Management of the Wage Subsidy Scheme (B.29[21a])
Summary
Report B.29[21a], Management of the Wage Subsidy Scheme, presented to the House of Representatives under section 20 of the Public Audit Act 2001 in May 2021, with an Auditor-General's overview. The overview states that between March and December 2020 the Government paid businesses more than $13 billion through the scheme, and that the Ministry of Social Development made payments within three and a half days of receiving an application on average. It states that, as at 5 March 2021, payments totalling $703 million had been voluntarily paid back and $23 million compulsorily recovered. It also records the Auditor-General's recommendations on testing reviews against documentary evidence and on a proper evaluation.
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Cite this document
“Management of the Wage Subsidy Scheme (B.29[21a]).”
Original at ao.parliament.nz. Archived at Pandemic Darlings, https://pandemicdarlings.com/source-documents/wage-subsidy-pdf-1ab4943f26cf16cd-5792c301d0/
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B.29[21a]
Management of
the Wage Subsidy
Scheme
Photo acknowledgement:
Chris Tse, Office of the Auditor-General
B.29[21a]
Management of the
Wage Subsidy
Scheme
Presented to the House of
Representatives under section 20 of
the Public Audit Act 2001.
May 2021
Contents
Auditor-General’s overview 3
Our recommendations 6
Part 1 – About the Wage Subsidy Scheme 7
How the Wage Subsidy Scheme came about 8
Details of the Wage Subsidy Scheme 9
Structure of this report 14
Part 2 – Setting up the Wage Subsidy Scheme 15
Officials drew on previous experience and provided advice on the risks of high-trust approaches 16
The Wage Subsidy Scheme was implemented in line with Cabinet’s decisions 17
Public organisations’ roles and responsibilities were clear 18
Significant resources were required to manage the Wage Subsidy Scheme 19
Part 3 – Making subsidy payments 22
A significant number of subsidy payments were made quickly 22
Some eligibility criteria might not have been met 26
Payments were generally well managed 27
It is not clear whether applicants fully understood their obligations 28
A process to manage repayments was established quickly 30
Part 4 – Protecting the integrity of the Wage Subsidy Scheme 31
Good practice for preventing, detecting, and managing fraud in emergencies 32
Some pre-payment steps were taken to reduce the risks of fraud 34
Post-payment processes to identify fraud and abuse 36
The reliability of post-payment reviews needs testing 40
Improvements were considered and many were implemented 43
Public organisations should continue to work together to prioritise reviews, investigations, and enforcement 43
Part 5 – Oversight, monitoring, and review of the Wage Subsidy Scheme 47
Public organisations largely relied on existing management and oversight arrangements 47
A full and timely evaluation is needed 48
The Wage Subsidy Scheme’s unintended consequences 50
Appendix – Scope and limitations of our work 52
Figures
1 – Loss in revenue requirement to be eligible for subsidy payments 10
2 – Stages of the Wage Subsidy Scheme’s implementation and the public organisations involved at each stage 13
3 – Number of applications for the wage subsidy received daily 23
4 – Amount of wage subsidy payments made daily 23
5 – Average number of days between application and payment, as at 23 October 2020 24
6 – Number and average value of payments for the original wage subsidy stage, as at 23 October 2020 24
7 – Number and average value of payments for the wage subsidy extension stage, as at 23 October 2020 25
8 – Number and average value of payments for the resurgence wage subsidy stage, as at 23 October 2020 25
9 – Fraud control principles, measures, and techniques for emergency situations 33
10 – Pre-payment and post-payment integrity processes and their results 46
2
Auditor-General’s overview
E ngā mana, e ngā reo, e ngā karangarangatanga maha o te motu, tēnā koutou.
Between March and December 2020, the Government paid businesses more than
$13 billion through the Wage Subsidy Scheme as part of its response to Covid-19.
That amount is about the same as the Government’s total annual spending on
education, and nearly three times its total annual spending on law and order.
The Wage Subsidy Scheme is the Government’s largest single area of spending
in response to Covid-19. The Government has estimated that the Wage Subsidy
Scheme has indirectly supported about 1.8 million employees.
We carried out a performance audit to review how well the Government has
managed the Wage Subsidy Scheme. It is one of several reviews that my Office is
carrying out about the Government’s response to Covid-19. This report is intended
to provide an independent perspective to Parliament and the public and help the
public sector prepare for and operate any similar schemes in the future.
Not only was the overall amount of subsidy payments significant, but the Wage
Subsidy Scheme was set up and implemented on a large scale and with speed.
During the first two weeks, the Ministry of Social Development, which was
responsible for administering the Wage Subsidy Scheme, received large numbers
of applications, including more than 70,000 in one day. It also made payments of
nearly $1.8 billion on one particular day.
The focus was on getting funding to where it was needed quickly. On average, the
Ministry of Social Development made payments to employers within three and a
half days of receiving an application. This was possible because the Government
decided to use a “high-trust” approach – this meant approving applications based
on a declaration from applicants that they met the eligibility criteria.
A high-trust approach has greater risks of fraud and error. The main risks in
this case included that subsidy payments could go to businesses that were not
eligible and that businesses might not pass the payment on to employees. The
Government appears to have understood these risks and, on balance, decided that
a high-trust approach was appropriate.
Those decisions are rightly for the Government to make. My audit looked at what
steps the Government took to mitigate or manage those risks and whether those
steps were effective. For example, what were the steps taken to verify applicant
eligibility after the initial approval and payments were made?
Managing the risks associated with a high-trust approach
The Ministry of Social Development compared the information that applicants
provided against the Inland Revenue Department’s records before making
payments. It checked that each applicant was a genuine business operating in
New Zealand and that the application was for bona fide employees.
3
Auditor-General’s overview
This step reduced the risk of making subsidy payments to ineligible businesses.
Tens of thousands of applications were declined because the information provided
did not match the Inland Revenue Department’s information about the applicant
or their employees.
However, it is still possible that ineligible businesses received payments. One
important eligibility requirement – that an employer has “taken active steps to
mitigate the impact of COVID-19” on their business before applying – was open to
interpretation. It would have been difficult for applicants to determine what was
required and for the Ministry of Social Development to verify compliance.
Other steps the Ministry of Social Development (with assistance from the Inland
Revenue Department and the Ministry of Business, Innovation and Employment)
took to mitigate or manage risks were:
• ensuring that a process was in place to receive complaints and follow those up;
• publishing the names of some businesses that received the subsidy; and
• reviewing and investigating applications (with assistance from the Inland
Revenue Department).
In my view, it is likely that these steps have encouraged several businesses to
repay subsidies they should not have received. As at 5 March 2021, payments
totalling $703 million have been voluntarily paid back and $23 million
compulsorily recovered.
Reviews of applications, carried out after payments were made, consisted mainly
of verbal confirmation of information from employers and, in some cases,
employees. These reviews focused on checking compliance with eligibility criteria
and confirming that applicants understood associated obligations.
Although the Ministry of Social Development has publicly described these reviews
as audits, in my view they are not audits. In most cases, they did not involve
substantiating the facts using independent, or at least documented, information
(however, if a review resulted in an investigation, documentation would be
requested). I am not persuaded that the reviews provide enough confidence that
all applications that merit further investigation have been identified. As at
5 March 2021, 1017 cases had been referred for investigation.
I have recommended that the Ministry of Social Development test a sample of these
reviews against documentary evidence held by applicants. 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.
4
Auditor-General’s overview
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.
The public organisations managing the Wage Subsidy Scheme have identified
a number of applicants they consider might have acted unlawfully. In my view,
it is important to pursue prosecutions of these applicants. This is because it is
important to maintain public trust and confidence in government schemes.
Lessons from managing the Wage Subsidy Scheme
The frequency and significance of crisis events is increasing. New Zealand might
need another subsidy or similar scheme at any moment – as recent events have
demonstrated. Therefore, I have also recommended that the public organisations
managing the Wage Subsidy Scheme properly evaluate its development,
operation, and impact. There are important lessons that need to be captured and
appropriate action taken to ensure that we are even better prepared next time.
Acknowledgements
I acknowledge the extraordinary commitment of public servants in both designing
and delivering the Wage Subsidy Scheme in a time of national crisis. Public
servants’ willingness and goodwill to work exceptional hours under exceptional
circumstances to support the need for rapid decision-making and payment has
been outstanding.
I thank staff in the Ministry of Social Development, the Inland Revenue
Department, the Ministry of Business, Innovation and Employment, and the
Treasury for their assistance as we carried out this audit. I also thank those people
who contacted my Office during our work and the Auckland Business Chamber,
BusinessNZ, Chartered Accountants Australia and New Zealand, and the Council
of Trade Unions for their views.
Nāku noa, nā
John Ryan
Controller and Auditor-General
4 May 2021
5
Our recommendations
We recommend that, when public organisations are developing and
implementing crisis-support initiatives that approve payments based on
“high-trust”, they:
1. ensure that criteria are sufficiently clear and complete to allow applicant
information to be adequately verified; and
2. put in place robust post-payment verification measures, including risk-based
audits against source documentation, to mitigate the risks of using a
high-trust approach.
In relation to the Wage Subsidy Scheme, we recommend that the Ministry of
Social Development:
3. test the reliability of a sample of the post-payment assurance work it carried
out against documentary evidence held by applicants; and
4. prioritise remaining enforcement work, including:
• seeking written confirmation from applicants (which could be targeted
towards larger or risk-indicated applicants) of compliance with the eligibility
criteria and the obligations of receiving the subsidy; and
• pursuing prosecutions to recover funds and/or to hold businesses to
account for potentially unlawful behaviour.
We recommend that the Ministry of Social Development, the Inland Revenue
Department, the Ministry of Business, Innovation and Employment, and the
Treasury:
5. carry out timely evaluation of the development, operation, and impact of the
Wage Subsidy Scheme and use the findings to inform preparation for future
crisis-support schemes.
6
About the Wage Subsidy Scheme 1
1.1 Covid-19 emerged in late 2019. By March 2020, it had become a global pandemic.
The Government responded with a range of measures to protect New Zealanders,
including restrictions on people’s movements to slow the spread of the virus. This
had a widespread impact on the population and immediate financial impact on
many businesses and their employees.
1.2 On 17 March 2020, the Government introduced the Wage Subsidy Scheme to
support businesses affected by Covid-19 to retain employees. The Government
intended that this would help preserve employment connections between
employers and employees and provide income for employees even when they
were unable to work.
1.3 In this report, we refer to the Wage Subsidy Scheme as “the Scheme”. We use this
term to refer collectively to all three stages of the Scheme:
1. the original wage subsidy;
2. the wage subsidy extension; and
3. the resurgence wage subsidy.
1.4 To date, the Scheme has been the largest area of spending in the Government’s
response to, and recovery from, Covid-19. By the end of December 2020, it had
already spent more than $13 billion1 of public money, excluding administration
costs. The Government has estimated that the Wage Subsidy Scheme has
indirectly supported about 1.8 million employees.
1.5 We completed our work before the Government announced the most recent stage
of the Scheme in March 2021. Although we have not examined this latest stage,
we understand that its design, and the way it has been managed, is largely the
same as the earlier three stages.
