BY MATTHEW BUTT

Centrelink’s new online system to streamline the identification and recovery of overpayments detected through data-matching became fully operational in July last year. It automatically sends a letter to current or former social security recipients in cases where data-matching with the Australian Taxation Office (ATO) showed that their earned income was higher than they reported to Centrelink when they were receiving a benefit. In December the Human Services Minister Alan Tudge announced that by reducing the involvement of Centrelink officers in this process, the new “online compliance system” had resulted in a significant increase in the number of discrepancies Centrelink follows up and the number of current and former social security recipients assessed as owing debts, some dating back years. The numbers were large, with the system generating 20,000 letters to current and former social security recipients per week.

Around the same time as the Minister’s announcement, however, complaints about the new system began to appear, including from individuals who claimed that it had incorrectly assessed them as owing a debt. As complaints continued to surface, the new system received sustained media attention over the summer. A social media campaign against the “robodebt” system emerged, using the slogan/hashtag “not my debt”, the Commonwealth Ombudsman began an inquiry and the Senate announced that it would conduct its own inquiry later in the year.

Although the Minister has announced some changes to the system, he continues to maintain that it is fair and working as intended. And it appears that Centrelink plans to expand the system to other groups of social security recipients and ATO data.

This post explains how the online compliance system works, drawing on the experience of the National Social Security Rights Network and its services assisting clients with this system. It then raises and discusses what should be a key issue in the public debate about this system: whether it complies with core administrative law standards, such as legality, fairness, rationality, transparency and accountability.

Centrelink’s online compliance system: how it works

Data-matching with ATO records has been a major part of Centrelink’s processes for detecting overpayments and recovering debts for many years. This is to be expected: almost all types of social security payment are reduced if a person has private income, and under-reported income (deliberate or inadvertent) is the main source of social security debts.

In the past, specialist Centrelink officers followed up discrepancies identified by matching records with the ATO. The officer reviewed the individual’s Centrelink records and contacted them to give them the opportunity to explain or provide additional information. If there did not appear to be a satisfactory explanation for the discrepancy, the officer obtained detailed information about the individual’s income and employment either from the individual or in many cases directly from the employer. The officer used this detailed earnings information to assess any debt with the aid of a payment calculator in the Centrelink computer system (called the “multical”).

This was a complex calculation. Social security benefits are paid fortnightly and the individual’s income has to be apportioned to the ‘benefit fortnight’ in which it was earned. Adjustments were also made for certain types of income which are assessed differently under social security legislation, such as payments of accrued leave, and for credits which offset income (“working credits” or an “income bank”). The amount the individual should have received had their earnings been correctly taken into account is then worked out, applying the rules for assessing income (“the income test”) and rates of payment applicable to the individual at that time. The correct rate of payment is then compared to the amount they were paid and the difference between the two figures is the debt for that fortnight.

If there was a debt, the officer also made a decision about whether a 10% penalty should be added to it (Centrelink calls this a “recovery fee”). Under the Social Security Act 1991 (Cth), this penalty is applied if the individual refused or failed to provide information about their income without reasonable excuse, or knowingly or recklessly provided false or misleading information. The officer would usually attempt to speak to the individual to give them an opportunity to offer an explanation before deciding whether to apply the penalty.

The online compliance system partly, and in many cases fully, automates this process. When a discrepancy with the ATO records is detected, the system generates a letter to the individual advising that Centrelink has information from the ATO which is different from the information on its records. It asks them to go online within 21 days to review the information (originally through the myGov website, although it has been announced that individuals can now access the system directly).

If the individual logs on, the ATO information is displayed and they have the option to advise whether they agree with it and to provide additional information. The computer system then uses the ATO information and any information provided by the individual to assess any debt and penalty. It is unclear at this stage whether there are some cases where a Centrelink officer may be involved. But in many cases this process happens automatically, without any involvement by a Centrelink officer.

Centrelink’s online compliance system: the problems

The experiences of the clients of National Social Security Rights Network services have revealed a number of common problems with this new online system. Individual clients have often experienced the combined impact of these problems.

