11 May 2021

MSD told to crack down on unneeded wage subsidy recipients

From Checkpoint, 5:39 pm on 11 May 2021

The Auditor-General wants the Ministry of Social Development (MSD) to step up its efforts to claim back cash from businesses that wrongly received wage subsidies.

Carmel Sepuloni.

Social Development Minister Carmel Sepuloni. Photo: RNZ / Dom Thomas

The $13.3 billion wage subsidy scheme was designed to keep as many people as possible in their jobs during last year's lockdowns. 

The Auditor-General's office launched an inquiry last year into how the scheme was being managed.

The report released today has praised some efforts to keep businesses from taking money.

The Auditor-General's Office said MSD's so-called "audits" of companies that received payments needed to go further.

The government spent more on the wage subsidy scheme than any other part of its Covid-19 response. At one point $1.8b was paid out in a single day with 70,000 applications in 24 hours.

Social Development Minister Carmel Sepuloni said the department was operating under a high-trust model which needed to be rolled out with speed.

And for the most part that has worked: unemployment remained lower than the daunting forecasts of last year's lockdowns.

But with the wage subsidy's high trust comes a high risk of fraud and that was worrying the Auditor-General's office.

"Reviews of applications after payments were made consisted mainly of verbal confirmation of information from employers and, in some cases, employees. 

"In most cases, these reviews did not involve substantiating the facts using independent, or at least documented information," the report said.

While MSD has publicly called its follow-up checks "audits" the report said they were more akin to reviews. 

MSD has started referring to them as pre- and post-payment integrity checks.

The Auditor-General's office said it was not persuaded those checks had identified all businesses that need further investigation and recommended MSD seek written confirmation from all applicants about their compliance.

'The cheek' to call it an audit

Inequality researcher Max Rashbrooke said there was a considerable difference in those checks and the way beneficiaries were treated.

Max Rashbrooke

Max Rashbrooke. Photo: supplied

"If MSD thinks you might be a benefit fraudster they pursue you to the ends of the earth, and with this scheme, MSD just rang people up and said, you know, 'did you do everything correctly?' and if people did then that was it.

"Then they had the cheek to call that an audit," he said.

Rashbrooke said the "softly-softly" approach being taken towards businesses was inconsistent.

Tax researcher Dr Michael Gousmett has been an outspoken critic of companies that took the wage subsidy but later posted profits. He said there could have been checks at the beginning too.

"There was no requirement to demonstrate your financial ability to sustain yourself for a period. Now some of these organisations, we know, are financially well off."

While the report was critical of the post-payment follow-ups, the report was glowing in its praise of public servants in helping roll out the scheme.

"The goodwill and willingness of public servants were critical for the scheme's success. They worked exceptional hours in very difficult circumstances to support quick decision-making and, later, to process a large number of applications and make payments."

At one point that included more than 800 staff processing applications, many of whom were themselves working from home.

How those resources will be deployed over the coming months remains a concern, as efforts to recoup wage subsidies continue.

The report stated it was likely between 40 and 50 MSD staff who usually worked on benefit fraud would be working on subsidy investigations for another 12 to 18 months.

"In the Ministry of Social Development's case, resources will continue to be diverted from investigating benefit fraud for many months. We understand that the public organisations involved in administering the Scheme want to get back to their core services as quickly as possible. However, we are concerned that this will disincentivise continued efforts on post-payment integrity work."

MSD has referred 1028 for investigation: 477 have been resolved, 371 are under way and the rest are waiting to be assigned to an investigator.
Several cases are under consideration for civil proceedings or criminal prosecutions but MSD said no decisions had been made as of yet.

Sepuloni today said the government was taking on board the report's recommendations.

"We're going to take on their advice and then go away and do what we can to increase the level of integrity checks that we've been asked for."


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