1.6 Our audit looked at how effectively the Ministry of Social Development, the Inland
Revenue Department (Inland Revenue), the Ministry of Business, Innovation and
Employment, and the Treasury managed the Scheme. We did this to provide
Parliament and the public an independent view and to help the public sector
prepare for and operate any future subsidies.
1.7 In this Part, we describe:
• how the Scheme came about;
• the details of the Scheme; and
• the structure of this report.
1 This is a net figure taking into account refunds at that time. 7
Part 1
About the Wage Subsidy Scheme
How the Wage Subsidy Scheme came about
1.8 New Zealand first felt the effects of Covid-19 towards the end of January 2020,
when international travel was disrupted.
1.9 On 2 February 2020, the Government introduced the first border restrictions to
prevent people from bringing Covid-19 into New Zealand. People entering New
Zealand were required to self-isolate for 14 days, and entry to people travelling from
or through China was restricted to New Zealand citizens and permanent residents.
1.10 Treasury and Ministry of Business, Innovation and Employment officials were also
considering the impact of Covid-19 on certain industries and regions and whether
targeted income support might be needed. About this time, Ministry of Social
Development officials began preparing advice on the income support that might
be needed.
1.11 New Zealand confirmed its first case of Covid-19 on 28 February 2020. On 9 March
2020, Cabinet directed officials to develop targeted support options, prioritising
some form of subsidy for the most adversely affected sectors. Those sectors
included tourism and forestry.
The original wage subsidy
1.12 By mid-March 2020, the Covid-19 situation had escalated rapidly. The impact of
Covid-19 was felt more widely in the economy. On 16 March 2020, Cabinet agreed
to implement a temporary wage subsidy for 12 weeks. We refer to this first stage
of the Scheme as “the original wage subsidy”.
1.13 The Government announced the original wage subsidy on 17 March 2020 and
allocated $5.1 billion to paying it. The original wage subsidy was not limited to
any industry or sector.
1.14 In the following week, the Government increased its response to Covid-19. On
19 March 2020, the borders were closed. On 21 March 2020, the Government
introduced a four-level Alert System to help control transmission of Covid-19.
1.15 The Alert System involved levels of restriction on people’s movement, including
across the border and the operation of businesses. Alert Level 4 was the highest
alert level and required people to stay at home. However, people were allowed
to leave their homes to obtain or provide essential services or exercise in their
local area.
1.16 When the Government introduced the Alert System on 21 March 2020, it announced
that New Zealand was at Alert Level 2. By 25 March 2020, the Government had
implemented Alert Level 4 and declared a national state of emergency.
8
Part 1
About the Wage Subsidy Scheme
1.17 The various alert levels affected employers and employees. Although some could
work from home under lockdown, domestic travel was restricted and many people
were unable to work.
1.18 On 27 March 2020, the Minister of Finance announced some modifications to
the original wage subsidy. These included a clearer expectation that employers
would pass on money from the original wage subsidy to employees who could not
work because of the lockdown. Employers also had to agree to keep employees in
employment for the period of the original wage subsidy.
1.19 New Zealand remained at Alert Level 4 until 27 April 2020. It then moved to Alert
Level 3, which still involved significant restrictions, until 13 May 2020.
1.20 On 11 May 2020, Cabinet agreed to extend the period of the original wage
subsidy for a further eight weeks. We refer to this stage of the Scheme as “the
wage subsidy extension”. The Government publicly announced the wage subsidy
extension on 14 May 2020 and allocated a further $3.2 billion to it.
The resurgence wage subsidy
1.21 The country returned to Alert Level 1 on 8 June 2020. Then, in early August 2020,
new cases of Covid-19 were found in the Auckland community. On 12 August
2020, the Government placed Auckland into Alert Level 3 and the rest of the
country into Alert Level 2.
1.22 On 17 August 2020, Cabinet agreed to a further stage of the Scheme. We refer to
this stage as “the resurgence wage subsidy”. The Government publicly announced
the resurgence wage subsidy on 17 August 2020 and allocated a further
$510 million to it.
1.23 At the same time, the Government announced that it also expected more
businesses to become eligible for the wage subsidy extension. It estimated that
this would cost an additional $1.1 billion on top of the $510 million allocated to
the resurgence wage subsidy.
1.24 Applications for the resurgence wage subsidy closed on 3 September 2020. From
7 October 2020, the whole country was once again at Alert Level 1.
1.25 In December 2020, the Government announced that further support would be
provided in the event of further resurgence of the virus. This would include an
additional stage of the Scheme if there is a regional or national move to Alert Level
3 or 4 for seven days or more.
Details of the Wage Subsidy Scheme
1.26 Cabinet agreed the following criteria employers needed to meet to be eligible for
subsidy payments:
9
Part 1
About the Wage Subsidy Scheme
• The applicant must operate a business in New Zealand that employs and pays
the employees named in the application (including a business where someone
is self-employed).
• The employees named in the application must be legally employed by the
business and employed in New Zealand.
• The business must have experienced the minimum specified loss in actual or
predicted revenue, and that loss must be attributable to Covid-19.
• The business must have taken active steps to mitigate the impact of Covid-19.
• The business cannot claim payment for any of the employees named in the
application in combination with some other types of government support.
1.27 Figure 1 shows the loss in revenue thresholds that made a business eligible for
subsidy payments, and the time frames for each stage of the Scheme.
Figure 1
Loss in revenue requirement to be eligible for subsidy payments
Stage of the Loss in revenue Period that the Maximum Period open
Wage Subsidy requirement* loss in revenue time subsidy for receiving
Scheme could occur in would be paid applications
for**
Original wage 30% for a 1 January to 12 weeks. 17 March to
subsidy period of one 9 June 2020. 9 June 2020.
month or
30 days.
Wage subsidy 40%*** for a 40 days before 8 weeks. 10 June to
extension continuous applying, but 1 September
30-day period. no earlier than 2020.
10 May 2020.
Resurgence 40% for a 12 August to 2 weeks. 21 August to
wage subsidy 14-day period. 10 September 3 September
2020. 2020.
* Loss in revenue compared to an equivalent period in 2019. New or high-growth businesses could use an equivalent
period from earlier in the year.
**Businesses could not receive a subsidy for a period for which they were already receiving certain other support in
respect of a given employee.
***This was initially publicly announced as 50%, but it was reduced to 40% before the wage subsidy extension opened
for applications.
Subsidy payments were at a fixed rate for each employee and were
initially capped
1.28 Businesses meeting the eligibility criteria were paid $585.80 each week for each
full-time employee and $350.00 each week for each part-time employee. Full-time
work was defined as 20 or more hours’ work each week.
10
Part 1
About the Wage Subsidy Scheme
1.29 When recommending these payment amounts, officials took into account
median weekly earnings, the amount paid in previous subsidy schemes, and
other forms of support, such as paid parental leave. In paragraph 5.22, we
describe what happened when part-time employees’ normal wages were less
than $350 each week.
1.30 Payment to each business was initially capped at $150,000, regardless of the
number of employees. On 23 March 2020, Cabinet agreed to remove this cap
because of the need to support all employees affected by Covid-19, including
those in large organisations.
1.31 Removing the cap increased the original wage subsidy’s budgeted cost from
$5.1 billion to $9.3 billion. Employers who had already applied could
retrospectively apply for employees who had been outside of the cap.
1.32 Payments were made as a lump sum to each eligible business. Separate payments
were made for each stage of the Scheme a business was eligible and applied for.
The integrity of payments depended on employer declarations
1.33 As part of its decisions about the Scheme, Cabinet noted that the Ministry of
Social Development’s intended approach to administering the Scheme had several
characteristics:
• Employers would make applications for affected employees.
• Employers would be required to make a declaration when they applied that
they:
– met the eligibility criteria;
– had discussed the application with named employees, who consented to
sharing information in the application for the purposes of verification;
– consented to the possibility of details in the application being verified with
other agencies;
– consented to the Ministry of Social Development publishing information
about their receipt of the subsidy;
– were aware that they might be audited and prosecuted for fraud if they
provided false information;
– would notify the Ministry of Social Development if circumstances changed
that affected their eligibility; and
– would repay any amount that they were not entitled to.
• The Ministry of Social Development would not verify the information in
the application before payment, but could later audit an application, verify
information with other public organisations, and refer possible instances of
fraud for investigation.
11
Part 1
About the Wage Subsidy Scheme
A “high-trust” approach
1.34 Getting support to employers quickly was an important part of the Scheme. It
was the over-riding policy consideration behind the “high-trust” approach. The
Government had previously used a high-trust approach to a wage subsidy for
people affected by the Canterbury and Kaikōura earthquakes.
1.35 The approach is high-trust because applications were approved, and payments
made, largely based on information applicants provided with limited upfront
verification of its accuracy. We discuss this in Part 4.
1.36 Importantly, applicants did not have to provide information to prove their
eligibility, they just had to declare that they met the eligibility criteria. This was
not a written declaration – in most cases applicants checked the declaration box
in the online application form.
1.37 It is not uncommon or inappropriate for governments to use high-trust
approaches in emergencies to quickly provide support to people. However, these
approaches increase the risk of fraud and error. Payments could be made to those
who are not eligible or who fraudulently seek to exploit the high-trust approach.
1.38 This risk is increased because there is less focus on validation before payment.
Instead, officials rely on the honesty and integrity of applicants, the ability of
applicants to understand and assess eligibility criteria accurately, and the actual
and deterrent effects of work carried out after payments have been made.
1.39 The trade-offs between speed, up-front verification, and post-payment assurance
are critical matters to consider when determining how a high-trust approach
should be implemented.
The public organisations involved in administering the Scheme
1.40 The Ministry of Social Development, Inland Revenue, the Ministry of Business,
Innovation and Employment, and the Treasury were the public organisations
involved in administering the Scheme.
1.41 Figure 2 shows the main stages in the Scheme’s implementation, from application
through to payment, and the post-payment checking processes. Figure 2 also
shows which public organisations were involved at each stage.
12
Part 1
About the Wage Subsidy Scheme
Figure 2
Stages of the Wage Subsidy Scheme’s implementation and the public
organisations involved at each stage
Implementation stages Public organisations involved
at each stage
The Treasury, the Ministry of Social Development,
Designing and advising Inland Revenue, the Ministry of Business,
on the Scheme Innovation and Employment
Receiving and The Ministry of Social Development
processing applications
Performing The Ministry of Social Development,
pre-payment checks Inland Revenue
Paying the subsidy The Ministry of Social Development
Publishing some The Ministry of Social Development
recipient names
Receiving voluntary The Ministry of Social Development
repayments
The Ministry of Social Development, Inland
Performing post-payment Revenue, the Ministry of Business, Innovation
checks, including complaints and Employment
Seeking repayments and The Ministry of Social Development
taking prosecutions
The Treasury, the Ministry of Social Development,
Monitoring, reviewing, and Inland Revenue, the Ministry of Business,
evaluating the Scheme Innovation and Employment
Source: Illustrated by the Office of the Auditor-General.
