IRD explained that an ineligible person could potentially get the payment if they hadn't told IRD they had left the country and if they had received income into a New Zealand bank account from the likes of bank interest.

National's finance spokesperson Nicola Willis wrote to the Auditor-General asking for an independent investigation into the scale of the issue. While the Government couldn't say how many foreigners the payment went to, it estimated it could be up to 21,000 or 1 percent of the 2.1 million people eligible. 

Speed over accuracy

In his letter to Commissioner of Inland Revenue Peter Mersi on Monday, Ryan said that while there are justifications for prioritising speed over accuracy, "it is still important to be sure that public money is being spent appropriately".

"I am concerned about the uncertainty of what 'present in New Zealand' is intended to mean, and the accuracy and fitness for purpose of the information used to determine that. I would expect there to be specificity and certainty when spending public money."

According to the letter, IRD used taxpayers' physical addresses as "the best proxy evidence of that person being present in New Zealand". This would be the last address the taxpayer gave IRD when updating information for tax purposes.

"Inland Revenue told us that 'present in New Zealand' meant people who had a New Zealand address in Inland Revenue's system at the time the eligibility checks were done," said Ryan. "However, the criterion – as set out in the Cabinet minute – was unclear."

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He said using physical addresses as a sign someone was present in New Zealand "was problematic". 

"It is not clear to me that using this field is good evidence to determine that someone is present in New Zealand, regardless of which meaning is used. For any number of reasons, a person might not be at that address and there is little way of being sure the person was in New Zealand and eligible for the payment."

Ryan said IRD could have matched their data with Customs "to ensure more up-to-date information about who was present in New Zealand". But he said IRD decided it would rely on its own data as data matching "would have added complexity and possibly taken longer".

This decision was made independently without consulting Customs or other parties, Ryan said, and that the timeframe for implementing the payment "contributed to its inability to enhance or validate the data it held to determine eligibility". 

"Inland Revenue told me that it is assessing what system refinements, including exploring the use of Customs data, it can make for the subsequent payments."

The speed at which the Government developed the cost of living payment has been one of the major areas of attack for the Opposition. National and ACT say the Government was caught on the backfoot over rising prices and the payment was a rushed response to public backlash.

Prime Minister Jacinda Ardern on Monday afternoon disagreed with the Auditor-General that the criteria wasn't clear.

"The criteria was very, very clear. Essentially, the question then became how do you test that criteria? So if the criteria is that you must be present in New Zealand, resident in New Zealand, how do you then test whether or not that's the case? And that's what IRD have continued to refine."

Ardern said the focus was on getting the payment out the door as Kiwis struggled with high prices.

"There is no way to design a system that will be absolutely perfect. But we prioritised in these tough times getting a payment to the New Zealanders who need it the most. We stand by that while we continue to do everything we can to make improvements as we go."

Ministers were advised in May that ineligible people may receive the payment. Advice to the Government says some of the information IRD holds "may not be up to date". 

"This would mean some people who should receive the payment may not, and conversely, some people who received the payment should not have," it said.

Finance Minister Grant Robertson said in May that the first of cost living payment wouldn't be paid out until August to give IRD time to develop the systems to deliver it.

Scale of the problem

The Auditor-General is also concerned the Government doesn't "know how significant the scale of payments to ineligible people is". 

While he noted Parker had estimated it could be about 1 percent, IRD "does not know, and may never know, how many ineligible people might have received the payment". 

"This is, in my view, unacceptable," he said.

Ryan said IRD should make its expectation clear that ineligible people who got the payment should repay it immediately. 

He also said IRD should "consider what steps it can take to identify how many ineligible people have received payments".

"I encourage Inland Revenue to also focus on future payment tranches to ensure that payments are reaching only the people the Government intended them to go to. I also encourage Inland Revenue to remind ineligible recipients that they are obliged to repay any payment received immediately."

Parker announced earlier on Monday that IRD is introducing new screening measures to avoid the money going to foreigners. That includes looking for where an overseas IP address has been used to log into Inland Revenue's website, or where a non-resident individual income tax return has been filed for the last financial year.

The eligibility criteria for the payment - $350 split across three months - haven't changed. Applicants must be a New Zealand tax residents present here, aged over 18, earn $70,000 or less and not be entitled to the Winter Energy Payment.

In a separate letter to National's Willis, Ryan reiterated his concern about the Government not knowing the scale of the issue. 

But he also said he has "reached that conclusion on the basis that there is no evidence that Inland Revenue made the payments for any other purpose than to discharge its statutory duty to administer the COLP scheme in accordance with Cabinet’s decision".

Willis released a statement following the publication of Ryan's letters. The National finance spokesperson claimed the Auditor-General's investigation had led the Government to make changes to the screening checks.

"It is clear that the Auditor-General's investigation has forced the Government into making changes to the cost of living payment," Willis said.

"It was obvious after the first payment ended up in the bank accounts of London expats, French backpackers and dead people that the Government had not done the work to ensure that only eligible New Zealanders could get the payment."

ACT leader David Seymour said IRD "should review the payments made to date, identify the scale of incorrect payments, and remind ineligible recipients that they’re obliged to repay the money".

"Taxpayers will be furious that the Government has played fast and loose with their money after being caught napping during the start of the cost of living crisis."