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The unlawful use of robodebt-style income averaging to calculate welfare debts has been going on for decades and may require large-scale waivers, says the ombudsman in a scathing summary of Centrelink’s handling. By Rick Morton.

Centrelink lashed over robodebt-style accounting

Prime Minister Anthony Albanese and Government Services Minister Bill Shorten.
Prime Minister Anthony Albanese and Government Services Minister Bill Shorten.
Credit: AAP Image / Lukas Coch

A catastrophic Centrelink failure to lawfully calculate a generation of welfare payments may never be resolved and the work to “remediate” the 100,000-odd current social security debts known to be affected will likely take several years and vast resources, the Office of the Commonwealth Ombudsman says.

The ombudsman’s report was scathing about the secretive way in which Services Australia and the Department of Social Services handled the critical breakdown, in which they used the same rubbery mathematical trick of “averaging” income that featured in the robodebt scandal to get around rigid social security rules. The ombudsman noted the agencies were “disingenuous” in their limited attempts to tell the public what went wrong.

It’s now clear that public servants misinterpreted – since 2003 and possibly before – a key provision of the social security legislation that allowed income to be “apportioned” equally within a Centrelink fortnight when recipients could not say for sure on what days within that fortnight the income was earnt. Officials used this section, 1073B, to resolve the same uncertainty over dates across multiple Centrelink fortnights. In most cases, the miscalculation would have been small on the scale of a month but massive when left unchecked for the better part of two decades. The Saturday Paper can now reveal the scale of that problem.

Documents released under freedom of information show Services Australia has, as of early October, sampled more than 2200 “undetermined debts” across the decade to 2020 – and arrived at some truly alarming figures.

In the first phase, 629 valid debts, or 80 per cent of the sample, used the unlawful technique of income apportionment. But only about a 10th of these – 60 matters – had “sufficient evidence available on the record to conduct a recalculation”.

Of these, 34 reassessments resulted in debt reductions, averaging $837.40. In one case, the debt was slashed by $5348.

Income apportionment can result in errors in the opposite direction, too. The sampling shows these are of a similar value – an average $700 increase in debt – but much smaller as a percentage of total debt value: 13 per cent compared with 32 per cent of downward variations.

In one case, it took public servants 16 hours to recalculate a single debt.

Rather than attempting to recalculate more than 100,000 individual debts, the Commonwealth Ombudsman suggested the best way to resolve the issue might be forgiveness. “Given the scale of income apportionment and the length of time involved, Services Australia and DSS should also be considering as one of [its] options whether the most appropriate as well as fairest way forward to remediate the impacts on customers with unlawful debts might be an approach involving large-scale waiver of debts,” the ombudsman said in its report on its second investigation into the issue, released on Monday.

The ombudsman said this action would have to come with “clear communications to customers about review rights or other remedies they may have”, since simply waiving the debt “would not offer any remedy to those customers who have repaid unlawful debts or who were underpaid social security benefits. Excluding those two groups from any form of remedy would also not be fair.”

It is not clear, because Centrelink cannot say, how many customers have already repaid debts since 2003 that involved income apportionment. But its own samplings suggest the figure is conservatively in the hundreds of thousands, many orders of magnitude bigger than the current known problem. A second phase of sampling undertaken within Services Australia showed similar results, although the number of debts relating to income apportionment fell from 80 to 64 per cent and the average value of downward and upward revisions almost, but not exactly, cancelled each other out.

Even so, the Commonwealth Ombudsman is clear Services Australia has an obligation to inform “customers” of potential problems. For that to happen, the department needs to know which customers might be affected and to what degree. Internal sampling communications between the acting chief executive, Chris Birrer, his general manager, Robert Higgins, and other executives note that even triaging undetermined debts captures unrelated matters – “which demonstrates our data limitations and why manual checking of records is required”.

This manual requirement threatens to overwhelm the government. Prime Minister Anthony Albanese’s cabinet will consider a “remediation” strategy based on advice from public servants, but the Commonwealth Ombudsman noted there was not yet settled legal advice on what a proper, lawful recalculation should actually look like.

“While waiting for the legal issues to be settled about how to calculate pre-7 December 2020 employment income, the number of paused reviews, explanations of decisions and debts potentially affected by income apportionment had grown to approximately 108,000 as of 29 August 2023,” the ombudsman said on Monday.

“We agree that progressing [this] sizeable decision caseload … is essential. However, we consider DSS and Services Australia should not overlook the potential scale and scope of the unlawful income apportionment calculations, which likely spanned more than 17 years.”

