Part 4: Protecting the integrity of the Wage Subsidy Scheme

4.1
In this Part, we discuss:

• good practice for preventing, detecting, and managing fraud and abuse in emergencies;
• pre-payment verification of information before subsidy payments were made;
• the processes relied on to protect the integrity of the Scheme after payments were made;
• the reliability of post-payment processes;
• improvements made to protect the integrity of the Scheme while it was operating; and
• public organisations working together to prioritise reviews, investigations, and enforcement.

Summary of findings

4.2
Many of the steps public organisations took to protect the Scheme's integrity were consistent with good practice guidance for emergency situations.

4.3
The pre-payment verification steps to prevent payment of the subsidy to ineligible people or businesses were generally robust.

4.4
Post-payment processes to protect the integrity of the Scheme included using the declaration in the application, publishing some recipients' names on the Ministry of Social Development's website, following up on complaints about subsidy payments, and review and investigation work. Publishing some recipients' names appears to have been effective for incentivising post-payment compliance.

4.5
Most of the post-payment reviews involved phone conversations with people who received the subsidy payment. How accurately those conversations reflect the recipient's actual situation – for example, as recorded in their business accounts – is unknown. In our view, the reliability of those reviews should be tested against additional evidence.

4.6
Some post-payment review and investigation work has identified instances of abuse of the Scheme. At the time of our audit, the Ministry of Social Development anticipated a number of prosecutions, but none had yet entered the court system.

4.7
The Ministry of Social Development proactively commissioned an independent review to help identify risks of fraud and error and assess the arrangements it had in place for preventing, detecting, and responding to those risks. After the review, the Ministry made improvements to how it was managing the Scheme. This is a good example of real-time continuous improvement.

Good practice for preventing, detecting, and managing fraud in emergencies

4.8
We looked at the work of the International Public Sector Fraud Forum² and work carried out by other audit offices for good practice information on how a public organisation should manage the risks of fraud for taxpayer-funded crisis support.

4.9
From these, we identified the principles, measures, and techniques that would be appropriate for a public organisation to use to prevent, detect, and recover from fraud of the Scheme. These are outlined in Figure 9.

4.10
We consider these to be examples of good practice. They involve less scrutiny of applicants at the initial stages of a crisis-support initiative, given the need for speed. They also involve greater scrutiny of recipients after they have received that support, compared with practice in more normal times.

4.11
Figure 9 shows that high-trust approaches to emergency situations are inherently at high risk of fraud.

4.12
In the interests of getting funding quickly to affected people, this heightened risk will need to be tolerated to some degree. In these situations, "rapid implementation may require a different risk appetite and treatments to those adopted in more normal times".³

4.13
It is important to establish the "risk appetite" (that is, the level of risk a public organisation is willing to accept) early. Without clarity on the risk appetite, it is difficult to make informed decisions about the scale and scope of the pre- and post-payment protections to put in place.

4.14
Although there was some discussion of the risk associated with the high-trust approach to the Scheme in Cabinet papers and the official documentation available to us, we did not see any information that suggested the risk appetite and thresholds for the Scheme had been clearly defined. Additional clarity might have further informed the design of, and decisions about, the post-payment assurance checks critical to the integrity of the Scheme. We accept that in these circumstances this would have been challenging, and the early advice to Ministers about different delivery options, in effect, explored different levels of risk.

Figure 9
Fraud control principles, measures, and techniques for emergency situations

