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What's all the fuss about Centrelink reclaiming debts? A summary and a simple example.

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Centrelink is Australia’s welfare service, responsible for administering unemployment benefits, pensions, and other related programs. This includes making payments, checking compliance with the conditions of such programs, and collecting debts if payments were made when they shouldn’t have been.

So what’s the fuss about? Isn’t it expected that Centrelink will try to reclaim benefits that should never have been paid?

The problems arise from recent changes to how Centrelink detect incorrectly paid benefits. For a few years now, Centrelink have been using an automated system to check reported income against Australian Tax Office (ATO) data. The trouble is, it’s very error prone and makes a number of assumptions about income that don’t hold up.

To put it simply: a large percentage of these “debts” are not really debts, they’re mistakes in Centrelink’s data matching algorithm.

Until recently, Centrelink were issuing approximately 20,000 notices per year for debts calculated under this system, with a manual review process to account for errors. Even so, at least 20% of notices raised by this system did not correspond to a real debt. Now Centrelink have increased rate at which they apply this algorithm to 20,000 per week (roughly a 50-fold increase), while decreasing oversight and review for a process known to be flawed.

An Example

Here’s an example to illustrate the problems:

Let’s say you became unemployed on July 1st 2009. You claim a Centrelink benefit (eg. Youth Allowance) for a few weeks, at $430 per fortnight. (I don’t know what the Centrelink payments or thresholds were in 2009, so I’m estimating from this year’s numbers. It doesn’t really matter.) The rules for each fortnight are: if you earn $430 or below, you receive $430 from Centrelink. If you earn $430-$1173, your Centrelink payment is reduced by $0.50 for each $1 over $430. If you earn $1173 or more, you receive no Centrelink payment.

You eventually find a casual job, getting a couple of shifts some fortnights and none in other fortnights. In a good fortnight, you’ll earn $800. You report this income to Centrelink, and your payments are reduced to $245. In a bad fortnight, you’ll earn $0, so you receive your full payment of $430.

After a few months working at this job, you start to pick up many more shifts, more regularly. Now your income is $2000 per fortnight. You report this income, and since it’s over the threshold for Centrelink payments to cease, you receive no benefits any more.

When July 1st 2010 rolls around, you do your tax return. You’ve earnt $30800 over the year (13 fortnights of $2000, 6 of $800), and you report it as well as your Centrelink payments of $4480. From July 1st 2010 you continue to earn above the threshold and claim no more payments from Centerlink. End of story, you’d think.

Note that everything here is above board. Having reported your income totally honestly and accurately, you’ve only received what Centrelink say you’re entitled to: $430 in the fortnights you earn nothing, $245 in the fortnights you earn $800, and $0 for the fortnights you earn $2000.

Six and a half years later, in January 2017, you receive a notice that you owe Centrelink $4480 plus interest.

Why?

The problems

Problem 1: Centrelink’s algorithm will take your yearly income for 2009-2010 as reported to the ATO, and average it over each fortnight of the year. It will then assume this average is exactly what you really did earn, every fortnight for 2009-2010. So if you earned $30800 over the year, Centrelink will assume this was paid to you as $30800/26 = $1185 every fortnight, no variation.

If you had earned $1185 fortnight in, fortnight out, that would have been over the threshold of $1173 each and every fortnight of that financial year. So you should have received no benefits. Centrelink assumes that this is the case, and calculates your debt to be the total of all benefits paid to you. This is despite you having made no errors. The problem is with Centrelink’s assumptions in their data matching, and it is known by them to be inaccurate.

So even though you reported your income honestly, and even though Centrelink has the data demonstrating that your totals are equal, you will be issued with a debt notice.

Problem 2: To determine whether you received income from a source you didn’t report, Centrelink compare the employer you report to Centrelink against the employer you reported to the ATO. Centrelink do this comparison letter by letter, without accounting for variations in spelling, typos, punctuation, etc.

So if you worked for “So & So’s Icecream Parlour”, you might have written it exactly like that. But when they were entered into the ATO’s database they might have been entered as “SO AND SOS ICE CREAM PARLOUR”. Centrelink will regard this as two different employers, and assume you received income from a source you didn’t report. They will then recalculate the reduced benefits you should have been paid, and issue you with a debt notice for the difference.

