Cynulliad Cenedlaethol Cymru

Good morning. Can I welcome Members to this morning's meeting of the Public Accounts Committee? We've received no apologies today, and no substitutions. Do any Members have any declarations of interest they'd like to make at the start of the meeting? Jenny.

Chair, I'd like to declare that I used to be the Chair of the European programme monitoring committee between 2013 and 2015.

Great, thanks. That's noted for the record. Thanks for that, Jenny. 

Before we move on to the next item on the agenda, I'd just like to take the opportunity to put our thanks on record to two of our Audit Wales colleagues, who very recently left Audit Wales. Mike Usher and Anthony Barrett have served long and dedicated careers in public audit: Anthony having served as an assistant auditor general for Wales and Mike having been Audit Wales sector lead for health and central government and director of Audit Wales's investigative studies team, which has given him a pivotal role in advising all of us on our work. Mike's been a constant source of expertise and a familiar face on this committee for a number of years now, so I'm sure the committee will join me in expressing thanks to Mike and Anthony for their contributions to Welsh public sector audit, and for their roles in supporting the committee over the years. We wish them both well in the future. 

Okay. Item 2, and papers to note. The Auditor General for Wales published his report on 15 September into the management of clinical coding across Wales. This is a high-level summary of findings from previous local work undertaken. The report highlights the current challenges and opportunities for clinical coding, including the potential to use the changes made to ways of working during the pandemic to secure new and more sustainable ways of delivering coding work. Auditor general, did you or one of your team want to comment on this?

[Inaudible.] 

I can't actually hear you, Adrian. There seems to be—. Can other Members hear Adrian? I'm hearing a lot of feedback. 

Yes.

It might be your mike.

[Inaudible.]

No. Can you try it without the headphones perhaps? I'm not sure whether it's a problem at your end or a problem with the system. I did notice earlier there was some interference. 

[Inaudible.]

No? I think we might have to come back to you, Adrian, anyway. So, if you can pass our regards on to Mike and Anthony, that would be great. Okay, we'll simply note that report for now.

Secondly, '10 Opportunities for Resetting and Restarting the NHS Planned Care System'. The auditor general published this report on 17 September. This was previously referred to as NHS waiting times, and the committee undertook an inquiry into those waiting times for elective care in Wales early in the Senedd term. When the UK went into lockdown in March 2020, Audit Wales was concluding follow-up work, looking at the progress made since reports on waiting times for elective care and orthopaedic services were published in 2015. This report draws on the findings from the audit work and re-frames the key messages, to inform emerging plans for restarting planned care services, and involves a wider discussion on what a post COVID-19 NHS will need to look like. I won't ask you to comment on that, auditor general; we'll leave that for another day. So we'll simply note that for now.

Okay, moving on to the substantive item on today's agenda, and item 3: ensuring value for money from rural development grants made without competition. We have an evidence session with the Welsh Government. Can I welcome our witnesses to today's meeting? Would you like to give your name and position for the record?

Morning, Chair, morning, committee. I'll kick off, and then ask Tim and Hugh to introduce themselves. I'm Andrew Slade, director general for economy, skills and natural resources in the Welsh Government.

I'm Tim Render. I'm the director for environment and rural affairs in the Welsh Government, and currently acting as head of the managing authority for the rural development programme.

Bore da, Chair, bore da, committee. My name's Hugh Morgan. I'm head of Rural Payments Wales, the paying agency for the common agricultural policy in Wales.

Bore da, Hugh, and to all our witnesses. We've got a number of questions for you, so I'll kick off with the first one. Regardless of any improvements made over recent years, and the danger of extrapolating, what assurance can you give that the results of the auditor general's sample testing are not indicative of wider, more deep-seated problems?

I think a reasonable level of assurance there, Chair, in the sense that we work very closely with Audit Wales colleagues to identify the populations of projects within the rural development plan—all of them that could potentially be affected by the issues that they had identified, and which we had identified in our own, earlier internal work. So that was the suite of projects associated with the direct application method, brought out in Audit Wales's report and in our evidence paper, and also those involving additional awards. From memory, between them, they came to about £130 million, and Audit Wales colleagues took a sample of about £90 million of those—so it's a decent sample size.

The other components of the RDP are not subject to the same sets of criteria or approach—they are different forms of application for RDP grants. So within a programme of around about £835 million at today's prices, and taking into account today's currency rates, with the euro, I think we're looking at a reasonable level of confidence that around the £740 million or so would not be potentially affected by the issues that were picked up by the Audit Wales team.

Can I just—

Sorry, I was just going to—. Go on, Chair.

You've just confirmed, really, what your evidence paper seems to suggest, that because the findings applied to just a small percentage of the total RDP budget, we shouldn't therefore be concerned about arrangements for value for money, ensuring value for money, across the remaining 94 per cent. Is that what you meant? Because it does seem, I wouldn't say complacent, but it does seem like there would be room there for things to go wrong.

That's not meant at all by the evidence paper, Chair, and thank you for the opportunity to clarify. What we were saying was, of the population of the entire suite of RDP projects, that was the population size identified as having issues—the ones that were picked out by Audit Wales colleagues. The rest of the programme is run on the basis of windows of expressions of interest. Much of the programme spend is on agri-environment measures, which are a very different type of grant funding arrangement. And Hugh may be able to say a bit more about the figures, but, from memory, it's something of the order of 3,000 projects that have gone through the RDP, of which 2,900-and-something are not subject to the points that were picked up by Audit Wales colleagues. So, I think the point we were trying to make there was to put it in context: the size of the populational sample size with the issues raised, compared with the overall size of the RDP.

All of the RDP is subject to a range of value-for-money criteria and we would fully accept that, in addition to ensuring that the EU rules are met, we are also observing the rules within 'Managing Welsh Public Money' around protecting value for money. And Audit Wales colleagues found, as we had done in our earlier work, that there was a lot of room for improvement, both in terms of value-for-money assessments, but also in terms of record keeping for the earlier stages of the programme.

I think I probably should just confirm that we don't use the direct award approach within the RDP anymore—just to confirm that. And we are very selective with the use of the additional awards and indeed, as a general approach, we don't do that at the moment, not least for budget management reasons.

Angela Burns is indicating.

Yes. Thank you. Good morning, Andrew Slade, and good morning, the rest of the team. 

Can I just confirm that again? So, I understand now what you said to the Chair, because reading the report it does seem that your response is that, actually, this is just like a one-off. So, of the £774 million in the RDP, you've just talked about the fact that a whole chunk of it wouldn't ever fall foul of these issues because of the way those programmes are run. Our understanding is that Audit Wales just used a small sample, and out of their small sample of £89 million, they found £53 million had issues, so that's quite a high percentage of that small sample. Therefore, are you able, out of the £774 million, to say how much of that is covered by the long-running projects and therefore we don't need to worry about it, but how much of that is then left? Because, for example, if you had £200 million of it left, and we're saying that £53 million out of £89 million had queries on it, then it would suggest that perhaps over 50 per cent of whatever the remainder is may also have queries on it.

I understand the point. I'll bring Hugh in on the shape of the programme in a moment, because he can perhaps give us a bit more detail on the make-up of the rest of the programme, but I think the point that I was looking to make here was: all of the issues identified around value for money associated with direct awards and around additional awards form a subset of the total RDP programme. The rest of the programme is subject either to procurement exercises or expressions of interest, where people will effectively compete for the grants available. And within that set of projects that could potentially have been affected by the issues identified by Audit Wales, I think they reviewed about £90 million—or I think you mentioned £89 million—of the £130 million. So, of the potentially affected projects, it was a big chunk that was sampled. Hugh, have I got that—or Tim might want to come in—assessment correct?

Yes, Andrew. I think the point to note here is that the Audit Wales sample wasn't a kind of random risk-based sample. When the issue was identified, we looked at the population that could be affected under the issue of direct application and additional awards and it was that population specifically that Audit Wales took their sample from.

And in terms of the overall RDP, as you mentioned, there are two elements to it: there's the agri-environment side to it and there's the socioeconomic side to it. Every scheme on the agri-environment side has been subject to an expression of interest window and around £320-odd million of the RDP has been committed through that route. And even under the socioeconomic, when we look at the almost 3,000 projects that have been selected, 99 per cent of those have been through the expressions of interest routes. So, whilst it's not ideal, as the population does look quite big, in the overall context of the RDP it's a well-defined population and that's from where Audit Wales took their sampling.

Thank you.

Okay. And just before I move on to the other Members, has the Welsh Government undertaken any detailed review of other programme awards made in this period outside the Audit Wales sample?