Principles of fraud control	Counter-fraud measures	Techniques to use
Accept that there is an inherently high risk of fraud and that it is very likely to happen.	Accept that it is necessary to tolerate some degree of fraud given the priority of quickly getting funding to affected people.	Record risk appetite.
Integrate fraud control resources (personnel) into the policy and process design to build awareness of fraud risks.	Build a fraud risk assessment. Highlight that there will be assurance checking after the event.	Protective clauses such as claw-back clauses.* Data sharing for verification.* Working with stakeholders to share information.* Publication of warnings.*
The business and fraud control should work together to implement low-friction counter-measures to prevent fraud risk where possible.	Use existing systems and criteria for payments where possible. Work with well-established, tried, and tested partners where possible. Make sure payments are processed by limited staff with appropriate oversight. Train staff to identify and report fraud.	Hotline or portals for people to share concerns or allegations.* Availability of information about recipients of payments.* Real-time monitoring and reporting of performance.* Segregation of staff duties.*
Carry out targeted assurance after the event to look for fraud, ensuring access to fraud investigation resource.	Collect and retain records of payments and services delivered. Consider the fraud risk assessment and perform timely review of a sample of payments. Resource investigations into potential fraud or corruption with experienced fraud investigators.	Post-payment risk profiling and data analytics.* Follow-up communication with recipients, including with information on how to pay back funds.**
Be mindful of the shift from emergency payments into longer-term services and revisit the control framework – especially where large sums are invested.	Reconsider fraud risk. Consider any lessons learned about fraud and how it was controlled.	Review and evaluation.**

* Some aspects of these techniques were implemented during implementation of the Scheme.

** We have recommended that public organisations use these techniques.

Source: International Public Sector Fraud Forum (2020), Fraud in Emergency Management and Recovery Principles for Effective Fraud Control and our own understanding of good risk-management techniques.

Some pre-payment steps were taken to reduce the risks of fraud

4.15
Before approving an application and making payment, the Ministry of Social Development checked and verified some information that applicants provided against information that Inland Revenue held. These checks included that the applicant had a valid IRD number and that the number of employees applied for in each application matched Inland Revenue's information.

4.16
Initially, the information verification process was manual. Ministry of Social Development staff had to phone or email Inland Revenue staff. A portal was eventually set up for Ministry staff to access relevant Inland Revenue information without needing to contact an Inland Revenue staff member directly.

4.17
Authority for the information sharing was initially through the Civil Defence National Emergencies (Information Sharing) Code 2013 and later through the COVID-19 Response (Taxation and Social Assistance Urgent Measures) Act 2020, supported by a Memorandum of Understanding between the Ministry of Social Development and Inland Revenue.

4.18
Parts of the Act had retrospective effect from the date of announcement of the relevant Cabinet decision about the Scheme on 17 March 2020.

4.19
The Ministry of Social Development introduced additional pre-payment reviews for selected applications over time. This was because it learned from the behaviour of applicants during the first stage of the Scheme and used that to inform risk-based work in the Scheme's subsequent stages.

4.20
Fraud and integrity staff with specialist skills carried out these reviews. Pre-payment reviews for applications from employers with 80 or more employees started on 30 March 2020. This was because of the risk associated with the higher value of applications from large employers.

4.21
The pre-payment review involved a phone conversation to confirm, based on criteria and obligations, that the employer was eligible for the subsidy payment. Staff were prompted to ask applicants about other steps they had taken to mitigate the effects of Covid-19 on their business. However, staff did not have detailed guidance about this and did not consistently record the information they were given in relation to the application. The Ministry of Social Development told us that it intended to strengthen processes for integrity reviews carried out for the March 2021 stage of the Scheme. Our appointed auditor will be following up on this as part of our 2021/22 annual audit of the Ministry. The Ministry has now updated the declaration to include a requirement that applicants must prepare and retain information as part of the application process.

4.22
Applications for the wage subsidy extension and the resurgence wage subsidy that had certain risk indicators were also reviewed before payment.

4.23
Pre-payment reviews for organisations with 80 employees or more became easier to carry out once data matching with Inland Revenue was more automated, and Ministry of Social Development staff had access to Inland Revenue's information through a secure portal. As at 18 September 2020, the Ministry of Social Development had completed 1789 of these pre-payment reviews.

4.24
Other risk factors that triggered a pre-payment review for the wage subsidy extension and the resurgence wage subsidy included:

• multiple applications from the same employer;
• businesses where there was a current allegation or investigation about subsidy payments;
• sole traders declaring that they received a benefit;
• applicants that had previously fully repaid a subsidy payment; and
• applications where Inland Revenue had flagged an integrity issue with the original wage subsidy.