13
Part 1
About the Wage Subsidy Scheme
Structure of this report
1.42 Our assessment of how well the Scheme was managed comprised four main lines
of inquiry. These lines of inquiry form the structure of this report:
• Part 2 discusses whether the Scheme was effectively set up in line with the
high-trust policy direction.
• Part 3 discusses whether subsidy payments were effectively administered.
• Part 4 discusses whether the integrity of the Scheme was effectively managed.
• Part 5 discusses whether there was effective oversight, monitoring, and review
of the Scheme.
1.43 In the Appendix, we outline the scope of our work, how we carried it out, and the
limitations of our work.
14
Setting up the Wage Subsidy
Scheme 2
2.1 In this Part, we describe:
• the process to set up the Scheme, including the extent to which officials:
– drew on previous experiences when designing and implementing the
Scheme and identified the risks of a high-trust approach; and
– implemented Cabinet’s decisions;
• public organisations’ roles and responsibilities; and
• how public organisations resourced this work.
Summary of findings
2.2 The Scheme was set up effectively, was in line with Cabinet decisions, and used a
high-trust approach.
2.3 Officials’ advice to Cabinet about the design of the Scheme was informed by
similar (but much smaller) schemes for the Canterbury and Kaikōura earthquakes.
Officials clearly identified the risks associated with the high-trust approach and
the main trade-offs between:
• ease of access to, and speed of, payment; and
• the ability to control fraud, abuse, and error risks.
2.4 The high-trust approach involved payments to employers based on a declaration.
By agreeing to the declaration, businesses stated that they:
• met the eligibility criteria, including that their business had experienced the
minimum decline in actual or predicted revenue to be eligible and that loss
was attributable to Covid-19;
• had taken active steps to mitigate the impact of Covid-19 on the business;
• would notify the Ministry of Social Development if circumstances changed that
affected their eligibility; and
• would repay any amount that they were not entitled to.
2.5 Cabinet did not specify a requirement to verify each applicant’s eligibility when
they applied. However, Cabinet noted that applicants might be audited after
receiving payment.
2.6 To meet Cabinet’s expectations that payment would be made quickly, public
servants worked extremely hard to develop and implement the Scheme in a short
time frame and difficult circumstances.
2.7 The public organisations involved in administering the Scheme provided
considerable resources (including, people, systems, and finances). This affected
their capacity to perform some of their core services.
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Setting up the Wage Subsidy Scheme
Officials drew on previous experience and provided advice
on the risks of high-trust approaches
2.8 Similar income support schemes had been used previously to help businesses
after the Canterbury and Kaikōura earthquakes. Although those schemes were
smaller in scale and cost, limited to particular parts of the country, and restricted
to businesses of a certain size, they still provided useful lessons.
2.9 For example, the Ministry of Social Development had administered the previous
schemes and was aware that the system it used for those schemes was adequate
and secure. The Ministry of Social Development also had previous experience
matching information in subsidy applications with information that other public
organisations held.
2.10 Cabinet wanted to pay as many eligible businesses and their employees as quickly
as possible.
2.11 To meet Cabinet’s expectations of speed, the Ministry of Social Development
advised using a high-trust approach. A high-trust approach meant that much of
the information an applicant provided did not have to be verified before making
a payment.
2.12 However, officials did identify risks with a high-trust approach. We were told
about discussions with Ministers and saw written advice about these risks. The
advice identified risks of fraud or error with approaches that were poorly targeted
or that involved limited entry barriers and quick payment.
2.13 Officials also provided advice on how to manage or mitigate these risks, including:
• communicating recipients’ obligations;
• having a declaration;
• future penalties for not meeting requirements at the start;
• publishing recipients’ names; and
• a “significant ramp up” of anti-fraud and auditing activity after payment.
2.14 Officials also explored options with more targeted or capped arrangements that
could reduce fiscal risks to the Crown.
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Part 2
Setting up the Wage Subsidy Scheme
The Wage Subsidy Scheme was implemented in line with
Cabinet’s decisions
2.15 Implementation of the Scheme reflected Cabinet’s decisions, including the various
changes that Cabinet made to the Scheme over time. With each stage, officials
reflected Cabinet’s changes to the Scheme in the declaration. The declaration
became an important record of the eligibility criteria and applicant obligations.
2.16 As well as steps agreed to by Cabinet, the Ministry of Social Development also
took an important step. From approval of the first payment on 17 March 2020, the
Ministry decided it would verify some applicant information before payment. The
Ministry carried out that work with assistance from Inland Revenue.
2.17 Although Cabinet did not explicitly require verifying applicant information before
payment, it was, in our view, a responsible and effective operational decision.
It reduced the risk of making payments to ineligible businesses and people. We
discuss this in Part 4.
2.18 On 16 March 2020, Cabinet noted that the Ministry of Social Development, with
the support of Inland Revenue, could develop more detailed criteria to determine
potential revenue loss. The level of revenue loss is one of the main determinants
of eligibility for subsidy payments. The Ministry subsequently provided
clarification about:
• how councils’ rates revenue should be recognised for a financial year;
• State sector organisations’ third-party or commercial revenue reductions
attributable to Covid-19; and
• charities’ revenue, including grants and donations.
2.19 The Treasury’s advice and subsequent Cabinet papers identified audit of
declarations as one way of mitigating some integrity risks. Although Cabinet
agreed to the possibility of post-payment audits, the term audit was not defined.
2.20 By not defining audit, there was a risk that decision-makers, the public
organisations involved in administering the Scheme, and the public might have
different expectations of the post-payment work that could be, and ultimately
was, carried out.
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Part 2
Setting up the Wage Subsidy Scheme
Public organisations’ roles and responsibilities were clear
2.21 Ministers and senior officials decided that the Ministry of Social Development
would administer the Scheme. This decision was not made until two days before
the first applications were submitted and payments made.
2.22 The Ministry of Social Development had the ability to start making payments
quickly (within five days) because it had carried out a similar function previously.
2.23 Consideration was given to whether Inland Revenue should administer the
Scheme. Inland Revenue had functionality that could have been used, but it
was about to release the latest stage of its Business Transformation Programme
(which entailed systems being offline) and was approaching a busy time in the
tax-filing cycle. Inland Revenue was later called on to carry out other activities
related to Covid-19, including the Small Business Cashflow Scheme.
2.24 One of the intended benefits of Inland Revenue’s Business Transformation
Programme was giving Inland Revenue greater ability and agility to quickly
implement policy changes and new policy. However, that ability and agility
is not expected to be fully functional until the Business Transformation
Programme is completed. It would have taken many weeks before Inland
Revenue could make payments.
2.25 The timing of this decision gave the Ministry of Social Development a small
amount of time to prepare. However, once the decision was made, the
Scheme was quickly established. In our view, public organisations involved in
administering the Scheme worked well together under challenging circumstances
and time frames. This included consulting effectively about important decisions
and connecting staff from the Ministry of Social Development with Inland
Revenue to appropriately share information.
2.26 The public organisations involved in administering the Scheme were clear about
roles and responsibilities. The Treasury had primary responsibility for policy work
developing the Scheme. The Ministry of Social Development, Inland Revenue, and the
Ministry of Business, Innovation and Employment were also involved in that process.
2.27 The Ministry of Social Development was responsible for processing applications
and making payments. It continues to be responsible for pre- and post-payment
reviews, investigations, and prosecutions to support enforcement.
2.28 The Ministry of Social Development also received and considered complaints
about applicants’ eligibility for the subsidy. Complaints continue to inform the
Ministry’s review and investigation work.
18
Part 2
Setting up the Wage Subsidy Scheme
2.29 Inland Revenue supported the Ministry of Social Development to verify
information. It assisted, and continues to assist, the Ministry in the review and
investigation process.
2.30 Inland Revenue also received and considered complaints about applicants related
to tax matters and acted on those where necessary. Inland Revenue continues
to assist the Ministry of Social Development, and complaints about tax matters
continue to inform its work.
2.31 Through its contact centre and employment services branch (which includes the
Labour Inspectorate), the Ministry of Business, Innovation and Employment provided
information on the Scheme to employers and employees by phone or email.
2.32 The Ministry of Business, Innovation and Employment also monitored and enforced
compliance with employment standards when complaints brought those issues to
its attention. It continues to provide information for employers and employees, and
complaints about employment matters continue to inform its work.
2.33 Although the Ministry of Business, Innovation and Employment was
responsible for co-ordinating complaints, all the public organisations involved in
administering the Scheme received complaints and referred them to each other
where appropriate.
Significant resources were required to manage the Wage
Subsidy Scheme
2.34 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.
2.35 Public servants who worked on the Scheme faced challenges working from
home, such as not having available direct peer support or some equipment
or systems. Public servants also experienced some internet connectivity and
technical challenges when remotely accessing systems. They also had to deal with
distressed people who were facing losing their businesses and/or livelihoods.
2.36 Implementing the Scheme stretched the Ministry of Social Development’s resources.
At the beginning of the Scheme, any staff member who had a laptop who was not
delivering another essential service became involved in processing applications.
2.37 We were told that, on a busy day, the Ministry of Social Development had more
than 800 staff processing applications. In total, 1809 Ministry staff were given
system access to process applications.
19
Part 2
Setting up the Wage Subsidy Scheme
2.38 Supporting the Scheme also placed large demands on the Ministry of Social
Development’s call centre. On its busiest day, the Ministry had 183 staff available
to answer calls about the Scheme. Between 17 March and 21 October 2020,
the Ministry received 146,136 calls about the Scheme and managed to answer
124,685 of those.
2.39 About 100 additional Ministry of Social Development full-time equivalent staff
have been working on targeted reviews of applications, following up allegations
and complaints, and carrying out investigations. It is likely that between 40 and
50 Ministry staff who usually work on benefit fraud will be working on subsidy
investigations for another 12 to 18 months.
2.40 The Ministry of Social Development made more resources available for its work
on the Scheme over time. In late March 2020, Cabinet approved funding for the
Ministry of $14.9 million for information technology (IT) improvements and
199 additional staff, including 10 “audit staff” to help it process up to 460,000
subsidy applications. The Ministry told us that it also used 11 full-time equivalent
experienced compliance staff from the Department of Internal Affairs and
25 full-time equivalent staff from Inland Revenue. In August 2020, a further
$400,000 of funding was agreed for the Ministry of Social Development for
subsidy work.
2.41 The Ministry of Social Development also found ways to use staff more effectively.
This included introducing weekend shifts and freeing up staff by making some of
its processes more efficient (such as automating some aspects of verification work
and emailing rather than phoning applicants for more information).
2.42 Using staff from across the Ministry of Social Development to work on the
Scheme affected its capacity to carry out its main services. This included putting
some existing investigations into benefit fraud on hold. However, some of these
existing investigations would have been delayed anyway because of the Alert
Level restrictions.
2.43 The Ministry of Business, Innovation and Employment used its existing Labour
Inspectorate and wider engagement staff to educate employers, engage in
dispute resolution, and manage complaints. An additional 10 staff – eight early
resolution officers, one support officer, and one manager – were allocated to the
Labour Inspectorate.