I think—Hugh can confirm—that we have reviewed all of the direct awards, not least as a result of the certification process. Because as I mentioned earlier, Chair, we've done quite a bit of internal work and identified that there were some issues arising, so it was very helpful to have Audit Wales's assessment of the work that we had done and confirmation that there were issues that we needed to pursue. We felt that that validated the internal work that we had been doing, but I think we've gone through all of those to check for the issues set out by Audit Wales colleagues. As I mentioned earlier, we have to look at it both from a 'Managing Welsh Public Money' sense but also the myriad complexities around running European funds, particularly in relation to the common agricultural policy, where the rules and regulations are complex and ever-changing and there are lots and lots of moving parts. But, Hugh, for the Chair, can you confirm that we've done that? 

Yes, absolutely. Obviously, as part of the Commission's contradictory procedures, there's a duty then on us to identify the full population that could be at risk of any issue that's identified in the certification of the accounts. We did that work and, in preparing for our responses to the Commission, we also verified that population with Audit Wales, because obviously Audit Wales would be conducting the checks on our work as part of the ongoing certification work. So, the population that was in the report is absolutely the defined population where the potential issue was identified by Audit Wales, and, as you mentioned, Andrew, they were some of the issues that we identified when we were looking at projects as well. 

Great, okay. Delyth Jewell. 

Diolch, Cadeirydd. I think Rhianon was just indicating that she had her hand up just before. 

Sorry, I didn't see that, Rhianon. Rhianon, you first. 

Thank you. I just wanted to clarify, in regard to the EU's majoritive role outside of the Welsh Government role in this and the paying agency, that there were no applications for any disallowance around this particular issue. Could somebody address that?

So—

Yes, go on, Hugh. I was going to say we have been in discussions. We're towards the end of a long road of discussions with the Commission on disallowance. It's a fair question. Hugh.

Yes, it's quite a long process, as you mentioned, Andrew. It starts with a contradictory procedure, which basically means we get a written letter from the Commission outlining what they believe to be the issue. I think you're aware that that letter started with a potential £33 million disallowance. Obviously, the work that we did then in terms of identifying the population and, then, in our discussions and evidence submitted to the Commission, we have got that to a position where there's the potential of a £2 million disallowance in respect of the 2018 accounts. We have the opportunity, should we wish to, to go into a conciliation process, which is then to challenge the Commission again on their final decision in respect of that disallowance, and that is something that we are currently considering, and the Commission will need a formal response from us on 12 October. 

And, Hugh, sorry, on that, is that all disallowance, in the sense of potential fines, or is that also ineligible spend, because, theoretically, some of the ineligible spend in the totality could come back into the programme. Is that fair?

Yes. The Commission have a disallowance provision, which basically means, if the paying agency hasn't delivered everything to the letter of the law and all the regulations that govern the CAP, they reserve the right to apply disallowance. There are various different scales of disallowance that can be applied across the CAP, and it can be also applied retrospectively and will carry on applying until any corrections have been taken.

Because the issue of direct application was identified formally in the qualified 2018 accounts, and also identified as a known error in the 2019 accounts, the work that we've been doing with the Commission has basically given us a total disallowance figure or a total disallowance proposal of £3.9 million covering both financial years. But, as I said, that's £2 million for the direct applications in 2018, and a further £1.4 million for the direct applications in 2019. 

The issue that we're exploring with the Commission at the moment, though, is—. Because they are determining that the selection process was ineligible from a compliance perspective, we're exploring the option, with the Commission, in terms of that money being recycled in the RDP before the end of the programme. So, it's not a disallowance. We're trying to make the distinction between a disallowance and a basically ineligible, because if it's ineligible, there's an opportunity for us, hopefully, to recycle that funding again within the RDP. 

[Inaudible.]

Sorry?

When will that be determined?

We have to respond to the Commission on 12 October, formally. We will need to decide—. We're looking to see what the Commission's view is on the eligibility of that expenditure to be reused in the RDP first. We're working with the managing authority and the desk officers in the Commission and, hopefully, if they're happy that the funding can be recycled, then we probably agree to the disallowance provisions that they've made, and then we'd have that conclusion.

Like I said, we do have the option, should we want to, to go into a conciliation process, which basically means that the dispute, if you like, between the Commission and ourselves goes to an independent assessor to make a final call, but that could be some months if we go down that route.

Delyth Jewell.

Diolch, Cadeirydd. Bore da. How confident are you that there are no other areas of European funding where regulations are either being disregarded or interpreted in ways that would put value for money at risk?

I think, again, a pretty high level of confidence, partly because, in my experience, CAP spend and, indeed, European programmes are subject to some of the highest audit regimens of any areas of Government spend. In fact, I struggle to think of many that would come into the same category. There are so many people who want to come and audit us, including the Commission, the European Court of Auditors, as well as Audit Wales's role as certification advisors. And then we have our own two sets of internal audits around all this. That is slightly different from the point about value for money and 'Managing Welsh Public Money', and I accept that those two things are different, although there this a fairly high degree of overlap between the two sets of concepts. But there are different things that we're trying to manage here.

The whole programme, at both a programme level and then subsections of the programme, is subject to ex-ante evaluations. There's a big programme of monitoring and evaluation that goes on throughout the programme. I think it's worth just saying at this point that the programme is performing very well overall, so much so that we've been able to access the European Commission's performance reserve within the RDP, and Hugh might want to say a bit more about that later on. But I think there are lots of reasons to be encouraged about how the programme is performing overall. That's not to say that we're complacent or to say that we're not constantly trying to improve how we manage both value-for-money assessments and our compliance within the programme. But we do have, in compliance terms, one of the best records. In fact, I would argue, certainly, it's the best in the UK, arguably the best in the EU. We don't have all of the relevant data, but I know Hugh has the latest figures from the United Kingdom co-ordinating body, who manage the league tables, and he might say a bit more about that as well. But we have a very good record, as Ms Rathbone will know from her time as programme monitoring committee chair in Wales, of managing European programmes.

So, we're not, as I say, complacent or taking anything for granted. Lots of audit work goes on. We establish fixed costs for particular programmes. I think I'm right in saying, Hugh, that, for the farm business grant and for some of the Glastir work, we put competitive elements in, making sure that we've got the best costings for programmes. So, we're looking at VFM in that context, and I mentioned these expressions of interest approaches earlier in my remarks to the Chair. So, there's a lot that goes on within the programme to check both compliance and value. Hugh, have I missed anything?

Only that this CAP, unlike others, Andrew, is subject to legality and regularity regulations—a new set of audit requirements that came in in 2014. So, we basically have Audit Wales with us throughout the year, checking different parts of the overall process. And what legality and regularity brings in is not just the checking of the eligibility of the expenditure and the payments made and the certification of the accounts, but it also goes all the way back to the front end of the process where it checks the selection of the projects upfront. So, it's a very stringent audit regime. On top of that, obviously, we have the ad hoc audit that the Commission themselves will undertake. And to cap it all as well, we have the European Court of Auditors that may come in, as well, and check the work of the European auditor. So, there's a multi-tiered audit approach to all the work that we do across the paying agency, and that, as you said, is possibly the most scrutinised funding programme that we have within Welsh Government.

Delyth.

I think Angela was just indicating that she wanted to come in.

Angela.

Thanks, Delyth. I just wanted to drill down very slightly on your response there to Delyth, because paragraph 1.3 of the audit report states that the managing authority decided to make awards without competition, based on its own interpretation of EU regulations, and I just wanted—. You explained very carefully to Delyth about how rigorous your scrutiny is of this programme, but could you just actually say whether officials took steps to ensure that your interpretation was the correct interpretation? Did you seek any legal advice at the time? Thank you.

I don't know about the legal advice, and I don't know whether Hugh will know that. I mean, we're in regular contact with our own legal department within Welsh Government and there's lots of to-ing and fro-ing that goes on on a regular basis. Whether there was anything specific done about the particular projects in question, I would guess, for some of them, there would have been, given the size of the sums involved. We're in regular touch with the Commission about our interpretation of the rules, and that's part of the process that's drawn out through the audit arrangements.

But I think your question is a fair one in respect of disallowance. Managing down disallowance—the risks of the Commission penalising you, effectively, for your interpretation of the rules—is a very hard thing to do. I mean, you've got on this call—I'm going to hazard a guess with this—75 years' experience between the three of us of managing the CAP, and we still find complexities around the CAP that we haven't come across before. The rules are always changing. The Commission issue technical advice notes. We think we've got an interpretation right, including on the basis of earlier discussions with the Commission, and things have moved on. So, it is a moving target for us, and Hugh and the team have done fantastic work with the disallowance point that Ms Passmore was just raising with us, to get that indicative figure of €33 million down to just over €3 million, and we're still debating with them to get it down further. But it is difficult to manage that process and avoid any comeback from the Commission. That's my assessment. I don't know whether—. And Tim has helped negotiate the rules out in Brussels, so he may want to add to that—either Tim or Hugh to come in on that, because I think that is a very fair point that Ms Burns has made.

