EU warns of foot-and-mouth abuse

A poster informs the public how they can help during the outbreak

LONDON, England (CNN) -- European Union officials have warned that the compensation system established in the wake of Britain's foot-and-mouth epidemic is open to widespread abuse.

A report by the EU's Dublin-based Food and Vetinary office, quoted in The Times newspaper, warned that the system of valuation of slaughtered herds presented "a clear potential risk of conflict of interest."

It urged that "immediate action should be taken to ensure that valuation procedures are properly controlled."

Many of the valuers appinted by the Department for the Environment, Food and Rural Affairs (Defra) are non-professionals nominated for the job by the same farmers whose losses they are assessing.

There have been numerous reports of them artificially inflating the value of slaughtered animals.

According to the existing rules, valuers are allowed to charge a fee of one percent of the stock they are valuing, up to a maximum of £1,500 ($2,120) per farm.

By valuing destroyed livestock at £150,000, therefore, they can receive the maximum possible payout.

Jeremy Moody, secretary of the Central Association of Agricultural Valuers, told CNN that his organisation was "very concerned" about the activities of unqualified valuers.

"To have undue farmer influence on who is appointed means there is a potential for conflict of interest," he said.

"It also means that the farmer will seek to find a valuer who will give him the highest possible valuation for his lost cattle."

Moody said he was particularly concerned about the activities of valuers in the Settle area of the Yorkshire Dales.

Rumours but no evidence of deliberate infection of sheep and cattle

To date more than 10,000 valuations have taken place involving three and a half million livestock.

£940 million has been paid in compensation to some 6,000 claimants, an average payment of £155,000 per farm. Sixty percent of this amount is paid for by the EU.

Defra officials have acknowledged that there are "looking into the evaluation system."

"We have been examining the valuations and the basis for them," a Defra spokeswoman told CNN. "There is a feeling that some independent valuers have been valuing too high."

She said Defra was keeping the EU regularly updated on the situation.

The European Commission anti-fraud office, meanwhile, is said to be in "close contact" with Defra over allegations that some farmers had infected their herds deliberately in order to claim compensation.

"The commission has not launched a fraud inquiry," an EU spokesman told The Associated Press. "But Olaf is maintaining close contact with British officials in connection with the findings of the vetinary experts."

Olaf representative John Burke told CNN: "At the moment we have a watching brief. We are liasing with the authorities in all the countries affected by foot-and-mouth. We are not dealing with specific cases."

There has been growing concern over both the size and method of compensation payments to farmers.

According to a report by government think tank the Centre for Economics and Business Research, the total cost of compensation could reach £3 billion in the current financial year.

A report released on Saturday by Professor Midmore, an economist at the University of Wales in Aberystwyth, suggested the figure could be as high as £5 billion.

Coupled with the current economic slowdown, such sums could, it is predicted, adversely effect public service investment, a suggestion denied by the government.

"It is because this government's economic policies are based on prudent and cautious assumptions that our spending arrangements are able to go ahead as planned," a government spokesman told the Press Association.