2.44 Ministry of Business, Innovation and Employment staff received training and
support that was specifically about managing complaints about the Scheme. This
included a detailed training manual, a question bank where they could look for
similar complaints, and process documents.
20
Part 2
Setting up the Wage Subsidy Scheme
2.45 Inland Revenue also used its staff to support work on the Scheme. At one point,
Inland Revenue had nearly 200 of its staff members working on the Scheme. Some
were paired with a Ministry of Social Development employee to support them in
reviewing applications, and others answered phone calls from Ministry staff to
check applicant details. Inland Revenue staff were involved in confirming employer
status and employee numbers and determining the legitimacy of applicants who
were seeking a change to self-employed status to obtain subsidy payments.
2.46 Like the Ministry of Social Development, Inland Revenue received additional
funding for its work on the Scheme. Inland Revenue got $1.5 million approved
in late March 2020 for supporting the Ministry in 2019/20. Inland Revenue also
received additional funding in 2020/21. This additional funding enabled Inland
Revenue to reprioritise staff to work on the Scheme.
2.47 The public organisations involved in administering the Scheme could not readily
identify the total administrative costs of developing and managing the Scheme,
other than the additional targeted funding made available to Inland Revenue and
the Ministry of Social Development.
2.48 Using existing systems and staff with relevant skills helps mitigate fraud risks. It
also reduces the need for additional training and upskilling. However, this also
comes at a cost to a public organisation’s main work.
2.49 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. This work is
important to provide assurance to Parliament and the public that reasonable steps
are being taken to ensure that the significant public money associated with the
Scheme has been spent appropriately. The Ministry has confirmed that it intends to
use resources from Inland Revenue to assist with its integrity work on applications
for subsidy payments, and Inland Revenue has agreed in principle to this.
21
3 Making subsidy payments
3.1 In this Part, we describe:
• how quickly payments were made;
• whether the eligibility criteria were met;
• how adequate the payment system and processes were;
• how effective communication about the Scheme was; and
• how well repayments were managed.
Summary of findings
3.2 Subsidy payments were efficiently managed. Many applications were processed
and paid within short time frames. Support was provided to New Zealand
employers and, in turn, their employees at a critical time.
3.3 Applicants assessed whether they were eligible, with officials verifying some
aspects of the application before making payments. Payments were paid on
average within three and a half days of receiving an application. This was well
within the Ministry of Social Development’s target of five days.
3.4 One eligibility requirement – that a business must have taken active steps to
mitigate the impact of Covid-19 – was open to considerable interpretation. As
a result, there is a risk that some businesses have received subsidy payments
when they could have accessed support from other sources. However, the
unclear definition of this requirement means that this cannot be determined
with any certainty.
3.5 Nearly $300 million was paid to public organisations. A few large organisations
received most of this. In the early stages of the Scheme, there was a lack of clarity
about whether public organisations were eligible for subsidy payments.
A significant number of subsidy payments were made
quickly
3.6 Figure 3 shows the daily number of applications received. The number of
applications received within the first two weeks of the Scheme was high. More
than 70,000 applications were received on one day.
3.7 Figure 4 shows the daily amount of payments made. Payments totalling nearly
$1.8 billion were made on one day.
3.8 The Ministry of Social Development estimated that, excluding sole traders, the
Scheme supported more than half of the jobs in New Zealand at its peak.
22
Part 3
Making subsidy payments
Figure 3
Number of applications for the wage subsidy received daily
80
70
60
50
Number of
applications
(000) 40
30
20
10
0
17-03-20 17-04-20 17-05-20 17-06-20 17-07-20 17-08-20 17-09-20 17-10-20
Original wage subsidy Wage subsidy extension Resurgence wage subsidy
Source: Our analysis of the Ministry of Social Development’s data, produced 23 October 2020, for accepted and
declined applications. See the Appendix for information about the limitations of our analysis.
Figure 4
Amount of wage subsidy payments made daily
1,800
1,600
1,400
1,200
1,000
$million
800
600
400
200
0
17-03-20 17-04-20 17-05-20 17-06-20 17-07-20 17-08-20 17-09-20 17-10-20
Original wage subsidy Wage subsidy extension Resurgence wage subsidy
Source: Our analysis of the Ministry of Social Development’s data, produced 23 October 2020, for accepted
applications. See the Appendix for information about the limitations of our analysis.
23
Part 3
Making subsidy payments
3.9 Figure 5 shows that, on average, payments were made well within the Ministry
of Social Development’s five-day target. Although most payments were made in
a timely manner, a small number of applications took much longer to process.
For example, in the early weeks of the Scheme, the average time it took to make
payments exceeded the five-day target on several occasions. This reflected the
large number of applications during the early weeks of the Scheme.
Figure 5
Average number of days between application and payment, as at 23 October
2020
Stage Average number of days to make payment
Original wage subsidy 4.25
Wage subsidy extension 2.52
Resurgence wage subsidy 1.82
All three subsidy stages 3.48
Source: Our analysis of the Ministry of Social Development’s data. See the Appendix for information about the
limitations of our analysis.
Payment amounts varied during the Scheme
3.10 Figure 6 shows the average payment for the original wage subsidy was about
$25,000. For the wage subsidy extension (Figure 7) it was about $12,300, and for
the resurgence wage subsidy (Figure 8) it was about $3,700. In all three stages of
the subsidy, more than 99% of the payments were less than $1 million.
Figure 6
Number and average value of payments for the original wage subsidy stage, as at
23 October 2020
Number of Total value of Average payment
Value of payment
payments payments in category
$1 million or less 440,661 $8,761,404,360 $19,882
$1 million to $10 million 684 $1,480,626,677 $2,164,659
$10 million to $20 million 15 $195,688,908 $13,045,927
$20 million plus 14 $510,265,982 $36,447,570
All payments 441,374 $10,947,985,927 $24,804
24
Part 3
Making subsidy payments
Figure 7
Number and average value of payments for the wage subsidy extension stage, as
at 23 October 2020
Number of Total value of Average payment in
Value of payment
payments payments category
$1 million or less 208,709 $2,416,586,189 $11,579
$1 million to $10 million 56 $116,756,570 $2,084,939
$10 million to $20 million 0 $0 $0
$20 million plus 1 $35,804,672 $35,804,672
All payments 208,766 $2,569,147,430 $12,306
Figure 8
Number and average value of payments for the resurgence wage subsidy stage,
as at 23 October 2020
Number of Total value of Average payment in
Value of payment
payments payments category
$1 million or less 84,968 $301,027,280 $3,543
$1 million to $10 million 3 $16,355,273 $5,451,758
$10 million to $20 million 0 $0 $0
$20 million plus 0 $0 $0
All payments 84,971 $317,382,554 $3,735
Source: Our analysis of the Ministry of Social Development’s data. See the Appendix for information about the
limitations of our analysis.
Notes: Repayments have not been subtracted from the payment information. At each stage of the Scheme, a small
number of organisations received the subsidy payment in more than a single payment.
Eligibility was not always clear
3.11 In Part 5, we describe the Ministry of Social Development’s analysis of the types
and locations of businesses that received a subsidy payment and the employees
who were supported.
3.12 There has been considerable media coverage of, and public interest in, some private
organisations that received a subsidy payment. This is particularly so for those that,
despite experiencing or projecting a reduction in revenue, have nevertheless paid a
dividend to shareholders or otherwise shown financial robustness.
3.13 This does not necessarily prevent private organisations from being eligible for
the subsidy. We do not audit private organisations, and we have not assessed the
eligibility of any private organisation that received a subsidy payment.
25
Part 3
Making subsidy payments
3.14 In the early stages of the Scheme, there was a lack of clarity about whether
certain public organisations were eligible. Government agencies, Crown entities,
schools, and tertiary education institutions were generally not eligible. Guidance
indicated that a State Sector organisation could seek an exemption to become
eligible. Local government organisations were eligible.
3.15 More than 200 public organisations applied for a subsidy payment. In total, public
organisations were paid nearly $300 million before any decisions were made to
return money.
3.16 The largest public organisations that applied had more commercial functions.
Cabinet approved their applications on a case-by-case basis. These approvals
considered each public organisation’s revenue drop and the steps it had taken
to manage the impact of Covid-19 on its business. Cabinet gave Television New
Zealand, KiwiRail, New Zealand Post, Quotable Value, the New Zealand Artificial
Limb Service, and Airways New Zealand access to the subsidy.
Some eligibility criteria might not have been met
3.17 The requirement for applicants to have taken active steps to mitigate the impact
of Covid-19 on their business was not clearly defined. Some examples were
provided – for example, engaging with their bank or drawing on cash reserves.
However, these examples were limited, and employers were not required to make
a statement about any active steps they had taken to mitigate the impact of
Covid-19 on their business.
3.18 This requirement is important. It tests whether an applicant needs taxpayer-
funded assistance. There is a risk that some applicants who did not meet this
requirement received payment.
3.19 However, this cannot be determined with any certainty because:
• the definition of the requirement is unclear;
• applicants did not have to provide corroborative evidence at the time of
application; and
• we could not identify records that described any actions taken to conclusively
verify whether this requirement was met.
3.20 In our view, if the Ministry of Social Development had required applicants to make
a statement about what steps they had taken, they might have been more likely
to comply with this requirement. As a result, there would have been information
that could have been verified in any assurance work carried out after payment
was made.
26
Part 3
Making subsidy payments
Recommendation 1
We recommend that, when public organisations are developing and
implementing crisis-support initiatives that approve payments based on
“high-trust”, they ensure that criteria are sufficiently clear and complete to allow
applicant information to be adequately verified.
3.21 In our view, this is especially important when high-trust approaches are being
used because it is primarily applicants who assess whether they are eligible and
not officials.
3.22 Inland Revenue told us that it has followed this recommendation when
implementing the Small Business Cashflow Scheme.
Payments were generally well managed
3.23 The main system the Ministry of Social Development had in place to support
and record the processing of applications was its Emergency Employment
Support system.
3.24 Some automated checking and warning messages were built into the Emergency
Employment Support system. Users of the Emergency Employment Support
system could record the checks they carried out before approving an application,
using a free-text field and drop-down boxes.
3.25 Payments were restricted to the levels outlined in the Scheme’s policy – $585.80
each week for a full-time employee and $350.00 each week for a part-time
employee. An employee with the necessary delegation and who had not
processed the application would sign off on a batch of payments. Ministry of
Social Development staff doing post-payment assurance work could not work on
applications they had originally approved.
3.26 Only staff with administrator access could change the applicant’s bank account
details obtained when they applied. The Ministry of Social Development’s work
included checking for any payments against bank accounts of its staff. That work
did not identify any fraudulent payments to Ministry staff.
3.27 Although these processes worked well overall, there were some areas for
improvement. The Emergency Employment Support system permitted staff to
record information about pre-payment checks, but this was not always done or
done consistently. Although we saw records that indicate the Ministry of Social
Development generally checked Inland Revenue Department numbers (IRD
numbers), it did not always record the specific employee IRD numbers it checked.
27
Part 3
Making subsidy payments
However, Inland Revenue told us that it kept a record of which customers the
Ministry asked about.