Very briefly, just to say that the issues of interpretation are ones where, quite often, until an issue almost occurs, the Commission haven't got an interpretation. Somebody does something and they say, 'Oh, hang on, how does that fit in with the rules?', and it's almost a real-time interpretation of some of these things, which can make it quite hard to keep on top of. And then, you get a notification that, because something has been found in Denmark, the Commission has done an interpretation of the rules, which you've then got to apply to the way you are running the scheme. So, it is a horribly complicated and fast-moving process in the fine detail of this, but keeping on top of it is a real hard exercise.

Delyth, back to you.

Diolch. Andrew, you've mentioned the PMC. I believe the issue of direct applications was queried by members of the PMC in September 2017. Could you tell us what steps the Welsh Government took after these concerns had been raised to ensure that this issue wouldn't arise again? Because, unfortunately, it evidently did.

I mentioned earlier that we no longer apply the direct route to the programme. We had done some work—I think it was towards the end of 2017—which was then picked up subsequently in an internal audit and then by colleagues in Audit Wales, and points were raised, as you say, in the programme monitoring committee, which led us, among other things, to separate out fully the managing authority from the paying agency. So, the paying agency at that point moved into RPW under Hugh's bailiwick. That also helped a bit in terms of managing workloads, because you've got an opportunity to scale around using RPW to help manage pressures of work on the scheme management unit. We went through all of the direct applications off the back of that, and we have looked across the whole of the programme in relation to similar sets of issues, and, as I mentioned earlier, we think, with Audit Wales colleagues, we have got everything in the catchment that could potentially be affected by the issues that you've just described.

Andrew, am I right in thinking that there's an independent panel that oversees this, or an independent investment panel?

We have an investment panel—in fact, we've got two—within the RDP internal machinery, effectively for looking at large, novel and contentious grants. We run a process internally, amongst officials, to make sure that we're drawing on the input from across the organisation in making assessments, and we're also then, in parallel, making sure that Ministers are informed and have the opportunity to take views on particular types of components of the programme, so we have that kind of double lock on arrangements. Hugh, you're the expert on the investment panels.

Yes, Andrew. So, one of the things that we introduced, following the move of the scheme management unit into Rural Payments Wales, the paying agency, was to introduce investment panels that would oversee the overall appraisal decision, or the appraisal recommendation, and give the final position on the award of grants. So, we felt that it was appropriate that any project under the socioeconomic part of the RDP was subject to a kind of peer review.

The two investment panels referred to in the report are over £100,000 and under £100,000. The one over £100,000 for grant award has a member of the senior leadership team at deputy director level sat on the panel. It also has the managing authority on the panel as well as the paying agency and, if need be, it can draw in other policy colleagues from across the wider portfolio.

I think the point that Andrew was alluding to there is that the selection of the project itself is done by the managing authority with policy colleagues to ensure that there's a strategic fit and a strategic alignment with the RDP. Once that selection is made and the projects are invited for full application, RPW take over and, basically, make sure the application is subject to the assessment criteria that have been agreed by PMC, which covers value for money, strategic fit, technical appraisal. There are nine criteria in total. Once that has been completed with our technical officers and our financial officers, it does come through to the investment panel for final scrutiny before the grant is formally awarded.

Before I go back to Delyth or other Members, I'm just wondering whether—it sounds to me as if it's very much an internal panel. Has there been any thought given or would there be any merit in having people on that panel maybe from outside with more of an independent scrutinising role, or is that something that wouldn't be countenanced in this sort of situation?

It's not something that's specifically required within the regulations governing the RDP, but it is certainly something that we are looking at and exploring as we move from EU funding into the domestic agenda, with the domestic funding that's going to be the replacement to RDP.

Okay. Delyth, had you finished or did you want to ask any more questions?

Just a few more questions. I'll be brief, Chair. Turning back to disallowance, could you clarify, please, if money is lost through this route, would that come out of the RDP or would that come out of elsewhere in the budget?

As Hugh was saying earlier, there's a difference, or a potential difference, between ineligible spend—so, in other words, you can't really make a claim against the programme at all—and disallowance, which is effectively a penalty from within the programme. Very often, penalties come some way down the track, so we're, as you just heard, in discussions with the Commission in relation to accounts from 2018 and 2019. We're into 2020 now, and it'll be a little while yet before we're completely done on all of this. In terms of the mechanism, where the money comes from, Hugh, does the money come out of the RDP pot in total, or is it effectively a domestic hit at that point?

It's a domestic hit.

Okay. Thank you for clarifying that. I think it was actually you, Mr Render—you told the Climate Change, Environment and Rural Affairs Committee that a certain amount is budgeted for to allow for disallowance every year. I appreciate it's a very rigorous process, and that there would be reasons why you would need to do that, but setting aside the fact that you've also highlighted in this session already that the Welsh Government's record in terms of compliance and managing the risk of disallowance compares very favourably with others within Europe, do you feel that you are doing enough? You've said already that you don't want in any way to come across as complacent. Do you feel that there is enough that is being done to make sure that you are ensuring that disallowance, ideally, I suppose, would not happen? Is that something that you think would be possible? Would you like to be able to plan for that to not be an eventuality at all in the future?

I'll kick off and then colleagues can come in, because I think this is a very important point for committee to get into. We strive not to have any disallowance, but as Tim and Hugh have said, it is very difficult to do that, because of interpretation of the rules, lots of moving parts, exchange rate issues, and things changing in the design of the programme from the Commission's perspective as we go along. So, managing all of this is tricky, but I think it is worth committee knowing where Wales is in the rankings, and the amounts that we're talking about here. I'm pretty sure Hugh, as our paying agency director, will have the figures to hand, because I think this is important for committee.

I think the first thing the committee should be aware of is that across the entire programme, across every member state, disallowance happens to every paying agency. What the UK co-ordinating body does, which is obviously responsible for the UK member state—and again, just to clarify, the UK is made up of four paying agencies: Wales, England, Scotland and Northern Ireland. What the UK co-ordinating body does is compile statistics of the disallowance rate across all member states that have got responsibility for delivering the common agricultural policy. They keep a kind of rolling five to six-year view of disallowance, and across all the 28 member states, the best performing member state from a disallowance perspective is Latvia, with a disallowance rate of 0.14 per cent. If you allow me to elaborate and take that decimal point to three, Latvia is at 0.141 per cent and the Welsh Government's record is 0.136 per cent, so in terms of compliance record and avoiding disallowance, I think it's a record that Wales actually can be absolutely very proud of. To put that in context, during that period from 2013 to 2019, we've paid out over £2.29 billion of EU funding and have had a total disallowance of just £3 million during that period.

To look more closely at the UK, Northern Ireland is the closest to us in terms of disallowance rates, but we're a tenth of the disallowance rate that Northern Ireland are getting, and they're comparable to us in the size of the CAP budget that they're administrating. I think the final point I'd make is that, if you took the average UK disallowance rate of 2.33 per cent, over that period, it would have cost just over £50 million for Wales in terms of fines and disallowance. So, I think the record shouldn't be underestimated. When we're saying we've got a good track record, the numbers stack up against other paying agencies in the UK, and obviously across the wider member states delivering CAP.

Shall we write to you with the league table? Would that be helpful?

That would be very helpful.

Yes, sure. Okay, moving on then to improving governance arrangements, and Jenny Rathbone.

Good morning. Wales's compliance with EU regulations isn't in doubt, but I think we're in danger of losing the wood for the trees here, because what we've got here is £53 million that was allocated without adhering to the value-for-money guidelines, because it was either not awarded in open competition or it was awarded to existing bodies before anybody had evaluated whether the money they'd already been given was delivering value for money. So I just wondered if you could clarify how that happened, regardless of the fine details of the EU regulations. 

I think the first thing to say to that is that I completely accept that there's a difference between EU compliance and the requirements of 'Managing Welsh Public Money' in relation to value for money, and that's why we've worked hard over recent years to put right the sorts of issues identified by Audit Wales colleagues. Just coming back to the earlier point, we don't use the direct applications route within the RDP any more. The additional awards have, in practice, stopped, although again there's an interesting example, in that the European Commission have no problem in compliance terms with the additional awards process. We are applying the findings from Audit Wales in relation to VFM and management and record keeping as part of our good practice in the management of the programme. 

But there will be a range of reasons why we got into this position in the first place, and principal among those is the stuff set out in our evidence paper. If you're trying to pull together complex projects with complex outcomes that are going to involve a lot of players, this led to what became known as the strategic initiatives, and I think the direct application approach was used to try to form these strategic initiatives to bring a range of players together to deliver the desired outcomes. There is a clear outlier to that, which is case study 4 in the report, which we touch on in the evidence paper, but for the rest, this was the intention. 

For the additional award stuff, as I said, we don't as a rule use that approach any more now, largely because of budget management reasons. And we fully accept that there was more that could have been done to evaluate the success of what had gone before. But I think in the scenario of case study 3, which is one of the additional awards carried over, we did actually have an exemplar project, as recognised by the European Commission. So, it wasn't as if we were trying an unknown quantity in order to deliver the things that we were after. But we fully accept we could have done more to test value for money, and we fully accept that record keeping in those areas was not all that it should have been. 

