Cooperation and Compulsion both needed for Compliance

Family and Community Services Minister Senator Amanda Vanstone said today that effective compliance in the welfare system needed customer cooperation as well as compulsion.

Senator Vanstone was commenting on survey data released today which revealed that failure to notify Centrelink of changes in circumstances was the main cause of incorrect payments to welfare recipients.

“These surveys are the first of a kind and were introduced by the Government to improve compliance in welfare payments,” Senator Vanstone said.

“Labor has consistently accused the Government of ‘demonising welfare recipients’ simply because of a determination to crack down on fraud and overpayment. However, Labor just ignored the problem and never had the courage to carry out surveys to find out the facts about incorrect payments.

Causes of Incorrect Payments

“Sometimes when customers fail to tell Centrelink of changes such as income they are earning or assets they own, it is deliberate fraud, in other cases it’s just that they forget to tell Centrelink or don’t realise that they have to do this.”

“The survey data shows the greatest discrepancy is in relation to Youth Allowance recipients. This may be because young people move more often, are less familiar with the system and have more frequent changes in their circumstances than recipients of other forms of payment covered in the survey. Nonetheless, incorrect payments to recipients of Parenting Payment (Partnered), Disability Support Pension and Aged Pension remain a concern.

Senator Vanstone said people needed to be aware that there was already an extensive system of controls to prevent incorrect payment. Some apply across the board and others are more targeted – specifically set up to help detect fraud – but they could not assume that over-payments would not be detected.

Stronger Compliance – FaCs and Centrelink

“More compliance measures can be expected in this year’s budget and these will not be the last measures we fund to uncover deliberate cheats. We are determined to ensure that welfare recipients get everything they are entitled to. Certainly no less, but no more. Fraud and overpayment cannot be ignored”

“Taxpayers expect FaCS and Centrelink to do all they can to minimise the drain on Government funds from both fraud and overpayment.

“FaCS and Centrelink will work together to modernise performance reporting arrangements using a sensible risk management approach.

“Periodic, external validation of Centrelink’s performance will be used to measure the effectiveness of the systems used for compliance. This is consistent with modern international purchaser-provider arrangements.

Helping Customers by Simplifying

“The Government also wants to help honest citizens follow the rules and one way to do this is to try to make the rules simpler.

“The recently announced the Rules Simplification Taskforce is looking at ways to make things simpler for customers and for the hardworking Centrelink staff who have the task of putting complicated rules into practice.

“Nobody likes unnecessary red tape. The more we can remove it, the easier it will be for Centrelink customers to cooperate and ensure that payments are correct,” Senator Vanstone said.

REPORT OF RANDOM SAMPLE REVIEWS

Introduction

This report summarises the outcomes of random sample reviews conducted in the first two years of the program’s operation. The random samples were first funded in the 1999-2000 budget and were intended to measure the level of and reasons for incorrect payment. They were to provide management information that could be used to refine the design of review processes; and to test, for audit purposes, whether the amount of incorrect payment would have a material impact on the Department’s financial statements.

FaCS and Centrelink have conducted four random samples under the budget program – of parenting payment (partnered), disability support pension, youth allowance and age pension. FaCS selected the sample for each and Centrelink review staff at Area Office level carried out the reviews. A survey of Newstart Allowance is currently under way.

The data is currently being analysed further. The aim of this report is to give a broad outline of main findings.

Methodology

The samples were chosen largely on a random basis but there had to be some departure from normal statistical processes, as the process involved a review of the customer’s circumstances rather than simply a range of questions. Thus people who had just been granted a payment or who had recently been reviewed were excluded from the survey. The statistical effect of these changes would be minor.

Following selection, customers were required to participate in a face to face interview and staff verified information provided. Following completion of the review, if the customer’s rate was to be varied or a debt raised, they were sent a letter advising them of the outcome and their rights to have the decision reviewed.

Staff conducting the survey were based mainly in area offices so that cases were reviewed independently of the office making any previous decisions.

Key Findings

Origin of error

The surveys of age pension and youth allowance asked the staff doing the reviews to identify whether the customer or administrative error had caused the incorrectness. The survey showed that administrative error was relatively low compared with customer failure to report income. Review staff identified office error in 1.4% and 1.7% of the cases reviewed respectively. However, there were cases where both appeared to have contributed and a significant number of cases where it was not possible to determine how the problem had originated.

*The “other” category for youth allowance covers situations where it was not possible to determine the cause of the error (for example, when there were conflicting accounts about notification). The “other” group for age pension also includes a substantial number of people whose payment varied as a result of the review but who may not have been paid incorrectly because they were still within the 14 day period allowed for notification of changes of circumstances.

Reasons for incorrect payment

The findings show that failure to notify Centrelink of changes in income was overwhelmingly the main cause of incorrect payment across all payment types. However, the nature of this income varied greatly between payments.

Incorrectness as a proportion of outlays

In line with the objective of evaluating the effectiveness of the current review activity, financial analysis of results has focused on how much incorrect payment would not have been detected by current controls. Therefore, the data on the value of outlays paid in excess contains cases that were found to be incorrect at the time of the review and would not have been resolved in the normal course of events by standard reviews and controls.

The figures for all payment types were as follows:

*This figure includes customers who failed to attend the interview or reply to correspondence and did not seek continuation of their payment. Experience suggests that many failed to respond because they were knowingly incorrectly paid. However, it is not possible to determine exactly what proportion were incorrect.

**The data for age pension includes a substantial number of people whose pension changed as a result of the review but who were not necessarily incorrectly paid. This is because the changes may have occurred within the 14 day period that is allowed for changes to be notified. Determining the date of effect for changes and, therefore, whether the payment is legally “incorrect” is particularly difficult for age pension because of the volatility of income caused by small changes in bank accounts or investment values.

Effectiveness of reviews

The sample reviews showed that the existing structure of controls was cost-effective in keeping incorrect payment below material levels. A high proportion of review activity is targeted at the short term payments and the results show this is justified. The long term payments had lower levels of incorrect payment. Some of the detailed findings suggested the need for some refinements to existing processes. These will be the subject of further analysis and are not discussed in this report