4.25
In our view, these were appropriate risks to target in the circumstances.

4.26
Aside from checking applicants' information against Inland Revenue's information and other publicly available information, the pre-payment review largely involved calling applicants by phone to discuss the application. In most cases, this involved limited or no documentary checks on supporting information. Figure 10 (at the end of this Part) provides information about the number and results of the pre-payment reviews.

Some applications were declined after pre-payment reviews

4.27
It is clear that pre-payment reviews helped to prevent subsidy payments to some employers who were not eligible or who had not met their obligations for previous subsidy applications. As at 23 October 2020, 48,718 applications for the original wage subsidy (about 10%), 65,389 applications for the wage subsidy extension (about 24%), and about 18,000 applications for the resurgence wage subsidy (about 17%) had been declined. These total just over 132,000 declines.

4.28
The reasons an application was declined included:

• an application made after the Scheme ended;
• an application made by an employee rather than an employer;
• a government organisation not being eligible;
• applicants not able to be contacted to confirm information;
• duplicate applications; and
• information provided with the application not matching Inland Revenue's information.

4.29
We attempted to further analyse the reasons for declining applications from different types of applicants. Although the Ministry of Social Development provided us with information about declined applications, it was not adequate for us to carry out the analysis we wanted. However, the information did show that many of the declined applications were from sole traders.

4.30
Many applications from sole traders were declined in early June 2020 and during August 2020. This was because Inland Revenue's information did not show them as a current self-employed business. Inland Revenue told us that it has made changes to its systems for future stages of the Scheme. Those changes will require more manual verification of sole traders' information and sole traders to prove their self-employment status when applying for subsidy payments.

4.31
The Ministry of Social Development did not have the resources to investigate all these applications to find out why their details did not match Inland Revenue's information. Instead, the Ministry declined the applications and asked the applicants to update their details with Inland Revenue and reapply. We were told that most applicants did not reapply.

4.32
The Ministry of Social Development provided us with information, dated 23 October 2020, that shows nearly three-quarters of the declined applications for the original wage subsidy and for the wage subsidy extension were from sole traders. Nearly two-thirds of the declined applications for the resurgence wage subsidy were from sole traders. Slightly more than half (53%) of all payments made in the three stages were to sole traders.

4.33
In our view, declining applications from sole traders and encouraging them to update their details with Inland Revenue and reapply was a practical decision in the circumstances. In our view, this approach did not prevent legitimate applicants from accessing support from the Scheme.

Post-payment processes to identify fraud and abuse

4.34
The public organisations involved in administering the Scheme also identified post-payment integrity risks. The main identified risks were:

• applicants receiving subsidy payments without meeting the eligibility criteria;
• employers not passing the subsidy payment on to employees;
• applicants being overpaid;
• the subsidy payment being mistakenly paid to incorrect bank accounts; and
• recipients of subsidy payments not meeting their tax obligations.

4.35
In our view, these were appropriate risks to identify given that, if they were to occur, public funds would have been used for purposes that were inconsistent with the Scheme.

4.36
Processes to mitigate and manage risks after payment included:

• a complaints mechanism;
• publishing recipients' names;
• using a declaration form;
• reviews and investigations;
• inclusion of subsidy payments on the 2021 IR3 Income Tax Return; and
• prosecution.

The complaints process was an important integrity measure

4.37
The process that allowed the public to make complaints about employers receiving subsidy payments was an important integrity measure. The Ministry of Business, Innovation and Employment made a complaints form available online for people to submit complaints.

4.38
The Ministry of Social Development, Inland Revenue, and the Ministry of Business, Innovation and Employment all had systems and processes to receive and consider complaints. Although it was the Ministry of Business, Innovation and Employment's role to co-ordinate complaints, all these organisations received complaints individually and, where necessary, forwarded them on to the appropriate organisation.

4.39
The Ministry of Social Development dealt with complaints about eligibility. Inland Revenue dealt with complaints about tax. The Ministry of Business, Innovation and Employment dealt with complaints about employment standards and related issues.