Okay, because as Delyth has already mentioned, these concerns were raised in the PMC in 2016-17 and don't appear to have been picked up until the Audit Wales report. So would you say that the programme monitoring committee has failed to do its overarching job of ensuring that the money is spent to best effect?

No, I don't think so. I don't think there are any failures of the PMC involved here. And just on your point about Audit Wales, Audit Wales have very helpfully set these issues out and confirmed a lot of work that had gone on internally, including through commissioning our own internal audit services to look at these areas, alongside the certification of the accounts process. This was a set of issues that we were effectively already on to and were tackling and, indeed, in most cases, had got resolved at the point that Audit Wales colleagues came in to look at what had gone on in the past.

The programme overall is performing well, as I mentioned earlier on, and compliance levels are high. We don't think that anybody was, in any way, shape or form, profiteering out of the direct awards at all, but that is not the same as saying that we were testing adequately in the context of the RDP the value-for-money elements, and that is something that has been considerably strengthened since in the approach that we've taken. 

Okay. Nobody's suggesting that there was corruption going on here; I think it's much more about using the money to best effect to deliver on improving the rural economy of Wales. And, in a sense, is there a danger that, because of the complexities of the European programme, we lost sight of that and we were therefore just far too conservative in the way we were doing things, always going down the tried and tested, 'Let's give some more money to this or that'?

I think there is something in your point about managing or meeting different sets of targets, because as I said—and we've already elaborated on this—the complexity of the EU rules on making sure that we are compliant to get the programme running as it needs to in order to prevent disallowance is a pretty fiendish set of things to address in and of themselves. But actually, a lot of what we were trying to achieve through the strategic initiative was quite innovative; it was an attempt to try and achieve integrated outcomes in a complex landscape. We weren't looking, in that instance, in any way, shape or form to rest on our laurels or just go down a tried and tested route; we were trying to find new ways of delivering big-ticket outcomes. I'm pretty confident down the track, although we can't say in absolute terms today because the programme is still live, that some of those strategic initiatives, including one of the case studies, will come out as a very strong performer in terms of value delivered on the ground, and in terms of benefits to the Welsh economy and Welsh society. 

How can you explain why the rural development teams were awarding additional money to organisations before having evaluated the success with which they'd applied existing grants?

I think—and Hugh can correct me if I've got this wrong—all additional awards are subject to some sort of application assessment—a technical application assessment or a financial one—but I think we would agree that in the past we were not doing enough evaluative assessments against spends to date. None of the programme team, though, within the scheme management unit would have been looking to fund projects that were not, to their assessment, performing well, or in any way were performing in a bad way or in a non-compliant way, but we could have done more to test value for money. 

Okay, because I think one of the complaints coming from people who did express concerns in the PMC was that it was fine as long as you were on the inside track, but that it didn't allow for new players to come in with innovative schemes that may have been shied away from, because there's always risk in backing new organisations or new ideas. 

And that's one of the reasons why the Audit Wales report findings are important, because one of the benefits of taking that wider approach is that you do see who else is out there and give people opportunities to come into the system. I'm less worried about the notion of people being excluded, based on the balance of the overall programme. I think that the issues around record keeping, which we have talked about before, and where we're trying to improve matters, and about making sure that we are assessing performance with that kind of micro-level evaluation alongside the macro level that goes on in the programme are important points and ones that we are trying to learn, both across the group and within the administration of the RDP.

Okay. In terms of the Welsh Government's aim to improve grants management generally, do you think that your rural development teams are now up to speed with that direction of travel because, obviously, there have been concerns? What do you think the achievements have been to rectify the concerns raised by the Audit Wales report?

I can say a bit about the group level, and then maybe either Tim or Hugh will come in and talk a little bit more about within Rural Payments Wales and the administration of the RDP. But we've worked hard to get training pushed out to grant managers. All grant managers in Welsh Government are now subject to a set of core grants training. We have re-fettled over the course of the last few years our governance arrangements within the group, including through our finance and governance committee, which in turn feeds into the audit and risk committee; you've heard me talk about this in previous sessions.

Out of that, we have made sure that there are regular communications out to our senior civil service colleagues across the group, and we've done training down to team leader level on principles of good governance and financial management, including VFM. Indeed, Audit Wales colleagues have come and given presentations and talked through their findings from previous reports as part of that approach. I think everybody across the group now at senior civil service level has had the opportunity to do the cut-down version of the accounting officer training that I had before I took up the role. So, we've done a lot on that front.

There's a lot of communication between colleagues at the centre of Welsh Government looking after our grants centre of excellence and the grants assurance panel, and what we do within the RDP. Although there is obviously a high degree of overlap in relation to the principles around socioeconomic grant funding, that level of complexity associated with the management of the European grants, and the things that we're subject to under the various CAP regulations, is quite different. So, you need to have the kind of core of what we're trying to deliver across Welsh Government as a whole with grants, and then you need to overlay on top of that the European criteria, which are, as we've discussed, many and various. Hugh, do you want to say a bit more about training and governance within RPW?

Yes, thank you, Andrew. I think the first point that I would make is, as part of our accreditation of a paying agency, we have to make sure that staff have received the appropriate training at all levels of operation. And, as Andrew alluded to there, that's a piece of work that Audit Wales will form an opinion on in every set of accounts that they look at for the Commission. Obviously, the issues identified in the report, it's something that we've looked at specifically in RPW. We were working with the grants centre of excellence following the move of the scheme management unit over into RPW, and ensuring that they'd all had the grant managers training, which is the basic training required for grant managers, and the principles of grant management. But that's, obviously, just one of a suite of training that we take staff through in any given year, given the kind of nuances between Welsh Government's basic grant management process and all the kind of intricacies of the CAP.

The other aspect as well, of course, as Andrew alluded to there, I've personally taken on the governance training and the senior managers' finance training. In terms of the wider kind of cultural, if you like, or the wider responsibilities of the division, I've taken it upon myself personally to go around and visit all the sites and all the teams that are processing and responsible for public money, to ensure that the key messages on good governance, sound grant management and budget management are maintained across the whole division.

So, are you satisfied—? [Interruption.] There's lots of interference on the line. Are you now satisfied that the rural programme grants management team is as good as any other team within Welsh Government?

You're still on mute, Hugh, I think. 

I wouldn't like to say that we're the best, but all I would say is continuous improvement is a recurring model that we have. Obviously, as the schemes develop, or as the schemes might change, given the policy directions, then there'd be revised training that we'd want to issue out on those. The paying agency itself has a model where there are different levels of checks and balances in the work that anyone does to ensure that it's complete, to ensure that it's compliant. However, I wouldn't say that we're complacent or that we'd sit on where we are now; it's a case of continually reviewing, continually improving the way that we operate.

Thank you.

Rhianon Passmore. You're still on mute, Rhianon.

Thank you, Chair. I'm still trying to grasp the scale and context around this, and the particular subset that we're talking about in terms of the portfolio. So, I hear that you've, with the internal audit and the auditor general's recommendations, put mitigations in place around the investment panel, the sub-investment panel and the training. So, I'm just wanting really to get a clear overview of the actions that have been put in place, so that I can digest that.

I also hear what you're saying in regard to the disallowance scale in terms of Northern Ireland and where we sit favourably with the UK. But, I suppose, really, what I'm looking for, in a sense, outside of this particular awarding of contracts matter, which you seem to have identified, and hopefully you can reassure me that that's being brought into a better scenario, but really on the value for money of the overall projects being achieved. I don't know if there's any comment on that, because, obviously, that's the wider picture in terms of value for money. So, that's the first question I want to place with you: the overall subset in terms of value for money. 

And, also, in terms of Jenny's points, what else could we do so that this rural development programme is the best? What still is left to do to make it better than it is, because, obviously, hindsight, we're here now, but what else is remaining to be done? Thank you.

I think that's a fair question. Because we've got another three years of the programme to run, effectively, up to 2023, and it's important that we make the best use of the available remaining money. Hugh or Tim may want to say a little bit more about the programme commitments in a moment and where we've got to.

I think if we helicopter back out of all of this, there's a set of issues here, which we've talked about before, which are around record keeping and ensuring value for money and, in general, making sure that the public purse is protected. And we've outlined a series of improvements that we've made—I wouldn't claim it's perfect, but I think things are a lot better than they were. In respect of RPW, there are a suite of measures now in place that stopped using the direct application routes in the context of the RDP. The additional awards approach is effectively suspended as a general rule. There will be particular cases where it's appropriate for a particular set of reasons, but the appraisal process around those, in those few occasions where it does happen, are much stronger and take account of the auditor general's findings. We do a lot of work on desk instructions, on training, which you've just heard there, and in terms of our general governance.

