Chapter 1

Introduction and background

In Australia, resolving discrepancies and errors in social security payments, including errors of overpayment, is a routine part of the administration of the social security system. The various activities and policies relating to the recovery of money from social security recipients who have been overpaid—either inadvertently or through deliberate fraud—are known broadly as the Centrelink compliance program.1
From 2015, a new income compliance program was established based on identifying historical discrepancies between individuals’ income reported to Centrelink and income assessed by the Australian Taxation Office (ATO), designed to deliver savings of over $2 billion to the federal budget.2
Known colloquially as 'Robodebt' due to its use of data matching, income averaging and online systems, the Income Compliance Program conducted over one million reviews of past income, issuing up to three quarters of a million debt notices to current and former social security recipients over five years3 until the Commonwealth Government announced that it did not have a legal basis to raise nearly half a million of those debts.4
Throughout the operation of the program, hundreds of thousands of people have been forced to participate in an often-distressing and difficult process of reconfirming the earned income they had already reported to Centrelink up to seven years earlier. Around 347 000 people who were not able to complete this process were pursued for debts that they did not owe, based on an inaccurate calculation of their income, totalling up to $1 billion.5
Over recent years, individuals have continued to describe the difficulties in challenging and disproving purported compliance debts which did not reflect the nature of their casual or intermittent employment, while others found these debts being garnished from their tax returns or income support payments without their knowledge or consent.6
On 11 June 2020, the Prime Minister apologised for any hurt, harm or hardship which people had experienced due to the government's raising and recovery of debts under the Income Compliance Program.7 This apology has also been echoed by the Department of Social Services and Services Australia, the government agencies responsible for the program.8
However, the massive scale of the program's impact cannot be ignored and there remain many questions about how income averaging was able to be established and operate for so long before it was found to be unlawful.9
In light of this, there has been growing public pressure for the establishment of a Royal Commission into the Income Compliance Program to ensure that there is a full independent review of program's development and operation, its legality, and its social and economic costs.10
The Income Compliance Program has not initiated any new reviews since November 2019, and Services Australia has paused raising and recovering all compliance debts in response to the global COVID-19 pandemic.11
While the Minister for Government Services indicated in May 2020 that the Commonwealth Government intends to 'move forward' with the Income Compliance Program with 'further proof points' to ensure its sufficiency under law, it is not yet clear how or even when this might occur.12

Reasons for this interim report

This is the second inquiry into Centrelink's Income Compliance Program which has been conducted by the Senate Community Affairs References Committee (committee) in the five years since the program began.
This inquiry was referred on 31 July 2019, just over two years after the first Senate inquiry had tabled its report, following renewed calls for the Income Compliance Program to be halted.13 The terms of reference for the inquiry are included in the front matter of this report.
Significant failings under the program had been reported in the media at the time, including debts issued in error to people affected by the February 2019 Townsville floods,14 and the family of a deceased disability pensioner receiving a debt notice addressed to the man which thanked him for 'checking his income information' six months after his death.15
The current inquiry has been conducted in the context of legal challenges to the Income Compliance Program and significant changes to its operation based on their outcomes.16 A class action is still underway, seeking compensation for all individuals who received initiation letters and debts under the program, not just those whose debts were based on income averaging.17
Much of the evidence sought by the committee relating to the legality of the Income Compliance Program has not been provided by Services Australia, based on claims of public interest immunity made by the Minister for Government Services. The committee first reported its rejection of these claims to the Senate in an interim report on 11 February 202018 and is continuing to pursue these matters in light of further claims made on 31 July 2020 and 13 August 2020.19
Additionally, the global COVID-19 pandemic has limited the committee's ability to hold hearings or seek further evidence from government agencies and community sector organisations whose primary focus in recent months has been on assisting people in need during the crisis.
For these reasons, the committee is not in a position to finalise its inquiry into the Income Compliance Program. This second interim report therefore considers the evidence received to date and announcements about changes to the program up to the end of August 2020.

Report outline

Following this introductory chapter, which provides the history and overview of the Income Compliance Program, this interim report consists of two subsequent chapters:
Chapter 2 discusses the ongoing impacts of the Income Compliance Program on individuals who have been caught up in its processes; and
Chapter 3 outlines key legal concerns about the Income Compliance Program and the committee’s intentions for the second phase of its inquiry.