4.40
Some of the complaints that were managed by the Ministry of Business, Innovation and Employment were:

• sent to the Ministry of Business, Innovation and Employment's dispute resolution team for a mediated approach (this did not mean a full formal mediation but a resolution that followed a similar method);
• discussed with the employer by Ministry of Business, Innovation and Employment staff, with the complainant's permission;
• the subject of a more general discussion with a large company by a senior staff member (the rationale for this approach was that multiple issues could be resolved at once); or
• moved to investigation if the complaint was more about compliance with minimum employment standards.

4.41
Figure 10 (at the end of this Part) provides information about the number and results of the complaints work. The number of complaints is a very small proportion of the number of employers and employees who received subsidy payments (about 12,000 complaints out of an estimated 1.8 million employees who received wage subsidy support through their employer, less than 1%).

4.42
The types of complaints that the Ministry of Social Development, Inland Revenue, and the Ministry of Business, Innovation and Employment received included:

• employers making applications based on employees' contracted hours rather than the hours the employees were actually working and perhaps not applying for the correct payment amount;
• employers applying for the subsidy payment but not paying employees; and
• issues with some organisations not applying for the subsidy payment (it was not compulsory for businesses to apply).

4.43
Complaints also included issues of employment practice that were not directly related to the Scheme but that took place when an organisation was accessing the subsidy payment. These included:

• employment being terminated without following the correct procedure, as set out in individual employment agreements or minimum standards; and
• employment being terminated and then the same jobs being offered back at reduced hours and, in some cases, at a lower hourly rate.

4.44
As a first step in responding to these complaints, the Ministry of Business, Innovation and Employment spoke with the complainant and the employer concerned. If the complaint could not be resolved through a few phone calls, the staff member would explain possible next steps the complainant could take, such as lodging a personal grievance or seeking formal mediation.

4.45
If the complaint raised an issue related to employment standards, this was recorded so it could be followed up later as part of the Ministry of Business, Innovation and Employment's business-as-usual work. Where possible, the Ministry of Business, Innovation and Employment took an educational approach to help employers understand their responsibilities and obligations. Its view was that most of the complaints were resolvable between parties without compliance action.

4.46
However, we were told about some concerns with the complaints process. Some stakeholders felt that there was a lack of transparency. We also heard about inconsistencies between the complaints investigation process and the published process for complaints.

Publishing recipients' names led to an increase in complaints

4.47
From 6 April 2020, the Ministry of Social Development published on its website the names of some employers who had received a subsidy payment. People could search for an employer's name. If that employer received a subsidy payment, the system displayed the amount that had been paid. If an applicant fully repaid the subsidy payment they had received, their name was removed from the list of published recipients.

4.48
The Ministry of Social Development updated the list of recipients daily. As we noted in paragraph 1.33, part of the declaration that all applicants agreed to was allowing their name to be published if they received a subsidy payment.

4.49
Other organisations we spoke with considered publishing recipients' names to be an important factor in supporting accountability and transparency and incentivising compliance. People could access information and then make complaints – for example, when there were concerns about an employer's eligibility or an employer breaching their obligation to pass the subsidy payment to their employees. The number of complaints increased after the Ministry of Social Development began publishing employers' names.

4.50
There were some limitations to this approach. For privacy reasons, the names of self-employed applicants and employers with fewer than three employees were not published. Slightly more than half the number of payments in the Scheme were made (by volume) to sole traders. This means that information about more than half of successful applications was not publicly available.

4.51
The registered names of businesses, rather than trading names, were published. This might have made it difficult to find a business by its common name. Information about employers receiving the subsidy payment could be accessed only by a targeted search. The full dataset was not available to do analysis across locations and industries. There was also a lack of transparency about how much money had been applied for in a given employee's name.

4.52
Publishing a fully accessible list of recipients' names (excluding those that could not be published for privacy reasons), or listing the top 1000 recipients or similar, would have supported even greater transparency. We note that the Ministry of Social Development has subsequently released, under the Official Information Act 1982, the list of recipient names it has published on its website.

