Wage subsidy scheme criticised for lack of checks

The Government’s wage subsidy scheme may have incorrectly paid out billions of dollars to ineligible businesses, and this is not being audited.

That’s the conclusion to be taken from the Auditor General’s report, released yesterday. It is highly critical about the lack of checks and balances on a scheme that has doled out $14 billion to businesses.

Although some reports see it as simply an issue of bureaucratic management, it has huge financial consequences for the state, and for public trust in government. Auditor General John Ryan says the money being paid out in what critics warned was “corporate welfare” has not actually been audited, and the public cannot have confidence that the Government is on top of this.

The issue goes back to the launch of the wage subsidy scheme, when questions were raised about whether the scheme would be vulnerable to fraud and corruption, and cost much more than was required to keep the economy going. In response to these concerns, the Government promised audits would take place.

Since then, whenever critics have again questioned the probity of the scheme, politicians have deflected this by claiming that the necessary audits were being carried out.

It turns out that audits have not taken place, and various assurances about the integrity of the system amount to political spin.

Reporting on the Auditor General’s investigation, the Herald’s Hamish Rutherford highlights this report’s conclusion that MSD has been being entirely lax in its approach to checking businesses were actually entitled to receive the wage subsidy.

Rutherford says the Auditor General “did not believe MSD had determined the scale of the problem”, and he criticised the department for labelling their low-level checks as “audits” when they were clearly nothing of the sort .

According to the report, the socalled audits “mainly consisted of a verbal confirmation of information by employers”.

Instead of vague telephone calls, the Auditor General recommends MSD actually “seek written confirmation from applicants of their compliance with the eligibility criteria and the obligations of receiving the subsidy”. Independent and documentary evidence is also recommended.

Public confidence and trust in the scheme is vulnerable, according to the report. Therefore, it is recommended that MSD toughen up its approach, including prosecuting businesses who incorrectly claimed the wage subsidy, and recovering this money.

In a follow-up article, Rutherford reveals: “The Ministry of Social Development is yet to begin any prosecutions for abuse of the $14 billion wage subsidy scheme, as it comes under fire for its work to establish the extent of misuse”.

Rutherford says, “The AuditorGeneral also urged MSD to prioritise its enforcement work, including prosecutions, not only to recover money, but also hold businesses to account ‘for potentially unlawful behaviour’.”

MSD comes under further fire in RNZ’s coverage, with a focus on the government department diverting staff from beneficiary fraud investigations to this issue, rather than employing additional staff.

The report warns this may encourage corner-cutting: “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.”

RNZ has also reported the views of inequality researcher Max Rashbrooke who highlights that MSD are inconsistent in taking a “softlysoftly” approach with businesses when they are much tougher on beneficiaries.

“If MSD thinks you might be a benefit fraudster they pursue you to the ends of the earth, and with this scheme, MSD just rang people up and said, you know, ‘did you do everything correctly?’ and if people did then that was it.”

Wage subsidy critic and tax researcher Michael Gousmett is cited as saying the Government should have insisted businesses also have their applications audited at the start of the process.

“There was no requirement to demonstrate your financial ability to sustain yourself for a period.”

Thomas Coughlan’s article on the report highlights the Auditor General’s criticisms of the design of the wage subsidy scheme in regard to the criteria for eligibility, which includes the very vague requirement that businesses have first taken “active steps to reduce Covid-19’s impact on their business”.

This is criticised as “open to interpretation”, making verification of legitimate applications difficult.