Officials from the Department for Environment, Food and Rural Affairs (Defra) have defended the Rural Payments Agency (RPA) in the face of heavy criticism from MPs.

The agency was set up to distribute payments to farmers from the EU but has failed to do so in a timely and cost-effective fashion for several years. It now costs six times as much to distribute such payments in England as it does in Scotland, largely because of the complicated IT system.

Focus fell on the RPA chief executive Tony Cooper, who was awarded a £12,000 bonus on top of his £134,000 annual salary last year despite showing what the National Audit Office (NAO) called a "scant regard to protecting public money".

Cooper defended himself at a meeting of the Public Accounts Committee yesterday by saying the agency had reduced costs - with staff cut from 4,600 to 3,500 and customer satisfaction doubling to 76 per cent.

Asked why the agency had been through four chief operating officers in three years Cooper said: "I'd much rather have a permanent person. [But] the agency is under constant scrutiny – not everybody is keen to join."

The NAO last week called for the RPA to scrap its current IT system, the Single Payment Scheme, which has so far cost £350m in startup and maintenance costs, including almost £130m spent over the last two years fixing the problems.

But Defra permanent secretary Dame Helen Ghosh said that scrapping the IT system now was unlikely to be an option.

"Legally and practically the problems with scrapping the system are insurmountable," she said.

Ghosh admitted the agency had caused farmers "a lot of grief" and said: "We absolutely apologise for that".

She added that decisions made in 2004-05 had been optimistic, leading to a " fundamentally flawed IT system".

In 2004, the RPA opted for a dynamic hybrid scheme that would evaluate farmers' payments by their land use, rather than historical data.

But the model specified by the agency to IT supplier Accenture was misleading – and did not allow for changes to be made to farmers' entitlements, a key aspect of the scheme.

"[Accenture] was asked to build a system that presumed we would only set the entitlements once. It delivered this and the fault does not lie with it," said Ghosh.

The system subsequently had to be retro-fitted at great expense.

But Ghosh said that the agency had made significant progress since that early mistake.

"Ninety per cent of payments made by the RPA are in fact now accurate," she said.

She added: "The speed of payment to the vast majority of farmers is much improved."

She rejected claims the agency had been "sitting on its hands", citing £16m of overpayments recovered in 2008, a reduction in running costs, and the fact the agency has hit efficiency targets for the past two years.

"I reject the idea that we haven't been focusing on value for money," she said.

"Now we are in a position where we can look further at cost and efficiency."

Accenture's contract for the system will expire in 2011, but Ghosh denied claims that no other supplier could win the contract because the legacy technology had become so specialised.

Committee chairman Edward Leigh was frustrated by the inability of the officials to get the system fixed, referring to the situation as "a total mess" .

"We're only talking about 106,000 farmers, for God's sake," he said.

Leigh's anger increased when it was revealed that the RPA currently employs 100 contractors that can earn up to £200,000 a year - it also hires temporary workers who can earn as much as £2,000 for a day's work.

He endorsed the NAO's criticism of the agency's handling of the Single Payment Scheme which it dubbed a "masterclass of misadministration". He labelled the IT system "clunky" and "patched together". He also said the RPA's "shoddy book-keeping was disgraceful".

Defra is currently conducting a review of the scheme and Ghosh said the agency would come back to the committee with an action plan on recovery by February next year.