Mr. Seamus McCarthy:

Social welfare scheme expenditure arises on Vote 38 and through the social insurance fund, and there are inter-account transactions between the Vote and the fund. Consequently, chapter 21 was compiled to present a consolidated view of the expenditure on welfare and employment schemes.

Expenditure on welfare schemes in 2011 was just over €20 billion, which was 3% below the peak figure reached in 2009. Trends on some of the key categories of welfare expenditure have been more volatile. In particular, support for people in the labour market more than doubled over a three-year period to reach €5.8 billion in 2010, but then fell by more than 7% in 2011. This reflects the substantial movements in the live register figures in recent years, transfers of claimants between jobseeker's benefit and jobseeker's allowance as benefit entitlements run out, and payment rate changes. Expenditure on employment schemes amounted to almost €1 billion in 2011.

The main income source for the fund is pay-related social insurance contributions, which are collected by the Revenue Commissioners and remitted to the fund. The fund’s resources are used to pay for a range of social insurance payments including pensions, jobseeker's benefit and illness benefit.

At the end of 2007, the fund had accumulated reserves of €3.6 billion arising from surpluses over many years. However, due to consecutive deficits each year from 2008, those reserves were exhausted during 2010. The Exchequer has been meeting the shortfall since then. For 2011, the Exchequer subvention to the fund was almost €1.5 billion.

This was a charge on Vote 38.

By law, an actuarial review of the financial condition of the Social Insurance Fund must be carried out at least every five years. A review commissioned by the Department, taking end-2010 as a baseline, projected that the current shortfall between receipts and expenditure will grow substantially over the long term. It projected that the deficit on the fund will double to €3 billion by 2019 and will have increased to €26 billion a year by 2066. The actuarial review necessarily was based on a set of assumptions about uncertain future events and conditions. For example, the review assumed, as a base case, that real earnings will grow by 1.5% a year or more over the projection period. Analysis of the sensitivity of the projections to alternative assumptions indicates that if real earnings grow by just 1% a year – which is a significant growth rate over the 50 to 60-year horizon of the projection – the projected deficit in 2066 would be €16 billion, rather than the €26 billion deficit under the base case. Another critical factor relates to assumed further substantial improvements in life expectancy. When lower rates of expected improvement from the European Commission's2012 Ageing Report, are used in the projections, the deficit for 2066 is projected at €21 billion, rather than the baseline €26 billion. Given the importance of these actuarial projections for decision-making about pensions policy, I recommended that the basis for the key assumption rates in the baseline should be subject to more detailed analysis and testing, including scenario testing where a number of assumptions are changed together, in a consistent way.

Chapter 22 reviews the Department’s management of recorded welfare overpayment debts. The total value of recorded overpayment debts at the end of 2011 was €343 million. Debt recovery during the year increased by half to €52 million but this was more than offset by the value of new overpayment debts recorded, which came to €92 million. Debts to the value of €12 million were either cancelled or written off during the year. The net result was an increase in 2011 of €28 million in the total recorded debt for recovery. The results of audit fieldwork indicated that the Department’s guidance about procedures for debt recovery was not being applied consistently in local welfare offices. It was recommended that the Department should develop procedures to monitor more closely the proportion of debt recovery plans in place and to assess the performance of local offices in terms of debt recovery rates and rates of referral of appropriate cases to the Department’s central debt management unit. The examination also found that while there is an approval procedure in place for cancellation or write-off of debts, such decisions are not subject to review by management. The chapter recommended that the Department should examine the current arrangements with a view to implementing a consistent approach across all offices including, at a minimum, a standard form to record the background and reason for all decisions to cancel or to write off overpayment debts. The examination included a review of the Department’s overpayment debt management system. We found that the system lacked a number of the features required to be an effective debt management tool. In particular, the system was not capable of performing analysis or of producing management information with an appropriate level of detail. It also does not enable the recording of recovery actions taken or pending in respect of individual cases. The proportion of fraud cases prosecuted is typically below 3%. The Accounting Officer stated that prosecutions are taken only in the more serious cases, where there is strong evidence of fraud.

Chapter 23 deals with the regularity of social welfare scheme payments, that is, whether recipients were properly entitled to the amounts they received or have received payments in excess of their entitlements. Detection and recording of overpayments is evidence that payments in excess of entitlements occur but the Department does not record an overpayment in all cases detected. Based on the available evidence, I consider that there is a material level of expenditure on the Vote that does not meet the regularity test. The Department carries out periodic fraud and error surveys, based on a random sample of scheme cases, to assess the risk of excess payments on individual welfare schemes and the likely causative factors. The results of the fraud and error surveys indicate there is a significant level of underlying irregular payment on certain Vote-funded schemes. The more recent survey reports include estimates of the net financial loss to the Department, which tends to be a lower figure than the scheme losses. This occurs because claimants found to be in receipt of an excess payment may be eligible for a payment under a different scheme or may become a dependent of another claimant. Even taking this into account, the estimated levels of financial loss borne on the Vote appear to be significant, including 4.1% of expenditure on disability allowance and 2.7% on one-parent family payments. Given the lack of survey coverage for some major expenditure schemes, I recommended that the Department should design a programme of surveys based on the level of annual scheme expenditure, with the larger schemes to be reviewed on a continuous basis, mid-size schemes on a cyclical basis and small schemes to be surveyed occasionally or not at all.

In conclusion, I consider that fraud and error surveys are an important tool in combatting losses due to irregular welfare payments. The Department needs a reliable estimate of the overall incidence of excess payments across schemes. This would allow it to assess whether the targeted control activity it undertakes is on a sufficient scale and is effective in detecting excess payments. Ultimately, unless there is a combination of a high probability of detection, followed by prompt recovery of payments in excess of entitlements, persons tempted to submit false claims for welfare benefits are unlikely to be deterred from doing so.