Auditor-General’s report on management of the wage subsidy.       May 2021

In my view, the use of a high-trust approach at the outset needs to be balanced with adequate verification after the payment has been made to properly protect the use of public money.

I have also recommended that the Ministry of Social Development seek written confirmation from applicants of their compliance with the eligibility criteria and the obligations of receiving the subsidy. This could be targeted at larger or higher-risk applications.

4.77 As part of our 2019/20 annual audit of the Ministry of Social Development, our Appointed Auditor recommended that the Ministry write to recipients of subsidy payments to seek re-confirmation that they complied with the requirements and obligations. This is consistent with one of Deloitte’s recommendations to increase communications with recipients. We have also included it as part of Recommendation 4.

4.78 Using this type of correspondence is one of the anti-fraud techniques identified as being good practice for emergency situations.

Report, Wage Subsidy extension: Report back on scheme integrity, dated 29 May 2020.(MSD OIA  response 23 April planning and public interest)

This report said that a Deloitte report recommended that the MSD write to recipients to remind them of their wage subsidy obligations. However, less than half were written to and they were only reminded to pass on the wage subsidy and were given details of the wage subsidy extension.

(Minister of Finance OIA February 2021)

MSD Report on audit processes 15 July 2020

33. Deloitte identified three areas that could provide valuable integrity enhancements in the short term, relating to increased communications around reminding businesses of their obligations, and enhanced analysis and targeted auditing.

COMMENT:  The MSD did not follow this advice and write to all recipients to clarify the rules or to make any necessary changes or to request repayments.

Deloitte reported as at 24 April 2020 so they did not know that there was going to be a 5- or 7-week overpayment. They were not asked to comment on the Declaration and eligibility criteria, including the 30% revenue drop.  They said that the wage subsidy was a “stimulus package” so they had the wrong idea about it from the start.

The Wage Subsidy Scheme (WSS or the Scheme) is a $13 billion dollar stimulus package recently introduced by the New Zealand Government in response to the COVID-19 national ‘lockdown’ measures.

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• Recommendations 1, 2 and 3 were flagged as priority areas in the
• Recommendation 1: Follow-up communication with Scheme recipients

Use a targeted communications strategy when reminding recipients of their obligations to maximise the potential of early voluntary repayments.

• Recommendation 2: Communications strategy to support prevention and detection
• Communicate to all stakeholders (including the general public) the audit and investigation work being undertaken as well as the reporting options available to stakeholders.

(The MSD did not follow the Deloitte recommendations)

• Note the key enhancements we are making by 10 June, when the Wage Subsidy extension begins, include:
• Increased communications with applicants before and after payment

1.2 Quarterly report to Minister at 30 June 2020 said Deloitte recommendation regarding communication with recipients had been followed.

Once the Government was aware that most businesses did not comply with the rules and did not need some or all of the wage subsidy, it should have written to over 740,000 recipients and requested them to repay the wage subsidy unless they could provide some or all of the following evidence to show that they were entitled to retain all or part of it:

(a) Evidence that they complied with the main requirements of the Declaration they signed including that they had no reserves to draw on and could not get assistance from their bank.

(b) Evidence from their GST returns over six months to show that they had a drop in revenue of 30% (or 40% for the extension) for each of the weeks they received a wage subsidy payment. If they received the 12-week wage subsidy, was their revenue down more than 14% over six months compared to the same period the previous year. If they also received the extension wage subsidy, was their revenue down more than 26% over six months compared to the same period the previous year?

(NOTE:  GST Returns have been filed so the figures cannot be fiddled by businesses.  The percentages for six months or 26 weeks have been calculated based on a revenue reduction of 30% for 12 weeks and 40% for 8 weeks plus the remaining normal weeks of the 26 week period)

(c) Evidence in the form of a schedule listing each person for whom the wage subsidy was received and the number of weeks and the dates involved.  Each person to insert and sign details of the number of days they carried out work for the recipient of the wage subsidy between the specified dates.

The following quote is from a submission to the Finance and Expenditure Committee of Parliament in mid 2021 and implies that there was communication with all businesses when this did not happen.

“The assurance processes put in place to support the integrity of the Wage Subsidy included pre-payment verification of business details, post-payment reviews and investigations, and communications to ensure businesses are aware of their obligations.”