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Centrelink should consider waiving 100,000 debts that may be unlawful, ombudsman report finds

<span>Photograph: Julian Smith/AAP</span>
Photograph: Julian Smith/AAP

Centrelink should consider forgiving all 100,000 debts that may have been affected by unlawful income apportionment, the commonwealth ombudsman has said in its second and final report into the controversy.

The ombudsman found that Services Australia and the Department of Social Services “did not act promptly” to address the issue and it “expected more action to have been taken” given the agencies had known about the problem for three years.

Related: Dozens of Centrelink fraud prosecutions dropped due to unlawful welfare debt calculations

In its second report, titled Accountability in Action, the ombudsman called on the agencies to apologise for “decision delays, and for historic unlawful calculations”.

In August the ombudsman found that from at least 2003 to December 2020 the agencies miscalculated debts due to an “incorrect” understanding of social security law. The problem has resulted in dozens of criminal prosecutions first being paused then dropped.

The ombudsman said that Services Australia “has paused approximately 20,000 debt reviews and requests for explanations of debts and identified approximately 87,000 other files that may become debts”, which Guardian Australia revealed in October had also been paused.

In its report released on Monday, the commonwealth ombudsman said the agencies were “still unable to advise how many people were affected or how much payment rates are affected – that is, how much payments went up or down because of unlawful calculations”.

The ombudsman said Services Australia and DSS “have a responsibility to identify and assess, in a timely way, the impact historic unlawful calculations had on customers, and develop a fair and reasonable remediation strategy that considers all possible options”.

“Given the scale of income apportionment and the length of time involved [they] should also be considering as one of those 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 … rather than seeking to re-calculate over 100,000 individual debts,” it said.

It recommended this be combined with “clear communications to customers” so that those who had “repaid unlawful debts” could seek review or other remedies. Excluding people who had repaid debts or were underpaid would “not be fair”, it warned.

In some cases the payslips relied on by Services Australia to calculate welfare debts don’t align with the fortnightly income reporting periods. In these situations, the agency creates a “daily” average.

Related: Services Australia forced to pause Centrelink debt repayments for 86,000 people amid legality concerns

The ombudsman found that under the process of “apportionment”, welfare recipients’ employment income was spread across two or more fortnightly periods, which are used to calculate entitlement to Centrelink payments such as jobseeker.

This breached the Social Security Act, due to an “incorrect” but “genuinely” held understanding of the law.

The ombudsman’s report reveals the reason behind delayed redress is that the agencies are still “settling a final legal position about how to lawfully calculate employment income before they recommence assessing cases”.

The ombudsman said the agencies had “not taken appropriate steps” to assess the impact, develop a remediation strategy, pause debts, and explain the issue to welfare recipients.

Services Australia and DSS accepted all eight formal recommendations of the report, which included the need for an apology but not the suggestion of wiping all 100,000 debts.

Welfare experts have previously said that any remediation strategy must include checks on earlier prosecutions for welfare-related offences.

On Monday the social services minister, Amanda Rishworth, said income apportionment was a “complex” issue that had affected debts over a 20 to 30 year period, but had been stopped in 2020.

Rishworth told reporters in Canberra she had asked the department to “settle the outstanding legal advice” about calculation of debts.

“I want to see this issue resolved as quickly as possible. It’s a historic issue. It’s one where there are still some legal questions but I am seeking the resolution of this as quickly as possible.”