3.28 The Ministry of Social Development used existing financial delegations for
approval of applications and authorising payments. As part of the 2019/20 annual
audit of the Ministry, our appointed auditor recommended that the Ministry
consider tightening delegation arrangements in any future stage of the Scheme.
Initially, a cap limited subsidy payments to $150,000. When the cap was lifted,
applications from employers with more than 80 employees were subject to
pre-payment checks that were completed by the Ministry’s integrity staff.
It is not clear whether applicants fully understood their
obligations
3.29 Once the Scheme had begun, the Ministry of Social Development, Inland Revenue,
and the Ministry of Business, Innovation and Employment all had information
about it on their websites and social media. There was also information on the
Government’s Covid-19 website. Although there was a lot of information available,
there was no single place to get definitive information about the Scheme.
3.30 It appears that, on balance, having information about the Scheme on multiple
websites was considered more appropriate for these circumstances than a
single website. We were told that the risk of detracting from important health
information on the Government’s Covid-19 website was also a reason for not
putting all information about the Scheme on that site.
3.31 Although each public organisation involved in the Scheme used its existing
communications channels and approaches, all of them worked together to
prepare the communications. We were told about some small inconsistencies
in the information available on different websites about the purpose of the
Scheme and employment-related expectations. These were later corrected. Public
organisations did regularly meet to discuss common queries received about the
Scheme and queries received from the same organisations.
3.32 There were also some challenges communicating the requirement to comply with
employment law and the eligibility criteria. Stakeholders we spoke with felt that
communications about the purpose of the Scheme could have been clearer and
more focused on the main objective of keeping people employed. Others believed
that some of the advice on websites conflicted with employment law and that
specific employment-relations information about the Scheme should have
featured more prominently on the websites. The Ministry of Business, Innovation
and Employment told us that there were improvements to the employment
information on Employment New Zealand’s website during the Scheme.
28
Part 3
Making subsidy payments
3.33 The Ministry of Social Development also assessed that its communication about
the Scheme was not completely effective. In late July 2020, the Ministry of Social
Development told its leadership team that:
Enquiries from applicants and early auditing showed that many applicants had
not fully understood the criteria when they applied, particularly as the Wage
Subsidy kept changing, and the interplay between the different stages of the
Wage Subsidy was not straight-forward.
3.34 We understand that the Ministry of Social Development sought to improve its
communications during the life of the Scheme using this type of feedback.
3.35 Information in the declaration form was the main way possible enforcement
action was communicated to applicants. The information included the possibility
of applicants being required to repay the subsidy payment. Subsequently,
additional information about reviews and enforcement has been added to the
Ministry of Social Development’s website.
3.36 Although the declaration form was relatively clear, it was lengthy and contained a
lot of information. It also changed between the different stages of the Scheme.
3.37 There is a risk that some applicants did not fully read the form or did not fully
understand the obligations. Many applicants agreed to the declaration at a time
of uncertainty and stress (unrelated to the Ministry of Social Development’s
actions). The declaration was read out to some applicants over the phone, who
agreed to it verbally.
3.38 We were told that it would have been helpful to have had clearer information
before people applied about:
• how and when to repay the subsidy payment and what would trigger a
repayment; and
• the criteria for repaying the subsidy payment, such as when a business had
nearly but not fully reached the revenue drop threshold or had genuinely
forecast a revenue drop that did not eventuate.
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.
3.40 The Ministry of Business, Innovation and Employment told us that it has recently
improved and streamlined its website information about the Scheme. Given it is
possible that further stages of the Scheme will be implemented, we encourage
29
Part 3
Making subsidy payments
public organisations involved in the Scheme to review their communications
to ensure that they are consistent and adequate to assist applicants to fully
understand their obligations.
A process to manage repayments was established quickly
3.41 The Ministry of Social Development received its first query about repaying a
subsidy payment on the second day of the Scheme going live. It received its
first repayment on 25 March 2020, just over a week after it had made the first
payment. The Ministry had not anticipated such early repayments. It quickly set
up a facility to receive payments.
3.42 The Ministry of Social Development subsequently prepared standard letters to
send to applicants after reviewing their application. Those letters have a clear
statement about the conclusion of the review and the implications for repayment.
3.43 The Ministry of Social Development believes that media coverage, the published
list of some recipients, and advice from third parties such as business advisors
have all influenced people ineligible for subsidy payments to voluntarily repay.
3.44 As at 5 March 2021, the Ministry of Social Development received 20,973
repayments valued at $726.2 million. This is about 5% of the value of payments
made to that date. About $703 million of the repayments were voluntary.
30
Protecting the integrity of the
Wage Subsidy Scheme 4
4.1 In this Part, we discuss:
• good practice for preventing, detecting, and managing fraud and abuse in
emergencies;
• pre-payment verification of information before subsidy payments were made;
• the processes relied on to protect the integrity of the Scheme after payments
were made;
• the reliability of post-payment processes;
• improvements made to protect the integrity of the Scheme while it was
operating; and
• public organisations working together to prioritise reviews, investigations, and
enforcement.
Summary of findings
4.2 Many of the steps public organisations took to protect the Scheme’s integrity
were consistent with good practice guidance for emergency situations.
4.3 The pre-payment verification steps to prevent payment of the subsidy to ineligible
people or businesses were generally robust.
4.4 Post-payment processes to protect the integrity of the Scheme included using the
declaration in the application, publishing some recipients’ names on the Ministry
of Social Development’s website, following up on complaints about subsidy
payments, and review and investigation work. Publishing some recipients’ names
appears to have been effective for incentivising post-payment compliance.
4.5 Most of the post-payment reviews involved phone conversations with people who
received the subsidy payment. How accurately those conversations reflect the
recipient’s actual situation – for example, as recorded in their business accounts
– is unknown. In our view, the reliability of those reviews should be tested against
additional evidence.
4.6 Some post-payment review and investigation work has identified instances of
abuse of the Scheme. At the time of our audit, the Ministry of Social Development
anticipated a number of prosecutions, but none had yet entered the court system.
4.7 The Ministry of Social Development proactively commissioned an independent
review to help identify risks of fraud and error and assess the arrangements it had
in place for preventing, detecting, and responding to those risks. After the review,
the Ministry made improvements to how it was managing the Scheme. This is a
good example of real-time continuous improvement.
31
Part 4
Protecting the integrity of the Wage Subsidy Scheme
Good practice for preventing, detecting, and managing
fraud in emergencies
4.8 We looked at the work of the International Public Sector Fraud Forum2 and work
carried out by other audit offices for good practice information on how a public
organisation should manage the risks of fraud for taxpayer-funded crisis support.
4.9 From these, we identified the principles, measures, and techniques that would be
appropriate for a public organisation to use to prevent, detect, and recover from
fraud of the Scheme. These are outlined in Figure 9.
4.10 We consider these to be examples of good practice. They involve less scrutiny of
applicants at the initial stages of a crisis-support initiative, given the need for
speed. They also involve greater scrutiny of recipients after they have received that
support, compared with practice in more normal times.
4.11 Figure 9 shows that high-trust approaches to emergency situations are inherently
at high risk of fraud.
4.12 In the interests of getting funding quickly to affected people, this heightened
risk will need to be tolerated to some degree. In these situations, “rapid
implementation may require a different risk appetite and treatments to those
adopted in more normal times”.3
4.13 It is important to establish the “risk appetite” (that is, the level of risk a public
organisation is willing to accept) early. Without clarity on the risk appetite, it is
difficult to make informed decisions about the scale and scope of the pre- and
post-payment protections to put in place.
4.14 Although there was some discussion of the risk associated with the high-trust
approach to the Scheme in Cabinet papers and the official documentation
available to us, we did not see any information that suggested the risk appetite
and thresholds for the Scheme had been clearly defined. Additional clarity might
have further informed the design of, and decisions about, the post-payment
assurance checks critical to the integrity of the Scheme. We accept that in these
circumstances this would have been challenging, and the early advice to Ministers
about different delivery options, in effect, explored different levels of risk.
2 International Public Sector Fraud Forum (2020), Fraud in Emergency Management and Recovery Principles for
Effective Fraud Control.
3 Australian National Audit Office (2020), Rapid implementation of Australian Government initiatives, page 3, at
32 www.anao.gov.au.
Part 4
Protecting the integrity of the Wage Subsidy Scheme
Figure 9
Fraud control principles, measures, and techniques for emergency situations
Principles of fraud control Counter-fraud measures Techniques to use
Accept that there is an Accept that it is necessary to Record risk appetite.
inherently high risk of tolerate some degree of fraud
fraud and that it is very given the priority of quickly
likely to happen. getting funding to affected
people.
Integrate fraud control Build a fraud risk assessment. Protective clauses such
resources (personnel) as claw-back clauses.*
Highlight that there will be
into the policy and assurance checking after the Data sharing for
process design to build event. verification.*
awareness of fraud risks.
Working with
stakeholders to share
information.*
Publication of
warnings.*
The business and fraud Use existing systems and criteria Hotline or portals for
control should work for payments where possible. people to share concerns
together to implement or allegations.*
Work with well-established,
low-friction counter- tried, and tested partners where Availability of
measures to prevent possible. information about
fraud risk where possible. recipients of payments.*
Make sure payments are
processed by limited staff with Real-time monitoring
appropriate oversight. and reporting of
performance.*
Train staff to identify and report
fraud. Segregation of staff
duties.*
Carry out targeted Collect and retain records of Post-payment risk
assurance after the payments and services delivered. profiling and data
event to look for fraud, analytics.*
Consider the fraud risk
ensuring access to fraud assessment and perform timely Follow-up
investigation resource. review of a sample of payments. communication with
recipients, including
Resource investigations into
with information on
potential fraud or corruption with
how to pay back funds.**
experienced fraud investigators.
Be mindful of the Reconsider fraud risk. Review and evaluation.**
shift from emergency Consider any lessons learned
payments into longer- about fraud and how it was
term services and revisit controlled.
the control framework
– especially where large
sums are invested.
* Some aspects of these techniques were implemented during implementation of the Scheme.
** We have recommended that public organisations use these techniques.
Source: International Public Sector Fraud Forum (2020), Fraud in Emergency Management and Recovery Principles for
Effective Fraud Control and our own understanding of good risk-management techniques.
33
Part 4
Protecting the integrity of the Wage Subsidy Scheme
Some pre-payment steps were taken to reduce the risks of
fraud
4.15 Before approving an application and making payment, the Ministry of Social
Development checked and verified some information that applicants provided
against information that Inland Revenue held. These checks included that the
applicant had a valid IRD number and that the number of employees applied for
in each application matched Inland Revenue’s information.
4.16 Initially, the information verification process was manual. Ministry of Social
Development staff had to phone or email Inland Revenue staff. A portal was
eventually set up for Ministry staff to access relevant Inland Revenue information
without needing to contact an Inland Revenue staff member directly.
4.17 Authority for the information sharing was initially through the Civil Defence
National Emergencies (Information Sharing) Code 2013 and later through the
COVID-19 Response (Taxation and Social Assistance Urgent Measures) Act 2020,
supported by a Memorandum of Understanding between the Ministry of Social
Development and Inland Revenue.
