The government’s financial watchdog has refused to sign off the annual accounts for DEFRA and the Rural Payments Agency.

The National Audit Office said it was qualifying DEFRA’s accounts for 2010-11 on the grounds of regularity, because of penalties totalling £175m from Brussels.

The Rural Payments Agency had failed to accurately assess the value of overpayments and underpayments to farmers under the Single Payment Scheme.

During 2010-11, penalties were imposed on DEFRA because EU regulations were not applied correctly in the processing of EU schemes.

The disallowance includes penalties of £145m in respect of the administration of the Single Payment Scheme in England in 2007, 2008 and 2009.

The remaining penalties relate to the Fruit and Vegetables Scheme (£24m) and the Rural Development Programme for England 2007 and 2008 (£6m).

DEFRA’s accounts also include provision for a further £84m of estimated disallowance penalties, including £53m for the Single Payment Scheme for 2010.

Amyas Morse, head of the National Audit Office, said: “There continues to be a significant loss to the taxpayer because of weaknesses in the administration of the Single Payment Scheme by the Rural Payments Agency.”

“I welcome the appointment of a new senior leadership team at the Agency which should now urgently address the issues which have led to my qualifications.”

A DEFRA spokesman said: “DEFRA has consistently sought to maximise value for money for the tax-payer in all the department’s activities.”

The department had already made provision for financial penalties in 2010-11, which were anticipated in advance.

This was due to to well-known historical problems with the administration of the Single Payment Scheme, the spokesman said.

“The department is taking steps to minimise the possibility of further penalties related to the administration of EU schemes and a new senior management team has been put in place.”

Significant attention has been paid to improving the administration of the Single Payment Scheme, following an internal review of the agency. Work had also been undertaken to upgrade the RPA mapping system.