Orion Health and Porirua City Council top list of organisations 'requested' to give back taxpayer money. David Williams reports
It was big news.
In October last year, the Porirua City Council announced it was paying back $2.6 million received under the Covid-19 wage subsidy scheme, after a clarification of the rules by the Ministry for Social Development.
It came down to this: the council said its revenue dropped by 44 percent between March and April, but the calculation didn’t include rates – “in line with international public sector accounting standards and generally accepted accounting principles”.
MSD, however, demanded revenue losses be assessed on a cash basis, which meant the loss was 26 percent, just under the 30 percent qualifying threshold.
The council applied for the subsidy in good faith, it said in a press statement. “Nobody knew whether we would see a resurgence of the virus, and there was a real risk of job losses,” Porirua’s chief executive Wendy Walker said.
(In saying that, Porirua was one of just four councils to take the subsidy and the only one ordered to pay the money back.)
Mayor Anita Baker said the council would have to borrow to pay the money back. The application was above board, she told RNZ, but it didn’t meet the threshold “with this accounting”.
“It’s rather frustrating but legally we have to hand it back.”
MSD has now provided Newsroom, under the Official Information Act, its top 10 list of “requested” repayments. Interestingly, more than a year on, Porirua council still tops the list.
The wage subsidy, in its various iterations, is the Government’s largest single area of Covid-related spending. Yet the post-payment checks – verifying if businesses were actually eligible for the “high trust” subsidies – were lambasted as too light by Auditor-General John Ryan, who objected to them being called “audits”.
That might not have filled taxpayers with confidence that $18 billion-odd of their money was being scrutinised properly.
MSD is making progress with several recommendations from Ryan’s critical report. Several reviews are underway – although they aren’t expected to be finished until late next year.
As revealed by Newsroom last month, the first charges have been laid over alleged abuse of the scheme.
But question marks remain over the compliance checks, as proved by a recent tax department analysis of sampled businesses.
In MSD’s Official Information Act response to Newsroom, group general manager of client service support George Van Ooyen said voluntary repayments are those in which the recipient has offered to repay all or part of the subsidy.
“The recipient may have approached the ministry proactively asking to make a refund (the bulk of voluntary refunds), or we may have contacted them, for example through a post-payment integrity check, and the recipient agreed to a refund during our discussion with them.”
Requested repayments, meanwhile, are those determined by a Ministry of Social Development check or investigation that the recipient “was not entitled to part or all of the subsidy received”.
Porirua council’s repayment fits neatly into that description. Four companies in the Orion Health stable – comprising Orion Health itself, Orchestral Developments, Orion Systems International, and Orion Hospitals (NZ) – repaid a total of $1.77 million.
Orion Health chief financial officer and executive vice president of people Gina Hills says it applied for the wage subsidy in good faith, thinking the pandemic would decrease its revenue by the required threshold.
“As we adjusted our forecasts in late March 2020, we assumed that all of our customers would move focus from IT projects to spending on frontline healthcare workers,” Hills says in a statement.
“However, when we closed out our accounts for the quarter ending June 2020, we realised that we were just shy of the required reduction in earnings. So we spoke with our MSD account manager and voluntarily committed to paying the subsidy back. We were in regular contact with our account manager at MSD throughout the whole lockdown and paid the subsidy back in one lump sum.”
The company second on the “requested” list, is ContainerCo Ltd, one of the country’s biggest shipping container handling businesses, created in 2013 by a merger between United Containers and NZL Group’s container depot assets.
Managing director Ken Harris says it was puzzling, initially, why MSD recorded the payment as “requested”. On review, however, it was understandable, he says.
The company’s last report to MSD – “provided entirely voluntarily” – was sent in September last year.
“We note that this prompted a discussion and MSD did request we repay in answer to our question as to whether they thought we should or not. The repayment was then made promptly and we note that in all regards the parties' interaction was helpful, supportive and transparent. There is no mention or thought by either party of legal issues or measures.”
Its repayment of almost $1.7 million happened in September last year. “No legal issues arise or arose.” The other payment, of $758.47, was made in May this year.
The subsidy payment allowed ContainerCo to trade through and keep staff on full pay, he says. The company also implemented a volume support scheme, with “cash flow implications”.
“Our application for support was followed up (unprompted or required) with several formal reports as to our trading to MSD.”
Harris adds: “In an uncertain time the business and staff had the confidence to avoid precautionary restructuring and within four months set aside all Government support. MSD’s engagement at the time was timely helpful, and important.”
Canterbury tax researcher Dr Michael Gousmett thought there should have been more “requested” payments on the list of top 30 subsidy repayments. He also notes the almost $1 million gap between Porirua Council and ContainerCo in the top two requested list.
“I would have thought there would have been entities between those figures.”
Gousmett tots up the ratio of repayments to payments. Loss-making airline Air NZ repaid about 3 percent, and Bunnings 10 percent. Meanwhile, retailer Noel Leeming and consultancy BECA repaid 100 percent, with payments from Alliance at 95 percent, and Silver Fern Farms 92 percent.
“If they have been shoulder-tapped [by MSD] they’ve quickly come up with the goods and said, yep, here’s the money – quick, go away.”
Robert MacCulloch, an economics professor at University of Auckland, says when it comes to ethics and morals of taking the subsidy, there’s a difference between large listed companies, whose directors answer to shareholders, and professional firms, like law firms, whose partners are the owners. “They don’t answer to anyone other than themselves.”
The requested repayments are tiny as a proportion of the money paid out, he says. “It’s not a material amount.”
As detailed in the Auditor-General’s report, businesses had to declare they met the scheme’s eligibility criteria, including a drop in revenue. If they discovered they were no longer eligible they had to notify MSD and repay any amount they weren’t entitled to.
The declaration said businesses were aware they could be audited, and their information verified with other Government agencies. Wrong-doers could be prosecuted. But very few have, and the reviews have touched a tiny percentage of the roughly 1.8 million applications.
Van Ooyen, of MSD, is putting on a brave face. He said the ministry’s integrity programme found employers did the right thing in the majority of cases. “In many cases where entitlements have been wrongly claimed, it is often due to uncertainty about the eligibility criteria, rather than deliberate attempts at deception.”
* This story has been updated with comments from Orion Health’s Gina Hills.