History of the Income Compliance Program

The Income Compliance Program was established in 2015 through the Better Management of the Social Welfare System measure announced in the 2015–16 Budget. Building upon established social security compliance activities, it was designed to identify social security overpayments through discrepancies between the annual income reported by an individual to Centrelink, up to seven years before the date of review, and income assessed by the ATO for that same period.20
Under the Income Compliance Program, discrepancies were identified by averaging lump-sum income assessed by the ATO over the period the income was earned in, frequently the full tax year, and comparing this to earnings reported to, and income support received from, Centrelink across the same period.21
Data matching and income averaging processes such as these have been used as a tool to help identify potential social security overpayments since at least the 1990s, with taxation information used to inform the practice since 2004.22
However, the Income Compliance Program fundamentally changed how overpayment debts were raised by the Commonwealth Government using this data-matching process.
Prior to 2015, around 20 000 of the highest risk discrepancies identified by data matching each year were checked manually by the then Department of Human Services (department), now known as Services Australia. Where a customer was unable to assist in locating supporting documentation to explain a discrepancy, the department would use its information-gathering powers under the Social Security Act 1991 to request information directly from third parties, such as employers.23
The department's policy was to only raise an overpayment debt based on earnings apportioned – or averaged – over a debt period as a last resort, in circumstances where 'every possible means of obtaining the actual income information' had been attempted and failed under this process.24 A random sample of debts raised in 2009 and 2011 found that this process had occurred in around 20 per cent of cases.25
The Income Compliance Program introduced a greater obligation for the individual to confirm or disprove a discrepancy, rather than requiring the department to undertake the checking process or use its powers to find information before a debt was raised.26
During 2015, in the pilot year of the program, 100 000 discrepancies were identified for assessment and verification by the department. If the individual did not respond to a letter asking them to call the department's compliance team, or could not provide the information required, a compliance officer would manually calculate a debt by using the averaged ATO income information.27 What had once been a last resort became standard practice.

Moving income compliance online

In 2016, the Income Compliance Program moved online with the introduction of the Online Compliance Intervention (OCI) system, an online platform which replaced the manual income assessment and verification processes used during the pilot in 2015.
Individuals with identified discrepancies were now required to use the OCI system to check and verify their income information from up to seven years earlier, using payslips or other third-party information they were largely expected to source and upload themselves. If the individual did not update their information through the OCI, a debt would be raised based on the averaged ATO income information held by the department instead.28
Moving the Income Compliance Program online further reduced the amount of staff involvement from the department, both in identifying and processing debts, and allowed for a significant increase in the number of assessments initiated under the program. The number of compliance interventions jumped from 20 000 a year prior to the program to up to as many in a week, with over 216 000 interventions from September 2016 to December 2016 alone.29
By August 2019, over one million income compliance reviews had been initiated, resulting in approximately 734 000 overpayments identified, the value of which totalled $2 billion.30
Just $785 million had been recovered in full, with another $725 million under repayment plans and the final $500 million being pursued primarily from individuals who were no longer Centrelink customers. The program had cost $606 million to identify and recover these overpayments.31

Not all debts were actually debts

At least two thirds of Income Compliance Program debts raised were based, wholly or in part, on the averaged income information held by the department.32
The raising of social security overpayment debts based on averaged income – a practice which had been used continuously by the Commonwealth for least 20 years – was ceased by Services Australia on 19 November 2019, following a finding in the Federal Court that an income compliance debt raised based on averaged income was ‘not validly made’.33
In May 2020, following several months of review, the Commonwealth Government announced that around 470 000 debts issued under the Income Compliance Program were ‘insufficient under law’. These debts were based entirely or partially on averaged income, rather than on other documentary evidence, and will be repaid to individuals.34
The cost of these repayments, which include recovery fees and interest, is expected to be around $721 million, although there have been reports that the real value of the 'overpayments' identified in those unlawfully-raised debts is likely to be more than $1 billion.35
The repayment process commenced in July 2020. It is anticipated that current Centrelink customers will have received their refunds by mid-August 2020, and the majority of all other refunds will be paid by November 2020.36
As of 14 August 2020, 79 per cent of all invalid debts had been reduced to zero and refunded where payments had been made, and by 20 August 2020 a total $568 million in refunds processed. Around 50 per cent of former Centrelink customers eligible for refunds had yet to complete the required actions to receive their payment.37

