In March 1996, by virtue of being Parliamentary Leader of the Liberal Party, John Winston Howard became Prime Minister of Australia. In January 2021 Howard made Senator Amanda Vanstone Minster for Family and Community Services, while he appointed Mark Sullivan as Secretary of the Family and Community Services in January 2002.
It would appear that sometime in the seven years between the start of1996 and the end of 2002, a virulent political, policy and bureaucratic rot began to to grow…..
In July 2002 the Department of Family and Community Services (FaCS) had introduced changes to quality control and quality assurance processes and had in place
comprehensive Centrelink processes to ensure
Quality control, service profiling, national validations.
Awareness: newsletter, regular reviews, debt prevention strategy, life events products
Deterrence measures: regular reviews, prosecutions, warning letters, raising and recovering debts
Compliance initiatives: Accelerated Claimant Matching (ACM), ACM Rent Assistance, ATO tip-offs, Data-Matching Program [ATO, Australian Valuation Office (AVO) & Centrelink], Corrective Services Matching, DIMIA matching, Registrar-General’s Office death matching, Defence Housing matching, Com Super matching, ATO investment property matching, TDF matching, Tip-offs, T&Cs (ATO & ASIC matching), ID fraud detection, Optical surveillance, outposted Australian Federal Police agents, inter-agency Cash Economy Field Teams.
The Department of Family and Community Services, Annual Report 2002–03 Volume I & 2, (pp.14,16, 77, 216) revealed how this rot began to be seen as healthy:
[my yellow highlights throughout this post]
“There was a $162.1 million decrease in the write down of assets, primarily the result of a decrease in the provision for doubtful debts for the Student Financial Supplement Scheme ($386.6 million). This was offset by an increase in the provision for doubtful debts for other personal benefits ($224.5 million) due to a change in methodology for calculating the provision for doubtful debts.”…..
“To tackle the upward debt trend, we developed a national collection strategy that is already making an impact on collections and stemming debt growth. This ensures more parents support their children according to their capacity to do so. The strategy also provides a basis for implementing the 2003-04 Budget measures to target recalcitrant debt.”….
“Service profiling was introduced gradually in 2002–03.”
“Other methods to identify possible incorrect payments include:….
risk-based review selections generated from statistical analysis of client characteristics
duration reviews that examine client entitlements at specific intervals from payment commencement”
“Centrelink has contracted mercantile agents to recover some client debts when the debtor’s whereabouts are unknown or when pursuit of the debts through standard debt recovery processes is not cost effective.”
By February 2023 it had become clear that Services Australia and the Department of Social Services had been withholding information from the Commonwealth Ombudsman and possibly from the Royal Commission into the Robodebt Scheme.
According to Rick Morton writing in The Saturday Paper on 12 August 2023:
Centrelink used the same bad mathematics as the illegal robo-debt scheme to raise debts estimated in the hundreds of millions of dollars from more than 100,000 welfare recipients – some of whom have faced prosecution.
The revelation shatters any illusion that defective administration was contained to a single program. If all inaccurate debts are ever found, the cost to fix the mess could top $1 billion…..
Services Australia chose not to tell the Commonwealth ombudsman in early 2021, when the ombudsman raised individual cases of inaccurate debts with the department. The integrity agency was only briefed on the issue in February this year, at which time it launched an own motion investigation into the matter.
At the start of this month, the Commonwealth ombudsman published a report titled “Lessons in Lawfulness” about this debt calculation technique, known as “income apportionment”, which Centrelink used for almost two decades until December 7, 2020, to effectively fit the reported income of welfare recipients into the rigid eligibility fortnights defined under the legislation.
“The agencies are still determining how much the known and potential debts are affected – that is, how much payment rates went up or down because of unlawful or inaccurate income apportionment calculations,” the report says.
“It is unknown how many other customers may have been impacted by unlawful or inaccurate debts or underpayments.”
