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MBIE 'well short' on payroll issue with no end date in sight, CEO admits

Thursday 8th December 2016

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David Clark, Labour's spokesperson for economic development, says he's "very concerned" about the performance of the Ministry for Business, Innovation and Employment after an audit, with the holiday payroll issue still hanging over the super ministry's head.

"The audit we received as part of our briefing is probably the most damning I've seen for your agency," Clark told MBIE's chief executive David Smol at the agency's annual review at the commerce select committee this morning. "Why is this happening? Your merger was in 2012, and if I can just go through an overview: management control environment, needs improvement, and the description is "we've recommended major improvements be made at the earliest reasonable opportunity." Legislative compliance: needs improvement, human resources: good. You get the picture, "needs improvement" seems to be the general message right through the audit opinion we've had of the agency."

There was some discussion about whether members of the committee are able to refer to the audits they had received or whether that is confidential under Parliament's Standing Orders, with the conclusion being that they can, but the report shouldn't be attributed.

"Let me rephrase that - I am very concerned that your agency needs improvement in a way that it hasn't for some time," Clark said. "I'm wanting to hear about how we've come to this position, from what was previously a healthy position, and what's going wrong with the agency."

Smol said MBIE had had "needs improvement" ratings since it was founded, had improved on non-financial performance measures, and he was very pleased with the progress it had made on financial controls, though he aspired to improve the ratings and was disappointed they had not improved yet.

"The area where we're clearly well short of where we need to be is payroll, it's my understanding that's the main reason for the rating we've received," Smol said. "They're not raising fundamental concerns about how we package and control the money over which we have stewardship, but there will always be scope for improvement."

The MBIE payroll issue came to light in March this year, when apparent significant underpayments of MBIE staff dating back to a 2004 change in the Holidays Act were discovered.

As at July 31, 34 other companies and agencies were under investigation by the agency's labour inspectorate, including ANZ Bank New Zealand, Bank of New Zealand, Fonterra Cooperative Group, Restaurant Brands, Countdown supermarket owner Progressive Enterprises, Ryman Healthcare, and The Warehouse. Completed investigations of 25 employers led to $35 million in arrears paid to 26,000 staff, according to a document released by the Council of Trade Unions in September.

Smol said he was very optimistic MBIE would have sorted its own payroll issue by this time next year, though couldn't guarantee it. Stewart McRobbie, MBIE's chief financial officer, said the agency wanted to have all remediation calculations finished by the end of this financial year, which is June 2017, or earlier, with payments to current and former staff after that.

MBIE doesn't have a current estimate of its liability from the issue, McRobbie said, but expects to be able to pay out from within its existing funding. 

Smol said it was impossible to estimate the length of time it will take to fix inaccurate payments made to employees in the wider New Zealand population. The agency's labour inspectorate is carrying out an audit program, Smol said, working with businesses to resolve issues it unearths, and MBIE is working with payroll providers and partners like the CTU and Business New Zealand to strengthen its systems.

"You will be aware this is not the cleanest piece of legislation, and circumstances vary enormously from one place of employment to another," Smol said. "It's the responsibility of each employer, as and when they become aware of errors in their payroll system. We have significantly increased our resource on this."

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