So, as I say, it's not that we are claiming in any way, shape or form we've got every issue licked, but we think things are a lot better than they were, and we think that the particular issues identified in the context of the management of the RDP we are across, we are on top of. And I think there's a general sense across the group actually, not least in the context of C-19, coronavirus, which is moving at such—the suite of issues we're having to deal with, at such a pace, it is very important to make sure that at every key point we're capturing the decisions we're taking and the reasons for them, so that the record is kept up to date. So I hope that reassures a bit on that front.

The programme is performing well. We would not have been able to access the performance reserve if we hadn't been meeting or exceeding our headline targets within the programme, and that's the milestones set, I think, towards the end of 2018, into 2019. We're also ahead of our commitments targets, in terms of where we expected to be at this stage in the programme. And the performance reserve is important to Wales: it unlocks money from within the programme for Wales, which we wouldn't otherwise have been able to spend. And you need to be both hitting the things that you said you would do, in your ex-ante evaluation, and running a compliant programme to get to that point.

So in terms of reassurance around the general programme, it doesn't obviously deflect from this particular issue within this. You are saying that the accessing of the programme reserves will give the reassurance around value for money of the overall projects. Is that correct?

I think it's part of the answer. All of this will be subject to a very detailed set of evaluations at the end, so we will come back and find out how the programme has done, compared with the objectives we set for it at the beginning.

Thank you. And the last bit that you didn't address is what more is still left to do so that we are in an optimum position around this matter. And I'm not ignoring what we've already discussed, but in terms of complacency—and I know that's not what you're coming across to deliver to us as a committee, and it doesn't sound like that to me—but what more is left to be done so that we are absolutely at the top of the tree, bearing in mind what Tim has said earlier around the dynamic nature of these particular Commission grants?

A number of the measures that we've put in place, including the investment panels, and so on, will help with some of the value-for-money assessments and making sure that we're fully assessing opportunity costs, in terms of where we put the available money. Hugh, can you say a bit more about where we are in terms of commitments and spend on the programme, and what we've got left to do?

So in terms of what we've done, obviously, as you mentioned there, Andrew, we've embedded a number of new processes. The move of the scheme management unit from the managing authority to the paying agency basically allowed us to operate or improve some of the controls that were there on a much larger scale. In terms of some of the things that we've done beyond the introduction of those investment panels, obviously, we've separated the appraisal team from the claims team, so that both teams can concentrate on their specific roles. We've moved operations into the wider RPW operations team to ensure that we're checking the processes and continually making sure that the training is fit for purpose. We've even brought some of our agri-environment contract managers  into the grant management or grant appraisal space, given the slowing down of the agri-environment schemes and the continuation of the socioeconomic schemes. And that's about trying to build resilience and scale in terms of the appraisals that we need to do going forward.

In terms of the RDP in its entirety, I think we're currently at around 85 per cent—I'm not sure of the figure off the top of my head, but what I do know is, based on the projects that we've got in flight, we could take that commitment level up to 95 per cent by the end of the year. And we've had the Minister, obviously, make announcements earlier in the year around the remaining budget allocation for the RDP and how she would want to have a little bit of over-commitment there to ensure that the programme can adjust and flex with the impact of COVID and with the impact of individual projects trying to deliver over multiple different things.

So, I think, in terms of where we are now: we've worked very closely with various different audits over the course of the last two years to ensure that we've got everything we need to do in terms of good governance and good record keeping. We've got a clear plan of activity in terms of seeing out the RDP programme that's been approved by the Minister and we've put in place detailed plans for making sure that we've got the processes and the teams in place that will allow us to ensure that we commit to the RDP fully before the end of next year.

The challenge then, as you alluded to, is making sure that the projects on the ground will continue to deliver and make sure that that commitment translates into spend for the remainder of the programme.

Okay, thank you. In regard to—[Inaudible.]—you've mentioned record keeping and the overall grant management processes on a number of occasions. So, some of the auditor general's recommendations, as you know, relate to those particular points around separation of duty, and you've mentioned the two teams that you've separated there in terms of appraisal et cetera. So, given the previous concerns that have been raised around these issues, the question, really, is: why were these measures not in place at the start?

I think some of them probably were in place, if we just separate out those two things. I think we've got evidence of quite a lot of record keeping from the past—the trouble was it wasn't as specific and as focused as it needed to be. So, sifting through lots and lots of communication between people wasn't necessarily a substitute for saying, 'This is the decision. This is the reason why we have taken this decision.' 

One of the points that I've been pressing home with colleagues across the groups, since I took over nearly three years ago, is that need for the basics. And that's been helpfully reinforced, as I said, by Audit Wales colleagues coming in and supporting some of those training sessions: 'What are the key things that we, Audit Wales'—sorry, I don't wish to put words in colleagues' mouths, but, 'We, as a team, regularly find this and this is borne out in other bits of audit work across the public service and these are some basic points that you need to adhere to.' And we've done a lot of work within the group and within RPW to drive that message home. 

On the separation of duties point, there were separation of functions within the previous divisional arrangements. It wasn't that they weren't there, it's just that we felt that they could be strengthened, and that's one of the reasons why I moved the SMU, the scheme management unit, into Hugh's team at the end of 2017, because that would put clear blue water between the scheme management unit and the managing authority and that's the arrangement that we have now and I think it's better—it's strengthened as a result.

Thank you. And I think you've partially addressed the majority of the question that I've got in regard to the overall balance in terms of the project proposal in regard to the different portfolios. So, I'm happy with that question, Chair, if you want to move on.

Diolch, Rhianon. Angela Burns.

Chair, I think Jenny was desperate to leap in at that point.

Oh, sorry. Back to Jenny Rathbone. Then I'll bring in Angela.

I would find it helpful if we knew what proportion of the RDP is awarded through public procurement or through expressions of interest and application routes.

I think we can probably write with the detail, but it's 2,900-something projects overall, of which the vast majority—so more than 2,900; I can't remember what the exact figure is—are selected following an expression of interest. We've got about a dozen projects that are procured and then a handful that are subject to the direct application procedure, and, as I say, we don't do that anymore within the RDP, but we've still got some legacy projects that were awarded on that basis. But we'll write and let you have the full detail in terms of the breakdown across the programme, to date—

Thank you. That's very helpful, thank you. 

—obviously it's in flight still. 

That's really helpful, thanks, Andrew. Angela Burns. 

Thank you, Chair. Mr Slade, paragraph 5.3 of the Wales audit report refers to the fact that an independent investment panel has been established to review the funding on awards of over £100,000, and we have touched on this area already today, but can you tell us who sits on that independent investment panel? Your evidence does talk about who sits on the sub-£100,000 investment panel, but all we can see is that it's a member of the corporate leadership team. Who else? And which corporate leadership team are you referring to, as there seem to be a fair few? [Laughter.]

I imagine that's an issue particularly within RPW. I'll ask Hugh to say who's on the—not names, but the bits of the organisation that are represented—

The roles. 

Exactly—the roles. But, as the Chair, was saying, we don't have an external on the group, and that is something that we are actively considering for the purposes of what follows the RDP in the context of us leaving the European Union. The only thing I would add on that point is we have found in the past that you have to be a bit careful with who you put on to investment panels, because it's quite hard, given the focus of the RDP, to find people who are not likely, in some way shape or form—if they're in the business, if I can put it like that—to be beneficiaries down the track. So, you have to work hard to get somebody who is genuinely not likely to have any vested interest in the outcome of the programme at all. But, Hugh, can you give Ms Burns a bit of a sense of the make-up of the panels? 

Yes. For the investment panel over £100,000, then there has to be at least one deputy director. That can either be myself, as the head of the paying agency, or it can be from the managing authority. There has to be a cohort of five individuals, usually including the head of the scheme management unit and the financial due diligence manager, and obviously there has to be a managing authority representation on the board as well, given the budget impacts that we are signing off. So, as we mentioned, it hasn't got an independence to the managing authority paying agency, but if there was a project there that we felt required some policy input or more of a regional dimension to it, then we could call upon others from the wider Welsh Government to attend.

Thank you for that. So, Mr Morgan, in the light of what you've just said, and also in light of the comments that Jenny Rathbone's made about the whole overall programme scrutiny and performance management, how confident are you that these two new panels—above £100,0000 and sub-£100,000—are actually providing effective scrutiny? And how able are they to challenge the information that comes before them and to ensure that value for money? 

So—sorry. Is that for me or Andrew, sorry? 

Who wants to take it—Andrew? 

I think it was addressed to you. You go ahead, and I'll add anything that seems appropriate. 

