Mr. Seamus McCarthy:

As members are aware, the Department of Employment Affairs and Social Protection operates a wide range of income support, welfare and labour activation schemes. Expenditure on the schemes is spread across two accounts: the appropriation account for Vote 37, and the account of the Social Insurance Fund. The Department's overall expenditure on scheme payments in 2017 totalled €19.3 billion. Expenditure on administration of the schemes amounted to a further €618 million. An annex to the appropriation account provides a useful summary of the combined programme expenditure and sets out the expenditure on a scheme-by-scheme basis.

The Vote account is funded mainly through direct Exchequer issues. In contrast, the Social Insurance Fund is financed mainly from pay-related social insurance contributions, which are collected by the Revenue Commissioners, acting as the Department’s collection agent. Receipts into the fund have recovered in recent years as employment and earnings levels have increased. Total receipts in 2017 were €10.2 billion, up 6.6% year on year. The receipts included some €422 million in levies payable to the National Training Fund operated by the Department of Education and Skills. The surplus for the year was €731 million, leaving the fund with accumulated reserves of €1.2 billion at the end of the year.

I gave a clear audit opinion on the accounts of both the Vote and the Social Insurance Fund for 2017.

Welfare recipients may be paid amounts to which they are not entitled or which exceed their entitlements. Such irregular payments can arise as a result of innocent claimant errors, deliberate fraud by claimants or the manner in which claims are administered by departmental staff. Control surveys of welfare schemes carried out by the Department are intended to identify the types of cases where such excess payments arise. The surveys also provide a basis for estimating the level of irregular payments affecting the schemes examined. The results of successive control surveys suggest that there was a material level of payments in excess of entitlements on both the Vote and social insurance schemes in 2017. As has been the case for a number of years, I have drawn attention to this concern in both audit certificates. The matter is explained in further detail in chapter 11.

Chapter 14 presents an example of the type of circumstances that give rise to welfare payments in excess of entitlement. As part of the audit of the 2017 appropriation account, a review was undertaken of jobseeker's allowance. One of the matters examined was the correct application of age-related rate reductions, which have been implemented since 2009. Reduced payment rates apply to most jobseekers aged 25 or younger but there are a number of circumstances where an exemption applies and the payment rate is not reduced. At the beginning of November 2017, there were just over 30,000 claimants in the age cohort, of whom 5,225, or 17%, were not on a reduced rate. The audit identified, based on the information held by the Department, that 486 of those claimants, or 1.6% of the cohort of claimants as a whole, did not meet the qualifying conditions for payment of the maximum personal rate. As a result, they were being paid an amount in excess of their entitlement. We estimated the cost to the Department of such excess payments at just under €1.2 million in 2017. This is attributable to departmental or official error rather than to claimant error or deliberate fraud.

Chapter 12 reports on an examination of the Department's JobPath employment activation service for people unemployed for one year or more. The JobPath service has been delivered since mid-2015 across the State by two companies contracted by the Department. The key objectives of the JobPath service are to move people from the live register into employment, to reduce the number moving back onto the live register, and to reduce the duration of unemployment when it arises. The service has been delivered against the backdrop of a substantial upswing in employment levels in recent years.

Jobseekers selected by the Department for participation in JobPath are provided with information on the services available and a personal adviser is assigned to each jobseeker. Together, the personal adviser and the jobseeker develop a personal progression plan, or PPP, which includes a series of actions designed to assist the jobseeker in securing employment. The service provider then supports the jobseeker in implementing the plan. Up to March 2018, the Department had referred 192,000 jobseekers to JobPath. Almost 160,000 of those referred had commenced engagement with the service providers. Approximately 16,000 had dropped out and a further 16,000 were still in the process of developing a personal progression plan. Approximately 69,000 were working with the service providers in implementing agreed plans.

