Background

Managing customer debts related to income support and pension payments is a major issue for Centrelink. At 30 June 2003, outstanding ‘benchmark' debt was $967 million, owed by approximately 600 000 individual social security recipients.¹ The magnitude of this debt, and the burden often placed on the financial capacity of affected customers, mean that it is important that Centrelink manages debt efficiently and effectively.

The debt management process comprises four main elements?oprevention, identification, raising and recovery. Debt management forms part of Centrelink's core operations, and links to programs targeting payment correctness and customer compliance.

Debts arise primarily from customers failing to notify Centrelink of changes in circumstances or providing incorrect information. Debts can also result from Centrelink administrative error. Some debts occur out of the correct operation of the legislation.² In general, these debts must be repaid. However, where a debt arises solely from Centrelink error, and where the customer could not reasonably be expected to know they were being overpaid, the debt must be waived.³

The objective of this audit was to assess whether Centrelink effectively manages its benchmark customer debt consistently across its network, ensuring integrity of payments made on behalf of the Department of Family and Community Services (FaCS), while also providing appropriate levels of customer service.

Key findings

Frameworks and processes to manage customer debt in Centrelink (Chapter 2)

The incidence of customer debt in Centrelink is relatively low. For example, at 30 June 2003, outstanding customer debt represented approximately one third of one per cent of relevant Centrelink payments of around $260 billion distributed since its inception on 1 June 1997. However, the absolute magnitude of outstanding debt is high, approaching $1 billion at 30 June 2003, having increased by around 20 per cent over that of the previous two years. The Australian National Audit Office (ANAO) was not in a position to interpret this performance. To make such an assessment, the ANAO would require further information than was available during this audit-from FaCS about its view on the appropriateness of this magnitude of debt, and from Centrelink about the cost of managing the debt.

Centrelink and FaCS have developed a framework that provides the opportunity to effectively implement all elements of debt management. However, communication between the two organisations could be improved, especially in determining and implementing debt prevention and identification programs. Similarly, Centrelink could improve communication flows between the various teams within the agency responsible for debt prevention, identification and recovery.

Centrelink has many strategies, policies and processes that either directly, or indirectly, affect debt management. Many debt management initiatives undertaken in the past one to two years have improved debt management processes and practices, or promise to do so in the future. These initiatives have included enhanced debt identification techniques, and centralising and increasing the efficiency of debt raising operations.

Performance monitoring of debt management in Centrelink (Chapter 3)

FaCS and Centrelink have agreed with the ANAO's suggestion to improve debt key performance indicators (KPIs) by supplementing the recently revised set of KPIs with measures of the effectiveness of debt prevention and identification, and the accuracy of debt raising, as well as reporting on the magnitude of outstanding debt. However, any move to reporting against these improved KPIs needs to await the implementation of systems to generate suitably robust data.

The ANAO found that Centrelink did not monitor customer satisfaction with its debt management services, nor fully measure its debt management resourcing and cost, to ascertain relative productivity and cost efficiency, and achieve future savings.

Debt prevention (Chapter 4)

The ANAO found that Centrelink has improved the profile and importance of debt prevention in the agency, particularly by clearly articulating its objectives in the Debt Servicing Strategy 2001–04.

Similarly, the ANAO notes recent improvement in Centrelink's debt prevention strategy development, involving a move away from reliance on anecdotal information that led to disjointed and ad-hoc efforts in the past. Centrelink has also recently developed, and begun to implement, debt prevention project arrangements and protocols, to promote debt prevention measures based on empirical research.

The ANAO found that Centrelink's Debt Services Team was facing difficulties in coordinating debt prevention and management initiatives across the agency, including monitoring the performance of debt prevention activities in Areas⁴ , and encouraging Areas to adopt better debt prevention practices. To improve leadership and coordination of debt prevention and management initiatives by the Debt Services Team, Centrelink may benefit from reviewing the implementation of debt prevention activities across the network, to ascertain better practice.

