Increased integrity checks this lockdown have caused significant delays in processing tens of thousands of subsidy applications
The wage subsidy was criticised for being too trusting as many large businesses claimed lump sums of cash in last year's lockdown, only to make record profits and pay shareholders dividends once lockdown ended.
As a result, the Auditor-General published a report reviewing the management of the scheme, suggesting several recommendations to improve scrutiny.
The two main recommendations were to ensure that criteria are sufficient for adequate verification and for the Ministry of Social Development to put in robust post payment verification measures to ensure the company’s expected losses were actually realised.
Deloitte partner Robyn Walker said a number of the Auditor-General’s recommendations had been adopted by MSD for wage subsidies this year, including the removal of the 12-week lump sum to fortnightly applications for payments.
"There have also been more small businesses claiming the wage subsidy. Last year, big companies were dragged through the media for claiming the wage subsidy and then making profits. This time there has been less of that,” Walker said.
"From the taxpayers' perspective, because it’s being dished out every two weeks, there is less outrage and concern that businesses are claiming huge dollar amounts.”
Businesses also had to prove a 40 percent drop in revenue as a direct result of the lockdown rather than a 30 percent drop, and had to make a declaration they had taken steps to mitigate the effects of Covid-19 by using their cash reserves.
Integrity checks such as pre-payment verification of business details, post-payment reviews and investigations, and communications to businesses about their obligations were also put in place.
Walker said the success of the August subsidy scheme will be known over coming months.
“Statistics on business closures will be an indicator of the success of the wage subsidy,” Walker said.
More than 530,000 businesses have claimed at least $2.5 billion in wage subsidies since the first round opened on August 20. The Government has spent $17b on the scheme in total. As at September 17, $748 million had been repaid.
But MSD's increased integrity checks have caused significant delays in processing tens of thousands of subsidy applications.
Of the 735,805 total wage subsidy applications made over the past month, 56,884 applications were pending.
“I can’t understand why the same details that were checked off by IRD for the resurgence payment are not being approved for the wage subsidy." – Zoe White, business owner
And of those, 32,300 were applications made when the first round opened.
Zoe White’s construction firm in Twizel claimed the wage subsidy a month ago, but she had still not received a decision on her application.
White was able to claim the subsidy last year, and was also able to receive the resurgence payment from Inland Revenue (IRD) this year, but MSD's verification process had stalled payment by weeks this time.
“I can’t understand why the same details that were checked off by IRD for the resurgence payment are not being approved for the wage subsidy,” White said.
She had not been able to apply for the next two rounds of the wage subsidy that became available earlier this month because her application for the first round was still pending.
White’s firm applied for the wage subsidy as a self-employed business but MSD was not able to match this information with IRD.
“I only found this out last Wednesday. I don’t think it should have taken us four weeks to find out that we should have put ourselves down as employers. And now it’s too late for me to go back into the application and edit it.”
Another construction business owner, Cam Rolston, was in a similar situation as White and received his wage subsidy 27 days after applying for it. He too applied for the wage subsidy under the self employed category but MSD had trouble verifying this as his firm was a newly formed business.
“It's been a bit of a battle but to give them credit they actually have been responsible with communications,” he said.
Canterbury tax researcher Dr Michael Gousmett said it was “mind blowing” that there were more than 30,000 businesses still waiting for their wage subsidy from the first round.
“I just feel for those people that are still waiting even now for their first payment,” Gousmett said.
“We all agree there should be more scrutiny, but surely if there’s more than 30,000 people still waiting to be paid as the third round is ending, haven’t we gone a bit too far?
“There are a lot of people wondering whether their businesses or staff are going to survive over the next coming days. I mean cashflow is everything to a small business. And we're not through this yet ... we could be back in lockdown, if things go belly up,” Gousmett said.
"We have an obligation to taxpayers not to make payments without the right information.” – George van Ooyen, MSD
MSD client service support general manager George van Ooyen said in general, wage subsidy applications were being processed “rapidly”, with 593,262 applications approved supporting 1.2 million jobs during the August scheme.
He said about 86 percent of applications were processed within three working days, while 87 percent were paid out within three days.
“It is important for the integrity of the wage subsidy scheme that these issues are worked through carefully before any payment is made,” van Ooyen said.
“Where applications are still pending it is because we are not confident about making payment based on the information provided. We have an obligation to taxpayers not to make payments without the right information.”
He said verification issues included applications from people claiming to be self-employed when IRD did not have evidence of this; IRD numbers not matching records; applications made by workers instead of employers; and claims made for employees for whom IRD did not have records of as working for the employer.
Van Ooyen said MSD had been contacting pending applicants at least three times.
“Where IRD can see no evidence someone has been self-employed, we ask them to work with IRD to establish they are in fact self-employed before progressing their payment. If they fail to do so, their application will be declined.
"We aim to process applications as quickly as possible, but there are a range of issues that could mean payment takes longer than usual. It is important for the integrity of the wage subsidy scheme that these issues are worked through carefully before any payment is made."
