Directorate-general for agriculture and rural development

12.4.UNITED KINGDOM — Scotland

Enquiry No	AA/2009/025
Mission dates	3 – 7.8.2009
Observation letter	Ares (2009) 227033 dated 7.9.2009
Reply Member State	CL/399 dated 10.11.2009
Invitation bilateral meeting	Ares (2010) 144630 dated 18.3.2010
Conclusions bilateral meeting	Ares(2010) 405470 dated 8.7.2010
Reply Member State	Letter dated 4.10.2010
Conciliation letter	Ares(2012) 50407 dated 17.1.2012
Request for conciliation	N/A
Conciliation reference	N/A
Conciliation Body’s opinion	N/A
Final letter	N/A

12.4.1.Main findings

12.4.1.1.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, Art.24, Art.29 and Art.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.

The system in Scotland comprises the LPIS-GIS and a database on ineligible areas (Maintain Ineligibility and Classification - MIC) with the information on ineligible area within the reference parcel coming from an inspection or a farmer's notification.

The following deficiencies have been noted in this respect.

The information contained in the Ordinance Survey or visible on the ortho-imagery (in 2008 available for approx. 85% of Scotland) is not systematically used to update the maximum eligible area held in the system in place.

The audit found cases of ineligible features such as roads and houses not being excluded in the LPIS-GIS / MIC until the on-the-spot check took place, though the information has been contained in the Ordinance Survey. In addition to these features, other ineligible areas visible on the available ortho-imagery had not been excluded. Moreover, in all of the cases raised by the audit, the farmers failed to notify the changes as required under Art.12 of R.796/2004.
The ortho-imagery from 2003-2009 has been used as of 2009 in updating the LPIS on an ad-hoc basis only (e.g. upon farmers' notifications), and in inspections.

In consequence, the maximum eligible area recorded in the LPIS-GIS / MIC is not always correct. This affects the quality of the administrative and on-the-spot checks to establish the eligibility of areas claimed for aid (cf. Art.24 and Art.30 of R.796/2004).

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

The audit showed that the on-the-spot checks in Scotland have not been carried out to the standards required by Art.23, Art.29 and Art.30 of R.796/2004.

Deficient quality of the on-the-spot checks

The re-performances of the on-the-spot checks in the Oban region resulted in material differences with the initial measurement in 8 out of the 30 parcels that were subject to area determination by the audit. The majority of the differences is linked to non-exclusion of ineligible land such as bracken, bushes and areas with trees – types of areas for which the authorities have defined clear rules as to when these are ineligible - cf. Art.2(1), Art.2(2) and Art.2(2a) of R.796/2004.

The issue was already communicated to the authorities in the observation letter AGRI 9772 dated 22.4.2008 drafted in the context of enquiry AA/2007/15.
The deficiencies noted also affect the level of control at farmer level. As only 50% of parcels are measured (cf. Art.29 of R.796/2004) in so far that the difference found is <3%, these "extra differences" if detected by the on-the-spot checks could have led to all parcels being inspected.

Incorrect use of tolerances

The applied approach on tolerances has been found non-compliant with Art.30 of R.796/2004 as detailed further in the JRC guidelines, i.e.:

• 
  Up to claim year 2008, in cases where the measured area was larger than the area claimed, the measured area was systematically retained as the area determined, even if the difference fell within the tolerance;
  
• 
  A 2% tolerance is systematically applied, instead of a perimeter based tolerance.
  

Non-use of differences found to non-controlled parcels

When a sample check of 50% of the parcels claimed reveals a difference in area up to 3%, the difference is not extrapolated to the remaining parcels. For these parcels, the area claimed is accepted.

DG AGRI is of the view that this approach is incorrect in so far that if a difference is found the sample is not extended as required per Art.26(4) of R.796/2004.

12.4.1.3.Weaknesses related to payments and sanctions

Intentional non-compliance

A procedure to evaluate if an over-declaration is made intentionally has been implemented only in 2009. However, no cases have been identified in relation to claim year 2009. Consequently, sanctions provided for under Art.53 of R.796/2004 are not applied in the years covered by the enquiry.

No retro-active recovery of undue payments

To ensure compliance with Art.73 of R.796/2004, when the on-the-spot check reveals differences with areas declared resulting from clearly ineligible areas that were present in earlier years, it is necessary that there is a check if the same areas were declared in previous years. In Scotland, such a check did not exist until 2009.

Following the audit, the authorities have analysed the 2008 and 2009 on-the-spot check cases with regard to possible over-payments in claim years 2006-2008. In total, 270 cases have been identified covering 245,360 euros (cases of <100 euros are not included).