Significant reliance has been placed on the applicant declaration

4.53
The declaration form that was part of the application was the main way public organisations involved in administering the Scheme encouraged compliance. The Ministry of Social Development's view is that the declaration was an agreement that applicants made as part of applying for a subsidy payment.

4.54
Businesses had to confirm in the declaration that they met the application criteria and agreed to comply with a set of associated obligations.

4.55
The Ministry of Social Development worked with Crown Law to write the declaration. Various changes were made to it over time to reflect changes to the Scheme and to improve the declaration. Examples include:

• moving from a best endeavours basis for retaining employees (before 4pm on 27 March 2020) to a requirement to retain employees (from 4pm on 27 March 2020) as a condition of receiving the subsidy payment;
• adding a definition of what ordinary wages and salary are (from 28 March 2020); and
• adding a requirement for an employer to inform the employees named in the employer's application of the outcome of the application and the conditions that apply to it (from 10 June 2020).

4.56
Requiring employers to retain employees as a condition of receiving a subsidy payment should have made that requirement easier to comply with, assess, and enforce. In turn, it should have led to better protection of employees. Requirements that are clearly defined and commonly understood are likely to better incentivise compliance.

4.57
Applications could be submitted in person, by mail, or online. To finalise an application online, applicants could confirm by email that they had read and agreed to the declaration.

4.58
Some applicants who did not have internet access completed declarations over the phone. This was also the case for those who could not use the internet for some other reason, including because the Ministry of Social Development's website was overloaded.

4.59
The Ministry of Social Development does not know the extent to which the full declaration was read out to applicants who agreed to it over the phone.

The reliability of post-payment reviews needs testing

4.60
Arguably, the most significant way to manage the integrity of the Scheme was the post-payment review.

4.61
The Ministry of Social Development carried out three main types of post-payment reviews. It describes these as:

• random audits;
• targeted audits (these look at applicants identified as having some risk characteristics); and
• allegation-generated work (these reviews act on an allegation a member of the public has made).

4.62
Figure 10 (at the end of this Part) provides information about the number and results of each type of post-payment review.

4.63
We use the terms "reviews" and "review work" to describe the post-payment work. We do not consider that the post-payment work carried out provides the level of assurance we expect of an audit.

4.64
This is because the work that was carried out did not routinely involve substantiation of information against a secondary source, such as requesting and reviewing documents to verify information provided verbally.

4.65
In our view, it is possible that the post-payment work is less than what Cabinet would have expected when it noted the possibility of the Ministry of Social Development doing post-payment audit work. Similarly, the Ministry's use of the term "audit" to describe its review work could be misleading. As we were completing this report, the Ministry confirmed that it has changed its terminology and now refers to the work as integrity checks or reviews.

4.66
The Ministry of Social Development used the results of the random reviews over time to inform the criteria for targeted reviews. The amount of random reviews reduced as the Ministry learnt more about the actual risks it was observing.

4.67
We understand that the Ministry of Social Development does not plan to do any more random reviews. We were told that this is because, to date, that work has identified relatively few issues of concern. Instead, the Ministry has moved towards more targeted integrity checks for high-risk applications.

4.68
Review work started with a desktop review. This included checking some of the Ministry of Social Development's systems and public sources for information about the applicant. Publicly available information might, for example, enable the Ministry to verify that a business was legitimate and operating before Covid-19.

4.69
After the desktop review, there were phone conversations with the applicant. Where necessary, staff also spoke to employees and other government agencies. The staff having these discussions had experience in compliance interviews. They were provided with conversation guides to help them obtain the relevant information.

4.70
The reviews did not involve substantive review of documentary evidence, such as financial accounts. Most organisations prepare some form of financial statements. These, or similar supporting information, could have been asked for when an application for the subsidy payment was made (we understand that this was done by the Australian Government for its JobKeeper wage subsidy) or as part of the post-payment review activity.

4.71
Not requesting this type of information before or after payment means that there has been no objective validation of an applicant's compliance with the revenue reduction requirement. In our view, an audit should, as a minimum, include verifying the main eligibility criteria against relevant documentary evidence. This should have been done for a sample of applications. Given the significant amount of public money paid and the fact that audit work could be carried out after payment, this is an appropriate step to take.

