Part 1: Introduction

1.1
In this Part, we discuss:

• the purpose of our audit;
• what we looked at;
• how we carried out our audit;
• what we did not audit; and
• the structure of this report.

The purpose of our audit

1.2
We carried out a performance audit to assess how well the Ministry of Social Development (the Ministry) manages the recovery of money owed to the Ministry.

What we looked at

1.3
We focused on the two main reasons people owe money to the Ministry. These are because they have either:

• received a recoverable assistance loan; or
• received more than their benefit entitlement (an overpayment).

1.4
Recoverable assistance loans are designed to help beneficiaries and people on low incomes to meet immediate and essential needs like paying late utility bills or rent, buying essential household appliances, or meeting urgent needs for children. The Ministry grants these interest-free loans to people who meet specific criteria Arrangements for repaying the loans are made when the loans are approved. The Ministry's staff pay special attention to balancing the need for setting of repayment arrangements with avoiding putting people into further hardship. The total amount of money owed to the Ministry from recoverable assistance loans at the end of 30 June 2010 was $410 million.

1.5
In contrast, benefit overpayments occur when people receive more money from benefit payments than they are entitled to. The Ministry seeks to prevent or minimise overpayments, and to recover the money owed. Most overpayments occur when people do not promptly tell the Ministry about changes in their circumstances (such as a change in earned income) that may affect their benefit entitlement. Other overpayments can occur when people transfer between benefits, and through incorrect or late actions by staff. In a small proportion of cases, the Ministry has found evidence of benefit fraud (a deliberate and premeditated intent to obtain overpayments). At the end of June 2010, the total amount of debt that arose from overpayments was $501 million, of which $65.6 million arose from benefit fraud.

1.6
Although reasons for people owing money to the Ministry vary, the Ministry recovers money owed from recoverable assistance loans or overpayments in similar ways.

1.7
Two business groups of the Ministry are responsible for managing the recovery of money owed:

• Work and Income, the Ministry's service delivery group, is responsible for managing the recovery of debt from people receiving a benefit or superannuation (current clients); and
• the Collections Unit within the Ministry's Integrity Services group is responsible for recovering debt from people no longer receiving financial help from the Ministry (former clients).

How we carried out our audit

1.8
Our audit examined whether the Ministry was effectively managing the recovery of money owed by current and former clients. This included how the Ministry:

• prevents clients from getting into debt from overpayments;
• identifies and calculates debt;
• recovers debt (whether arising from a recoverable assistance loan or overpayment); and
• uses performance monitoring and reporting to inform its debt management and understand how well it is managing debt.

1.9
To assess how the Ministry manages debt, we visited two of the Ministry's three Collections Unit sites to interview staff and learn how the Collections Unit operated. We also met Collections Unit staff at the Ministry's National Office.

1.10
We visited two Work and Income service centres to interview case managers and service centre managers so we could understand their role in assessing recoverable assistance loan applications and managing debt.

1.11
We assessed a sample of recoverable assistance loan applications against government and Ministry criteria for the programme. This was to provide assurance that the loans were approved (or declined) as stipulated by policy, and that people were not receiving a loan they were not entitled to. All the applications we reviewed were assessed in keeping with the programme criteria. Controls and quality assurance monitoring for the programme were appropriate. Our assessment identified no issues directly related to debt management that require further comment in this report.

1.12
We reviewed and analysed a wide range of Ministry documentation. For all our findings, we considered the consistency of information from these different sources and checked how it aligned with our audit expectations.

What we did not audit

1.13
The scope of our audit did not include assessing:

• the accuracy of the information in the Ministry's debt management systems;
• the effectiveness and efficiency of the Ministry's data-matching operations, which it uses to identify cases of overpayment;
• the Ministry's fraud investigation activities, which may reveal overpayments;¹ or
• management of debt types not derived from the benefits system.²

The structure of this report

1.14
We summarise recent trends in the Ministry's debt portfolio in Part 2 of this report. Part 3 describes how the Ministry manages debt. Part 4 sets out a summary of plans to improve debt recovery that the Ministry had in place at the time of our audit. We also make suggestions for the Ministry to consider.

1: We did not look at benefit fraud because we have done so already (see our 2008 report, Ministry of Social Development: Preventing, detecting, and investigating benefit fraud).

2: These debt balances include the Liable Parent Contribution (which preceded the Child Support scheme now administered by Inland Revenue), Maintenance, Student Allowance overpayments and loans that are not transferred by the Inland Revenue Department for collection, Employment Training and Assistance, and Major Repairs Advances (an obsolete loan scheme that stopped in 1996).