Overpayments ignored

In 2020 the MSD paid out almost $14,000 million of wage subsidies very quickly and there was not time to do more than check a small number of the over 750,000 applications. The wage subsidy was paid for 12,20 or 22 weeks but the vast majority of businesses were only closed for 5 or 7 weeks. A Government survey found that about 50% of staff worked from home during the lockdowns. The MSD has not written to all recipients to recover any overpayments, even though it knows from official data that most businesses had a big upsurge in revenue and profitability after the lockdown and this, in most cases, offset any lockdown losses.

If an unemployed person received MSD income support for 12 weeks but started a job after 5 weeks, the MSD would write to them and request repayment of the amount overpaid. That principle as not been followed for wage subsidy overpayments.

While most businesses were closed for 5 or 7 weeks during the Level 4 lockdown, they were paid the wage subsidy for 12 weeks. Many other businesses did not close because they were essential services but most still claimed the wage subsidy. Some professional firms and other businesses claimed the extension wage subsidy when they had returned to normal and were catching up on delayed work. A few major retailers and others claimed the Auckland resurgence subsidy for employees working normally in other parts of the country. The MSD has this information on its publicly accessible employer search database but it has chosen to not use this information to recover wrongly obtained payments.

In the first two sections of this document, it is clear from a lot of quotes that Ministers were advised that the main wage subsidy objective was during a Level 3 and 4 shutdown to support struggling businesses to retain an attachment to employees. The jobs of most employees were never at risk so if this requirement had been included in the Declaration, a lot of money would not have been paid out. If when employees were working hard to catch up after the shutdown, Ministers had been consulted as they had required, they would have wanted overpayments to be repaid and the amount involved would have been huge.

MSD Affidavit

Development of MSD’s integrity response commenced in parallel with administration of the scheme. While MSD has well-established systems for preventing, detecting, investigating and prosecuting benefit fraud, they still had to be adapted for a different legislative framework and rebuilt to work for the wage subsidy schemes.

COMMENT: This could have been done in a few weeks but it appears that it only happened after pressure from the Auditor-General in early 2021.

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

3.39 We agree that more clarity on when repayments were required could have been helpful given the continually changing situation many applicants were in. The speed at which the Scheme was implemented meant that the repayment processes were not in place when the Scheme was launched. However, they were put in place during the Scheme’s first week.

(MSD OIA response 10 March 2021 correspondence letter)

“The Ministry is legislatively required to take all reasonable steps to recover debt due to the Crown under the Social Security Act 2018, which is generally benefits and housing related financial assistance. There are no similar provisions for the wage subsidy schemes as they were not established under the Social Security Act.”

(MSD OIA response 10 March 2021 correspondence letter)

  1. If the MSD makes 12 weeks of payments for a person receiving a Benefit but it is then found that they had only been unable to do any work for an employer for 5 weeks and for the remaining 7 weeks were working full time for an employer, would the MSD write to the recipient of the payments and require them to repay 7 weeks of what was received?

“Benefits are generally income tested, which means if clients are earning income, the amount of benefits will be reduced (depending on the given abatement rate). Clients are obliged to inform the Ministry of a change in their circumstances, which includes a change in their weekly income. Clients may incur debt if there is an overpayment of benefit entitlement.”

  1. If the MSD makes 12 weeks of payments for a person receiving a wage subsidy but it is then found that they had only been unable to do any work for an employer for 5 weeks and for the remaining 7 weeks were working full time for an employer, would the MSD write to the recipient of the payments and require them to repay 7 weeks of what was received?

“As advised in the answer to question 1(c), the ability of an employee to work does not affect the employer’s eligibility for the wage subsidy. The wage subsidy was intended to keep employees connected to their employers through uncertain periods of economic shutdown. Payments were made in lump sums to provide certainty to both employers and employees and were not based on the number of weeks that an employee was unable to work.”

COMMENT:  If an employee continues to do their normal work, there is no risk of them not remaining connected to their employer and they are not affected by uncertain periods of economic shutdown. Therefore, they should not have been entitled to the wage subsidy.

If the MSD pays an organisation to carry out 12 weeks work for it but later it is found that the organisation only did 5 weeks work, would the MSD write to the organisation and require 7 weeks of what was received to be repaid?