Online systems used under the program

The Income Compliance Program has been through three online iterations since its commencement in 2015:
Online Compliance Intervention (OCI), introduced in July 2016;
Employment Income Confirmation (EIC), which replaced the OCI in February 2017; and
Check and Update Past Income (CUPI), which replaced the EIC in a staged roll-out from mid-2018 until mid-2019.38
At the most basic level, each online iteration of the Income Compliance Program has shared the same fundamental process for assessing and recovering compliance debts:
Identification of a discrepancy. Compliance officers undertake data-matching of Centrelink and ATO data. A discrepancy is identified.
Assessment of a discrepancy. An 'initiation letter' is sent to an individual advising them of a discrepancy in income and possible debt to Centrelink, inviting them to go online to verify their income information. The assessment is time-limited, but extensions can be requested. If the discrepancy is not resolved through this online system or other contact with Centrelink, a debt is raised.
Recovery of a debt. A debt notice is issued by Centrelink. This debt is repaid either in full, through a payment agreement, or through reduction of a current Centrelink customer’s social security payment. Unpaid debts owed by former Centrelink customers may be referred for collection by external debt collectors.
Review of a debt. At any stage, an individual may request that their debt outcome be reassessed or for an Authorised Review Officer (ARO) to review the outcome. If they do not agree with the decision of the ARO, they may seek a review in the Administrative Appeals Tribunal.39

Initial concerns about the online program

Much of the initial criticism of the Income Compliance Program stemmed from the processes and operation of the OCI system in the assessment of a discrepancy, specifically on the steps taken to advise a person of the assessment and the requirements to verify or update their income.40
For example, some individuals did not receive the initial letters advising them to update their income information, resulting in debts raised without their response or input.41 In around 6500 cases, the first the individual heard about their purported OCI debt was a phone call from a debt collector.42
Those who did receive the initial letter and engage with the system found the OCI was not easy to navigate and support from Centrelink shopfronts and the dedicated telephone helpline was limited and difficult to access.43
These issues led to updates to the online system and supports, as well as a series of reviews and inquiries into the Income Compliance Program, outlined below.

Some incremental changes

The EIC system, which integrated feedback from the OCI system and user testing with Centrelink customers, contained several changes and updates to that first iteration, including:
sending all initiation and reminder letters by registered post and/or read-receipted online delivery via MyGov to ensure that they were received;
improved messaging and contact information in communications with recipients, including explanation of how a debt is calculated; and
improved online system functionality, including the ability to save an incomplete review mid-way through the process.44
The latest online iteration of the Income Compliance Program, CUPI, made further changes based on customer feedback, user testing and complaints data, such as:
Services Australia completing assessments likely to result in zero or low debt outcomes without requiring the individual’s involvement;
improvements to the online system, including targeted questions to help establish if the individual was receiving social security payments at the time the ATO-reported income was earned; and
improvements to debt explanations both in the online system and in debt notices, clarifying that if the individual does not update their income information, ATO-reported income may be averaged and result in a debt.45
Although there have been changes to online systems over the past few years, concerns have persisted about the overall policy, operation and administration of the Income Compliance Program and the impact on the individuals who have been subjected to it. These concerns are explored in the later chapters of the report.

Previous inquiries into the program

Serious concerns about the accuracy of debts raised and the challenges faced by those who had received letters and debt notices during the first months of the OCI prompted several reviews of the Income Compliance Program starting in early 2017.

First Senate inquiry

In February 2017, the Senate referred an inquiry to the Community Affairs References Committee to examine the design, scope, cost-benefit analysis, contracts awarded and implementation associated with the new income compliance system. The committee tabled its report in June 2017.
This first Senate inquiry extensively considered widespread issues with the OCI and how these led to the introduction of several changes which would become the version of the program known as the EIC, with particular focus on:
calculation of debts, including the data-matching process and concerns about its accuracy;46
difficulties in communication with Centrelink;47
challenges faced by those wishing to dispute a purported debt;48 and
the debt recovery process, including concerns about debt collection by external companies.49
In the report of that inquiry, the committee recommended that the Income Compliance Program be put on hold until procedural fairness flaws in the program were addressed, debts based on income averaging were reviewed, and a further 19 recommendations were implemented relating to the calculation of debts, communication and service delivery, challenging debts, and the processes by which debts were recovered.50
Although the Commonwealth Government's response did not support the committee's recommendations,51 it appears that several, particularly relating to the application of debt recovery fees and improvements to communication processes, have been at least partially addressed in updates to the program since 2017.

