A CRISIS-HIT project that has left thousands of farmers out of pocket is on course to run out of cash within months, will not deliver value for money for taxpayers and could lead to the imposition of tens of millions in EU fines.

In a scathing verdict, Scotland's public spending watchdog identified "multiple failures" in a programme to ensure reformed EU farming subsidies are paid out correctly, and warned that the Scottish Government is in line to be hit with European Commission [EC] fines of up to £125m as a result of the blunders.

Farmers usually receive subsidy payments by December, but this by the end of last month, no farmers had yet been paid in full, having a knock on impact on the rural economy and forcing ministers to offer emergency loans.

Opposition parties said the findings laid bare a "litany of failure" and "staggering incompetence" as they called on the new Rural Secretary, Fergus Ewing, to conduct a swift review. The National Farmers Union Scotland branded the episode an "absolute disgrace".

Mr Ewing's predecessor, Richard Lochhead, had faced calls to resign over problems in the new system for administering Common Agricultural Payments (CAP), which will cost £76 million than originally planned but has been significantly scaled back in terms of what it is expected to deliver.

The new system had to be set up following changes to the EU's CAP policy, which provides financial support to farmers, crofters and rural businesses. The project was launched in 2012 and is due to end in March next year, however Audit Scotland said there was a risk it could run out of money before a system that complies with the regulations is in place.

It reported significant tensions between teams, confused governance and accountability arrangements, and a failure to deal effectively with a significant conflict of interest held by a contractor on the programme.

Caroline Gardner, Auditor General for Scotland, said that the scale of the challenge now facing the Government "should not be underestimated". She added: The CAP Futures programme has been beset with difficulties from the start. These problems, and the way they have been dealt with by the Scottish Government, are a serious concern, particularly as the programme continues to face major obstacles and is unlikely to deliver value for money.

"There is a significant risk that the Scottish Government will not deliver its aim to minimise financial penalties charged by the EC for non-compliance with regulations. A range of financial penalties is possible, with a potential range between £40 million and £125 million, subject to an assessment of the specific circumstances by the EC."

It is the latest public sector IT shambles to be highlighted by the watchdog, following similar budget overruns and delays in flagship Police Scotland and NHS 24 projects.

It recently emerged that a director in the project supplied dozens of contractors from his own company to work on the CAP programme, meaning he stood to benefit financially. Audit Scotland found that despite the Government being told about a possible conflict of interests in December 2014, the director still had the opportunity to influence recruitment decisions and authorise overtime payments for contractors from his own firm. It was found in January that of 107 contractors who were on a day rate higher than that agreed originally, 97 had been recruited through the director's agency.

The watchdog said "conflicts of interest were not dealt with effectively" with arrangements "not strong enough to address the risks and did not ensure value for money."

John Swinney, the Deputy First Minister, said the Government's focus was on getting payments to farmers and crofters ahead of the deadline of June 30, and that 80 per cent of first instalments had been paid. He added: "This is still a live programme to deliver complex reforms which have been challenging for everyone involved, with slow payment timescales in other parts of the UK and Europe.

"It should be noted that ministers have been dissatisfied by the performance of our private sector providers and, as a consequence, the Scottish Government has already put in place stronger commercial arrangements and are making the private contractor fully accountable for the IT delivery elements."