4.18 Parts of the Act had retrospective effect from the date of announcement of the
relevant Cabinet decision about the Scheme on 17 March 2020.
4.19 The Ministry of Social Development introduced additional pre-payment reviews
for selected applications over time. This was because it learned from the
behaviour of applicants during the first stage of the Scheme and used that to
inform risk-based work in the Scheme’s subsequent stages.
4.20 Fraud and integrity staff with specialist skills carried out these reviews.
Pre-payment reviews for applications from employers with 80 or more
employees started on 30 March 2020. This was because of the risk associated
with the higher value of applications from large employers.
4.21 The pre-payment review involved a phone conversation to confirm, based on
criteria and obligations, that the employer was eligible for the subsidy payment.
Staff were prompted to ask applicants about other steps they had taken to
mitigate the effects of Covid-19 on their business. However, staff did not have
detailed guidance about this and did not consistently record the information they
were given in relation to the application. The Ministry of Social Development told
us that it intended to strengthen processes for integrity reviews carried out for
the March 2021 stage of the Scheme. Our appointed auditor will be following up
on this as part of our 2021/22 annual audit of the Ministry. The Ministry has now
updated the declaration to include a requirement that applicants must prepare
and retain information as part of the application process.
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4.22 Applications for the wage subsidy extension and the resurgence wage subsidy
that had certain risk indicators were also reviewed before payment.
4.23 Pre-payment reviews for organisations with 80 employees or more became easier
to carry out once data matching with Inland Revenue was more automated, and
Ministry of Social Development staff had access to Inland Revenue’s information
through a secure portal. As at 18 September 2020, the Ministry of Social
Development had completed 1789 of these pre-payment reviews.
4.24 Other risk factors that triggered a pre-payment review for the wage subsidy
extension and the resurgence wage subsidy included:
• multiple applications from the same employer;
• businesses where there was a current allegation or investigation about subsidy
payments;
• sole traders declaring that they received a benefit;
• applicants that had previously fully repaid a subsidy payment; and
• applications where Inland Revenue had flagged an integrity issue with the
original wage subsidy.
4.25 In our view, these were appropriate risks to target in the circumstances.
4.26 Aside from checking applicants’ information against Inland Revenue’s information
and other publicly available information, the pre-payment review largely involved
calling applicants by phone to discuss the application. In most cases, this involved
limited or no documentary checks on supporting information. Figure 10 (at the
end of this Part) provides information about the number and results of the pre-
payment reviews.
Some applications were declined after pre-payment reviews
4.27 It is clear that pre-payment reviews helped to prevent subsidy payments to
some employers who were not eligible or who had not met their obligations for
previous subsidy applications. As at 23 October 2020, 48,718 applications for
the original wage subsidy (about 10%), 65,389 applications for the wage subsidy
extension (about 24% ), and about 18,000 applications for the resurgence wage
subsidy (about 17%) had been declined. These total just over 132,000 declines.
4.28 The reasons an application was declined included:
• an application made after the Scheme ended;
• an application made by an employee rather than an employer;
• a government organisation not being eligible;
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• applicants not able to be contacted to confirm information;
• duplicate applications; and
• information provided with the application not matching Inland Revenue’s
information.
4.29 We attempted to further analyse the reasons for declining applications from
different types of applicants. Although the Ministry of Social Development
provided us with information about declined applications, it was not adequate for
us to carry out the analysis we wanted. However, the information did show that
many of the declined applications were from sole traders.
4.30 Many applications from sole traders were declined in early June 2020 and during
August 2020. This was because Inland Revenue’s information did not show them
as a current self-employed business. Inland Revenue told us that it has made
changes to its systems for future stages of the Scheme. Those changes will require
more manual verification of sole traders’ information and sole traders to prove
their self-employment status when applying for subsidy payments.
4.31 The Ministry of Social Development did not have the resources to investigate all
these applications to find out why their details did not match Inland Revenue’s
information. Instead, the Ministry declined the applications and asked the
applicants to update their details with Inland Revenue and reapply. We were told
that most applicants did not reapply.
4.32 The Ministry of Social Development provided us with information, dated
23 October 2020, that shows nearly three-quarters of the declined applications
for the original wage subsidy and for the wage subsidy extension were from sole
traders. Nearly two-thirds of the declined applications for the resurgence wage
subsidy were from sole traders. Slightly more than half (53%) of all payments
made in the three stages were to sole traders.
4.33 In our view, declining applications from sole traders and encouraging them to
update their details with Inland Revenue and reapply was a practical decision
in the circumstances. In our view, this approach did not prevent legitimate
applicants from accessing support from the Scheme.
Post-payment processes to identify fraud and abuse
4.34 The public organisations involved in administering the Scheme also identified
post-payment integrity risks. The main identified risks were:
• applicants receiving subsidy payments without meeting the eligibility criteria;
• employers not passing the subsidy payment on to employees;
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• applicants being overpaid;
• the subsidy payment being mistakenly paid to incorrect bank accounts; and
• recipients of subsidy payments not meeting their tax obligations.
4.35 In our view, these were appropriate risks to identify given that, if they were to
occur, public funds would have been used for purposes that were inconsistent
with the Scheme.
4.36 Processes to mitigate and manage risks after payment included:
• a complaints mechanism;
• publishing recipients’ names;
• using a declaration form;
• reviews and investigations;
• inclusion of subsidy payments on the 2021 IR3 Income Tax Return; and
• prosecution.
The complaints process was an important integrity measure
4.37 The process that allowed the public to make complaints about employers
receiving subsidy payments was an important integrity measure. The Ministry of
Business, Innovation and Employment made a complaints form available online
for people to submit complaints.
4.38 The Ministry of Social Development, Inland Revenue, and the Ministry of Business,
Innovation and Employment all had systems and processes to receive and
consider complaints. Although it was the Ministry of Business, Innovation and
Employment’s role to co-ordinate complaints, all these organisations received
complaints individually and, where necessary, forwarded them on to the
appropriate organisation.
4.39 The Ministry of Social Development dealt with complaints about eligibility. Inland
Revenue dealt with complaints about tax. The Ministry of Business, Innovation and
Employment dealt with complaints about employment standards and related issues.
4.40 Some of the complaints that were managed by the Ministry of Business,
Innovation and Employment were:
• sent to the Ministry of Business, Innovation and Employment’s dispute
resolution team for a mediated approach (this did not mean a full formal
mediation but a resolution that followed a similar method);
• discussed with the employer by Ministry of Business, Innovation and
Employment staff, with the complainant’s permission;
• the subject of a more general discussion with a large company by a senior staff
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member (the rationale for this approach was that multiple issues could be
resolved at once); or
• moved to investigation if the complaint was more about compliance with
minimum employment standards.
4.41 Figure 10 (at the end of this Part) provides information about the number
and results of the complaints work. The number of complaints is a very small
proportion of the number of employers and employees who received subsidy
payments (about 12,000 complaints out of an estimated 1.8 million employees
who received wage subsidy support through their employer, less than 1%).
4.42 The types of complaints that the Ministry of Social Development, Inland Revenue,
and the Ministry of Business, Innovation and Employment received included:
• employers making applications based on employees’ contracted hours rather
than the hours the employees were actually working and perhaps not applying
for the correct payment amount;
• employers applying for the subsidy payment but not paying employees; and
• issues with some organisations not applying for the subsidy payment (it was
not compulsory for businesses to apply).
4.43 Complaints also included issues of employment practice that were not directly
related to the Scheme but that took place when an organisation was accessing
the subsidy payment. These included:
• employment being terminated without following the correct procedure, as set
out in individual employment agreements or minimum standards; and
• employment being terminated and then the same jobs being offered back at
reduced hours and, in some cases, at a lower hourly rate.
4.44 As a first step in responding to these complaints, the Ministry of Business,
Innovation and Employment spoke with the complainant and the employer
concerned. If the complaint could not be resolved through a few phone calls, the
staff member would explain possible next steps the complainant could take, such
as lodging a personal grievance or seeking formal mediation.
4.45 If the complaint raised an issue related to employment standards, this was recorded
so it could be followed up later as part of the Ministry of Business, Innovation and
Employment’s business-as-usual work. Where possible, the Ministry of Business,
Innovation and Employment took an educational approach to help employers
understand their responsibilities and obligations. Its view was that most of the
complaints were resolvable between parties without compliance action.
4.46 However, we were told about some concerns with the complaints process. Some
stakeholders felt that there was a lack of transparency. We also heard about
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inconsistencies between the complaints investigation process and the published
process for complaints.
Publishing recipients’ names led to an increase in complaints
4.47 From 6 April 2020, the Ministry of Social Development published on its website
the names of some employers who had received a subsidy payment. People could
search for an employer’s name. If that employer received a subsidy payment, the
system displayed the amount that had been paid. If an applicant fully repaid the
subsidy payment they had received, their name was removed from the list of
published recipients.
4.48 The Ministry of Social Development updated the list of recipients daily. As we
noted in paragraph 1.33, part of the declaration that all applicants agreed to was
allowing their name to be published if they received a subsidy payment.
4.49 Other organisations we spoke with considered publishing recipients’ names
to be an important factor in supporting accountability and transparency and
incentivising compliance. People could access information and then make
complaints – for example, when there were concerns about an employer’s
eligibility or an employer breaching their obligation to pass the subsidy payment
to their employees. The number of complaints increased after the Ministry of
Social Development began publishing employers’ names.
4.50 There were some limitations to this approach. For privacy reasons, the names of
self-employed applicants and employers with fewer than three employees were
not published. Slightly more than half the number of payments in the Scheme
were made (by volume) to sole traders. This means that information about more
than half of successful applications was not publicly available.
4.51 The registered names of businesses, rather than trading names, were published.
This might have made it difficult to find a business by its common name.
Information about employers receiving the subsidy payment could be accessed
only by a targeted search. The full dataset was not available to do analysis across
locations and industries. There was also a lack of transparency about how much
money had been applied for in a given employee’s name.
4.52 Publishing a fully accessible list of recipients’ names (excluding those that could
not be published for privacy reasons), or listing the top 1000 recipients or similar,
would have supported even greater transparency. We note that the Ministry of
Social Development has subsequently released, under the Official Information Act
1982, the list of recipient names it has published on its website.
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Significant reliance has been placed on the applicant declaration
4.53 The declaration form that was part of the application was the main way public
organisations involved in administering the Scheme encouraged compliance. The
Ministry of Social Development’s view is that the declaration was an agreement
that applicants made as part of applying for a subsidy payment.
4.54 Businesses had to confirm in the declaration that they met the application criteria
and agreed to comply with a set of associated obligations.
4.55 The Ministry of Social Development worked with Crown Law to write the
declaration. Various changes were made to it over time to reflect changes to the
Scheme and to improve the declaration. Examples include:
• moving from a best endeavours basis for retaining employees (before 4pm on
27 March 2020) to a requirement to retain employees (from 4pm on 27 March
2020) as a condition of receiving the subsidy payment;
• adding a definition of what ordinary wages and salary are (from 28 March
2020); and
• adding a requirement for an employer to inform the employees named in the
employer’s application of the outcome of the application and the conditions
that apply to it (from 10 June 2020).
