Police have been called in after a Government "sting" of secondhand appliance dealers found some allegedly conniving with beneficiaries to deceive Work and Income.
Nine dealers - in South Auckland, the central North Island, Wanganui, Wellington and Dunedin - were visited by agents posing as beneficiaries seeking quotes for fridges or washing machines to be paid by advances on their benefits.
Police were alerted after five dealers reportedly let the fake beneficiaries buy appliances worth less than the benefit advances in return for cash kickbacks or grocery vouchers, or take items such as TVs or PlayStations instead of the appliances specified.
Budget advisers said beneficiaries went along with the scam for the quick cash or luxury goods, but ended up losing because they had to repay the full advance to Work and Income.
Work and Income granted 29,145 benefit advances to buy fridges or washing machines worth a total of $13.7 million in the year to March, up from $9.5 million four years ago.
Almost 26,000 beneficiaries received cash advances for fridges or washing machines more than once in the five years to March, including 1263 who received at least five advances and 22 who got at least 10.
Beneficiaries and dealers could be liable to up to three months in jail under the Crimes Act for obtaining goods or profits worth up to $500 by deception, or a year's jail if the deception involves more than $500.
Social Development Minister Paula Bennett said even if police decided not to prosecute, Work and Income would stop working with the suspect dealers.
"They are jeopardising their businesses by doing this.
"There is certainly unethical behaviour going on working against taxpayers' dollars, but the extent of it, we are yet to determine."
The sting was ordered after Ms Bennett heard anecdotal reports of the scam.
Maureen Little, of Family Works in West Auckland, cited one case in which a beneficiary got a $500 benefit advance for a washing machine and $100 in cash back from the dealer.
"I rang the dealer. There was a lot of abuse. He said I had to prove it," Ms Little said.
"The client had mental health issues. She couldn't dream of that sort of story; she thought the washing machine people were being very nice."
Mangere Budgeting and Family Support chief executive Darryl Evans said he had seen three cases in the past few years.
"It's ripping off Winz and it's ripping off the beneficiary - at the end of the day, you still have to pay the total price back," he said.
Many appliances bought with benefit advances did not have warranties and when they broke down, new advances were needed to replace them.
All appliances must now come with a three-month warranty.
Work and Income is understood to be looking into a bulk purchase or preferred-supplier deal with a chain store selling new appliances.
From next month, a service centre manager's approval will be needed for any advance for appliances to someone who has received an advance in the previous six months.
"We will also undertake quarterly review of advances for whiteware to identify traders who receive multiple grants so their practices can be investigated," a statement from Work and Income said.
A guideline limiting advances for fridges and washing machines to a $400 maximum has not changed since 1996. But the agency said the $400 was only "a guideline and can be exceeded".
The average advance for appliances in the year to March was $469.54.
FRIDGE FRAUD CLOSE TO HOME
Budget adviser Darryl Evans has seen the appliance dealers' scam at close quarters.
His wife's aunt went to a secondhand dealer two years ago to buy a fridge.
"The fridge was originally $500 or $550," he said. "The guy said to her, 'If we tell Winz it was $750, I'll split the difference with you'."
His aunt would have paid the dealer the $750 benefit advance and received $100 cash back immediately.
She would then have had to repay the full $750 to Work and Income.
"She came and asked me and I said it was really dumb," Mr Evans said. "I complained to Winz about it."
The Herald visited a secondhand shop in the area last month. It had used washing machines for sale at $299 and $599.
The manager said he gave 10 to 20 quotes a week for items to be paid for with Work and Income advances.
"We get customers come and get a quote and ask for cash," he said. "We can't do that."
HOW IT WORKS
* Beneficiary finds secondhand fridge worth $550.
* Dealer suggests getting Work and Income to advance $750.
* The $200 difference is split between dealer and beneficiary, or the dealer sells the beneficiary another item worth the difference.
* Beneficiary must repay the $750 to Winz.