National's social development and employment spokeswoman Louise Upston said a stretched investigations team could have left the welfare system open to exploitation. Photo / Paul Taylor
National's social development and employment spokeswoman Louise Upston said a stretched investigations team could have left the welfare system open to exploitation. Photo / Paul Taylor
Investigations into benefit fraud were effectively halted for a year over Covid-19, and even now half of the fraud team is still investigating wage subsidy fraud instead.
Those wage subsidy investigations now include seeking written confirmation of compliance from those who applied - over 12 months after the subsidy wasintroduced, paying out over $13 billion - and are expected to take at least another year.
In March last year Ministry of Social Development (MSD) benefit fraud investigations staff were redeployed to assist with the wage subsidy rollout, effectively halting work on 1002 cases.
The investigations resumed in April this year, and by June had worked through 267 cases.
But with close to 6000 benefit fraud investigations conducted in a normal year the National Party is concerned with reduced capacity over the past year, and important tools such as data sharing halted, the welfare system had been left vulnerable to exploitation.
A series of written parliamentary questions from National's social development and employment spokeswoman Louise Upston showed while normally MSD matches hundreds of thousands of files from Inland Revenue against its own records to detect irregularities indicating fraudulent behaviour - known as data matching - this was paused from March 2020 to March 2021. It was also not used in assessing the wage subsidy.
MSD said this occurred in order to "focus resources on the Covid-19 response".
Upston said it was concerning this "crucial" process was paused, the only time in the past 10 years, while billions of dollars were being paid out.
MSD had no estimates of how much could have been paid through the wage subsidy to ineligible clients, but as of May 14 $708.8m had been repaid.
"While the sheer size of the wage subsidy required resources to be redeployed at MSD, we expected the Government to have properly resourced MSD to make sure one of its sophisticated fraud detection tools could've continued, or at the very least restarted much sooner," Upston said.
"We would have expected them to prioritise the wage subsidy rollout, maybe pausing it for a few months, but 13 months is shocking.
"Most people would accept more police would be needed to investigate crime if our population suddenly increased by 171 per cent. The same principle applies here.
"We've already seen Labour's relaxed approach to prosecuting fraud. By removing this critical tool to detect fraud it has given those cheating the system a free pass to take advantage of the circumstances Covid-19 caused."
Questions from Upston also showed despite benefit fraud investigations resuming in April, half of the roughly 100 staff involved were still investigating the wage subsidy.
Questions also revealed MSD employed roughly 100 investigators a year over the past decade, indicating there had been no increase in capacity during Covid-19.
A report released in May by the Auditor-General on the wage subsidy scheme, set up to support employers to retain staff during Covid-19 lockdowns, praised the speed with which it was set up and how quickly it got money out to employers.
But it was critical of the steps MSD had taken to evaluate whether the information provided by employers when claiming the subsidy was accurate.
While the Government described the scheme as a "high trust" model, it found the checks undertaken by MSD may not have met Cabinet's expectations when ministers noted there would be post-payment audits.
Auditor-General John Ryan said the ministry was misleading to describe its checks as "audits" because in many cases MSD had simply asked employers to confirm that the information provided to it was accurate, rather than verify any accounts.
He also found that a requirement for businesses to give assurances that they had taken steps to mitigate the effect of Covid-19 was so vague as to be difficult to assess.
Ryan's recommendations included that MSD test some of its post-payment assurance work, requiring documentary evidence.
Social Development Minister Carmel Sepuloni. Photo / Mark Mitchell
Questions from Upston showed MSD was to begin requesting "written confirmation from applicants of their compliance with the eligibility criteria and the obligations of receiving the subsidy" from recipients of the wage-subsidy in June.
Wage subsidy investigations were expected to take another 12 months.
Upston said clearly more resources needed to be allocated to safeguard taxpayer money and the integrity of the welfare system.
"They should have put more people into their investigation team. If they are spending $7.5b a year in welfare and then start paying twice that in wage subsidies you would expect them to increase the number of people investigating to make sure no fraud is occurring."
Social Development Minister Carmel Sepuloni's office referred questions to the ministry itself.
MSD general manager integrity and debt Warren Hudson said MSD's benefit-fraud investigations staff were redeployed to assist with the wage subsidy.
Data-matching was paused in order to "focus resources on the Covid-19 response", he said.
While written parliamentary question responses indicated benefit-fraud investigations were delayed, Hudson would not confirm this when asked.
"During Covid-19, where resources allowed, we did continue to follow up benefit-fraud allegations through early intervention and facilitation," he said.
"We also continued investigations and prosecutions that were at a critical stage.
"Benefit investigations that were delayed because of Covid-19 are currently being reassessed and decisions are being made on how to best progress these."
Hudson did not answer questions about if MSD was concerned more fraud could have occurred in the past year as resources were diverted, nor if there were any estimates about how much money could have been lost to fraud.
He said the number of cases responded to has "remained stable over the last five years".
Regarding the wage subsidy investigations, Hudson said they would be contacting about 1000 businesses seeking renewed written confirmation they had met wage subsidy criteria.
They would also seek documentary evidence from about 350 recipients who'd already completed post-payment integrity checks.