“The Ministry enters into a variety of contracts for services. For some contracts, payments are made in advance for services. These contracts may contain a reconciliation clause which requires the contracted provider to refund any overpayments made by the Ministry. The exact circumstances will depend on the specific contract and services paid for.”

Beneficiaries are required to repay overpayments. (See later comparison section)

According to NZ Transport Agency surveys, 9 percent of respondents worked primarily from home in 2019. During Covid restrictions, half the country worked from home. After restrictions lifted, the proportion dropped to 25 percent, then to 15 percent by mid-November 2020. It does appear that half the employees for whom the wage subsidy was paid worked continuously for their employer and they were probably not asked to give their written consent to the wage subsidy being claimed on their behalf.

Statistics show that wage subsidies were paid for more workers in some industries than the number officially recorded.

Tourism and hospitality businesses were far more badly affected than other businesses but many were able to make up their lost revenue after the lockdown.  Inner city cafes and restaurants were badly impacted by people continuing to work from home.   These were the businesses that mainly complained about how they were suffering.

Xero tourism clients had a 7% drop in revenue for the year ending 30 September 2020.

Retailers were closed during the lockdown but their sales increased by 5% for the year ending 31 December 2020 according to Paymark statistics published on 12 January 2021.

Some children under 5 and some adults over 85 claimed and were paid the wage subsidy. School children who delivered circulars for a few dollars a week were paid thousands of dollars.  An employment agency with a staff of under 100 was paid $12,220,000 for all those it had on its books who were looking for a job. Another employment agency was paid $23 million and this included 8 weeks when there was no lockdown and a heavy demand for temporary workers.

In every industry there were businesses that did not apply for the wage subsidy or who have repaid it because they said that this was the ethical thing to do. Nick Mowbray and the owners of some of these businesses have called on those who did not need part or all of the wage subsidy to repay it.

In the last few months of 2020, there were a lot of reports about a high demand for all types of luxuries including luxury homes and expensive holiday homes and there were waiting lists for luxury cars, boats and camper vans.  This demand has to be mainly a result of large amounts of taxpayer money being given away by the Government to wealthy people.  The more money these people have, the more money they give to political parties for their social media and election campaigns so they have to be well rewarded to keep the money rolling in.

The assistance for the February 2021 Auckland resurgence is a support payment for businesses and is being administered by the IRD so this indicates that the wage subsidy as administered by the MSD was not satisfactory. In December the Government decided that if there was another wage subsidy it would be paid out fortnightly so this indicates that paying for 12 and 8 weeks in advance was a mistake.

MSD OIA reply 8 June 2020

The following quotes show that the MSD has taken a soft approach following complaints and checks.  This compares with the hard approach they take with beneficiaries.  In June 2020 they would have been in no position to determine that the vast majority of employees were doing the right thing or had simply misunderstood or made a mistake.

“The Ministry is engaging directly with employers to talk about their situation and confirm they understand the rules and obligations for receiving the payment.”

“In the vast majority of cases, employers are doing the right thing. In many cases where entitlements have been wrongly claimed, it is due to uncertainty about eligibility criteria, rather than deliberate attempts at deception. There will be exceptions to that and there are a number of cases that the Ministry is looking into further.

Where employers have claimed money they are not entitled to, the Ministry has a number of avenues open to it, including requesting repayment. In the most serious cases, where there is evidence of deliberate fraud, criminal prosecutions will be considered.

Further to this, the Ministry does not name employer applicants who have returned money following an audit, because repayment does not mean the employer had intentionally tried to mislead the Ministry. A conversation may have clarified entitlement and confirmed that they did not qualify, or they qualified for a lesser amount. The initial application could well have been made in good faith.

As part of the declaration they must sign when applying, all employers undertake to inform us of any material changes in circumstances. A number of businesses that have incorrectly claimed the Wage Subsidy have contacted us about repaying any outstanding amounts. Others have refunded money because their situation has changed.

The Ministry has had many wage subsidy applicants make approaches requesting to refund all or part of the subsidy they received.”

NOTE:  Returning to near normal or above normal work after 5 or 7 weeks was a material change that should have been notified and a part repayment made.

