The largest government department in Australia is at “breaking point” as payment processing times worsen every week, staff numbers and overtime are cut due to budget constraints and major project failures do double damage on the balance sheet.

As these issues bite at Services Australia – the agency that processes welfare and transfer payments, Medicare rebates and childcare subsidies – staff say there is a massive cultural problem in the middle and upper ranks that has obliterated trust.

Staff, including senior employees, described an agency in chaos, plagued by under-resourcing and poor decision-making. Some described the possibility of full “agency collapse” – a breakdown to the point that the department could no longer deliver even its basic functions. Despite promises, this has become worse since the Albanese government took power.

“The culture, morale and treatment of staff by the government and the senior executive service (SES) within the agency is the worst that I have ever seen or experienced,” the person said.

“And each day it gets worse. Essentially we are getting told every day that the agency is broke.”

In the most recent budget, the average staffing level cap for Services Australia fell from 28,560 to 26,692, which includes a special provision for 850 ongoing roles made by the federal government. Ostensibly, this is because throughout the early stages of the Covid-19 pandemic the agency was surging to provide extra support and payments that have now largely ended.

“That’s the thing, though: even going back to 2019, and the three years prior to that, the former Coalition government cut about 3000 bodies out of payment processing,” a source says.

“In this budget, you’re seeing the tapering off of that Covid surge workforce and it is sort of revealing the problems that were masked by that. We are now coming to terms with all of that.”

This was compounded by the Albanese government’s election pledge to reduce the use of labour hire and temporary staff. Those jobs were progressively wound down without any permanent public servants to replace them. In the most recent budget, employee payments are forecast to fall by almost $130 million this year alone, while contractors will drop by $150 million.

“Covid was an amazing turnaround, actually, because there was that injection of several thousand staff, both directly employed and through contractor agencies like Serco, and what that did was that it actually meant that the work got done,” a staff member says.

“So those crippling backlogs actually disappeared, and we were answering calls in a reasonable time and it felt good. It felt good to be back in a situation where we were managing the workload. It was a position that I don’t think we’d been in since about 2012.”

That temporary relief has evaporated, however. “Staff are getting told that they have to do more with less,” an employee says, “and large numbers are being placed onto the job placement scheme, the first step before being declared excess.”

The JPS is a condition of the Services Australia workplace agreement. If managers wish to make staff redundant, they must offer them reasonable redeployment opportunities elsewhere in the business. If that fails, the position can be expunged.

The Saturday Paper understands claims-processing times for various welfare payments have increased significantly. The backlog has grown every week for the past six months.

Centrelink calls have dropped almost 20 million in volume but wait times have increased almost 50 per cent, from an average answer time of 14 minutes and 14 seconds in 2021-22 to 20 minutes and 22 seconds in the financial year to March. Congestion messages, played to callers when wait times are particularly severe, have already climbed to seven million in the nine months to March, compared with 5.6 million for all of the previous financial year.

“If you listen to the rhetoric, these budget cuts were just returning us to normal circumstances, to remove supplementary funding for emergencies and Covid, which I suppose was true, but the agency had come to rely and depend on that funding to get business-as-usual done,” an employee says.

“So the first evidence of this cut was scrapping of overtime. We have, for years, relied on people doing overtime to get the work done. But after the budget came through, that all stopped.”

Now staff who are approved as “competent” are brought in to work a dedicated “super Saturday” to try to manage claim backlogs and mounting workloads. Overtime is paid on these Saturdays – two have been held since the May budget – and only on these days.

Twice in the past six weeks Services Australia has been cautioned by the Commonwealth ombudsman over its operations.

The first of these warnings was over its failure to promptly disclose a separate income apportionment program that ran for almost two decades and was used to calculate entitlements without any legal basis. The second was for its attempt to keep hidden an IT glitch in child support assessments that affected almost 47,500 people.

Of those cases, 15,000 were historic and Services Australia decided it did not want to go back in time to advise the people who had been financially affected by the mistake. The ombudsman decided otherwise.

“Services Australia advised us that if a customer were to contact them to question the assessment, it would then review the assessment,” the statement from the ombudsman says.

“In our view, customers were not aware that an error caused by Services Australia’s systems had occurred, so would likely not be aware they could exercise their rights to question an assessment.”

Some employees at Services Australia were appalled.

“I think some of the things that are reported publicly are deliberately opaque,” one staff member tells The Saturday Paper. “We’ve been getting a bit of a bad rap for not telling the whole truth.”

Community and Public Sector Union national secretary Melissa Donnelly is blunt in her assessment of how bad things have become.

“Services Australia is an agency that has been in crisis for some time, and now it is at breaking point,” she tells The Saturday Paper. “The Albanese Labor government has failed to fix Services Australia. On their watch, staffing numbers have gone backwards, tens of thousands of phone calls go unanswered every day, wait times and processing delays continue to blow out, and customer aggression has increased.

