

12.2.2.4.Weaknesses related to payments and sanctions

1. Incorrect calculation of reductions and exclusions

The UK authorities informed that the majority of cases affected resulted in under-payments. The system functionality has been changed to enable compliance with the regulatory provisions on sanctions in case of claims that are processed through the entitlement corrective action, with effect for claim year 2008. They carried out sample checks on the 2008 and 2009 claims that were not subject to the entitlement corrective action, and thus represented the population at risk. The results showed that there is no risk to the Fund involved. On this basis they have concluded that in respect of claim year 2007 (i.e. prior to the introduction of changes to the system) the risk is very low.

1. Exchange of on-the-spot checks results between 1^st and 2^nd pillar

The UK authorities accepted that in the years covered by the enquiry, there is a risk to the Fund to the extent to which the LPIS-GIS did not capture ''permanent'' ineligible features, however this risk is low. As SPS inspection results have been applied to relevant LFA claims, any remaining risk is low.

12.2.3.Position of the Commission before conciliation

On the basis of the findings and considering all the explanations provided by the Member State, DG AGRI maintains that the weaknesses established generated a risk to the Fund. The weaknesses represent a failure in the functioning of key and ancillary controls.

The UK authorities accepted that there were some shortcomings in the operation of SPS in 2007, 2008 and 2009 in England and that a proportionate level of correction is to be expected. During the bilateral phase they provided an estimation of the maximum potential risk to the Fund: 17.53 MEUR for 2007, 15.23 MEUR for 2008 and 17.50 MEUR for 2009. This represents respectively 0.70%, 0.60% and 0.70% of the total claims values, according to the amounts provided by the UK authorities.

The UK authorities have concluded that the overall risk to the Fund is less than that identified in 2006 (cf. Decision 33 applying the following corrections: 5% flat rate for all area-based 1^st pillar subsidies for claim year 2005 and 2% flat rate for all area-based 1^st pillar subsidies for claim year 2006).

DG AGRI has considered the figures provided but is of the view that the calculation represents the following shortcomings.

With regard to the weaknesses related to the LPIS-GIS:

• 
  Since the updated LPIS-GIS maximum eligible area can be over-stated (cf. supra), the supplied estimations, based on the analysis of the impact of the LPIS-GIS Refresh Project on the payments made, cannot be considered fully representative of the risk to the Fund.
  
• 
  The error rate in terms of ''area not found'' by the on-the-spot checks in a random sample would give an indication of the risk in respect of ineligible features classified by the UK as both ''permanent'' and ''temporary''. However, as indicated in the bilateral meeting, DG AGRI considers that, apart from the error rate indicated above, the effect of sanctions pursuant to Art.51 and 53 of R.796/2004 needs to be considered. The provided estimations, based on the error rates resulting from the official statistics, do not include the effect of sanctions and thus cannot be considered fully representative of the risk to the Fund.
  Moreover, during its work to validate and verify the claim year 2009 IACS control statistics, the Certifying Body found that the Paying Agency had carried out no reconciliations of the underlying data (cf. the financial year 2010 Certifying Body's Report). This was also raised in the prior year report. In light of these findings, the statistics cannot be considered fully reliable. Consequently, the resulting error rates cannot be considered as allowing the evaluation of the risk.
  

With regard to the weaknesses related to the processing of aid applications and administrative (cross-) checks:

• 
  The results of the supervisory checks (basis for estimations provided) could be considered a starting point to assess the risk, as indicated in the bilateral meeting. However, given the deficient situation identified (cf. supra), these results cannot be considered an accurate assessment of overpayments resulting from the inherent weaknesses in the system.
  

With regard to the weaknesses related to the on-the-spot checks:

• 
  Since the criticism relates to a general approach applied during the on-the-spot-checks leading to over-estimation of area eligible for aid, the estimation based on the average error rate derived from the results of the audit field visits in 73 parcels cannot be deemed a valid representation of the risk.
  