Some of the problems have occurred at an operational level, relating to the implementation of the system and Centrelink’s service delivery processes, including letters being sent to an out-of-date address and problems accessing the online system and using the myGov website.

However, problems have also occurred at a more fundamental level, resulting in incorrect debt assessments.

One problem is that the system may “double count” income when the employer name that the individual reported to Centrelink does not match the employer name recorded by the ATO, as it treats the income in the ATO records as additional unreported income. This can occur, for example, because the individual reported their income using their employer’s business name, but the ATO records use the name of the legal entity which owns the business.

Carolyn received youth allowance from Centrelink when she was a university student about six years ago. She had a number of part-time jobs when she was a university student and reported her income to Centrelink every two weeks. One of her jobs was working for a medical practice. However, the business was in fact operated by a unit trust and the ATO had recorded her employer using the trust’s name. When Carolyn finished her studies, she moved for work and so did not receive the initial letter generated by the system. When she did not respond the online compliance system treated the income from the unit trust as additional income and used it to calculate a debt, as well as adding a 10% penalty. By the time she found out about this, the system had raised debts of more than $10,000. After she contacted Centrelink and lodged an appeal, it reduced the debt because of the “double counting” and removed the penalty, but it still says she owes thousands of dollars and our service is providing ongoing help to challenge this decision.*

Another more fundamental problem is that in many cases the system is programmed to assess a debt by “averaging” the person’s annual income over their period of employment, as recorded by the ATO. In effect, the system assumes their income was the same each fortnight for the purpose of performing the fortnight by fortnight calculation of the debt required by social security legislation. Based on our experience, the system is programmed to average income in at least two cases: if the individual does not respond to the initial letter within 21 days, or if the individual does respond but simply confirms the ATO data without supplying additional details of their employment and income. This may result in an incorrect debt assessment in a number of common scenarios, including if the person’s income went up and down each fortnight, or they only worked for part of the year. In some cases the error has also been caused because the employer has recorded the person’s period of employment as the full financial year, even when this is not the case.

Max is in his early 20s and at the start of his professional career. In late 2010 his employer made him redundant. He was unable to find another job, and had to claim the unemployment benefit, newstart allowance. He had a small amount of casual work over the next few months, which he reported to Centrelink. After about nine months he was successful in getting another full-time job, and cancelled his newstart allowance.   Recently he received a letter from Centrelink asking him to confirm information from the ATO for the 2010-2011 financial year. He went onto myGov and checked the ATO information against his PAYG payment summary. It was the same. It showed that he had earned about $18,000 from his employer in 2010-2011. He therefore confirmed the information. The system then averaged the income across each fortnight in that year, including the period he received newstart allowance, and as a result assessed him as owing a debt. It also added a 10% penalty. He located information showing when he lost his job (which he had given to Centrelink when he claimed newstart allowance in 2010) and our service helped him give that information to Centrelink. A Centrelink officer reduced the debt to $0 and removed the penalty.*

Averaging is a solution to the policy problem of automation. The manual process for investigating discrepancies and raising debts was time consuming and laborious because in many cases the Centrelink officer had to do the work of obtaining the detailed fortnightly income information directly from the employer, review it and enter it appropriately into the multical to assess the debt accurately. In order to achieve efficiencies by automating this process, the new system had to be programmed to deal with situations where the individual either does not respond to the initial letter at all, or does not provide detailed information. The solution Centrelink has adopted is to program the online system to average the person’s annual income over the period of their employment, as recorded by the ATO, and assess a debt on this basis. As a result, the debt assessment may be incorrect because it is based on a faulty assumption about the individual’s income in certain fortnights.

In this sense, therefore, the errors the new system makes are not simply an IT failure, as some have described it. Nor are they the result simply of policy which mistakenly fails to recognise that many individuals’ income varies across the year and that ATO data cannot be used to reliably assess a social security debt. The potential errors caused by averaging are a known risk recognised by Centrelink’s own guidelines. Instead the errors produced by the system can be seen as the inevitable price of the policy objective of automation. The system is, as the Human Services Minister has said, working as intended.