The Commonwealth Director of Public Prosecutions told The Saturday Paper that Services Australia had “identified prosecutions before the courts affected by income apportionment which may affect the amount of financial advantage alleged”.
“At this stage, the CDPP is considering the circumstances of each prosecution with a view to allowing the income apportionment issue to be addressed,” a spokesperson said in a statement. “The CDPP has taken or is taking steps in relation to these matters to ensure these defendants/courts are advised. As a result a number of matters have been adjourned.”
What will happen to the historic cases dating back to 2003 is unclear.
Prosecutions are just the pointy end of the compliance system, however. The vast majority of Centrelink clients affected were simply slapped with a debt.
Scholars such as the University of Sydney’s health and welfare law lecturer, Dr Chris Rudge, as well as insiders who have spoken with The Saturday Paper, suggest the number of people affected could be higher than 500,000.
The bureaucrats “never worked out how to make a mathematical… a lawful mathematical approach”, Rudge says.
Centrelink could have changed the legislation to allow its accounting practice, he says, but this did not happen. “If the law had said you can just do it across different periods, then this wouldn’t have happened.”
At issue is an obscure provision of the Social Security Act, section 1073B, which purports to give officials the power to take the self-reported earnings of a benefit recipient and squeeze it into a Centrelink fortnight by dividing the lump sum income by 14 days. The practice is called “income apportioning”. It was considered necessary because the reporting periods did not neatly match the Centrelink assessment fortnights, and often overlapped. However, the section of the social security law immediately following is clear that this method can only be used within a single fortnight.
“In training they actively told us to never ever go to the legislation. Because they thought – and frankly they would be right – that the level of staff member that did that sort of work would not be able to accurately interpret it.”
The use of income apportioning to assess eligibility for welfare payments is discrete from robo-debt, which was a specific program of debt-hunting using annual tax office data, and created illegally in 2015 when it received cabinet approval. Under this administrative practice, bureaucrats used payment amounts accumulated over, for example, several months’ work, and attempted to fit them into fortnightly blocks. However, it is the same mathematical concept – averaging – that was deployed under the robo-debt scheme. Neither had a legislative basis. The earnings apportionment tool used by Centrelink employees actually did this averaging automatically. Robo-debt used the same tool, but with annual data, and with a deliberate strategy to raise debt.
Centrelink public servants were using the dodgy mathematics to uniformly populate successive assessment fortnights which, had a person been receiving benefit payments, could have retrospectively rendered them ineligible for those payments, creating a debt.
“It’s so artificial,” Rudge says. “If it goes beyond one entitlement period, it’s unlawful.”
As a former debt team worker tells this newspaper, cultural problems at the agencies meant these assumptions were never tested.
“In training they actively told us to never ever go to the legislation,” the source says. “Because they thought – and frankly they would be right – that the level of staff member that did that sort of work would not be able to accurately interpret it.
“Their view was go to the operational blueprint because we’ve got this wonderful team of people that are always reviewing the legislation and AAT [Administrative Appeals Tribunal] decisions and making sure it’s adjusted so it’s always right.
“In hindsight, that wasn’t correct.”
The robo-debt royal commission uncovered a political and administrative conspiracy spanning six years in which the debt-raising scheme was conceived, delivered and continued despite legal advice from the beginning that stated it was against the law.
Despite robo-debt’s effective end, in late 2019, and the use of income apportionment to determine payment rates being aborted in December the following year, it is clear sections of the vast social security bureaucracy either did not know what they were permitted to do, did not seek to find out or, worse, knew and continued anyway.
In the course of normal business, Centrelink has raised almost $12 billion in debts from mid-2018 to March this year, and waived $180 million of that due to “administrative error”. Income apportionment, which goes beyond simple error, dates back “at least” to 2003, according to the ombudsman…..
When Senator Patrick first raised individual cases related to the use of income apportionment, he spoke with two key figures found to have been intimately involved in robo-debt: Kathryn Campbell and former DHS chief counsel and chief operating officer Annette Musolino.