Recommendation 2
We recommend that, when public organisations are developing and implementing crisis-support initiatives that approve payments based on "high-trust", they put in place robust post-payment verification measures, including risk-based audits against source documentation, to mitigate the risks of using a high-trust approach.

4.72
Inland Revenue told us that it followed this recommendation when implementing the Small Business Cashflow Scheme.

Recommendation 3
In relation to the Wage Subsidy Scheme, we recommend that the Ministry of Social Development test the reliability of a sample of the post-payment assurance work it carried out against documentary evidence held by applicants.

4.73
A review could result in an applicant being requested to repay funds or further investigative work. We are not persuaded that the reviews provide enough confidence that all applications that merit further investigation have been identified. As at 5 March 2021, the Ministry of Social Development had 392 active investigations in progress. A further 464 investigations had been resolved and 161 investigations were yet to start.

Improvements were considered and many were implemented

4.74
The Ministry of Social Development commissioned Deloitte to comprehensively and systematically review the integrity risks to the Scheme and how they were being managed and mitigated. In response to Deloitte's May 2020 work, the Ministry made improvements to its integrity work including:

• increasing communications with applicants before and after payment;
• improving application processes to ensure that the data collected is accurate;
• putting in place stricter settings for approval by staff processing applications; and
• having a more targeted review programme based on risk analysis carried out with Inland Revenue.

4.75
Because of time constraints, the Ministry of Social Development could make only limited improvements to the Scheme's integrity. The Ministry advised Ministers that it could not implement all of Deloitte's recommendations because its immediate focus was on implementing the wage subsidy extension.

4.76
The recommendations that the Ministry of Social Development did not implement were primarily related to improving systems for handling applications from large organisations and automating the internal transfer of payment files.

4.77
As part of our 2019/20 annual audit of the Ministry of Social Development, our Appointed Auditor recommended that the Ministry write to recipients of subsidy payments to seek re-confirmation that they complied with the requirements and obligations. This is consistent with one of Deloitte's recommendations to increase communications with recipients. We have also included it as part of Recommendation 4.

4.78
Using this type of correspondence is one of the anti-fraud techniques identified as being good practice for emergency situations.

Public organisations should continue to work together to prioritise reviews, investigations, and enforcement

4.79
Inland Revenue's review work primarily focused on whether a business existed and whether the information supplied in the application matched the information Inland Revenue held. We were told that it included checks against a variety of information including employee numbers, company registration, shareholder information, and income types.

4.80
Inland Revenue's work has also involved looking at whether some applicants' GST on taxable supplies (the supplies that a business uses and claims back the GST on when it purchased those supplies) had reduced for a relevant period. Analysis of this information might help to understand whether certain applicants' revenue declined sufficiently to make them eligible for the subsidy payment.

4.81
Ministry of Social Development staff made decisions about what enforcement steps to take, if any, in response to the reviews Inland Revenue carried out. This is because Inland Revenue staff do not have the legal authority to make decisions about enforcement steps for matters unrelated to tax compliance.

4.82
Post-payment reviews have led to 1017 cases being referred for investigation as at 5 March 2021. At the time of our audit, the Ministry of Social Development expected that its investigation work was likely to continue for another 12 to 18 months.

4.83
The Ministry of Social Development has also indicated that it has more review and assurance work planned. This includes:

• completing the remaining post-payment reviews for the wage subsidy extension and the resurgence wage subsidy;
• completing allegation reviews for the original wage subsidy;
• completing targeted reviews of high-risk applications (indicated through allegations, referral from another agency, or by risk indicator); and
• performing investigations as needed.

4.84
Inland Revenue requires self-employed subsidy recipients to report the value of subsidy payments received in their 2021 IR3 Income Tax returns. Inland Revenue has also made supporting information available to those who need to report the wage subsidy they received. Inland Revenue also intends to match subsidy payment data from the Ministry of Social Development with reported subsidy data from self-employed persons to identify potential income under-reporting.