4.56 Requiring employers to retain employees as a condition of receiving a subsidy
payment should have made that requirement easier to comply with, assess,
and enforce. In turn, it should have led to better protection of employees.
Requirements that are clearly defined and commonly understood are likely to
better incentivise compliance.
4.57 Applications could be submitted in person, by mail, or online. To finalise an
application online, applicants could confirm by email that they had read and
agreed to the declaration.
4.58 Some applicants who did not have internet access completed declarations over
the phone. This was also the case for those who could not use the internet for
some other reason, including because the Ministry of Social Development’s
website was overloaded.
4.59 The Ministry of Social Development does not know the extent to which the full
declaration was read out to applicants who agreed to it over the phone.
The reliability of post-payment reviews needs testing
4.60 Arguably, the most significant way to manage the integrity of the Scheme was the
post-payment review.
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4.61 The Ministry of Social Development carried out three main types of post-payment
reviews. It describes these as:
• random audits;
• targeted audits (these look at applicants identified as having some risk
characteristics); and
• allegation-generated work (these reviews act on an allegation a member of the
public has made).
4.62 Figure 10 (at the end of this Part) provides information about the number and
results of each type of post-payment review.
4.63 We use the terms “reviews” and “review work” to describe the post-payment work.
We do not consider that the post-payment work carried out provides the level of
assurance we expect of an audit.
4.64 This is because the work that was carried out did not routinely involve
substantiation of information against a secondary source, such as requesting and
reviewing documents to verify information provided verbally.
4.65 In our view, it is possible that the post-payment work is less than what Cabinet
would have expected when it noted the possibility of the Ministry of Social
Development doing post-payment audit work. Similarly, the Ministry’s use of
the term “audit” to describe its review work could be misleading. As we were
completing this report, the Ministry confirmed that it has changed its terminology
and now refers to the work as integrity checks or reviews.
4.66 The Ministry of Social Development used the results of the random reviews over
time to inform the criteria for targeted reviews. The amount of random reviews
reduced as the Ministry learnt more about the actual risks it was observing.
4.67 We understand that the Ministry of Social Development does not plan to do
any more random reviews. We were told that this is because, to date, that work
has identified relatively few issues of concern. Instead, the Ministry has moved
towards more targeted integrity checks for high-risk applications.
4.68 Review work started with a desktop review. This included checking some of the
Ministry of Social Development’s systems and public sources for information
about the applicant. Publicly available information might, for example, enable the
Ministry to verify that a business was legitimate and operating before Covid-19.
4.69 After the desktop review, there were phone conversations with the applicant.
Where necessary, staff also spoke to employees and other government
agencies. The staff having these discussions had experience in compliance
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interviews. They were provided with conversation guides to help them obtain
the relevant information.
4.70 The reviews did not involve substantive review of documentary evidence, such as
financial accounts. Most organisations prepare some form of financial statements.
These, or similar supporting information, could have been asked for when an
application for the subsidy payment was made (we understand that this was
done by the Australian Government for its JobKeeper wage subsidy) or as part of
the post-payment review activity.
4.71 Not requesting this type of information before or after payment means that there
has been no objective validation of an applicant’s compliance with the revenue
reduction requirement. In our view, an audit should, as a minimum, include
verifying the main eligibility criteria against relevant documentary evidence. This
should have been done for a sample of applications. Given the significant amount
of public money paid and the fact that audit work could be carried out after
payment, this is an appropriate step to take.
Recommendation 2
We recommend that, when public organisations are developing and
implementing crisis-support initiatives that approve payments based on
“high-trust”, they put in place robust post-payment verification measures,
including risk-based audits against source documentation, to mitigate the risks of
using a high-trust approach.
4.72 Inland Revenue told us that it followed this recommendation when implementing
the Small Business Cashflow Scheme.
Recommendation 3
In relation to the Wage Subsidy Scheme, we recommend that the Ministry of
Social Development test the reliability of a sample of the post-payment assurance
work it carried out against documentary evidence held by applicants.
4.73 A review could result in an applicant being requested to repay funds or further
investigative work. We are not persuaded that the reviews provide enough
confidence that all applications that merit further investigation have been
identified. As at 5 March 2021, the Ministry of Social Development had 392 active
investigations in progress. A further 464 investigations had been resolved and 161
investigations were yet to start.
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Improvements were considered and many were
implemented
4.74 The Ministry of Social Development commissioned Deloitte to comprehensively
and systematically review the integrity risks to the Scheme and how they were
being managed and mitigated. In response to Deloitte’s May 2020 work, the
Ministry made improvements to its integrity work including:
• increasing communications with applicants before and after payment;
• improving application processes to ensure that the data collected is accurate;
• putting in place stricter settings for approval by staff processing applications;
and
• having a more targeted review programme based on risk analysis carried out
with Inland Revenue.
4.75 Because of time constraints, the Ministry of Social Development could make only
limited improvements to the Scheme’s integrity. The Ministry advised Ministers
that it could not implement all of Deloitte’s recommendations because its
immediate focus was on implementing the wage subsidy extension.
4.76 The recommendations that the Ministry of Social Development did not
implement were primarily related to improving systems for handling applications
from large organisations and automating the internal transfer of payment files.
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.
Public organisations should continue to work together to
prioritise reviews, investigations, and enforcement
4.79 Inland Revenue’s review work primarily focused on whether a business existed
and whether the information supplied in the application matched the information
Inland Revenue held. We were told that it included checks against a variety of
information including employee numbers, company registration, shareholder
information, and income types.
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4.80 Inland Revenue’s work has also involved looking at whether some applicants’ GST
on taxable supplies (the supplies that a business uses and claims back the GST on
when it purchased those supplies) had reduced for a relevant period. Analysis of
this information might help to understand whether certain applicants’ revenue
declined sufficiently to make them eligible for the subsidy payment.
4.81 Ministry of Social Development staff made decisions about what enforcement
steps to take, if any, in response to the reviews Inland Revenue carried out. This is
because Inland Revenue staff do not have the legal authority to make decisions
about enforcement steps for matters unrelated to tax compliance.
4.82 Post-payment reviews have led to 1017 cases being referred for investigation as at
5 March 2021. At the time of our audit, the Ministry of Social Development expected
that its investigation work was likely to continue for another 12 to 18 months.
4.83 The Ministry of Social Development has also indicated that it has more review and
assurance work planned. This includes:
• completing the remaining post-payment reviews for the wage subsidy
extension and the resurgence wage subsidy;
• completing allegation reviews for the original wage subsidy;
• completing targeted reviews of high-risk applications (indicated through
allegations, referral from another agency, or by risk indicator); and
• performing investigations as needed.
4.84 Inland Revenue requires self-employed subsidy recipients to report the value of
subsidy payments received in their 2021 IR3 Income Tax returns. Inland Revenue
has also made supporting information available to those who need to report
the wage subsidy they received. Inland Revenue also intends to match subsidy
payment data from the Ministry of Social Development with reported subsidy
data from self-employed persons to identify potential income under-reporting.
4.85 We understand that public organisations’ ongoing integrity and prosecution
work continues to divert resources from other work. However, in our view, it is
important for abuse of the Scheme to be identified and appropriate action taken,
including prosecution if necessary.
Prosecutions and civil action are anticipated
4.86 There had been no prosecutions when we carried out our audit, but work is under
way to support prosecutions.
4.87 The Ministry of Social Development expects to take prosecutions for fraud. Inland
Revenue will prosecute where it is subsequently found that:
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• businesses have claimed subsidy payments and have been found to have
significantly under-reported previous income and/or have failed to correctly
report and account for wages paid to employees, PAYE, and other deductions;
• businesses that since receiving subsidy payments have failed to file
employment information or GST returns and not contacted Inland Revenue and
advised the reasons for this; and
• self-employed people who have received subsidy payments and have not
reported this as income.
4.88 Inland Revenue and the Ministry of Business, Innovation and Employment
can use their normal enforcement powers for prosecutions for tax issues and
employment, respectively.
4.89 The Ministry of Social Development can request information from recipients
in accordance with consents given under the declaration, or apply to the New
Zealand Police for production orders under the Search and Surveillance Act 2012.
The Ministry anticipates using a combination of prosecution (under the Crimes
Act 1961), recovery through a civil claim, and restraint and/or forfeiture pursuant
to the Criminal Proceeds (Recovery) Act 2009 to support its enforcement work.
4.90 In our view, effective prosecutions where there is evidence of fraud or abuse are
critically important to maintaining trust and confidence in the Scheme. This work
needs to be adequately resourced and prioritised.
Recommendation 4
In relation to the Wage Subsidy Scheme, we recommend that the Ministry of
Social Development prioritise remaining enforcement work, including:
• seeking written confirmation from applicants (which could be targeted
towards larger or risk-indicated applicants) of compliance with the eligibility
criteria and the obligations of receiving the subsidy; and
• pursuing prosecutions to recover funds and/or to hold businesses to account
for potentially unlawful behaviour.
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Figure 10
Pre-payment and post-payment integrity processes and their results
Pre-payment of a subsidy
Integrity processes Volume Results
Checks against Inland Manual or automated checking of Contributed to just over 132,000 declined
Revenue’s information some aspects of all applications. applications (as at 23 October 2020)
1789 checks Contributed to checks of $3 billion
Large employer checks
(as at 18 September 2020). of payments.
Other risk-based reviews 2093 exception reviews. 1252 declined applications.
Applicants have declared that they meet
All applicants agreed to a declaration. the eligibility criteria and will comply
Use of a declaration An unknown number of applicants with their obligations. Applicants are
have completed the declaration orally. aware of the possibility of subsidy
recovery and/or prosecution.
Post-payment of a subsidy
Integrity processes Volume Results
4770 allegations resolved resulting in
Allegation processes 4782 allegations received. 1175 refunds being required.
About 12,000 complaints received Consideration of complaints by Inland
Complaints process across three agencies Revenue, the Ministry of Social
(as at 28 February 2021). Development, and the Ministry of
Business, Innovation and Employment.
The registered names of recipients The public can access a record of
and the amount they received are which organisations received the
Publication of recipient names publicly available for all recipients subsidy and the amount they
excluding sole traders and businesses received for just under half of the
with less than three employees. recipients of the subsidy.
Post-payment reviews (historically Resulted in 1412 refunds being
3751 random reviews and
referred to as “audits” by the required, mainly as the result of
3301 targeted reviews resolved.
Ministry of Social Development) targeted rather than random reviews.
464 investigations resolved,
1017 cases had been referred for
Investigations 229 resulted in a repayment
investigation.
being required.
Prosecutions A number of prosecutions are Deterrent to abuse of future government
anticipated. support schemes.
Source: Based on Ministry of Social Development information provided to the Office of the Auditor-General.
Note: Figures are as at 5 March 2021, unless otherwise stated.
46
Oversight, monitoring, and review
of the Wage Subsidy Scheme 5
5.1 In this Part, we discuss:
• the governance, monitoring, and oversight of the Scheme;
• some of the evaluation activities that were carried out after the Scheme was
implemented; and
• information that has been gathered to date about the impact of the Scheme,
including some unintended consequences.