This approach to information gathering and fact-finding is the most significant shift under Centrelink’s new system. Administrators gather information and find facts in a range of ways and under practical constraints, such as limited resources. In some cases, they may rely mainly on an individual’s self-assessment to provide relevant information (such as the ATO, with its e-tax system). Under Centrelink’s new system, however, it is up to the individual to supply all the relevant information about their employment (either initially or in an appeal) and if they do not, for any reason, the system makes a decision based on information (the ATO data) known to be insufficient to reliably and accurately calculate a debt. Centrelink no longer contacts the employer directly to verify the apparent discrepancy between its records and the ATO’s or obtain the detailed information necessary to make a reliable debt assessment.

Centrelink’s online compliance system: administrative law concerns

The Human Services Minister has claimed that the system is working, and highlighted its cost effectiveness and efficiency in helping Centrelink identify and recover overpayments. But as Justice Perry of the Federal Court emphasises in her speech on automated decision-making, the objective of efficiency should not override core administrative law standards of fairness, transparency, legality and accountability. In order to consider the compatibility of the online compliance system with these values, it is important to understand its fundamental features and the policy which it reflects.

Fairness

One of the main criticisms of this new system has been that it may issue an incorrect debt assessment but unfairly puts the onus on the individual to provide information to show it is wrong. In some cases the system has assessed debts from five or six years ago, forcing individuals who no longer remember the details of their employment to track down payslips from past employers. The Minister has recently announced that bank statements will now be accepted as evidence of income, which may be more accessible to many people. However concerns about the fairness of shifting the onus onto individuals and the policy decision to use the new system retrospectively remain.

Legality

Although Centrelink is generally authorised to use computer systems to make decisions (which are deemed to be decisions of a human decision-maker), there are two main areas of concern about the legality of the decisions “made” by the new system.

The first is the automatic application of the 10% penalty by the system in many cases. The power to make a decision to apply this penalty is not discretionary in the sense that the decision-maker has a degree of freedom to choose between alternatives. However, it is discretionary in the broader sense of requiring an exercise of judgment, concerning whether the individual had a reasonable excuse for their failure to report their income for example. Official social security policy recognises the decision whether to apply a 10% penalty as discretionary in this broader sense.

Adopting this broader meaning of discretion in its 2004 report on automated decision-making the Administrative Review Council concluded that automating a discretion is not in accord the administrative law value of lawfulness because it could fetter the decision-maker.

The second issue, that goes to the heart of the system, is the legality of averaging. Social security legislation does, in fact, authorise the averaging of earnings in limited circumstances. This only applies, however, to individuals receiving pensions such as the age pension and only if the income was not paid in respect of a particular period of work. As a result, averaging is not authorised for most individuals affected by the new system who received unemployment or student benefits and were paid regularly. The legality of averaging in these cases, where there is no specific legislative authority, is a complex question.

The system appears to perform the fortnight by fortnight calculation required by social security legislation. The errors arise because the system’s calculation is based on a faulty factual assumption, which it is programmed to make, that the individual’s income is the same in each fortnight they worked. Factual errors of this kind are generally quarantined from judicial review but can be corrected through merits review. However the question whether the relevant social security legislation is intended to authorise a decision-making process so fallible to these kinds of factual errors must be asked. As the High Court recognised in Minister for Immigration and Citizenship v Li, parliament intends the exercise of statutory power to be reasonable. It is worth considering whether the automated process reaches this or other thresholds of lawful decision-making. However, given other constraints on judicial review, including questions to do with whether or not there is a ‘matter’ or whether there are alternative avenues of seeking review of the decision, it might be difficult to test such questions in a court..

It has also been suggested that individuals may be able to sue Centrelink for breach of a duty of care, although the Federal Court has previously rejected claims against Centrelink based on a common law duty of care.

Transparency and Accountability

The Minister has argued that the system is fair because individuals can seek review of the decision internally or by the Administrative Appeals Tribunal, in effect invoking the value of accountability.