“Australians relying on Services Australia deserve better, and so do the staff working there. Our members in Services Australia are passionate about helping people, but significant understaffing is compromising their ability to do that.”

Minister for Government Services Bill Shorten has been busy in the portfolio since he took over but says the problems in his department have been incubating for some time and require significant resources to fix.

“The former Liberal government left Services Australia structurally underfunded and understaffed,” he said in a statement.

“This was temporarily masked by a COVID surge workforce and the pausing of debts. We are fixing the problems within my control. We need extra resources, but this will go through a proper Cabinet process.”

The seeds of this disaster are many and have been sown over many years.

Two schemes stand out: the Welfare Payment Infrastructure Transformation program and the illegal robodebt scheme. Both projects have faltered for different reasons and the consequences have been reputational as well as financial.

WPIT – which would become a $1.5 billion series of updates and overhauls to the underlying “legacy” architecture of the agency that has remained in place since the 1980s – was supposed to eventually realise enormous ongoing savings for the department.

Executives agreed at the time to have these savings “harvested”. In other words, to win funding from the Coalition government the department accepted a reduction in forward operating budgets on the promise their big IT redesign would be more efficient.

Instead, huge chunks of this program have not just underwhelmed but failed entirely. In June, Services Australia boss Rebecca Skinner terminated the core entitlement calculation engine (ECE) and wrote off the asset to the tune of $191 million. The project funding had been worth $300 million.

“We had done everything we could possibly do to try to get this to a place where we could take it forward,” Skinner told a hearing of the Joint Committee of Public Accounts and Audit this month.

“The agency took the decision to impair the asset. That was done through a process … that finally came back to us and said ‘you’re really going to be in a position where you need to decide whether the conversation you have with government is about large amounts of more funding to try to get this thing to work for every payment across the board or you stop and you have a rethink’.

“It was not possible to complete the project within the [funding] envelope we had. We managed to do proof of concept for one payment.”

By June, just 784 claims had been processed under the new technology. The project had been contracted to Infosys and is just one part of a broad range of agreements related to the consulting company Synergy 360, whose directors had ties to former government services minister Stuart Robert. Those contracts have been referred to the National Anti-Corruption Commission.

Skinner, who joined Services Australia in March 2020, announced her decision to retire from the public service just days after the public accounts and audit hearing. She is the 18th senior executive to leave this year. Most have been retirements.

“It was Ms Skinner’s personal decision to retire after more than 30 years in the public service,” a spokesperson for the department said in a statement. “There were no other factors in this decision.”

An implementation committee at Services Australia meets once a month to consider risks associated with major projects such as the WPIT and its calculation engine component. The chair of that committee is the chief operating officer – which, until she went on leave to deal with appearances at the robodebt royal commission, was Annette Musolino. The final report of that inquiry was critical of Musolino’s intimate involvement with the scheme and found she knew there were significant legal questions about it from early 2017.

Musolino’s name has been scrubbed from Services Australia organisational charts but the agency says she is still employed by it. Other key figures in the robodebt saga, who attracted degrees of criticism from Commissioner Catherine Holmes, have also disappeared from the organisational chart or have had other employees acting in their substantive position.

The crossover between robodebt and the major project failures at Services Australia is cultural but, as noted by staff, it is also financial. Now, the federal workplace health and safety body, Comcare, is investigating Services Australia as a result of the “findings and outcomes” of the royal commission.

A spokesperson for Services Australia said “sometimes things do go wrong”. In a statement, they said: “We recognise those moments and work hard to rectify them. This includes working collaboratively and cooperatively with our government policy partners and regulatory agencies when issues occur.”

Staff are less enthused. They are the ones who have to wear the consequences.

“Let’s face it, when an agency fucks something up, they don’t get extra funding to fix it,” one employee says.

“That speaks to robodebt and the entitlement calculation engine and the two matters dealt with by the ombudsman this year alone. These have all crippled the agency.”

Another staff member is scathing of the approach.

“WPIT promised so many savings, which have been harvested, but in reality these savings and benefits were never, and will never be, realised,” they said.

“But as a result of the agreement by the SES at the time to harvest these savings, the agency has had so much money removed and the IT systems do not work as promised or deliver the efficiencies required.

“The ECE was never going to work in the way in which it was designed. I know that APS employees within the agency attempted to advise management and contract project directors of this, but it was ignored and they pushed on regardless.

“It never worked and was not capable of calculating even the most simple of claims, let alone a claim for an average age pension customer that could potentially have many hundreds of calculation points that would form part of the assessment of entitlement.”

There is a very real sense within Services Australia that the current state of the department cannot continue.

“I would say, ‘Do you have agency collapse on your risk statement?’ We’re getting into that zone,” a long-serving employee says.

“Like, has anybody considered what it would be like if we were so far behind on everything that we lost the capability of doing this work for the Australian community? What would that do?

“And I think that’s a very big risk that government needs to look at really hard.”

A Services Australia spokesperson said: “We’re committed to providing the best service we can within the agency’s budget allocation.”

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