The administrative burden of identifying and analysing the impact of income apportionment in each case “cannot justify the limited scoping, sampling and remediation planning the agencies had engaged in by the time of this investigation,” the ombudsman said.

In its administrative torpor, Services Australia has paused all debt recovery and debt reviews while it awaits a settled legal position, but even this has been far from a seamless process. Its target for customer requested debt reviews is 49 days and for income apportionment matters the average time is now 427 days.

“Delays of this magnitude can cause significant distress and frustration for customers,” the ombudsman said.

“Services Australia’s management of debt recovery pauses and review delays has been a theme in complaints to our Office since 2021. One complainant told us that agency staff advised them debt recovery was on hold until the end of the year, but the agency then garnished their tax return within that period without warning.”

In other cases, debts were referred to third-party debt collectors even after the customer review was paused by Centrelink as a result of legal uncertainty.

As one customer told the ombudsman: “I have been in a review process for two years now. Every three months they make demands for repayment and I have to sit on a phone, during [which] time I am supposed to be working, to get them to reinstate the pause on the review that is not happening.”

When the Office of the Commonwealth Ombudsman went public in August with this fiasco, it did so just weeks after the final report of the robodebt royal commission but was at pains, alongside Social Services Minister Amanda Rishworth and Government Services Minister Bill Shorten, to point out this matter was “not robodebt”.

That is not strictly true. Robodebt was a discrete program ushered into policy in 2015 by then prime minister Tony Abbott’s cabinet, which flagrantly ignored legal advice warning of its illegality. Income apportionment was a longstanding practice that never made it to any cabinet. The handling of this issue, however, came to the attention of then senior bureaucrats Kathryn Campbell and Annette Musolino in late 2020 and both DSS and Services Australia have now known about it for three years.

In that time, precious little has been done to grapple with the seismic consequences of the matter. The obfuscation and murky bureaucracy that enabled robodebt is present here, too.

“We found that Services Australia is not including sufficient information in its decision letters to individual customers about the impact that unlawful income apportionment had on their debt amount,” the ombudsman says.

“We assessed a review decision letter Services Australia provided to a customer whose debt was recalculated and reduced … The decision letter included the new and former debt amount but did not clearly explain how or why the debt was recalculated. Importantly, it also did not explain to the customer that Services Australia previously calculated the debt in an unlawful way, or even that Services Australia’s previous calculation had been in error.

“In our view, omitting information in decision letters about how and why a debt has been recalculated, and whether it relates to historic unlawful income apportionment practices, is unreasonable and inappropriate.”

Similarly, telephone guidance to Services Australia staff includes no acknowledgement at all that the former process of income apportionment is now known to be unlawful. Instead it prompts staff to cite a “policy change” or “refer to the 7 December 2020 legislation change as a reason for the recalculation”.

“We consider that framing explanations in this way is disingenuous, lacks transparency and fails to provide customers with all the information they are entitled to receive,” the ombudsman said.

None of these urgent debt matters addresses the problem that potentially hundreds of thousands of customers were underpaid social security benefits to which they were entitled.

The ombudsman recommends quantifying the scale of this issue and even changing legislation to allow those affected to claim compensation for loss if they are unable to do so under the Commonwealth scheme that supports victims of defective government administration.

Services Australia and DSS as the operational and policy agencies, respectively, are now bickering about responsibilities and failing to communicate between each about how to proceed.

Meanwhile, 69 welfare recipients are before the courts on fraud prosecutions relating to debts calculated using income apportionment. A further two, according to the Commonwealth Director of Public Prosecutions, are serving jail time after being convicted. In its sampling work, Services Australia rechecked a further 191 income apportionment debts, 71 of which involved CDPP matters. Debts were reduced by an average of $994.26 or, in a single instance, by $9417. In other words, these discrepancies might have been the difference between receiving a prosecution, and even a custodial sentence, or not.

The stakes for the federal government and the people it represents are significant, especially in light of promised reforms to public service culture.

Under prior leadership, the Commonwealth Ombudsman had its reputation shredded by the robodebt fraud, when it allowed deceptive departments to co-write apparently independent reports into the stewardship of the program. And despite officials’ claims that this matter is not the same as robodebt, clearly they are wary of its similarities.

The ombudsman provided an early copy of this report to both Services Australia and the Department of Social Services for a formal response and the identification of any “errors of fact”. Unlike with robodebt, this draft was provided in a format that could not be edited.

This article was first published in the print edition of The Saturday Paper on December 9, 2023 as "Apportioning blame".

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