14 Recovery of undue payments under the
Common Agricultural Policy
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14895/11
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| Special Report No 8/2011 0f the European Court of Auditors: Recovery of undue payments made under the Common Agricultural Policy
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| Legal base | —
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| Deposited in Parliament | 7 October 2011
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| Department | Environment, Food & Rural Affairs
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| Basis of consideration | EM of 18 October 2011
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| Previous Committee Report | None, but see footnote
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| Discussion in Council | No date set
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| Committee's assessment | Politically important
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| Committee's decision | Cleared
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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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