The ANAO found that Centrelink does not effectively measure the impact of its debt prevention activities. At the time of drafting this report, Centrelink was in the process of revising internal indicators of debt prevention performance.

Identification of overpayments (Chapter 5)

Centrelink identifies debts through its compliance framework, which includes:

• compliance reviews-comprising data matching, tip-offs, investigations and surveillance;
• program reviews-an activity initiated by Centrelink to ascertain whether a customer is receiving his/her correct entitlement, for example, cyclic reviews (such as every four weeks) and event-based reviews (such as the birth of a child);
• Service Profile reviews-a means of identifying which customers need a more targeted level of service to assist them to meet program outcomes. When fully implemented, Service Profiling will replace all former program reviews for all payments; and
• customer initiated re-assessments?owhere a customer voluntarily advises Centrelink of a change in his/her personal circumstances.

The ANAO found that these procedures were generally effective in identifying debts. However, compliance reviews accounted for 76 per cent of the debts identified through reviews, while representing only 19 per cent of the number of reviews, in
2002–03. Accordingly, Centrelink may be able to improve the effectiveness of identification activities by either focussing more intensively on compliance reviews, or improving the performance of other methods of review.

In this regard, the use of Service Profiling as a risk based substitute for program reviews, offers Centrelink the opportunity to further improve its debt identification operations through better targeting of its resources.

Centrelink is currently improving internal coordination through the appointment of a National Manager to manage service delivery issues in Profiling and Reviews, and through the establishment of a specific business team to manage the FaCS relationship for profiling across payments.

The ANAO found that the current overpayment identification process appears effective, in terms of generating substantial volume and value of debts. However, the ANAO found that ‘compliance' and ‘non-compliance' processes used to identify overpayments could be better aligned and integrated to maximise the chances of effective identification of an overpayment, as closely as possible to the time when the overpayment first occurs.⁵

Debt raising (Chapter 6)

The ANAO considers Centrelink's restructuring of the non-compliance debt raising process in mid-2003, which involved the introduction of specialist debt raising officers and teams, has the potential to significantly improve the agency's administration of this aspect of debt management. Together with improved technical support tools for debt raising officers, restructuring the non-compliance debt raising process within Centrelink appears to have improved the timeliness and accuracy of debt raising. However, confirmation of these improvements awaits the Post Implementation Review of the debt restructuring exercise, which commenced in June 2004.

The recent restructuring, combined with the review of debt processing that has been carried out over the past three years, has also improved the attitude of Centrelink staff within the network to processing debt. Accurate and timely raising of debt is now regarded as an important part of processing customers' details.

While Centrelink has undertaken major restructuring of its non-compliance debt raising functions, there has been no accompanying reform of its compliance based debt raising processes. This is despite compliance debt representing a significant proportion of benchmark debt, and the adverse results of Centrelink's own October 2002 review of debts raised by Compliance Officers for ABSTUDY payments, which found high rates of error for compliance debts.⁶

During fieldwork for this audit, the ANAO interviewed a number of Centrelink's Authorised Review Officers and also held discussions with relevant external stakeholders. The ANAO noted the views of each of these groups that Centrelink Customer Service Officers are often reluctant to waive debts, with the exception of the most obvious of cases, where Centrelink has been at fault.

Debt recovery (Chapter 7)

Centrelink currently has inconsistent debt recovery structures and processes across its network. The ANAO found that debt recovery was left to individual Area Support Offices to administer. As a result, there were significant differences across the network in the levels of skills of Debt Recovery Officers, the likely levels of customer service, and the performance of Debt Recovery Teams. However, the impending restructure of Centrelink's recovery operations has the potential to considerably improve the present situation.

Centrelink's arrangement with its contracted mercantile agent was found to be an effective way of recovering older debts that are not cost effective for Centrelink to pursue with internal resources. The mercantile agent's superior technology and processes allowed it to further pursue these debts, providing a valuable addition to Centrelink's recovery operations. As well, this contractual arrangement allows Centrelink to access better practices of this specialist recovery operation, which Centrelink should again review the merits of adopting.