The engagement with a service provider can extend to around two years. Consequently, in order to assess the outcome of the service, we looked at the outcomes for almost 63,000 jobseekers referred in the period up to the end of 2016. Of these, approximately 25% had subsequently commenced employment, which was significantly higher than the target minimum rate of job commencement set by the Department. However, the proportion who stayed in employment fell away over time, so that by the end of 12 months, only 7% of those who engaged with the service providers were still in a job. As indicated in the diagram which is now on screen, this was just marginally above the reference job sustainment rate, which the Department based on its own previous performance. Broadly speaking, the outcome pattern achieved was similar for the various categories of unemployed persons.

With regard to the cost, fees of some €109 million had been paid to the two companies up to March 2018. The payments were based on verification of the delivery of the service to individual jobseekers, and of continued employment for those who took up a job. Fee discounts built into the contract were availed of in 2017 when employment in the economy generally exceeded pre-specified levels.

Rates of contribution to the Social Insurance Fund are based on earned income, but vary for different contribution classes. The types of benefits available to contributors also vary considerably by class, reflecting the insurance nature of the system. Chapter 20 reviews the procedures adopted by the Department to gain assurance that PRSI classifications declared by employers in relation to their employees and on a self-assessment basis by self-employed individuals are appropriate. The report also considers the adequacy of the arrangements in place between the Department and Revenue in relation to the collection and reconciliation of PRSI receipts.

In 2016, 96% of persons classified for PRSI purposes were in one of three classes: A, M or S. Class M, approximately 10% of the total, applies mainly to those under 16 or over 66 who are in employment and those in receipt of an occupational pension where no social insurance liability arises and very minimal benefits are available. Class A, which is approximately 76% of the total, applies to the earnings of most categories of employees, while class S, approximately 10%, applies mainly to earnings from self-employment. An individual may have more than one contribution classification, depending on the source of earnings. The rate of personal contribution by persons is the same for class A and class S, at 4% of earnings, but in the case of class A, employers are liable for an additional contribution equivalent to 10.85% of their employees’ earnings. Consequently, there may be a considerable potential economic incentive, at least in the short term, to categorise workers in certain circumstances as self-employed. However, we noted that despite apparent changes in employment relationships over recent years, there has not been a significant increase in the proportion of earners in PRSI class S over the past ten years.

The Department’s scope section may make a formal determination of the appropriate PRSI classification if requested. However, the number of such determinations is small, less than 1,000 a year.

The Department undertakes some testing of compliance with PRSI classification rules, including through joint investigations carried out with Revenue. Targeted joint investigations in recent years have detected a significant incidence of misclassification in the construction sector. Members will also recall the review of the circumstances of persons in RTÉ classified as self-employed, which identified a significant number of cases that required further review as to whether individuals were employed by RTÉ or were truly self-employed. That potentially has implications for their PRSI classification.

The Department also recently undertook a pilot review of the social insurance class of company directors and concluded that such a review did not need to be repeated. The examination found that the pilot review used a very narrow sampling frame, resulting in assessment of the cases of just 13 individuals. That limits the conclusions which can be drawn from the exercise. The examination concluded that there is scope for the Department to increase the level of compliance activity it undertakes in relation to contribution classification and recommends a programme of random reviews of PRSI classification.

Chapter 13 reports on the long-term prospects for the operation of the Social Insurance Fund, SIF. That is based on the results of an actuarial review of the financial condition of the fund that the Minister for Employment Affairs and Social Protection is required by law to commission at least every five years. Based on the position at the end of 2015, the review projections indicate that, in the absence of further action to tackle the shortfall, the fund will move into a deficit position and the Exchequer subvention required each year to meet ongoing expenditure requirements will be substantial and will increase rapidly. The review projects that the subvention, in constant 2017 prices, will be €1.7 billion in 2025, €5.6 billion in 2035 and €11.4 billion in 2045. However, these projections are heavily assumption-driven. Changes in assumptions about real earnings growth and life expectancy have the most significant impact on the projected SIF shortfall. The conclusion is that the periodic review is a valuable exercise that enables informed public discussion about the expected long-term implications of current decision-making.