(MSD OIA reply 11 December 2020)

The following OIA response to Question 1 shows that recipients were expected to repay the wage subsidy for any weeks when their revenue was not reduced by 30% or 40% and they could face prosecution if they did not do this.

“Employers could apply for the Covid-19 Wage Subsidy if they thought they would have a certain drop in revenue as a result of the pandemic in comparison to a similar previous period. If they did not experience this drop in revenue, then they were informed that they would need to repay the money. The annual profit a business might have made subsequent to receipt of the wage subsidy is not relevant to their eligibility to receive the wage subsidy at the time of their application.

The Ministry is currently investigating a number of cases of potential fraud. Various considerations are currently being made, but none have yet been referred for prosecution. These cases may involve any or all of the scenarios outlined in (a) to (c) of your question.

QUESTION

Has consideration been given and decisions made regarding prosecuting all those who obtained a wage subsidy under any of the following circumstances:

a)  They signed a false Declaration about the actions they took before applying

b) They failed to notify the Ministry of Social Development within the required 5 working days if anything changed that affected their eligibility or entitlement to the subsidy

c)  They failed to repay part or all of the 12-week wage subsidy for any weeks when they did not have a reduction in revenue of more than 30% when compared to the same period in the previous year (or a reduction of more than 40% in the case of the extension)

MSD statistics show that part repayments were 75% of total repayments so this indicates that honest recipients decided that they could not keep the wage subsidy for the weeks when they were operating normally.

An OIA response provided documents relating to the MSD decision to advise the Porirua City Council to spread their income over 52 weeks and not just use a month when there was only a small amount of revenue and no rates revenue. Based on this decision, the MSD should have written to all recipients and advised them of the need to average income and clarified any other requirements. This could have resulted in billions of dollars in repayments. The OIA response also said that no advice had been given to the Minister of Social Development about the data showing that businesses had done far better in 2020 than in 2019 and no advise had been given about the need for repayments.

On the Treasury website there is a Cabinet paper dated 11 December 2020 which contains the following quotes.  These quotes are an acknowledgement that overpayments were made for periods when there were no restrictions and made to those who did not need support.

“23 Having considered officials advice and listened to feedback from business, we now propose the government announces a package of measures that develops and improves the existing model by:

23.1 Making a clearer link between the period and level of support and the period and severity of restrictions.

23.2 Improving the clarity and integrity of the measures to ensure that support goes to firms and individuals in need.”

Paragraph 82 of the Cabinet paper states “we also propose linking through automatic rules the duration of support to the duration of lockdown. Under current settings the WSS is provided in two-week lump sum payments.”

(MSD OIA response 6 April 2021 planning and advice)

  1. Please provide documents relating to any advice or direction received by or sought by the MSD from any Minister or Government Department or other organisation relating to any of the following:
  2. Whether the quick payment of Wage Subsidies on what was described by some as a high trust model, should be taken to mean that no action was to be later taken to ensure that normal standards were followed regarding the prudent and correct payment of taxpayer money to every recipient.
  3. Whether the MSD should write to every recipient of a Wage Subsidy to clarify an update the wage subsidy rules, as agreed, and request them to provide evidence that they did not sign a false Declaration and have not wrongly obtained or retained all or part of the Wage Subsidy
  4. Whether recipients of the wage subsidy for 12,20 or 22 weeks should be advised that they can only retain payments for those weeks when they were closed and their workers were at home and unable to do any work for the business.
  5. Whether the rules and standards relating to investigations, audits and prosecutions should be different or more relaxed for the Wage Subsidy when compared to Benefits.
  6. Whether complaints should be largely ignored and only a small proportion investigated.
  7. Whether no or very few prosecutions should occur

RESPONSE

Questions 4a), c), d), e), f) are refused under section 18(e) of the Act.

Our response to question 4b) outlines a report in scope of your request, however, this document is withheld in full under section 9(2)(f)(iv) of the Act as it is currently under active consideration.

Comment: The reason given for refusing most of the requests is “18(e) that the document alleged to contain the information requested does not exist or, despite reasonable efforts to locate it, cannot be found:”

This shows that no advice was sought or received on these important issues so the MSD is responsible for the failures which have occurred. The exception is (b) which was probably prompted as a result of questioning by the Auditor-General and it remains to be seen what action is taken.

