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:….
“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.
recalculated.
This raised concerns about whether income had been lawfully
calculated.
legal
advice. Another 87,000 files which may become debts were also
potentially affected by
unlawful
or incorrect income apportionment calculations.
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.
WHAT
DID WE FIND?
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.
but
could have acted quicker to finalise advice.
approximately
100,000 actual and potential debts need further development.
Australia
knew our Office had investigated some of the affected complaints.
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.
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