Documents considered by the Committee on 9 November - European Scrutiny Committee Contents


14 Recovery of undue payments under the Common Agricultural Policy

(33200)

14895/11

Special Report No 8/2011 0f the European Court of Auditors: Recovery of undue payments made under the Common Agricultural Policy

Legal base
Deposited in Parliament7 October 2011
DepartmentEnvironment, Food & Rural Affairs
Basis of considerationEM of 18 October 2011
Previous Committee ReportNone, but see footnote
Discussion in CouncilNo date set
Committee's assessmentPolitically important
Committee's decisionCleared

Background

14.1 The EU spends around €55 billion a year on the Common Agricultural Policy (CAP), and management of most of this expenditure is shared between the Member States and the Commission, with the aid being paid out to beneficiaries by the designated national paying agencies, which are then reimbursed by the Commission. Some of these payments are made irregularly or contain errors, and have to be recovered. In order to safeguard the EU's financial interests, Member States are required to adopt appropriate legislative, regulatory and administrative provisions, and to take any other measures needed to check the genuineness and compliance of operations financed by the European Agricultural Guarantee Fund (EAGF) and the European Agricultural Fund for Rural Development (EAFRD), to prevent and pursue irregularities, and to recover sums lost as a result of irregularities or negligence.

14.2 Member States are also required to undertake sample checks on the regularity of individual payments, with some of these taking place before payment is made, enabling irregularities to be deducted directly from the payment, whilst, in the case of checks carried out after payment has taken place, Member States are required to record a debt for any undue payments detected, and then request repayment of the overpaid amount. Many beneficiaries repay as requested, but if they lodge an appeal, and, if the debt is subsequently upheld, an enforcement action for recovery is initiated (though, under certain conditions,[68] the paying agency can decide to halt recovery and declare the amount as irrecoverable, with the debt being written off).

14.3 These arrangements also provide for the Commission to clear the accounts relating to agriculture and rural development, whereby it accepts the amounts paid out by the Member States, but may reduce payments to them when it finds that they have misapplied the relevant regulations. Although the Commission has often reported these reductions as "recoveries", most of the transactions involved take the form of corrections which do not recover payments from the beneficiaries, but instead shift part of the cost of the CAP on to national taxpayers. In the context of the clearance of accounts, a small part of the Commission's clearance decisions relate to the recovery of specific debts.

14.4 The European Court of Auditors last reported on the recovery of irregular payments in Special Report No 3/2004.[69] This highlighted a low rate of recovery of reported debt, inconsistencies in the data reported, a large volume of old debts neither recovered nor written off, and a lack of clarity in the division of responsibilities between the Commission's Directorate-General for Agriculture and the European Anti-Fraud Office (OLAF). This was followed by the Council adopting in 2006 a new regulatory framework, the most significant change being the introduction of the "50/50 rule" which shares the financial consequence of non-recovered debt equally between the EU budget and Member State concerned. Member States are charged for 50% of amounts not recovered four years after the date the debt was recognised, or eight years if the recovery process is being pursued in the courts. However, if a final judicial decision confirms that the debt was not due, the amount charged under the 50/50 rule has to be paid back to the Member State by the Commission.

14.5 The 50/50 rule is intended to help protect the financial interests of the EU and to provide an incentive for Member States to ensure a more timely recovery of debts, compared with the previous situation where unrecovered debt was allowed to remain in the accounts for very long periods, sometimes decades, until ad hoc decisions were finally taken to write them off. At the same time, however, the Court says there are two main risks to the effective application of the rule — postponement of the date when debts are first recognised, thereby delaying the date that Member States can be charged in case of non-recovery; and writing debts off as irrecoverable before all recovery possibilities have been exhausted.

14.6 Further changes were introduced by the new framework regarding the transmission by Member States to the Commission of irregularities and the progress made in recovering them. Prior to 2006, such information was sent to OLAF, but it is now sent to the responsible Commission Service (DG Agriculture and Rural Development), so that debts can be more closely monitored. Also, the threshold for reporting individual irregularities to OLAF was raised from €4,000 to €10,000.

