Mr. Seamus McCarthy:

As the members are aware, the Department of Social Protection operates a wide range of income support, welfare and labour activation schemes. The Department's overall expenditure on scheme payments in 2021 totalled nearly €29.6 billion. Of this, €8.6 billion or 29% was incurred in respect of two temporary Covid-19 related schemes - the pandemic unemployment payment scheme and the employment wage subsidy scheme.

The Department's expenditure on administration, including pay, amounted to €642 million. Expenditure on the schemes is divided between two accounts: the appropriation account for Vote 37 and the account of the Social Insurance Fund. 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. However, in 2021, the fund received an Exchequer subvention from Vote 37 of €2.6 billion.

The audits concluded that the accounts of both the Vote and the Social Insurance Fund properly present the transactions for 2021, resulting in clear audit opinions in both cases. However, I drew attention in my report on both accounts to the likelihood of a material level of irregular payment on welfare schemes. This is a matter which arises each year, and the basis of the concern that I have is explained in chapter 10.

I also drew attention in my report on the Vote account to a material level of non-compliance with procurement rules as disclosed by the Department in the statement on internal financial control. When a person is awarded personal injury compensation, the Department can, in some cases, recover certain social welfare payments it paid to that person. From the introduction of this scheme in 2014 up to 2021, the Department was notified of an average of 6,250 cases per year where it could potentially recover social welfare payments. By March 2022, a total of €532 million had been identified as potentially recoverable. The actual amount that the Department can recover in each case depends on how the personal injury claim was settled and on whether the elements of the compensation award are itemised. For closed cases where compensation was paid to the claimant, the Department had recouped €160 million by March 2022. This represented about 58% of the estimated potentially recoverable benefits from those cases. The examination found that the Department had no basis upon which to recover the remaining 42% either because the compensation award had not indicated an amount in respect of loss of earnings or of profit, or because the amount of the loss indicated was less than the benefits and assistance received by the claimant. The Department now seeks periodic updates from the relevant compensators on the status of each case that commenced since 2020. For cases commenced prior to this, the Department did not routinely seek status updates but is now reviewing these cases.

The examination analysed results of the Department's review of open cases that commenced in 2014. It found that, in 25% of the cases, the compensators had not engaged with the Department's review and that the Department has sought legal advice in pursuing these cases. It also found that 9% of the cases were settled prior to review but the Department was unaware of this and had not recovered relevant amounts.

A key risk to the completeness of Social Insurance Fund contribution receipts is the misclassification of liable persons. Misclassification may arise, for example, where a worker is classified as self-employed and is assigned to class S for contribution purposes but has the characteristics of being an employee who should be assigned to class A.

This would have implications for the insurance contributions paid and for the benefits to which the worker might be entitled.

In July 2021, the Department, the Office of the Revenue Commissioners and the Workplace Relations Commission, WRC, published a revised and updated code of practice on determining employment status. The code sets out the criteria used to determine whether a worker is employed or self-employed, based on five key factors. The examination considered there were opportunities for the Department to make the code more accessible and to evaluate the extent of use and understanding of the code by stakeholders.

The Department established the employment status investigation unit in 2019, to focus specifically on the misclassification of employment status. To date, staffing levels of the unit have not enabled significant progress to be made across a range of sectors. The Department approved a significant increase to the staffing level for the unit in June 2021. Those positions were expected to be filled starting from September 2022.

Of the targeted investigations completed by the unit in 2021, the classification of workers for PRSI purposes was confirmed in more than half the cases. There was a change in classification from class S to class A in 44% of cases. While the misclassification rate in those targeted investigations was significant, the results provide no indication of the scale of misclassification across the economy generally.

The examination found that while both the Department and the Office of the Revenue Commissioners conducted investigations targeting the misclassification of employment status, neither has quantified the incidence of misclassified workers in Ireland nor estimated the related potential loss of contributions to the Social Insurance Fund. Random sampling and testing of the PRSI classification of a sufficient number of individuals would be required to accurately estimate the prevalence of misclassification of employment.