Summary of findings
5.2 The public organisations responsible for developing and administering the
Scheme largely relied on existing management and governance arrangements
for oversight of their work on the Scheme. This does not appear to have been a
problem. Overall, the Scheme was established quickly. Payments were managed
well and the public organisations took some steps to improve their processes.
However, as we have noted, more attention could have been given to the
post-payment integrity process.
5.3 There have been some unintended consequences of the Scheme. Issues have been
raised about the way the Scheme interacted with various aspects of employment
law. These were of a scale and variety that was unforeseen. There is an
opportunity to learn from this to inform guidance for employers and employees
for any future schemes.
5.4 In our view, given the significant amount of spending associated with the
Scheme, and the likelihood that this approach could be used again in the future,
it is important to complete a comprehensive evaluation of the Scheme in a
timely manner.
Public organisations largely relied on existing
management and oversight arrangements
5.5 The public organisations involved in administering the Scheme worked closely
together and with Ministers to develop and implement it. These arrangements
appear to have been effective in the circumstances.
5.6 Public organisations largely relied on existing internal management and
leadership accountabilities to control and guide their work on the Scheme.
Some organisations (for example, the Treasury and Inland Revenue) set up
specific internal groups with Covid-19 or Wage Subsidy co-ordination and advice
responsibilities. The Ministry of Social Development’s leadership team met
regularly (sometimes daily) during the development and implementation of
the Scheme. The Ministry’s Service Delivery leadership team met daily during
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the development and implementation of the Scheme. The Ministry of Business,
Innovation and Employment’s Deputy Chief Executives met regularly to discuss
policy, design, and operation of the Scheme.
5.7 There were weekly cross-agency meetings between relevant agencies about
complaints, queries, policy development, and operation of the Scheme.
5.8 Public organisations also relied on frequent informal communications across
agencies at all levels, as well as formal engagement with the Economic Advisory
Group during development of the Scheme. This is a group of officials overseeing
the economic impact of Covid-19.
A full and timely evaluation is needed
5.9 The Ministry of Social Development published information on its website about
the Scheme with intermittent updates on how many applications there were.
It also published information about the concentration of payments in various
industries and estimates of the number of employers and employees the Scheme
had supported.
5.10 The Ministry of Social Development also looked at the number and proportion of
jobs the Scheme supported. This data was broken down by age, gender, ethnicity,
industry, and region. It published the results of that work on its website.
5.11 The Ministry of Social Development commissioned a survey of businesses that
had received a subsidy payment to understand its impact and inform future
policy. Participants in the survey were largely representative of the businesses that
received the subsidy payment. The Ministry published the survey results on its
website. The main findings from the survey were:
• 79% of respondents said they benefited a lot from the subsidy payment; and
• 89% said the subsidy payment meant they could keep operating for the
foreseeable future at the time of the survey.
5.12 However, the survey did not include businesses that chose not to apply for the
subsidy payment, businesses that wanted to apply but were not eligible, or
employees of businesses that did and did not receive the subsidy payment.
5.13 The Treasury reported on the impact and performance of the Scheme to the
Minister of Finance. Its early advice stated:
[The subsidy] has been well suited to the sudden and temporary nature of the
COVID-19 shock, is likely to have reduced economic scarring and will facilitate a
more rapid economic restart once the disruption is over ...
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Evidence available indicates that the wage subsidy has supported employment
attachment and worker incomes and preserved jobs during severe public health
restrictions and enabled a rapid economic restart once Alert Levels were lowered.
5.14 The evidence that the Treasury was referring to was its modelling of
unemployment, the movement in real-time economic indicators across
lockdowns, analysis of changes in worker incomes, comparisons with overseas
experiences, and qualitative feedback from employers and business groups. The
analysis showed that, without the Scheme, 100,000 more people would have
become unemployed in the second quarter of the 2020 calendar year.
5.15 The public organisations involved in administering the Scheme are jointly
exploring how to evaluate aspects of the Scheme. When we carried out our audit,
it was yet to be determined which organisation or organisations would own, lead,
and fund this work.
5.16 We understand that this planned evaluation intends to look at the longer-term
impact of the Scheme on employment. In our view, the evaluation should look at
the development, operation, and wider effects of the Scheme.
5.17 It is important that comprehensive evaluation work be carried out so that the
effects of the Scheme are better understood, and a view can be formed on the
effectiveness and value for money of this kind of policy response. In our view, this
evaluation work should be prioritised and carried out in a timely way.
5.18 However, performing this evaluation should not prevent public organisations from
making improvements based on the lessons learned so far. It would be regrettable
if there was another stage of the Scheme implemented without those lessons to
inform improvements to post-payment reviews and enforcement actions.
Recommendation 5
We recommend that the Ministry of Social Development, the Inland Revenue
Department, the Ministry of Business, Innovation and Employment, and the
Treasury carry out timely evaluation of the development, operation, and impact of
the Wage Subsidy Scheme and use the findings to inform preparation for future
crisis-support schemes.
5.19 At the time of finalising our report, we were told that the Ministry of Social
Development, Inland Revenue, the Ministry of Business, Innovation and
Employment, and the Treasury were in discussions about proposed evaluation work.
49
Part 5
Oversight, monitoring, and review of the Wage Subsidy Scheme
The Wage Subsidy Scheme’s unintended consequences
Some recipients received payments more than their normal income
5.20 Self-employed people received a subsidy payment as if they were an employer.
They could initially keep the full amount of the subsidy, even if their usual income
was less than what was paid to them. The effect was that some self-employed
people had their income increased for the period of the Scheme.
5.21 There were administrative amendments to the Scheme to address this issue. In
the wage subsidy extension, there was an obligation in the declaration for
self-employed people to repay any surplus arising from the difference between
their usual income and the subsidy payment.
5.22 Employers with several part-time employees who usually earned below the fixed
part-time subsidy rate of $350 each week could have potentially ended up with
a surplus from the subsidy payment. These employers were expected to pay the
money back if they had no other employees who they could pass it on to. This was
an explicit requirement in the declaration for the wage subsidy extension.
Implementing the Scheme revealed some problems with
employment practices
5.23 In early May 2020, advice was prepared for the Ministers of Finance, Social
Development, and Workplace Relations and Safety about how the Scheme
interacted with aspects of employment law. There were a range of largely
unforeseen issues, although we understand that some stakeholders raised
concerns early.
5.24 Employers who applied for subsidy payments were still required to meet their
employment law obligations. Stakeholders, employers, and employees questioned
how aspects of those obligations were affected by the Scheme. There were also
many complaints about employers’ compliance with their employment law
obligations or with the obligations of receiving the subsidy payment.
5.25 The Ministry of Business, Innovation and Employment sought legal advice about
some of the employment matters that arose. These matters included whether
employers could make employees take annual leave while the employer was
receiving a subsidy payment during Alert Level 4 – Lockdown.
5.26 Other employment issues raised during the Scheme included:
• questions about whether, and what type of, consultation was needed to
meet good-faith expectations before any changes were made to employment
agreements (such as to remuneration and hours worked) during Covid-19;
50
Part 5
Oversight, monitoring, and review of the Wage Subsidy Scheme
• lack of clarity about minimum wage requirements for people unable to work
or unable to work their usual hours. There was confusion about how to define
“usual hours” for the purposes of the subsidy payment. The minimum wage
was increased during the Scheme, further complicating these issues; and
• questions about whether casual workers were eligible for the subsidy payment
and some concern that employers were not making applications for these
workers.
5.27 To some extent, these issues reflected the complexity and variation in
understanding of employment law before the Scheme was implemented. Some of
the issues that have arisen during the Scheme have been the subject of cases before
the Employment Relations Authority and the Employment Court.
5.28 The Ministry of Business, Innovation and Employment told us that it is committed
to updating its publicly available information based on the outcomes of
complaints and Employment Court cases about the Scheme.
5.29 Forming a view on the appropriateness of the legal positions the Ministry of
Business, Innovation and Employment took is not our role. However, we consider
that, by seeking legal advice, the Ministry of Business, Innovation and Employment
took reasonable steps to address the identified issues.
5.30 We encourage the Ministry of Business, Innovation and Employment to reflect
on what the identified issues mean for its educational work with employers. We
also suggest that it consider the implications for any future stages of the Scheme
or other subsidy schemes. This will help public organisations be better prepared
for the complex employment issues that could likely arise in any future subsidy
scheme. The Ministry of Business, Innovation and Employment has confirmed that
it has already made changes to its guidance and complaints processes and will
review its guidance in line with any precedents set in the Employment Court.
51
Appendix
Scope and limitations of our work
We did not audit any of the private organisations that received subsidy payments.
Whether those organisations accessed and used the Scheme lawfully and
whether their circumstances were consistent with the declarations they made is
not within our statutory mandate to audit.
Our work focused on the extent to which the public organisations involved in
administering the Scheme were aware of the risks of fraud or error, and the
actions they took to manage those risks through prevention, detection, and
recovery work.
We did not examine the merits of the policy decision Cabinet made to have
a subsidy or to take a high-trust approach because we do not comment on
government policy. Our work was limited to the implementation of the Scheme. We
have excluded other forms of government support in response to Covid-19, such
as the Leave Support Scheme, from this work. We have not performed a detailed
assessment of compliance with privacy and information technology security
requirements as part of our work looking at implementation of the Scheme.
Some of our work relied on datasets provided by the Ministry of Social
Development at different points in time. We carried out a quality assessment of
these datasets. We sought explanations from the Ministry of Social Development
for a small number of data quality issues, which we identified across these
datasets. Based on our discussions with the Ministry, we decided to accept
the data as it is because these issues were not material to the overall situation
described by the data in our report or our use of the data at an aggregate level.
We decided that the additional data analysis that would be required to make
more informed decisions about the inclusion or exclusion of individual records
in our analysis was not needed in the circumstances. Therefore, the information
in this report is based on raw data from the Ministry of Social Development and
is the same type of information that the Ministry has used in its public reporting
about the Scheme. The information we provide is specific to given points in time,
as we have noted alongside the information.
52
Appendix
Scope and limitations of our work
To perform our work, we:
• obtained and reviewed the relevant Cabinet and departmental briefings,
advice, and decision-making documents;
• obtained and reviewed the main policy procedure and protocol documents
about managing the Scheme;
• obtained and reviewed management and governance documents about the
performance and review of the Scheme;
• spoke with staff in the Ministry of Social Development, Inland Revenue, the
Ministry of Business, Innovation and Employment, and the Treasury;
• observed some of the business systems the Ministry of Social Development used;
• spoke with representatives of non-government organisations involved in
providing advice and/or support to their members in relation to the Scheme;
• obtained and reviewed data and analysis about payments, repayments, and
declined applications, complaints, and reviews and investigations of recipients
of subsidy payments;
• carried out a quality analysis of the payments, repayments, and declined
applications datasets, discussed that analysis with the Ministry of Social
Development, and used those discussions to inform our analysis of that data; and
• obtained and reviewed the work of the International Public Sector Fraud Forum
and various documents about good practice in managing fraud and abuse in
crisis situations.
53
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