Okay. So, like I mentioned earlier, at the outset of the selection process, through the expression of interest window, the criteria and the assessment of a project's value for money is done at an initial stage through the managing authority and the associated policy areas, so they select the projects. The projects come in, they score them, they triage them in terms of the budget that's available and they basically select—'These are the projects that we want to go ahead' for any particular window. That information is presented to us; we obviously make sure that everything is in place in terms of the evidence trail we require as a paying agency and then we invite them for full application. That application, when it's received, is subject to various checks on eligibility and then goes through technical and financial appraisal that looks at the nine criteria that the programme monitoring committee have established. And that will include the reasonableness of cost of operation and will ensure that we're doing thorough due diligence, where we will also work with the grants centre of excellence, if there's a need to, in terms of detailed scrutiny of the accounts.

The panel, at the moment, since they've been received, have assessed in the region of 140 projects—the two panels together—and they have complete freedom to reject any appraisal recommendation coming forward for whatever reason. As a panel we can insist that there are special conditions applied. We can send it back if we think there needs to be further financial—. We can check if there are any planning requirements. And as I mentioned before, we can also pull in other departments or other policy areas if we need to.

So, I believe those panels take away that dependency on any one individual making a decision on a project, and it has to be a collective decision. So, majority rules, in terms of making any investment. But, yes, my experience is it seems to be working very well. There are instances where we've sent projects back for more information. There are some instances, even, where we've rejected projects through that investment panel.

Thank you. You have clarified a very important issue, because, again and again through this evidence session, there's been mention of the difficulty of getting truly external people within the process, and we just needed to ensure, because it's a tight team, that the same roles weren't being poacher and gamekeeper at the same time. It's very important to have that clear line between the two to enable that really effective scrutiny.

You've already talked about some of the benefits. You've talked about the fact that you have rejected some of the ideas or projects that have come forward, or altered them. Could you also just outline any other benefits that you have seen that have flowed from replacing the previous RDP governance arrangements with the roles of managing authority and paying agency, because, again, that seems, to an outsider, overly complex?

Right, so—

No, you go, Hugh. I was going to comment on the past and then you could explain what was happening now, and whether that would help. For the committee's benefit, very briefly, because, as you say, Ms Burns, there's a potential to make this sound more complicated than it needs to, or it might look more complicated than it actually was. In the past, there were three key instruments of governance around the programme. One was the ESI board, which was the European structural and investment funds board, of which the RDP is a component. There was the CAP programme board, which was mainly about making sure that we had administered the CAP reform process effectively, but that included the RDP. And then there was the RDP management board. Those were the key components, and the management board was about the operation of the programme as whole. Hugh and Tim have put in place a different set of mechanisms, which, rejoice, is under the acronym 'MAPA'. And Hugh can now tell you bit about the benefits that MAPA has brought to the party.

Thank you, Andrew. So, I think the managing authority paying agency—as we said, referred to as MAPA—actually came to being following the previous Wales audit report that we had on managing the impact of Brexit on the rural development programme. One of the key benefits that that board brings to us is the co-ordination between the managing authority and the paying agency, and that real sense of ownership of the delivery of the Wales RDP, because, obviously, we've got clear, distinct functions that are separate from a Commission perspective, but from a Wales rural development perspective, it's just one rural development programme that we're both trying to deliver here. And whilst we have those clearly distinct roles, what we do is work very closely together as a managing authority and paying agency now to look at the risks and issues that might affect our ability to deliver across both our functions and the appropriate actions that we take to mitigate those.

The other aspect to it as well, obviously, is the increased budget management controls that we've put on the programme, in particular given it's a seven-year—. Well, actually, it's a 10-year programme overall, when you take the seven-year programme period and the plus three period, and obviously what we were conscious of with the impending Brexit situation was that we had a lot of beneficiaries that had let projects, if you like, on the ground slip—weren't really on top of projects on the ground—and we've introduced that improved scrutiny and messaging with projects to ensure that they understand the implications for the budget if projects don't deliver on the ground and also the impact that that has on the domestic co-financing element in particular of the programme. Because, obviously, from a Commission perspective, you have the full period for the EU funding element of it.

So, that's really the benefit of it, and, obviously, when it comes to looking at the back end of the programme, we've worked very closely in terms of looking at what the capability of delivering was across the remaining of the programme period, supporting MAPA in terms of discussions with policy colleagues in terms of the policy interventions that they wanted to deliver there and, obviously, being involved in the discussions with Ministers and the wider senior leadership team of ERA in terms of what we need to do to see out the programme in the time that we've got left.

Thank you for that. That really finishes the questions I wanted to ask, but, Mr Slade, I wanted to make a comment on a comment that you made, which was about—. I agree with you, it'd be really important and, I think, beneficial for just transparency to try and get the external person onto your various boards. But you made the comment about how difficult it was to find those people, somebody who doesn't have any interest in what any potential outcome might be, and I kind of have a degree of sympathy, because I was, for a while, on the audit and risk committee for the Commission and it is—. But there are so many good people out there: people in business, people in accountancy, lawyers, all sorts of people with real, detailed knowledge of how programmes should work that have got nothing to do with the RDP, and I just wanted to challenge you on that a bit, because I'd hate that to become a reason why we wouldn't be able to move ahead with this leavening of scrutiny. And I'm also a great believer in actually inviting a member of the awkward squad onto your board, because that irritant gives you the pearl that you need at the end of the day.

I think that's a fair challenge and we make a lot of use of non-executive directors throughout Welsh Government business, as you'll be aware from other work done by the committee, and they bring value. It's probably worth saying, for expert advice, we often go out to get expert advice in the appraisals process anyway. It's more about that kind of independent rigour, asking the awkward question that nobody else is prepared to ask, and it's getting the balance right between somebody who comes in and is able to ask that completely cleanly and somebody having enough of an understanding around the complexities of the programme to get reasonably quickly to the point where they understand those as well as providing the challenge. So, I think it is something we will go away and consider further in the context of the remainder of the RDP: can we do it? Because I think the committee have made that point very strongly today and we will go away and look at that; we are certainly building it into our plans for life beyond the RDP and whatever comes next.

Thank you.

I think that will be important, Andrew, because we're looking at it very much from the value-for-money perspective, but, of course, there are people behind these statistics, aren't there, and there are people out there, farmers applying for these grants, and they've got to have confidence as well that the oversight is holding together well.

Yes. It's worth saying, just on that, there's a lot of stakeholder engagement throughout the management of the whole programme. That's a slightly different thing—that's about managing relations with representative groups for the areas, the beneficiaries, involved, but this is about other people who can bring in additional rigour to the process. 

Okay, thanks. Vikki Howells.

Thank you, Chair. Looking at the scenario of case study 2, which was provided for us, in there, completion of an individual project was jeopardised because funds weren't earmarked for all project phases. What assurances can the Welsh Government give that that kind of scenario wouldn't arise now?

I used Audit Wales's findings here in a conversation recently with somebody about UK Treasury's funding cycles, because the issue here is that we've got a 10-year programme, effectively, as I said earlier, with lots of moving parts: seven years of the main programme and then three years to see it out from the commitments phase—although the rules have changed, partly because of coronavirus and some of the issues that has caused at the tail end of the programme. But it is very difficult to manage a multiyear European programme when the longest you will ever get UK Treasury to commit to in spending terms or in a budget cycle is three years, and, very often, that's two years with a third year basically rolled over. And that is the problem that dogs all of our management of European funds, getting that balance right, because you can't say with certainty, looking years out, that you're going to have the money in the programme.

I don't think, in the terms that we might worry about them, that at any point was case study 2 in jeopardy of not happening. It was part of the very complex internal budget management that goes on within the ambit of the whole programme, the £835 million, to make sure that enough money is found for the completion of projects, and both Hugh's people and my central—[Inaudible.]—team led by Dean Medcraft, who you met the other day when we gave evidence on procurement, and then working with closely with colleagues in central finance and strategic budgeting—they're working all of the time to make sure that money can be allocated to projects and to make sure that we've got some sort of sense of flow of projects and when they're going to need money.

So, case study 2 will have required funding over a number of years, probably—from memory—longer than the classic three-year Treasury budget cycle.

So, would there be lessons to learn from that for any transition to a scheme that will be delivered after we leave the EU?

Yes, actually—sorry, I meant to address that point, and I might bring Hugh in in a moment, because he's closer to it all these days than I am. But I think there are two important points there: (1) what can we do within the programme to continue to improve project forecasting? It's often quite difficult to know when projects are going to spend: things slip, bad weather affects capital works, there's a supply chain hiatus. So, we were talking, weren't we, the other week about roads and the potential impact on supply chains of coronavirus. Well, there are coronavirus impacts on the programme: suddenly, you wake up one day and the thing you were hoping you would come across from Hungary or Germany isn't going to arrive when you thought it would, and, instantly, you've got problems about when the project's going to spend.

So, whatever we can do to improve project forecasting and profiling of spend we are trying to do within the existing programme. But then to your second point, Ms Howells, I completely agree: if we can possibly get to a state where we have greater certainty about when money will come through at a domestic level so that we can plan these long-term interventions, these programmes, which I think we would all agree—committee and Government alike—are beneficial, rather than always running things on a very short-term basis—. There's a lot to be had from a long-running investment programme that allows you to build in and track improvements over time, and we would be very keen to see that as part of any new set of project arrangements.

