Finance and expenditure committee report August 2021

In August 2021 the Finance and Expenditure Committee of Parliament reported on the wage subsidy and endorsed the criticisms and recommendations made by the Auditor-General. The following quotes and notes were made about their report:

The MSD has not fully implemented three of Deloitte’s recommendations:

NOTE:  This implies that they fully implemented 9 recommendations, including writing to all recipients. They have ignored the Deloitte and OAG 2020 and the OAG 2021 recommendations to write to all recipients.

MSD stated that its efforts “have helped successfully drive repayments”. As of June 2021, $731 million had been repaid.

NOTE: The repayments resulting from MSD action are only a tiny percentage of the total repaid.

We were told by MSD that its post-payment assurance work is a “pragmatic and reasonable way to provide assurance on the scheme”.

MSD has written to a sample of 1,000 applicants of the Wage Subsidy Scheme asking them to confirm their compliance with the eligibility criteria and their post-payment obligations. The sample is weighted towards larger employers and represents 10 percent of the scheme’s expenditure.

As at 2 July 2021, 1,046 cases had been referred to investigation, of which 520 had been resolved. Seven decisions to take civil recovery action had so far been made.

Among its recommendations, Deloitte said that MSD should increase its capacity to investigate possibly fraudulent payments. We noted that over the last five years the number of staff in MSD’s investigations team has not changed. This is despite a 171 percent increase in the amount of money that MSD has given out. Given the scale of the Wage Subsidy Scheme, we asked MSD whether it had the necessary resources to conduct a sufficient number of investigations into payments made through the scheme.

MSD told us that it had recognised early that it would need additional support to properly manage the scheme, including to investigate possible fraud. It has relied on investigatory staff from other government agencies to provide this support. We heard that 25 experienced investigators have been seconded from Inland Revenue to MSD to support MSD’s investigations into the scheme. A smaller number of staff have also temporarily joined MSD from the Department of Internal Affairs.

We heard that it can be hard to recruit investigators. It is a specialised role, and experienced investigators are in short supply in New Zealand. We heard that by relying on secondments from other government agencies, MSD was able to gain access to experienced investigators who could perform their roles without an extensive training period

NOTE:  The MSD misled the Committee because 9 IRD staff only started work a few weeks earlier in June 2021.  The MSD has failed to request approval for the staff they required. Investigators could have been trained in a few weeks during the past 18 months.  The payback would have been huge.

Our response to the Auditor-General’s report

We also believe it is imperative that the agencies responsible for the scheme establish clear operating procedures and guidelines which incorporate the Auditor-General’s recommendations. These guidelines should seek to achieve a balance between retaining the high trust model and minimising the potential for abuse of the system.

We therefore urge MSD to continue working to improve its management of the scheme. We believe that this is important and should be done with a high degree of urgency. This work is important not just for recovering public funds but would also help to support the integrity of all current and future government assistance programmes—particularly those that operate on a high-trust model. The risks posed to the New Zealand economy by the COVID-19 pandemic remain substantial. We are concerned that, should a new outbreak of COVID-19 necessitate a return to higher alert levels, the Wage Subsidy Scheme might need to be reintroduced before MSD had fully implemented the Auditor-General’s recommendations.

We expect that the Auditor-General will continue to prioritise auditing of the scheme. If appropriate, we expect that the OAG will conduct a follow-up audit of the management of the scheme, with a particular focus on MSD’s implementation of the recommendations from the Auditor-General’s report. We look forward to having future discussions with both the OAG and MSD about the management of the Wage Subsidy Scheme.

An OIA response advised us that those making complaints were not told of the outcome. This allowed some complaints to be ignored.

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