4.85
We understand that public organisations' ongoing integrity and prosecution work continues to divert resources from other work. However, in our view, it is important for abuse of the Scheme to be identified and appropriate action taken, including prosecution if necessary.

Prosecutions and civil action are anticipated

4.86
There had been no prosecutions when we carried out our audit, but work is under way to support prosecutions.

4.87
The Ministry of Social Development expects to take prosecutions for fraud. Inland Revenue will prosecute where it is subsequently found that:

• businesses have claimed subsidy payments and have been found to have significantly under-reported previous income and/or have failed to correctly report and account for wages paid to employees, PAYE, and other deductions;
• businesses that since receiving subsidy payments have failed to file employment information or GST returns and not contacted Inland Revenue and advised the reasons for this; and
• self-employed people who have received subsidy payments and have not reported this as income.

4.88
Inland Revenue and the Ministry of Business, Innovation and Employment can use their normal enforcement powers for prosecutions for tax issues and employment, respectively.

4.89
The Ministry of Social Development can request information from recipients in accordance with consents given under the declaration, or apply to the New Zealand Police for production orders under the Search and Surveillance Act 2012. The Ministry anticipates using a combination of prosecution (under the Crimes Act 1961), recovery through a civil claim, and restraint and/or forfeiture pursuant to the Criminal Proceeds (Recovery) Act 2009 to support its enforcement work.

4.90
In our view, effective prosecutions where there is evidence of fraud or abuse are critically important to maintaining trust and confidence in the Scheme. This work needs to be adequately resourced and prioritised.

Recommendation 4

In relation to the Wage Subsidy Scheme, we recommend that the Ministry of Social Development prioritise remaining enforcement work, including: seeking written confirmation from applicants (which could be targeted towards larger or risk-indicated applicants) of compliance with the eligibility criteria and the obligations of receiving the subsidy; and pursuing prosecutions to recover funds and/or to hold businesses to account for potentially unlawful behaviour.

Figure 10
Pre-payment and post-payment integrity processes and their results

Pre-payment of a subsidy

Integrity processes	Volume	Results
Checks against Inland Revenue’s information	Manual or automated checking of some aspects of all applications.	Contributed to just over 132,000 declined applications (as at 23 October 2020)
Large employer checks	1789 checks (as at 18 September 2020).	Contributed to checks of $3 billion of payments.
Other risk-based reviews	2093 exception reviews.	1252 declined applications.
Use of a declaration	All applicants agreed to a declaration. An unknown number of applicants have completed the declaration orally.	Applicants have declared that they meet the eligibility criteria and will comply with their obligations. Applicants are aware of the possibility of subsidy recovery and/or prosecution.

Post payment of a subsidy

Integrity processes	Volume	Results
Allegation processes	4782 allegations received.	4770 allegations resolved resulting in 1175 refunds being required.
Complaints process	About 12,000 complaints received across three agencies (as at 28 February 2021).	Consideration of complaints by Inland Revenue, the Ministry of Social Development, and the Ministry of Business, Innovation and Employment.
Publication of recipient names	The registered names of recipients and the amount they received are publicly available for all recipients excluding sole traders and businesses with less than three employees.	The public can access a record of which organisations received the subsidy and the amount they received for just under half of the recipients of the subsidy.
Post-payment reviews (historically referred to as “audits” by the Ministry of Social Development)	3751 random reviews and 3301 targeted reviews resolved.	Resulted in 1412 refunds being required, mainly as the result of targeted rather than random reviews.
Investigations	1017 cases had been referred for investigation.	464 investigations resolved, 229 resulted in a repayment being required.
Prosecutions	A number of prosecutions are anticipated.	Deterrent to abuse of future government support schemes.

Source: Based on Ministry of Social Development information provided to the Office of the Auditor-General.

Note: Figures are as at 5 March 2021, unless otherwise stated.

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2: International Public Sector Fraud Forum (2020), Fraud in Emergency Management and Recovery Principles for Effective Fraud Control.

3: Australian National Audit Office (2020), Rapid implementation of Australian Government initiatives, page 3, at www.anao.gov.au.