Okay. Thank you. I know that some of my colleagues are going to ask questions on EU transition later, so I hope I haven't stolen anyone's thunder. You've said that, from October 2018, no additional funding has been granted to existing projects in order to manage the overall commitment levels for the remainder of the programme period. If this situation were to change, how will you be strengthening controls to ensure value for money? 

I think we've completely picked up the point made by Audit Wales, and indeed our own internal audit arrangements, that where we're rolling over in that term, or we're extending awards, we're very clear about the value add and we're very clear about how well was the thing done to date. The reality is that we're not making additional awards at the moment, as you say, because, largely, of the financial position, and we've written out to beneficiaries and said, 'Look, because we want to manage the budget out from here on in and know what room for manoeuvre we've got with other things, as a rule, we won't be funding anything further.' There will occasionally be things that happen, like the supply chain interruption, or suddenly the cost of a vital element of a project goes up through no fault of the project managers. Where we do have a very clear costing basis and understanding of the value implications, we'll make those changes, but that is the exception to the general rule, and we're not using those. But we have completely absorbed and accepted the point about making sure that we're not giving money to projects without some sense of understanding how they are doing, and that we're clear about the value to be had from any project top-up. Hugh, is that fair, or is there any point of subtlety I've missed in that assessment?  

No, that's fine. I think—. And then, obviously, any additional grant award, if we were to make it, would then come to the investment panel for a final sign off, given all the controls that we mentioned previously. So, it is absolutely—budget management is key at the moment with this running out of the programme. We have written to all the beneficiaries, explaining to them that there's no guarantee of financial year-end roll forwards any more, unless there are exceptional circumstances, given that we've got a finite time left of the programme. From our perspective, and the managing authority's perspective, the last thing we want to be in is a position where at the end of the N+3 period—2023—we haven't drawn down and used all the EU funding that was available to us, and that's why we're putting these stringent controls in place on the budget management. 

Just looking at other programmes across your portfolio, for example business finance, what assurances can you give us that the same sort of issues won't be occurring there?

Well, we've taken lessons from this report from the auditor general, and we always discuss those in our finance and governance committee and indeed with the audit and risk committee. And then, as a regular pattern now, we spread out or we fan out the lessons learned from those committees, coming out of both internal and external audit reports, including value-for-money studies, and we push that out down through the group as a whole, so that directors and their teams are aware of the findings and key issues that need checking, or key issues that need putting in place. And my finance team have done a good job, working with colleagues across the wider group, to set out what was found in the context of this report and to make sure that people are not doing similar sorts of things. The context in this case is quite specific, I think, to the particular types of projects that we were trying to run through the RDP, but, where there are wider lessons to learn, we seek to do so. 

Thank you very much.

Diolch. Gareth Bennett. 

Thanks, Chair. I think we covered earlier the difference between compliance and value for money, but, if we think about the value-for-money aspect, was there any assumption that third sector organisations or not-for-profit organisations would offer better value for money when you took decisions on what projects to fund? 

No. And I suspect that's a function of the speed with which we prepared the evidence paper for this session, and for which I apologise—in the middle of dealing with the pandemic and EU transition stuff, which has ramped up very considerably, we had to get the report done and out for you in record time. No, just to be clear, there's no implication that one sector is more efficient or delivers better value for money axiomatically over another. I think the point we were trying to make there, Mr Bennett, and it's a fair challenge, was that these direct awards were not about—I think I mentioned earlier—profiteering; these are not not-for-profit bodies, and we reimburse costs. Within, for example, the procurement approach, there is an allowance for profit; that's allowed as part of the competitive process. Frequently, it gets captured as sort of management costs. We don't have those in the context of these not-for-profit projects under the direct award approach. That was the point I think we were trying to make in the evidence paper, and I apologise if we've given a different impression. 

Okay, thanks. There was a point that Jenny touched on earlier as well—I'm not sure how far it was addressed—about, given that some of the projects received successor funding before the Government had evaluated the value-for-money success, is there any extent to which certain projects were favoured over others, and was there a difficulty in new entrants actually getting accepted for funding? Were people being excluded, I think, was the way that Jenny put it earlier.

I don't think so particularly. Over the course of what will be a 10-year programme, and with all those applications—2,900 plus—I think everybody will have had a chance to compete for the programme. As I say, the vast majority of the programme is put out under our expressions of interest approach. The proportion that's procured or has gone out through the direct approach is very limited. But it's something that we need to be alert to and it's one of the reasons why Audit Wales and, indeed, we previously had picked up on the potential issues around the direct awards approach, and that's one of the reasons why we don't do that or use that route any more within the RDP.

Okay, thanks for that. Hugh was telling us earlier, I think, about some of the criteria that are used for evaluating value for money. So, I don't know if this question replicates some of that, but, if you could add anything that needs adding to previous answers, it's: what can you tell us about the key metrics that are used by the staff to monitor and evaluate projects, how the relevant evidence is gathered and validated, and what the overall performance is looking like currently at a programme level?

On the last one, just to re-emphasise, the programme looks as if it's performing very well. So, it's meeting or exceeding the targets that we agreed with the Commission at the outset of the programme following the ex-ante evaluation. I don't know whether, Tim, you wanted, as acting head of the managing authority, to say a bit more about the evaluation regime for Mr Bennett.

Yes, thanks. I think there are two slightly different parts to the question. One is around actually the evaluation of specific projects. Obviously, the metrics you attach to individual projects are very variable depending on the type of the project. So, some will have metrics about jobs created or jobs preserved, some will have metrics about skills training courses run, some will have metrics on environmental outcomes delivered. So, at the individual project level, there will be very specific project criteria, and those will be set out clearly when we open an expression of interest window, that these are the sort of selection criteria and the ways we are going to measure it.

But, as a programme overall, it has full evaluation and monitoring really built in. That's part of the framework set by the EU regulations. Indeed, we have to agree a performance framework and indicator plan upfront as part of agreeing the whole rural development programme. That is then reported on annually in the annual implementation report. We have extensive ongoing evaluation both of the individual component schemes—I think, at the moment, we've got evaluations running on eight of the component schemes—and then there is, at the end of the programme, a major evaluation of the impact of the whole programme.

And we have those evaluations on the socioeconomic schemes, but we have something that actually I'm really proud about, which is our environment and rural affairs monitoring and modelling programme, which goes by the acronym ERAM, and which really looks at all the environmental outcomes that are delivered through the rural development programme, which gives us, I think, probably the best picture of the environmental impacts, certainly in the UK—really detailed, in some places almost down to field level, assessments of the environmental impacts—which has also been something that's been incredibly helpful as we've looked to design future schemes that, as you say, we'll probably want to come on to in a little bit. So, we've got really detailed evaluation and monitoring built into the whole thing. If it were helpful to committee, we could send a copy of the latest annual implementation report, for instance, which sets out those more detailed measures.

And then, with all of that, as we said previously, we have to hit certain performance targets agreed with the EU to have released the performance reserve. We've done that and, indeed, the targets we had agreed with the EU for the end of 2019, which I think are the latest that, obviously, we've had, we'd actually hit by March 2018. So, we were well ahead of the agreed performance targets with the EU at overall scheme level.

Thanks very much. Thanks, Chair.

Thanks, Gareth. Moving on to the last section of today's session, and Rhianon Passmore on EU transition.

Thank you very much, Chair. Before I do that, could you actually give me the current position regarding rural development programme commitment and expenditure, because, obviously, that has an impact in terms of this line of questioning?

I think Hugh mentioned the degree of commitment that we were aiming for by the end of this calendar year, of trying to get up to around about the 95 per cent mark. Hugh may have the figures to hand. I'm looking through my most recent data—

I've got them.

Have you? Seven hundred committed, is it, Tim?

Yes. I mean, the total programme is £835 million, of which, at the moment, just over £700 million is committed, and that means that individual projects have had a very specific offer letter. In addition to that, there are a range of projects that are in the process of evaluation, where we have open windows where, in a sense, the money is identified as to what it will be allocated to, but it hasn't yet reached a point of finally an approved project with its formal offer letter, and so, technically committed. That is about another £80-odd million in that sort of category, and, as Hugh said, our intention or what we're working towards is, by the end of this year, to have got to formal commitment for about 95 per cent of the programme. So, that's where we are at present.

Thank you for that. In terms of the overall position regarding your planning for successor arrangements, there are large areas of uncertainty and risk and opportunity that that is raising. So, could you outline to me what those areas of uncertainty are, where you feel the risk is and where you feel any opportunity is, and, obviously, we can read into some of the complexity and dynamic issues that you were alluding to earlier, there? 