Campbell, then secretary of Social Services, said there had been “challenges” in administering the social security system because of a timing issue: whether income was assessed at the time it was earned or at the time it was received. She flagged the December legislation change as a way to end this impasse.
The cases Patrick’s staffers had been chaperoning through internal review, the AAT, senate estimates and finally put in writing to the then Social Services minister Anne Ruston in the Coalition government were all significant. There were 15 cases with an average debt of $3853.
Campbell’s explanation – that there were challenges in administering the scheme – failed to take account of the fact it was a policy choice made by bureaucrats to use the date income was earned as the trigger for benefit assessment, rather than when it was paid or received. They believed other approaches would create an inequity: some people could defer payments, rendering them eligible for social security benefits in fortnights where they would otherwise have been ineligible.
In doing so, senior bureaucrats read the law wrongly, for two decades.
When the legislation was changed in December 2020, the bills digest gave a hint of the scale of “overpayments” that would otherwise go on to become debts.
“The changes … are expected to provide savings of $2.1 billion over five years from 2018-19. The savings will be derived from reduced overpayments arising from inaccurate income reporting.”….
Although the Commonwealth ombudsman notes there is “an unresolved and significant difference of opinion between some of the legal advices”, its investigation statement leaves no room for interpretation.
“Our investigation found Services Australia and its predecessor the Department of Human Services had been spreading employment income evenly over two or more Centrelink instalment periods (Centrelink fortnights), in circumstances where this was not permitted by social security law,” the ombudsman says.
“This approach, known as ‘income apportionment’, could result in customers’ employment income being assessed in the wrong Centrelink fortnight, which could in turn result in their fortnightly Centrelink payment being over- or under-paid.”
A former Centrelink employee says the ombudsman’s certainty on unlawfulness and the competing legal interpretations of the departmental advice suggests the disagreement is not over the legality of using income apportionment but how to remedy a roughly two-decade overreach…..
“Once the legal issues are resolved, the Secretary of DSS will finalise a remediation strategy for historic cases and the General Instructions will be refreshed, as required, to reflect this strategy. We acknowledge this has taken longer than we would have wanted but we are determined to get it right.”
These general instructions were created by DSS to guide Services Australia in “how to process and review potential debts … which were potentially miscalculated due to unlawful application of income apportionment provisions”.
The ombudsman says they contain a glaring omission.
“General Instructions represent the policy position for how to calculate income apportionment debt-raising processes,” it says. “Currently, they do not cover any potential underpayments which may have been caused by income apportionment practices.”
These same instructions suggest the DSS secretary will only review historical decisions where a person requests a review and it is “not expected that the Secretary will initiate administrative reviews of historical debt decisions”.
The ombudsman disagrees.
“We consider the position adopted by DSS and Services Australia in the General Instructions is not appropriate,” the report says. “This is inconsistent with the principle of discretionary power and may lead to unfair outcomes for customers.”…..
Centrelink public servants were using the dodgy mathematics to uniformly populate successive assessment fortnights which, had a person been receiving benefit payments, could have retrospectively rendered them ineligible for those payments, creating a debt.
“It’s so artificial,” Rudge says. “If it goes beyond one entitlement period, it’s unlawful.”
As a former debt team worker tells this newspaper, cultural problems at the agencies meant these assumptions were never tested.
“In training they actively told us to never ever go to the legislation,” the source says. “Because they thought – and frankly they would be right – that the level of staff member that did that sort of work would not be able to accurately interpret it.
“Their view was go to the operational blueprint because we’ve got this wonderful team of people that are always reviewing the legislation and AAT [Administrative Appeals Tribunal] decisions and making sure it’s adjusted so it’s always right.
“In hindsight, that wasn’t correct.”….
BACKGROUND
Lessons in lawfulness: Own motion investigation into Services Australia’s and the Department of Social Services’ response to the question of the lawfulness of income apportionment before 7 December 2020, 1 August 2023, excerpts.