12.4.1.4.Other weaknesses

The 2008 statistics on SPS (cf. Art.76 of R.796/2004) did not reconcile with the details provided.

12.4.2.Member State’s arguments

The Member State generally agreed with the findings.

With regard to the weaknesses in the on-the-spot checks, the authorities argued that impenetrable bracken and scrub is restricted mainly to the extensively grazed upland and hill areas, especially in the mid-West and North of the country. Therefore they consider that the non-exclusion of ineligible land is a local issue in the Oban region and the North of the country.

12.4.3.Position of the Commission before conciliation

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

In accordance with document VI/5330/97, and to avoid the application of a flat correction, the authorities developed a risk calculation to allow an evaluation of the risk to the Fund caused by the weaknesses noted above.

Taking into account the risk assessment provided by the Member State, the following financial correction is proposed for the weaknesses related to the LPIS-GIS, the weaknesses related to the on-the-spot checks and the weaknesses related to payments and sanctions.

With regard to SPS:

In accordance with document VI/5330/97, DG AGRI is of the view that for these deficiencies the application of a one-off correction is the best way to asses the risk to the Fund, taking into account that the estimated amount of irregular payments provided by the UK authorities for SPS in claim year 2009, and thus the amount of financial losses suffered by the Community, can be reasonably determined.

With regard to SPS in claim year 2009, the UK authorities estimated the risk at 10.419.526,88 GBP, i.e. 11.538.789,46 EUR.
DG AGRI is of the opinion that this risk estimation can be accepted.

With regard to SPS in claim years 2007-2008, no risk estimation has been provided by the UK. The authorities stated that the risk is likely to be similar to that calculated for claim year 2009 (the rate resulting from the authorities' calculation for SPS in claim year 2009 is 2.05% of the total expenditure).

DG AGRI is of the opinion that, since no major improvements were made to the system in years 2007-2009, there is no indication that the situation would be substantially worse in claim years 2007 and 2008 in comparison to that in claim year 2009. Therefore, DG AGRI considers that applying the rate resulting from the authorities' calculation for SPS in claim year 2009, i.e. 2.05%, is the best way to assess the risk in claim years 2007 and 2008.

In absence of details provided by the UK, all corrections for SPS claim year 2009 are booked under the budget post 050301010000019 for financial year 2010.

With regard to 2^nd pillar:

With regard to 2^nd pillar area based measures, no risk estimation has been provided by the UK. The authorities consider that the risk would be equal to the extent of area potentially over-claimed for SPS in claim year 2009 over the total of 4.59 mln ha declared. The data provided show that this would be 1.94%.

DG AGRI is of the opinion that some of the over-statements of areas do not necessarily lead to over-payments in SPS due to a limited number of entitlements available to the farmers, while such a limitation is not present in 2^nd pillar schemes. Therefore, the rate resulting from the authorities' estimation of area over-claimed in SPS over the total area declared cannot be considered valid for the purpose of risk estimation. Moreover, this rate does not include the effect of sanctions.
Consequently, DG AGRI considers that the application of a flat rate correction is the best way to assess the risk. In accordance with Document VI/5330/97, a correction of 5% on the expenditure for area-based rural development measures is justified for a failure to operate a "key" control.

The correction has been applied to the amounts of expenditure as in the annual declarations for financial years 2008, 2009 and 2010, irrespective of the dates of the payment applications made by farmers. The reason for this is that the reconciliation between the x-table data and the annual declaration data renders important differences for financial year 2008, therefore the x-table data cannot be deemed reliable for the purpose of calculating the correction.

Correction:

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	-11.874.798,65	-11.863.541,56
050405012121003	LFA other than mountain areas (Non-Convergence Regions)	-387.607,55	-387.607,55
050405012122003	LFA other than mountain areas (Convergence Regions)	-279.056,60	-279.056,60
050405012124003	LFA other than mountain areas (Voluntary Modulation for UK)	-586.491,05	-586.491,05
050405012141003	Agri-environmental payments (Non-Convergence Regions)	-163.104,30	-163.104,30
050405012142003	Agri-environmental payments (Convergence Regions)	-243.549,90	-243.549,90
050405012211003	First afforestation of agricultural land (Non-Convergence Regions)	-286.706,65	-286.706,65
050405012212003	First afforestation of agricultural land (Convergence Regions)	-79.668,45	-79.668,45
050405012231003	First afforestation of non agricultural land (Non-Convergence Regions)	-172.864,75	-17.2864,75
050405012232003	First afforestation of non agricultural land (Convergence Regions)	-12,65	-12,65
FY 2009
050301010000003	Single Payment Scheme – R.1782/03, title III – calendar year 2007 – EU15, MT, SI	-16.026,11	-16.026,11
050301010000005	Single Payment Scheme - R.1782/03, title III - calendar year 2008 - EU 15, MT, SI	-11.495.561,17	-11.489.055,40
050405012121003	Payments to farmers in areas with handicaps,other than mountain areas	-442.492,55	-442.492,55
050405012122003	Payments to farmers in areas with handicaps,other than mountain areas	-318.409,80	-318.409,80
050405012124003	Payments to farmers in areas with handicaps,other than mountain areas	-996,35	-996,35
050405012141003	Agri-environmental payments	-89.913,75	-89.913,75
050405012142003	Agri-environmental payments	-55.035,15	-55.035,15
050405012211003	First afforestation of agricultural land (Non-Convergence Regions)	-74.800,25	-74.800,25
050405012212003	First afforestation of agricultural land (Convergence Regions)	-30.620,55	-30.620,55
050405012231003	First afforestation of non agricultural land (Non-Convergence Regions)	-15.838,70	-15.838,70
050405012232003	First afforestation of non agricultural land (Convergence Regions)	-5.244,55	-5.244,55
050405012234003	First afforestation of non agricultural land	-7.696,05	-7.696,05
FY 2010
050301010000003	Single Payment Scheme – R.1782/03, title III – calendar year 2007 – EU15, MT, SI	-2.838,25	-2.838,25
050301010000005	Single Payment Scheme – R.1782/03, title III – calendar year 2008 – EU15, MT, SI	-6.941,97	-6.941,97
050301010000019	Single Payment Scheme - payments > 5.000 € - 13,5% modulation - R.73/09, title III - calendar year 2009 - Scotland, UK	-11.538.789,46	-11.538.789,46
050405012121001	Payments to farmers in areas with handicaps	-715,95	-715,95
050405012122001	Payments to farmers in areas with handicaps	-292,96	-292,96
050405012124001	Payments to farmers in areas with handicaps	-1.775.787,08	-1.775.787,08
050405012141001	Agri-environmental payments	-239.514,43	-239.514,43
050405012142001	Agri-environmental payments	-151.429,58	-151.429,58
050405012144001	Agri-environmental payments	-36.161,33	-36.161,33
050405012146001	Agri-environmental payments	-71.444,30	-71.444,30
050405012147001	Agri-environmental payments	-61.428,50	-61.428,50
050405012211001	First afforestation of agricultural land (Non-Convergence Regions)	-71.727,62	-71.727,62
050405012212001	First afforestation of agricultural land (Convergence Regions)	-44.976,71	-44.976,71
050405012214001	First afforestation of agricultural land (Voluntary Modulation)	-8.054,36	-8.054,36
050405012231001	First afforestation of non agricultural land (Non-Convergence Regions)	-18.745,11	-18.745,11
050405012232001	First afforestation of non agricultural land (Convergence Regions)	-5.621,83	-5.621,83
050405012234001	First afforestation of non agricultural land	-12.244,35	-12.244,35
050405012236001	First afforestation of non agricultural land	-101.056,55	-101.056,55
050405012237001	First afforestation of non agricultural land	-73.876,25	-73.876,25
050405012251001	Forest-environment payments (Non-Convergence Regions)	-2.303,69	-2.303,69
050405012252001	Forest-environment payments (Convergence Regions)	-3.620,98	-3.620,98
050405012254001	Forest-environment payments (Voluntary Modulation)	-3.167,25	-3.167,25
050405012256001	Forest-environment payments ((Additional funds from Art.69(5a) of R.1698/2005, Non-Convergence Regions)	-1.054,40	-1.054,40
050405012257001	Forest-environment payments (Additional funds from Art.69(5a) of R.1698/2005, Convergence Regions)	-168,25	-168,25
	Total	-40.858.456,69	-40.840.693,83

The deficiencies established in the course of the audit have far less impact on coupled aid schemes under the 1^st pillar. The risk to the Fund can be considered negligible and DG AGRI thus deems it justified not to propose a correction for these schemes (Protein crop premium and Aid for energy crops).

A remaining point of concern is the incorrect reporting in the statistics which does not constitute a control in itself, thus no correction is foreseen.

To avoid any double corrections, DG AGRI took into account the impact of the financial corrections applied on the same expenditure under enquiries AA/2007/15, AA/2007/35, DPU/2007/101 and NAC/2010/005.

12.4.4.Opinion of the Conciliation Body

Not applicable.

12.4.5.Final Commission position

Not applicable.