The current document

14.7 This latest report by the Court of Auditors examines the procedures for recovery of undue payments, and focuses in particular on recoveries by Member State authorities and the monitoring role of the Commission.

14.8 The Court found that the arrangements introduced in 2006 have improved matters by providing more accurate information and greater detail on debts and recoveries at Member State level, and by giving more information in the annual accounts. Also, the recovery rates have improved in respect of debts raised from 2006 onwards. However, the Court says that certain weaknesses persist in that:

  • whilst new procedures, which result in the automatic reimbursement to the Commission of 50% of the amount of old debts, enhance the protection of the EU's financial interests by "recovery" via the transfer of funds from the Member State budget to the EU budget, it has certain shortcomings such as running the risk of encouraging the write-off of debt by Member States as early as possible or reporting debt as late as possible and allowing certain amounts to "escape";
  • differences in treatment between Member States means that debts are recognised at different times, reported figures are not comparable, interest is applied inconsistently and the point in time debts can be written off can vary significantly leading to a negative financial impact on the EU budget;
  • the likelihood of recovery of an undue payment is affected by delays in the Member States' initiation of recovery procedures, shortcomings in their recovery actions, and their limited enforcement possibilities;
  • where delays in the initial recording of debt occur, the transmission of information relating to irregularities to OLAF can also be delayed.

14.9 The Court has therefore recommended that the Commission should further improve the way in which debts in the Member States are managed and reported upon and ensure a consistent treatment of those across all Member States by:

  • requesting Member States to record the irregularities and other debts once they are legally due, notably at the time the recovery notification has been drawn up;
  • clarifying certain key reporting and accounting concepts which have been inconsistently applied thus far by issuing guidelines, in a timely manner;
  • introducing a uniform time limit between the discovery of a potential irregularity and the notification of the recovery order to the debtor which would enhance harmonisation between Member States and ensure a more timely transmission of information on irregularities to OLAF;
  • introducing explicit rules in relation to the application of interest;
  • providing further clarification of the circumstances under which debts can be declared as irrecoverable, in particular in relation to the rules for writing off debt in insolvency cases;
  • reviewing the application of the new, automatic 50% recovery procedure rules to ensure its effective application;
  • finalising the follow-up of old "Task Force Recovery" cases, which were supposed to have been finalised some three years ago.

14.10 The Court also noted that, during the period 2006-2008 covered by its audit, around 90% of the amounts reported in the EU annual accounts as "recoveries of undue payments" were those made by the Commission through deductions from the Member States and not actual recoveries of the unduly paid aid from beneficiaries. It observes that, although this undoubtedly protects the financial interests of the EU, it lacks the full deterrent effect of a recovery made from an unduly paid beneficiary, and it adds that the Commission should therefore explore methods which permit it to reduce the proportion of its "recoveries" from Member States' budgets, and increase the proportion of undue payments recovered from the beneficiaries who received them.

The Government's view

14.11 In his Explanatory Memorandum of 18 October 2011, the Minister of State for Agriculture and Food at the Department for Environment, Food & Rural Affairs (Mr Jim Paice) says that the UK welcomes this Report, which has helpfully identified on-going weaknesses in the arrangements for recovering undue payments. He says that the Government will work with the Commission to improve these arrangements, and will urge others to do the same, though he also observes that it is important to remember that not all these undue payments were frauds, and that some of them were the results of genuine errors. He adds that the UK supports the Court's recommendations that the Commission should further improve the way in which debts in the Member States are managed and reported upon; ensure that debts are treated as consistently as possible across all Member States; and explore methods to reduce the proportion of recoveries from Member States' budgets and increase the proportion of recoveries from the beneficiaries.

Conclusion

14.12 This Special Report by the European Court of Auditors provides a useful account of the steps which have been taken in this area since its previous Report in 2004, and of those which still need to be taken. Consequently, whilst we are content to clear it, we are drawing it to the attention of the House.





68   Such as in the case of insolvency, or where the cost of recovery exceeds the amount due. Back

69   (25969) 12681/04: see HC 42-xxv (2003-04), chapter 6 (3 November 2004). Back


 
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Prepared 18 November 2011