The National Audit Office has qualified Defra’s accounts due to penalties imposed by the European Commission.
Since 2005, an NAO report found, the department has incurred £642m of penalties for failing to administer Common Agricultural Policy payments properly. This amounted to £2.70 in fines for every £100 spent under the scheme.
And although the NAO found that the department’s processes have improved recently, the amount of “disallowance” fines are likely to increase in coming years.
Amyas Morse, head of the National Audit Office, said: “Progress has been made by Defra over the last year in its approach to managing the financial penalties imposed by the European Commission.
“Nevertheless, the problems giving rise to financial penalties are persisting and there are additional risks arising from the more complex CAP 2015-20 scheme.
“I am sorry that I have had to return to qualifying my opinion on regularity on the Department’s accounts, primarily owing to the fact that penalties for 2012 and 2013 have now been confirmed.”
The report said that as part of Defra’s 2010 spending review settlement with the Treasury, it obtained ring-fenced funding for disallowance penalties, meaning it lacks an incentive to reduce the payments.
However, in 2014, Defra officials adopted a new strategy to strengthen governance arrangements, improve management information and understanding of the key drivers of disallowance, develop systems to manage risks and adopt a more proactive approach with the EC.
A new assessment tool has been introduced projecting expected payments forward to 2021 and the department is currently considering options ranging from doing nothing to investing up to £45m to tackle the issue.
But the NAO said that further increases in disallowance are likely in the early years of the CAP 2015-20 settlement because it is more complex than the previous scheme and the introduction of more stringent penalties and controls.
In March, the £154m IT system used by the Rural Payments Agency (RPA) to process EU subsidy payments was put on hold after technical problems caused delays to claims processes.
The NAO said that the manual inputting approach that has now replaced the system is likely to lead to more errors creeping into the system.