Commonwealth Ombudsman's reviews

The Office of the Commonwealth Ombudsman (Ombudsman) reviewed the income compliance system in early 2017, following a large number of complaints from people who had received letters and/or debts through the OCI system. That review was focussed on the accuracy and usability of the program, but did not consider the policy or legal basis of the process.52
The Ombudsman's April 2017 report made eight recommendations in relation to communication and service delivery, all of which were accepted by the department and were anticipated to be implemented by August 2017.53
In April 2019, the Ombudsman issued an implementation report to consider how these recommendations had been addressed by the department in the two years since the review. The Ombudsman found that all of the original eight recommendations had been met or were works in progress, and issued a further four recommendations largely relating to further clarification of the Income Compliance Program's processes for communication with individuals.54

Audit reviews

The Australian National Audit Office conducted two performance audits relevant to the Income Compliance Program, although neither audit was focused solely on the program:
Report No. 41 of 2016-2017: Management of Selected Fraud Prevention and Compliance Budget Measures, which made several recommendations around the method of estimating and monitoring the savings expected, debts collected and costs incurred in compliance activities;55 and
Report No. 15 of 2018-19: Human Services’ Compliance Strategies, which recommended that the department increase its public reporting of all compliance activities completed each year.56

Conduct of this inquiry

Referral and reporting

This inquiry was referred by the Senate on 31 July 2019, for report by 4 December 2019.57 On 18 September 2019, the Senate granted an extension for reporting until the first sitting Wednesday in March 2020,58 and further extensions were granted to 19 August 202059 and 2 December 2020.60
The committee tabled a short interim report on 11 February 2020 to inform Senate about a claim for public interest immunity received in the course of the inquiry.61 That claim is discussed in further detail in Chapter 3 of this report.

Submissions and hearings

The committee first advertised the inquiry on its website and wrote to relevant individuals and organisations inviting submissions by 20 September 2019.62
The committee continued to accept submissions after that date, and formally began inviting further submissions from 30 April 2020, with a new due date of 17 September 2020.63
The committee has received 67 submissions. Public submissions can be accessed via the committee's website.64
To date, the committee has travelled across Australia to hear from government agencies, community support organisations, legal and financial aid organisations, academics, peak representative bodies and community members about the impact of the Income Compliance Program. Information relating to those seven public hearings can be found on the committee’s website.65
The committee thanks all of the submitters and witnesses who have participated in the inquiry thus far for sharing their expertise and experience.

Notes on evidence and terminology

In this interim report, the committee has chosen to reference certain names and terminology which may not match those used in evidence, as noted below.

'Robodebt' and the Income Compliance Program

The nature of income compliance processes introduced with the OCI in 2016, particularly the issuing of large numbers of debts without input from individuals, led to the Income Compliance Program being named 'Robodebt’ by media outlets as early as January 2017.66
Despite the introduction of greater human intervention through the EIC and CUPI iterations of the program, the name 'Robodebt' is now in common usage across the broader community.67
The committee notes that much of the evidence under consideration in this inquiry therefore refers to the program as 'Robodebt'.
Many people who received correspondence from Centrelink did not draw a distinction between the different types of letters they received, describing initiation letters, debt outcome letters and debts alike as 'Robodebts'.68
From the committee's interactions with people affected by other compliance programs, it appears that 'Robodebt' is also being used as a term to describe any debt or compliance letter received from Centrelink, not just those issued through the Income Compliance Program.
The committee notes that the term 'online compliance program' has been used by some witnesses and submitters to describe the iterations of the Income Compliance Program that commenced with the OCI in 2016.
While the committee acknowledges that these terms are commonly used to describe the program, it has chosen in this Senate report to refer to the program by its proper name: the Income Compliance Program.

Services Australia and the Department of Human Services

At the time of its commencement, the Income Compliance Program was delivered by the Department of Human Services, a department in the Social Services portfolio.
The Department of Human Services was renamed Services Australia as part of the Administrative Arrangements Order made on 29 May 2019 following the 2019 Federal Election.69
On 1 February 2020, in accordance with an Administrative Arrangements Order made in December 2019, Services Australia formally became an executive agency in the Social Services portfolio.70
Between May 2019 and February 2020, the department continued to operate as the Department of Human Services in its communications with the committee. This meant that evidence received in the first stages of this inquiry was often received referencing Services Australia as ‘the Department’ and vice versa.71
The committee has chosen to refer to the responsible agency as Services Australia throughout the later chapters of this report.

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