Highlights, p.1:
[my yellow highlights throughout this post]
WHY DID WE INVESTIGATE?
In February 2023, Services Australia and the Department of Social Services (DSS) told our Office
there was an issue with how Services Australia had been apportioning income to calculate social
security payment rates before 7 December 2020, when the law changed.
‘Income apportionment’ is different to ‘income averaging’ that was at the heart of Robodebt.
The Administrative Appeals Tribunal (AAT) sent some debts back to Services Australia to be
recalculated. This raised concerns about whether income had been lawfully calculated.
Services Australia advised it paused approximately 13,000 debt reviews while the agencies sought
legal advice. Another 87,000 files which may become debts were also potentially affected by
unlawful or incorrect income apportionment calculations.
Given the scale, significance and potential impact, the Ombudsman decided to conduct two
investigations into income apportionment:
Investigation 1 – lawfulness of the agencies approach to income apportionment.
Investigation 2 – examining the agencies’ administration of income apportionment decisions, communication with customers, and handling of complaints, internal reviews and AAT or Federal Court appeals.
This statement relates to Investigation 1. Investigation 2 is ongoing.
WHAT DID WE FIND?
Since at least 2003, Services Australia (and its precursor the Department of Human Services), was
unlawfully apportioning customers’ income across two or more Centrelink instalment periods. This
in turn likely affected social security payment rates and may have lead to unfair debts against
customers.
Since becoming aware of the issue in October 2020, the agencies took steps to seek legal advice,
but could have acted quicker to finalise advice.
There is an unresolved and significant difference of opinion between some of the legal advices.
The General Instructions that DSS developed to guide how decision-makers should recalculate the
approximately 100,000 actual and potential debts need further development.
The agencies could have acted quicker to inform us of this issue, particularly since Services
Australia knew our Office had investigated some of the affected complaints.
The agencies are still determining how much the known and potential debts are affected – that is,
how much payment rates went up or down because of unlawful or inaccurate income
apportionment calculations. It is unknown how many other customers may have been impacted
by unlawful or inaccurate debts or underpayments.
Background to the investigation, p.2:
On 29 October 2020, at Senate Estimates, then-Senator Rex Patrick raised concerns with Services
Australia about the lawfulness of its approach to apportioning income when calculating Centrelink
payment rates. The Guardian Australia reported on the Senator’s questions and AAT reviews of
debts in November 20201 and March 20212, respectively.
In February 2021, the AAT made two decisions requiring Services Australia to recalculate debts that
related to income apportionment. The AAT identified issues in how Services Australia was applying
section 1073B of the Social Security Act 1991 (the Social Security Act) to apportion income. Section
1073B was in force between 2003 and 7 December 2020.
Around March 2021, the Office began receiving complaints about delays in Services Australia
reviews. Between then and January 2023, we investigated or made preliminary inquiries about these
individual complaints. Services Australia did not inform us, as part of these investigations, that these
review delays were affected by this underlying legal issue.
In January 2023, Services Australia approached the Office to offer a briefing on income apportionment. At that briefing, on 17 February 2023, Services Australia and DSS told us that, in the period between becoming aware of the issue and advising our Office, they:
• obtained several draft and final advices from multiple legal providers
• identified approximately 13,000 requests for reviews of debts that may be impacted by
income apportionment – they placed these reviews on hold while the agencies considered
how best to approach them, and
• identified another approximately 87,000 potential debts which may be affected by income
apportionment.
Due to the scale of the issue and the significant number of potentially affected customers, on 14 March 2023 the Ombudsman initiated this investigation using his own motion powers. The Ombudsman used section 9 of the Ombudsman Act 1976 (Ombudsman Act) to require information from Services Australia and DSS about income apportionment. Under the Ombudsman Act, it is an offence to fail or refuse to respond to a section 9 notice without a reasonable excuse.