The ANAO observed a lack of adherence to relevant policy guidelines in place at the time of fieldwork, concerning the repayment of debts via credit cards. This applied to Centrelink Recovery Officers and staff of the mercantile agent. It is important that Centrelink continues to monitor adherence to policy guidelines concerning the repayment of debts via credit cards, so that the use of credit cards does not place undue financial hardship on Centrelink debtors.

One of the objectives of debt recovery by Centrelink is to recover money owing to the Commonwealth without causing ‘real financial hardship'⁷ to the customer. The ANAO found that Centrelink did not measure, or monitor, customer perceptions of the recovery process. Accordingly, Centrelink was unable to ascertain whether or not it had met this objective.

Overall audit conclusion

Centrelink has significantly improved the effectiveness of many debt management processes and practices over the past one to two years. However, customer debt continues to increase rapidly, making it important that Centrelink further improve its debt prevention, identification, raising and recovery activities in order to safeguard the Government's expenditure on, and effectiveness of, its social welfare programs.

Despite Centrelink's overall commitment to providing consistent services to customers across its network, the ANAO concluded that Centrelink did not manage debt consistently across its network. While Centrelink's debt identification and raising functions generally used similar processes, that produced comparable results, debt prevention and recovery varied widely in application and performance across the Centrelink Areas examined, producing inconsistent outcomes for the agency and its customers.

Centrelink was not able to inform the ANAO about the standard of service it provides to customers with debts, as it does not collect information about customer satisfaction with debt servicing activities. This lack of monitoring also made it more difficult for Centrelink to ascertain whether its debt recovery activities placed customers in ‘real financial hardship'. As well, it impeded Centrelink's capacity to develop strategies to improve the service it provides to customers, when managing their social welfare debts.

Recommendations

The ANAO made nine recommendations to improve Centrelink's debt management capacity. Centrelink has agreed to all recommendations, one with qualification. At the time of report drafting, Centrelink had begun to implement four of these recommendations.⁸

Centrelink's response

Centrelink's summary response appears below.

Centrelink acknowledges the effort made by the ANAO to understand the challenges facing our organisation and the work already undertaken over the past one to two years to improve debt management processes and practices.

These initiatives have included enhancing the strategic focus for debt management and debt prevention project arrangements. These initiatives have improved the profile and importance of debt prevention within Centrelink. Other initiatives include enhanced debt identification techniques, improved technical support tools and restructuring of service delivery which have improved timeliness and accuracy of debt processing.

Centrelink is continuing to look for areas for improvement in debt management and will be implementing further initiatives in the near future. These include new arrangements for debt recovery that will be implemented by 1 October 2004.

Footnotes

1 Benchmark debt refers to debts related to income support and pension payments and excludes Family Tax Benefit reconciliation debts. This audit has not examined Family Tax Benefit reconciliation debts, as the mechanisms related to how these debts arise, are detected and recovered are quite different to the bulk of Centrelink debts. In addition, continuing changes occurring in the Family Tax Benefit program mean that a future separate, comprehensive audit would be better placed to consider debts relating to Family Tax Benefit.

2 For example, where a person who has received an advance payment goes off payment before the advance has been repaid, the outstanding advance amount is raised as a debt.

3 As prescribed in the Social Security Act 1991, s1237A.

4 ‘Areas' refer to geographic units administered by Centrelink's Area Support Offices.

5 Identifying debts early assists Centrelink by reducing costs associated with managing debts, and by improving debt recovery. Identifying debts early, assists Centrelink customers by reducing the magnitude of debt that needs to be repaid, as well as any personal anxiety and/or concern that may be experienced.

6 Centrelink, ABSTUDY Debt Prevention Strategy, October 2002.

7 As specified by Centrelink, in document 107.11210, Roles and quality service standards for Centrelink recovery staff.

8 Centrelink has begun to implement recommendation Nos.1, 2, 5, and 8.