I'll invite Tim to come in on that, because Tim and the team have been doing a lot of work in this area as part of our EU transition planning. And Hugh and his team within Rural Payment Wales are doing a lot of work around the potential mechanics of all of this. Tim?

Thanks. Yes, this is something that is obviously taking a large amount of my time and energy. It is complex. We are looking at three things. The first is the management of the existing rural development programme and particularly the EU funds around it. We've talked about commitment; we have to commit and spend that by the end of 2023. So, we are managing that and that is subject to all the EU rules, et cetera, that we've been talking about during the course of the day. So, that's managing and that's basically continuing managing it as we have been and as we've been discussing. So, that's one element.

The second element is what is our longer term approach to agricultural support policy. Coming out of the EU means that we are no longer subject to the common agricultural policy, so we will be, for the first time in 40 years, able to develop a bespoke, Welsh-focused agriculture support policy. It's rather an unusual position in policy terms; we're starting literally with a blank sheet of paper as to how we do that. Obviously, we've published detailed proposals; we've had two Green Papers—'Brexit and our land' and then 'Sustainable Farming and our Land'—which have set out our thinking as to what we want in the long term to do to move away from the current CAP-based systems around the basic payment scheme and the rural development programme into a sustainable farming scheme. The commitment is to produce a White Paper by the end of this calendar year that would set out that approach in more detail to support, then, an agriculture Bill in the next term of the Senedd. And, then, we've got a longer term job of designing and implementing those new systems. Again, how we do that and how we get the management, the audit, the accountability, all the things we've been talking about today, will be one of the very big things we need to get right in all of that. We are talking with the grants centre of excellence, with Audit Wales, because, obviously, the EU rules will not apply. We will have to design and implement our own and get it right ourselves. So, that's a big part of that, and the whole conversation we've had around external challenge and how we build those sorts of things in, these will be rules that Welsh Government, accountable to the Senedd, will have to do and justify and account for and make transparent, and so on. But that's slightly longer term.

I think we need to take the time to get that right and make sure it works, which gives us an interim period, as we've come out of EU funds, before our new system comes into play, where we will need to manage a transition. It will be funded through domestic money, and we're in negotiations with Treasury over the amount of that at the moment. We will also need legal powers. At the moment, we will not have legal powers beyond the end of this calendar year for this spending. So, we will have replacement EU continuity rules that will cover the rural development programme EU funds bit, but we will need to take new legal powers, in the context of the UK Agriculture Bill, which I think the Senedd discussed and gave legislative consent to last week, which gives Welsh Ministers powers in this space. So, we will need to produce legislation later this year that lets us move into that transition period, and we're out to consultation on that at the moment. And that will be essentially doing similar things to what we are doing at the moment—so, continuity of the basic payment scheme Ministers have already committed to for next year and rural development programme-type expenditure. So, the same sorts of subjects and, indeed, through similar sorts of grant mechanisms we can maintain, through that transition period, when we are exiting from the EU-funded programme, leading into our new approach on farm support.

So, can I ask in regard to—? There are some very complex and complicated, it seems, macro issues there, as well as those within Wales that we have to deal with. What are the key risks in regard to the withdrawal agreement? So, could you succinctly tell me what you've just said in a little bit more of a detailed fashion?

I think the risks in relation to the withdrawal agreement itself are quite small. Agriculture is something that was very clearly covered in the divorce settlement. It's a sort of done deal; it's clear we're now out of the basic payment part of the CAP. We have the commitment for the remaining rural development programme money through to the end of 2023. So, that is not changed by any deal—trade deal or whatever—that is done with the EU later this month. So, I think in terms of being clear on how this works in relation to the EU, that is set out clearly and I think we know where we're going. Basically, we now have to be really clear we are following and continuing all the EU rules, audit, et cetera, and still subject to disallowance until the end of 2023 for the rural development programme bit. The other bits are ours. So—

But with regard to that whole in terms of audit, scrutiny, et cetera, you say that we're following the EU rules in regard to finances, but what happens then in terms of Welsh Government's capacity in terms of staffing around those matters? Is that a risk for us?

Well, on the last, there's no let up on the controls, as Tim was just saying. So, we've got to keep going with the regimen as amended as we go along through the end of 2023, and as Hugh mentioned earlier, we're working closely with colleagues about what comes afterwards, and Tim set some of that out, including how we work with grants and our excellence colleagues on the design of our new domestic arrangements.

Resourcing remains an issue. We've got some fantastically committed and capable people across RPW, and, indeed, across the group as a whole, taking this work forward. There's never any lack of passion about trying to do right for Wales, in my experience, across the group, and it is superb, and we've no better evidence of that than what's gone on through the pandemic and the work that's been put in. The reality is RPW is a bit less than half the size it was 10 years ago, and it's got roughly double the workload, so that gives you some sense of the amount of pressure that people are under, and we're having to work hard to manage things as efficiently and effectively as we can and to focus on the things that matter most, the priority areas. But we have got a lot of expertise that we will want to take into any new arrangements in relation to land management work, but also more generally in relation to rural development funding.

And in regard to the overall staffing position, which you inferred, across rural development teams, how confident are you that you can retain that expertise through transition to new arrangements? You've also touched upon resourcing and in terms of the oversight that we have in regard to UK Agriculture Bill matters, but what about match funding? What is the position there in terms of security?

Well, that's part of a wider set of discussions on the funding with UK Government in terms of the successor arrangements. Tim's touched on what will apply in relation to the direct payments to farmers, the basic payment scheme and its immediate follow-up. But we're in a wider suite of discussions with UK Government about money to come forward to make up for the loss of European funding, including in relation to the shared prosperity fund and how that is meant to operate in future.

As in all things, when you're trying to hang on to it, expertise, capacity and capability, uncertainty is always a major factor. The more uncertain the future looks, the more likely people will go and look for things that are more certain, and one of the jobs of the leadership team over recent months, which they've done brilliantly, is to keep the ship steady and say, 'Look, there's lots of stuff we're going to do in future, we need to be ready for and we need to be thinking about alongside the day job.' And a lot of work to try and shape, with Ministers setting the context for that aftermath of the CAP in Wales, what future schemes and arrangements might look like, and that helps you keep people's interest and, hopefully, retain our key staff. But it is a time of considerable uncertainty and very considerable pressure on our staff resources.

In relation to RPW, I don't know whether Hugh wants to add anything.

Just to emphasise that point, Andrew. Since Brexit was announced, obviously, we've known it's going to have a significant impact on the work that we do as a paying agency, and one of the points that I've constantly made to staff is, 'Just think of it as another change programme. Just think of it as another CAP reform.' We're very adept at CAP reforms. I've done three personally, so the senior management team is long in the tooth in terms of change programmes. The teams across the division are embedded in the rural communities and the farming industry that they serve. They all want to do what's right for the people of Wales. It's just that continuous dialogue and engagement with staff to make sure that they don't get scared off by the uncertainty and are basically committed to the job at hand. As Tim alluded to, there's a lot of parallel running that's going to happen during this transition phase and we've got to make sure that we've got one eye on seeing out the RDP whilst on the other side dealing with the transition and planning for the future policy direction.

And finally in this regard, we've talked a little bit about the transitional arrangements till 2023. In regard, then, to successor arrangements around the shared prosperity fund, have you anything further that you can spotlight to us in regard to clarity around when we'll know more around this particular matter in regard to those who absolutely rely on this funding for the future?

I think the shortest answer to that is 'alas, no'. We don't have any more information. These conversations are ongoing, wrapped up in a wider set of issues around the spending review, which is imminent, but also, as you'll be aware, around what happens in terms of programme funding in the post-EU world, and where and how it is managed. So I'm afraid there isn't anything new to tell you today on that front.

Thank you. Thank you, Chair.

Thanks, Rhianon. We're out of time now, but there was something I just wanted to mention briefly, to pick up on what you said earlier. In terms of the distribution of the rural development grants, did you say earlier that those are always signed off by the Minister, or is it only if they're over a certain level that they get a ministerial sign-off?

Colleagues can correct me if I'm wrong on this, but the core components of the RDP and the amount of money that we're proposing to allocate to them will always be subject to a submission to Ministers for approval. Ministers don't get involved in the detailed sign-off of smaller projects. I don't know whether they're involved at a particular size within the programme, Hugh.

No.

Okay. That's fine.

So the framework of the programme, what we're trying to achieve with it and the terms in which it's going to be run—when we open the window, how long we run it for, what we're after in terms of objectives—will be set by Ministers, and the allocation money to go along with that, but not detailed decisions on day-to-day project management.

Okay, that's clear. Thank you. Can I thank our witnesses, Andrew Slade and your colleagues, for being with us today? That's really helpful. As usual, we'll provide you with a transcript for you to approve for accuracy before it's published.

Thank you, Chair and committee.

See you soon.

Okay, with that I move Standing Order 17.42 to meet in private for items 5 and 6, and the meeting on 12 October. Happy with that? Okay.