Mr. Seamus McCarthy:

Expenditure in 2012 on welfare and employment schemes was just over €20 billion, some 3% less than the peak expenditure in 2010. Around two-thirds of the expenditure was funded by the Exchequer through the Vote for Social Protection, and one third by social insurance contributions. Chapter 16 presents a consolidated view of the expenditure funded by the Vote and the Social Insurance Fund, as well as the trends in the main categories of expenditure. The Department has undertaken that, in future, a consolidation will be published with the appropriation account of the Vote. This will improve the transparency and accountability about the cost of schemes.

PRSI contributions provide the main source of income for the Social Insurance Fund. Since 2008, the contributions received each year have been insufficient to meet the annual expenditure of the fund. Initially, surpluses accumulated over a number of years were used to fund the deficits but since 2010, the Exchequer has met the shortfall. This Exchequer subvention is provided through the Vote and amounted to just over €2 billion in 2012. In addition, as provided for in the Social Welfare and Pensions Act 2012, a sum of €300 million was advanced from the Central Fund in December 2012 to meet a temporary cashflow shortfall arising from the timing of PRSI receipts. This advance was repaid to the Central Fund before the end of 2012.

I have given a clear audit opinion on both the appropriation account of the Vote and the financial statements of the Social Insurance Fund. However, I have drawn attention to a number of matters in each certificate.

Note 6.5 of the Vote discloses four cases of possible misappropriations by staff of the Department, with a total estimated loss of €1.3 million. My audit certificate draws attention to the Department’s response to those cases which is outlined in the Accounting Officer’s statement on internal financial control. The response includes the assignment of additional staff to the Department’s internal control support unit and more rigorous monitoring by the unit of controls at local level. The 2013 audit will examine the extent to which these enhancements have been implemented.

In my audit certificate on the Social Insurance Fund, I have drawn attention to ongoing control deficiencies in relation to bank reconciliations and the procedures for confirming balances due to An Post. These issues have been referred to in the audit certificates for recent years and were previously examined by the committee when it considered Chapter 39 of the 2010 report. The statement on internal financial control for the fund outlines the actions being taken by the Department to resolve these issues.

The issue of the level of irregular scheme payments is referred to in the audit certificates for both accounts. Irregular scheme payments arise where welfare recipients are paid amounts to which they are not entitled or which exceed their entitlements. Such payments can arise from administrative error by Departmental staff or from claimant error or fraud. Fraud and error surveys of welfare schemes carried out by the Department potentially provides a basis for estimating the level of irregular payment. Based on the results of the surveys, I consider that there was a material level of payment in excess of entitlement in 2012 on the Vote and on certain Social Insurance Fund schemes.

Chapter 17 presents the results of the latest fraud and error surveys as well as the findings of an examination of the survey process applied in the four most recent surveys. These related to disability allowance, one-parent family payments, child benefit and jobseeker's benefit. As well as an estimate of the overall scheme loss, these surveys now also provide an estimate of the overall net loss to the Department, which takes account of the fact that claimants found to be in receipt of excess payments on a scheme may instead be entitled to payment under a different scheme or may become a dependent on another person’s entitlement. The estimated net Departmental loss for three of the schemes was significant at 4.1% for disability allowance, 2.7% in the case of one-parent family and 1.6% for jobseeker's benefit.

The fraud and error survey process is resource intensive but the results provide valuable information about the underlying level of payments in excess of entitlement and the risks associated with particular schemes. For this reason, they should be developed and enhanced. The examination of the survey process found that, in general, the surveys were carried out in accordance with the Department’s procedures. There were, however, a number of technical areas identified where improvements could be made that would improve the efficiency of the process and increase the reliability of the results.

Chapter 18 examines the trends in recorded overpayments, as well as the level of legal action related to debt recovery. Overpayment debt outstanding amounted to €375 million at the end of 2012. Overpayments of €97 million were recorded in 2012, some of which related to excess payments spanning more than one year. Overpayments of €54 million were recovered in 2012 which represented 13% of the debt recorded for recovery. We found that the Department’s overpayments recording system is not effective as a debt management tool and cannot produce all the information necessary to monitor the effectiveness of debt management. I understand that the Department expects to have a new debt management system in place before the end of this year.

Chapter 19 presents the results of an audit of the domiciliary care allowance scheme. The allowance is payable to carers of children under 16 years who have a severe disability and require constant care and attention, substantially in excess of that required by another child of the same age. Responsibility for administration of the scheme transferred to the Department from the Health Service Executive in 2009. Total expenditure in 2012 was €102 million. In addition, recipients of the allowance have automatic entitlement to the respite care grant resulting in associated expenditure of a further €45 million.

At April 2013, the average time taken to process an application for domiciliary care allowance was eight weeks. Around 5,000 applications for the allowance are received each year. For the period 2010-12, the initial decision on applications was to disallow over 60% of cases. A high proportion of cases disallowed are appealed with around 2,100 appeals each year. In just over 60% of the appeals cases resolved in 2012 the allowance was granted either as a result of a decision by the appeals officer or a prior revised decision by the deciding officer.

Around 70% of the cases in payment were originally processed by the HSE. The Department did not receive case files from the HSE for the transferred cases and has little information on the medical eligibility of those cases. Medical review of cases is a key control in determining ongoing eligibility but no programme of reviews for those cases had been put in place. An examination by the Department in early 2012 of a random sample of the transferred cases found that up to half could be ineligible. Around 50% of cases put in payment by the Department and reviewed in 2010 and 2011 were also found to be no longer entitled to the allowance. A review of the scheme policies and processes was announced in May 2012 and all medical reviews were suspended pending completion of that scheme review.

The recommendations of the review group were brought to Government in April 2013 and their report was published. The recommendations are set out at Annex A of the chapter. The Department is implementing the recommended administrative changes and the policy recommendations will be considered in forthcoming budgets. The Accounting Officer will be able to brief the committee on the current status of the recommendations and on the recommencement of medical reviews in domiciliary allowance cases.

The results of an audit of the invalidity pension scheme are set out in Chapter 20. Invalidity pension is payable to those who are incapable of work because of illness and who have sufficient social insurance contributions or credits. In 2012, €603 million was paid to around 50,000 claimants. In 2012, there were 11,500 applications for the pension which is almost 50% more than in 2008. Over 60% of claims decided in 2012 were either disallowed or withdrawn. The number of appeals received doubled between 2011 and 2012 to 4,700. Three quarters of appeal cases resolved in 2012 resulted in a revised decision.

A person may no longer be entitled to invalidity pension if they recover the capacity to work. Therefore, medical review of cases is a key control. Departmental procedures require that a medical review status is assigned to all approved claims. That status indicates whether or not the claim should be reviewed in the future and, if so, when that review should take place.

Some 5,800 or 12% of the claims in payment were found to have no review status recorded. The Department has indicated that due to resource constraints it has not been possible to review all cases as scheduled. The Department examined a sample of 170 cases to assess the risk of ineligibility. At mid 2013, it estimated that approximately one in ten of the sample cases were no longer eligible for payment. The Department indicated that it is examining ways to increase its capacity to carry out medical reviews.