Mr. Seamus McCarthy:

Expenditure in 2013 on social welfare and labour activation schemes totalled €19.6 billion, 2.4% less than in 2012. Around two thirds of the expenditure was funded by the Exchequer, through the Vote for social protection, with one third funded by social insurance contributions. An addendum to the appropriation account, which has been introduced for 2013, provides an analysis of the combined programme expenditure under the Vote and the Social Insurance Fund. Figure 1, on screen for the members, shows how that programme spending is distributed between the broad programme areas. As they can see, pensions account for €6.5 billion of that total spend, while working age and income support amounts to approximately €5.5 billion. Some €3.4 billion goes on illness, disability and carer schemes and some €2.3 billion to children. Supplementary payments across various schemes amounted to approximately €1 billion. Taking account of payments between the fund and the Vote, the total cost of administration of the programmes in 2013 was around €567 million, or 2.9% of the programme spend.

PRSI contributions are the main source of income for the Social Insurance Fund. Since 2008, contributions received have been insufficient to meet the expenditure of the fund each year. Accumulated surpluses were initially used to fund the annual deficit, but since 2010, the Exchequer has met the shortfall. In 2013, the amount of subvention to the fund from the Vote was €1.3 billion, a reduction of €770 million from the 2012 figure. The subvention for 2014 was lower again, at €540 million. During 2013, the fund also made use of a Central Fund advance facility to meet temporary cash flow shortfalls arising from the timing of PRSI receipts. At year end, there was a balance of €15 million owing to the central fund. This amount was repaid in early 2014.

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 certain matters in each certificate, including the issues reported on in the chapters that are before the committee this morning. I have also drawn attention to the fact that the statement on internal financial control of the Vote discloses the occurrence in 2013 of instances of non-compliance with national procurement rules and the actions being taken by the Department to rectify them.

The level of irregular welfare scheme payments is referred to in the audit certificates of both the Vote and the fund. Irregular payments arise where welfare recipients are paid benefits to which they are not entitled, or amounts that exceed their entitlements. Such payments can arise as a result of deliberate fraud by claimants, from claimant errors or as a result of the manner in which claims are administered by Department staff. Fraud and error surveys of welfare schemes carried out by the Department are intended to identify the types of cases where excess payments arise. As I have reported previously, those surveys also provide a basis for estimating the underlying level of irregular payment. The results of recent surveys suggest that there was a material level of payment in excess of entitlements in 2013 on both the Vote and the Social Insurance Fund.

Chapter 10 of my report reviews the results of the three most recent surveys in regard to jobseeker’s allowance, rent supplement and for contributory pensions for widows, widowers and surviving civil partners. The jobseekers’ survey estimated a level of fraud and error of a net 3.1% of the total amount in payment. The result for rent supplement was 5% of the amount in payment. For the widows', widowers' and surviving civil partners' contributory pension scheme, the level of payments found to be in excess of actual entitlements was lower, at around 0.7% of the total paid. These results reflect the greater risk generally of excess payments occurring on social assistance schemes compared to social insurance schemes, where entitlement is usually more clear cut.

The chapter notes that by the end of 2015, all schemes with annual expenditure over €500 million will have been surveyed at least once, but it points out that for certain scheme areas the most recent surveys will be seven to ten years old by the time a new survey is scheduled to be carried out. It also notes that only two of ten schemes in the €100 million to €500 million category have been surveyed. Nevertheless, I welcome the fact that the Department has committed to continue the programme of surveys over the medium term, and the improvements in the survey processes it has applied in recent years. We have made some recommendations for further improvements in that process, most of which have been accepted by the Department.

Chapter 11 presents the results of an audit of the controls in place in regard to supplementary welfare allowances, which is designed as a "last-resort" scheme to assist those whose means are insufficient to meet their needs, or those of their dependants. The scheme is unusual in that it has a number of different categories of payment, each with its own risks and claimant profiles. These include weekly income support payments, weekly or monthly payments to provide support for specific ongoing needs, and one-off payments to meet specific, and often urgent, needs. Total expenditure on supplementary welfare in 2013 amounted to €611 million.

More than 90% was spent on basic supplementary welfare allowances, rent and mortgage interest supplement payments and exceptional or urgent needs payments. Members of the committee will recall that responsibility for administration of the scheme transferred to the Department from the HSE in October 2011. The scheme is administered mainly by the Department's community welfare service, CWS, which operates through a decentralised network in departmental local offices and local health centres.

Two cases of possible irregularities in supplementary welfare involving Department employees were identified in 2012. These cases are under ongoing investigation by An Garda Síochána. Consequently, apart from noting that the estimated loss to the Department for the two cases was €1.2 million at the time we reported, their details are not included in the report. Instead, the chapter focuses on the adequacy of the design and the operation of the key controls for the scheme. We selected two community welfare offices to examine, one in Letterkenny and the other in Clondalkin. For the record, these were not the offices affected by the two possible internal frauds.

Our examination found that there were significant issues with the operation of key controls. Our findings were confirmed by internal audits and inspections undertaken by the Department's own staff in other offices. We found that there was a significant backlog in the completion of management audits and a failure to carry out routine reviews of payments, controls that are particularly important in preventing and detecting internal fraud. The audit also noted that procurement risks arose where the Department made direct payments to suppliers on behalf of claimants. In some cases, the Department used single suppliers without carrying out a procurement process, resulting in a risk to the achievement of value for money and the favouring of certain suppliers. The chapter includes a set of recommendations to strengthen the controls, which the Department has accepted.

Chapter 12 presents the results of an audit on the farm assist scheme, which provides income support for low-income farmers. The scheme is part of the Department's activity in providing employment support for people of working age. To qualify for the scheme, an applicant must be engaged in farming, be aged between 18 and 66 years and satisfy a means test. Claimants must make annual declarations of ongoing entitlement and are obliged to notify the Department of any change in circumstances or means. Expenditure on the scheme was €99 million in 2013, down from €108 million in 2012. Farm assist is paid in respect of some 10,000 farmers, or approximately 7% of all farms.

The audit found that there was scope for improvement in terms of ensuring essential documentation was on file to support the payment of claims. A high proportion of claims examined had been in payment for more than five years. In two offices visited, required annual declarations were not on file for a significant proportion of cases and more than one third of cases examined across all offices visited had not been formally reviewed in the previous three years. We recommended that the strategy for the review of farm assist cases and the annual declaration process should be improved.

Although the scheme has been in operation since 1999, there has to date been no formal evaluation of the extent to which the scheme is achieving its objectives of enabling claimants to continue farming and, thereby, helping to maintain the viability of rural communities. The Department has pointed out that this is tied into rural development policy, which is the responsibility of the Department of Agriculture, Food and the Marine.