Media release: Wage Subsidy well-managed, but more checks needed

11 May 2021

Auditor-General John Ryan says there is much to commend about how the Covid-19 Wage Subsidy has been managed.

While the high-trust approach at the start meant money could reach employers and workers quickly, there also needed to be a strong post-payment review process.

Published today, Management of the Wage Subsidy Scheme found that the Ministry of Social Development (MSD) delivered money quickly to thousands of businesses needing urgent support.

Delivering the Subsidy during a national crisis was a significant achievement. It relied on many dedicated public servants working in extraordinary circumstances. The Subsidy paid out over $13 billion between March and December 2020 and supported hundreds of thousands of jobs at its peak. On the busiest day, MSD received more than 70,000 applications.

A “high-trust” approach made this possible. This meant MSD approved applications based on a declaration from applicants that they were eligible for the Subsidy, with some limited pre-payment checks.

“Because this approach has greater risks of fraud and error, strong post-payment checks are vital to verify that those who received money were eligible,” says Mr Ryan.

MSD took steps to minimise the risks, such as publishing the names of some recipients and reviewing applications after payment had been made. These steps likely encouraged several businesses to repay subsidies they should not have received.

However, it is still possible that ineligible businesses received payments, and they might not have all been identified.

One important pre-payment requirement – that an employer had taken active steps to reduce Covid-19’s impact on their business – was open to interpretation. This made it difficult for applicants to determine what was required and for MSD to verify compliance.

“After payment, MSD’s reviews mainly consisted of a verbal confirmation of information by employers. These reviews were described publicly as audits. However, audits require more evidence of compliance,” Mr Ryan says.

“Therefore, I am not persuaded that MSD has identified all applications that might need further investigating.”

The report recommends that MSD tests the reliability of a sample of reviews against evidence from applicants. It also urges MSD to prioritise its remaining enforcement work, including pursuing prosecutions to recover funds and hold businesses to account for any potential fraud or abuse.

With a similar scheme likely to be needed in the future, the Auditor-General also recommends using lessons from the Subsidy to guide future support programmes. To assist this, the four agencies involved with the Subsidy (MSD; Inland Revenue; the Ministry of Business, Innovation and Employment; and the Treasury) should evaluate the Subsidy’s development, operation, and impact.