It appears that individuals can go back in to the online system and amend the information, even after it has produced a debt assessment. Centrelink is also conducting reassessments when an individual provides new information. If not satisfied with the decision, including any reassessment, individuals have a right to internal review of Centrelink decisions under social security legislation (conducted by a Centrelink “authorised review officer”) and a statement of reasons for the decision. If dissatisfied with the outcome of the internal review they then have a right to appeal to the Administrative Appeals Tribunal’s (AAT) Social Services and Child Support Division, which conducts a further review on the merits, and a further right of appeal to the AAT’s General Division. An appeal lies to the Federal Court from the General Division’s decision, but is limited to questions of law.

It appears that many cases are being resolved within Centrelink, including through its processes for reassessment of decisions, although not without significant cost in time, distress and anxiety for many people. It has been suggested that reassessments are concealing the true level of appeals, but reassessment is a long-standing and standard process within Centrelink, using its statutory power to initiate a review of its own decisions. If this trend continues, it may mean that most cases are resolved below the level of the AAT and the new system will not place an undue burden on it.

One unintended consequence of an effective system of merits review is that, where there are genuine questions about the legality of a class of decisions (as here, with the legality of averaging), it may contribute to the insulation of these decisions from review by a court. If most cases are likely to be resolved below the level of the AAT, it is unlikely a case will arise where there is an appeal from the AAT to the Federal Court on a question of law. It is possible to seek judicial review of an initial Centrelink decision by a federal court, but given the availability of merits review the court may exercise its discretion to decline to hear the substantive application.

Access to merits review is critical to preserving the accountability of the decisions produced by the online system. However, contrary to the Minister’s claim, this should mean more than simply the existence of a legal right. Whether there is effective access to review turns on a range of circumstances. One is whether there is an adequate level of transparency concerning the decision and the reasons which support it. The online system does display information about the calculation of the debt, but this is complex and difficult for most people to understand. Arguably a more transparent system would advise people in clear and plain language where averaging has been used or warn them of the risk that the debt may be inaccurate.

Even if the system were considered to be sufficiently transparent, the characteristics of the individuals affected by it should also be considered when assessing whether the accountability of decisions is adequate. Although Centrelink has taken steps to exclude some individuals it identifies as vulnerable from this process, there may still be many vulnerable people adversely affected because their vulnerability is not already flagged in Centrelink’s system. Vulnerable people may struggle to understand the decision and whether it is correct, especially given the level of legal and factual complexity of these decisions. Importantly, the experience of the National Social Security Rights Network is that vulnerable people may also fail to take action in response to adverse Centrelink decisions (an experience consistent with wider research into the responses of disadvantaged people to legal problems). There is a real concern that some vulnerable people may pay back debts they do not owe if they do not have access to support or help.

Hailey developed a serious and persistent mental health problem, including anxiety, and took leave from work. When her leave ran out, she claimed the sickness allowance, a payment for individuals who have a job to return to but have run out of paid leave. She continues to get support from a community service for people with mental health conditions. Late last year she received notices from Centrelink’s online system, but failed to respond to them due to her anxiety. The system raised a debt and Centrelink began to recover it at its standard rate of recovery. She was in hardship but felt unable to ask Centrelink to reduce her repayments, even though she thought the debt was wrong because it related to income she earned before she received sickness allowance. She eventually told her support worker about this, who got in touch with our service, which is now providing ongoing assistance to help her collect information and show the debt is inaccurate.*

Conclusion

The Commonwealth Ombudsman and Senate inquiries into this new process are important and warranted. The new system has prompted numerous complaints and caused great distress and anxiety for many individuals. It represents a significant shift in Centrelink’s approach to decision-making and raises wider questions about who should be responsible for obtaining and verifying the factual information necessary to ensure accurate administrative decision-making. The question of whether the system is, or can be, compatible with core administrative law values should be front and centre in the debate about this system. Answering this question should take into account the characteristics of the individuals affected. As a cohort, current and former social security recipients are likely to include many people suffering from financial disadvantage, serious physical and mental health problems and other social issues. Recognising this is essential to assessing the fairness of a system which shifts responsibility for checking and contesting debt assessments onto them.

* Names and other identifying information changed to protect the client’s privacy and confidentiality.