Consequently, DG AGRI is of the opinion that in accordance with document VI/5330/97 the application of a flat-rate correction is the best method to quantify the risk. The following corrections are proposed:

For claim years 2007, 2008 and 2009:

4. 
   Weaknesses in the LPIS-GIS (pt. 1.1) affecting both the cross- and on-the-spot checks constitute a failure to operate a key control, for which a 5% flat rate correction is applicable which would also reflect the fact that the weaknesses have been identified in the previous claim years. Yet, taking into account the information provided by the UK authorities (estimation of the maximum potential risk), it can be concluded that most likely the risk would not be higher than 2%. Thus, a 2% correction is considered as more appropriately representing the risk to the Fund for 1^st pillar area-based subsidies and LFA.
   With regard to Agri-environment and Afforestation measures, in view of the recovery action launched / foreseen in result of the LPIS-GIS Refresh Project, and considering the arguments presented by the UK authorities (features not covered by the Refresh Project, those classified by the UK authorities as ''temporary'' having lower impact on the correctness of areas eligible for these measures), it can be concluded that the residual risk does not merit a financial correction.
   
5. 
   Weaknesses related to the processing of aid applications and administrative (cross-) checks (pt. 1.2) constitute a failure to operate a key control, for which a 5% flat rate correction is applicable which would also reflect the fact that the weaknesses have been identified in the previous claim years. Yet, taking into account the experience gained in the audit and the information supplied by the UK authorities in the course of the clearance procedure, it can be concluded that most likely the risk would not be higher than 2%. Consequently, a 2% correction is proposed for 1^st pillar area-based subsidies.
   
6. 
   Weaknesses related to the on-the-spot checks (pt. 1.3) constitute a failure to operate a key control, for which a 5% flat rate correction is applicable which would also reflect the fact that the weaknesses have been identified in the previous claim years. However, since the weaknesses established relate to the weaknesses in the LPIS-GIS, and in view of the arguments presented by the UK authorities (minimal impact of the findings at parcel level and at claim level), it can be concluded that the corresponding risk would be covered by the correction proposed for the weaknesses in the LPIS-GIS.
   
7. 
   Weaknesses related to payments and sanctions (pt. 1.4) constitute a failure to operate an ancillary control, for which a 2% flat rate correction is applicable. However, the following elements should be taken into account.
   With regard to the incorrect calculation of reductions and exclusions, the argument presented by the UK authorities (results of the sample checks showing that the risk is very low or zero) can be accepted.
   With regard to the exchange of on-the-spot checks results between 1^st and 2^nd pillar, in view of the information provided by the UK authorities (different eligibility rules concerning most of the features classified as ''temporary'' and some of the features classified as ''permanent'' for SPS and Agri-environment measures), in can be concluded that the risk to the Fund is rather insignificant.
   With regard to the deficient procedure on intentional non-compliance, in view of the remedial action taken, it can be concluded that any remaining risk of non-detection of intentionality is rather insignificant.
   Thus, it can be concluded that the residual risk does not merit a financial correction.
   

Considering that flat-rate corrections are not cumulative, overall a 2% correction is proposed for area-based 1^st pillar subsidies and LFA.

Correction proposed:

E.C. Budget Item	Type of Expenditure	Gross amount excluded EUR	Net amount excluded (Effective financial impact) EUR
FY 2008
050301010000003	Single Payment Scheme - R.1782/03, title III - calendar year 2007 - EU 15, MT, SI	-27.569.252,08	-15.630.934,44
050302250000004	Protein crops premium - R.1782/03, Art.76 - calendar year 2007 - EU 15, MT, SI	-88.831,14	-88.831,14
050302260000004	Area payments - nuts - R.1782/03, Art.83 - calendar year 2007	-107,76	-107,76
050302270000004	Aid - energy crops - R.1782/03, Art.88 - calendar year 2007 - EU 27	-99.998,30	-99.998,30
050405012121001	LFA	-182.344,81	-176.509.46
050405012122001	LFA	-173.327,43	-162.982,20
FY 2009
050301010000003	Single Payment Scheme - R.1782/03, title III - calendar year 2007 - EU15, MT, SI	+8.948,87	+8.948,87
050301010000005	Single Payment Scheme - R.1782/03, title III - calendar year 2008 - EU 15, MT, SI	-41.118.474,62	-41.118.474,62
050302250000004	Protein crops premium - R.1782/03, Art.76 - calendar year 2007 - EU 15, MT, SI	-105,06	-105,06
050302250000005	Protein crops premium - R.1782/03, Art.76 - calendar year 2008 - EU 15, MT, SI	-107.458,53	-107.458,53
050302260000004	Area payments - nuts - R.1782/03, Art.83 - calendar year 2007	0,00	0,00
050302260000005	Area payments - nuts - R.1782/03, Art.83 - calendar year 2008	-162,00	-162,00
050302270000004	Aid - energy crops - R.1782/03, Art.88 - calendar year 2007 - EU 27	-327,05	-327,05
050302270000005	Aid - energy crops - R.1782/03, Art.88 - calendar year 2008 - EU 27	-31.267,35	-31.267,35
050405012121001	LFA	-293.546,41	-293.546,41
050405012122001	LFA	+5.423,88	+5.423,88
FY 2010
050301010000003	Single Payment Scheme - R.1782/03, title III - calendar year 2007 - EU15, MT, SI	-153.059,95	-153.059,95
050301010000005	Single Payment Scheme - R.1782/03, title III - calendar year 2008 - EU 15, MT, SI	-59.135,92	-59.135,92
050301010000011	Single Payment Scheme - payments < 5.000 € - 14% modulation - R.73/09, title III - calendar year 2009 - England, UK	-8.185.554,73	8.185.554,73
050301010000012	Single Payment Scheme - payments > 5.000 € - 19% modulation - R.73/09, title III - calendar year 2009 - England, UK	-33.092.998,42	-33.092.998,42
050302250000004	Protein crops premium - R.1782/03, Art.76 - calendar year 2007 - EU 15, MT, SI	-164,62	-164,62
050302250000005	Protein crops premium - R.1782/03, Art.76 - calendar year 2008 - EU 15, MT, SI	-1.399,73	-1.399,73
050302250000010	Protein crops premium - payments < 5.000 € - 14% modulation - R.73/09, Art.79 - calendar year 2009 - England, UK	-24.210,97	-24.210,97
050302250000011	Protein crops premium - payments > 5.000 € - 19% modulation - R.73/09, Art.79 - calendar year 2009 - England, UK	-148.808,80	-148.808,80
050302260000004	Area payments - nuts - R.1782/03, Art.83 - calendar year 2007	+2,79	+2,79
050302260000005	Area payments - nuts - R.1782/03, Art.83 - calendar year 2008	-0,00	0,00
050302260000010	Area payments - nuts - payments < 5.000 € - 14% modulation - R.73/09, Art.82 - calendar year 2009 - England, UK	-116,66	-116,66
050302260000011	Area payments - nuts - payments > 5.000 € - 19% modulation - R.73/09, Art.82 - calendar year 2009 - England, UK	-65,25	-65,25
050302270000004	Aid - energy crops - R.1782/03, Art.88 - calendar year 2007 - EU 27	-162,98	-162,98
050302270000005	Aid - energy crops - R.1782/03, Art.88 - calendar year 2008 - EU 27	-2.123,22	-2.123,22
050302270000010	Aid - energy crops - payments < 5.000 € - 14% modulation - R.73/09, Art.88 - calendar year 2009 - England, UK	-6.637,37	-6.637,37
050302270000011	Aid - energy crops - payments > 5.000 € - 19% modulation - R.73/09, Art.88 - calendar year 2009 - England, UK	-54.099,87	-54.099,87
050405012121001	LFA	-293.852,81	0
050405012122001	LFA	-4.909,18	-4.909,18
Total		-111. 678.127,48	-99.429.776,45

As for claim year 2007, the correction applies to the expenditure incurred as of 07/01/2008 (cf. the communication pursuant to Art.11(1) of R.885/2006 dated 06/01/2010).

To avoid any double corrections, DG AGRI took into account the impact of the financial corrections applied on the same expenditure under enquiries DPU 2007/008, XC/2008/002/GB and RDG/2008/06. However, if the financial corrections decided by the Commission under enquiries DPU 2007/008, XC/2008/002/GB and/or RDG/2008/06 are annulled in part or in full by the European Court of Justice, the financial correction proposed under the present enquiry will be executed at a later stage also for these annulled amounts.

DG AGRI will ensure that the impact of any financial corrections applied on the same expenditure under enquiry NAC/2010/04 will be taken into account in the financial correction to be applied under the present enquiry.

Any amounts recovered from the farmers after the date of this letter, in connection to the deficiencies for which the present financial correction is proposed, can be credited to the national budget.

12.2.4.Opinion of the Conciliation Body

The UK authorities did not refer the matter to the Conciliation Body.

12.2.5.Final Commission position

Not applicable.