MSD 2022 affidavit

  1. Cases go through MSD’s integrity response in accordance with its Enforcement and Recovery Decision-making Framework.18 MSD started developing this framework in July 2020 and it was finalised in December 2020. Around the same time in December, the Hon Minister Sepuloni agreed with MSD’s recommendation that it continue with its integrity response.

COMMENT:  An OIA document said that they wanted to complete work by the end of December 2020 and they told the Auditor-General in early 2021 that they wanted to get back to their core business as soon as possible)

MSD 2022 affidavit

  1. It is important to note that MSD built its wage subsidy integrity response at the same time as administering the scheme and distributing payments.

As a result, changes have and continue to be implemented over time and MSD’s wage subsidy process and guideline documentation differs from documents in more established areas of MSD’s work. For those areas, processes are developed, work-shopped and then implemented. For MSD’s wage subsidy integrity  response, process and guideline documentation was developed quickly and in part reflected work that was already being done.

COMMENT:  They had a lot of experience investigating and prosecuting up to 453 beneficiaries each year so could have used this but decided to adopt a different approach for businesses. See their quote in the section about the contrast in dealing with beneficiaries.

NOTE:  Contractors who worked alone or with up to two employees had their payments kept secret for privacy reasons so they probably got away with a lot for each wage subsidy. In March 2022 a single tradesman or contractor isolating and working from home was paid $2200 per week for 6 weeks. Some recipients said that this was far more than they would normally earn and there was no provision for returning overpayments.

Evidence of the MSD lack of interest in checking out complaints about recipients, can be found in the responses we have received to OIA request for information about some companies.

Stuff 17 February 2021 (during 3 days of Auckland at Level 3)

“The Government will also ready its other, previously announced support.

The wage subsidy could also return in similar form to the last lockdown.

It will pay businesses $585.80 per week for each fulltime employee and $350 per part-time employee. Support will be paid to businesses in fortnightly payments and the total support given will match the duration spent at alert level 3 or 4 rounded to the nearest fortnight.

The qualification threshold for the new subsidy is slightly different to what was used last August. Instead of businesses having to prove they had suffered a 40 per cent decline in revenue compared to the same period a year before, businesses will now have to prove they have suffered a 40 per cent revenue decline relative to the same period six weeks before the alert level change.

The reason for this is that one year ago, many businesses were starting to see the effects of Covid-19, so comparing revenue with an arbitrary period in 2020 doesn’t give an accurate reading on the health of a business.”

Honest businesses and listed companies who came under public pressure have repaid $760 million.  This is a good indication that many times more than this amount should be repaid.

The following heading and text from the MSD 2020/21 Annual Report show that both overpayments and fraud are an important part of the work done by beneficiary investigation staff.

Output expense: Investigation of overpayments and fraudulent payments and collection of overpayments.

This appropriation is intended to achieve a welfare system that operates with fairness and integrity by ensuring that the right people receive the right entitlements and assistance and identifies and resolves overpayments.

The MSD has been writing to anyone receiving N Z Superannuation who was stuck in Australia for more than six months and has asked them to repay what they received beyond six months.  However, they have shown no interest in getting back from businesses the wage subsidy they overpaid for 5 or 7 weeks.  This amounted to about $1000 million per week

Quote from MSD email sent to those receiving New Zealand Superannuation on 7 April 2022:

Winter Energy Payment

Couples and people with dependent children will get $31.82 a week. Single people will get $20.46 a week. If you’re heading away from New Zealand over the winter months you can keep getting your Winter Energy Payment for up to 28 days. It’s really important you let MSD know if you’ll be away for more than 28 days, otherwise they might pay you too much and have to ask for the money back.

COMMENT: The MSD did not think that it was important to ask for repayments by business owners who were overpaid the wage subsidy by sums that were 1,000 or 10,000 or 100,000 per week greater than the winter energy payment. They ignored several recommendations to write to businesses but did not hesitate to tell beneficiaries that overpayments had to be repaid.

Processing...
Thank you! Your subscription has been confirmed. You'll hear from us soon.
Subscribe to our newsletter.
ErrorHere