Here’s a real example (thanks to @Info_Aus) of how a well-known company entered its own name into government tender systems:

PriceWaterhouseCoopers
PRICEWATERHOUSECOOPERS LEGAL
PRICE WATERHOUSE COOPERS
PriceWaterhouse Coopers
Pricewaterhousecoopers-833468126
PRICE WATERHOUSE COOPERS LEGAL
PricewaterhouseCoopers - Australian Firm
PricewaterhouseCoopers ACT
PRICEWATERHOUSECOOPERS(PWC)
PricewaterhouseCoopers.

Centrelink’s systems will regard all of these as completely different employers.

Note that all Australian businesses have an Australian business number — a unique numeric identifier — that both the ATO and Centrelink have on file. This would be a much more sensible way to match up businesses, but they don’t use it.

The expected procedure to resolve these issues is for Centrelink to notify you of the debt they’ve calculated and allow you to submit payslips or other evidence to show that the debt is incorrect or invalid. However, there are more problems that make this prone to failure, and stack the odds against the claimant.

Problem 3: The notice is sent to your online MyGov account. But not everyone uses this system, and some people even report being permanently locked out due to two-factor authentication problems. Some people have very sporadic access to the internet and therefore MyGov. Some people won’t even have Centrelink linked to their MyGov account if they stopped claiming benefits before MyGov existed (like in our example).

Centrelink will also send notices by mail, but may not have a current address for someone. If you changed address long after you stopped claiming benefits, you probably wouldn’t have bothered to change your address with Centrelink. It’s unlikely anyone would see a need to update their contact details with a department they no longer have any interactions with. But Centrelink will send the debt notice to the last address they have for you. The same problem applies to phone and email contact.

Problem 4: Centrelink is issuing debt notices for periods more than six years ago, but have only ever recommended keeping records for six months. Even the ATO only require people to keep records for five years. Until now, there has been no reason for most people to keep paperwork longer than this. Even the employers themselves, should they still exist, are unlikely to have individual, week-by-week records going back this far. Most banks charge exhorbitant fees to produce bank statements from their archives.

Problem 5: Centrelink expect you to make enquiries about this by phone, but their phone lines frequently go unanswered. It can take days or weeks for people to eventually get in contact just with someone who can tell them what is going on.

Problem 6: Centrelink expect you to pay off the debt while you are disputing whether it is even valid. The errors that they make can lead to incorrectly calculated debts of tens of thousands of dollars in some cases. Even if they determine the debt was invalid, you may have to pay hundreds of dollars in fees while they make a decision.

It’s unfair to expect people to start repaying a debt, or to pay to dispute a debt when there is a large amount of evidence that many debts will be incorrectly calculated or completely invalid. On top of this, presumed debtors may even be prevented from leaving the country based on the results of this system.

Problem 7: Centrelink’s approach to debt recovery, and the approach of the private companies they contract for it, are not respecting established practices and guidelines for for debt recovery. These guidelines cover hours of contact, providing documentation to prove the debt, and suspending collection activities if liability is disputed. The ACCC also outline the rights that alleged debtors have, including requesting proof of the debt, and possible defence against old debts (usually more than six years).

I don’t know whether these guidelines are legally enforceable against debt collection by a government agency. But even if they aren’t, they exist because of the need to protect people from various tactics by debt collection agencies and the lack of rigour by organisations that use them. Centrelink and any debt collectors they engage should still be respecting them.

The organisation Australian Lawyers for Human Rights have also flagged possible legal problems and human rights violations with Centrelink’s approach to debt calculation and recovery.

Sources

Not all sources are linked directly, because some of the information is inferred from multiple reports or because multiple sources cover the same issue.

Amendments

I made changes to this article after it was linked from high profile sources. The only major changes are:

  • I initially stated that the problems stemmed from Centrelink using a new data matching algorithm in 2016. This was wrong, they've been using it for a few years. The big difference in 2016 was that they increased the rate at which it creates notices while reducing oversight of these notices.

  • I recently added the parts about debt recovery practices.


Note: I’m releasing this under a slightly different license to the rest of this site: Creative Commons Attribution 2.5 (Australia) License. ie. deriviative works and commercial use is allowed, with attribution and indication of changes made.

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