A western Sydney family have been caught rorting $2 million of welfare payments from the government.

Thirty-eight members of a western Sydney family have been caught rorting $2 million of welfare payments from the government.

One person claimed benefits while depositing $750,000 over three years and another paid off a $300,000 mortgage in just over two years while claiming income support.

A third person received rent assistance for a property they already owned, said the Department of Human Services on Thursday.

A spokesman for the department says the family fraud was discovered from a tip-off that a man had failed to declare his income.

Nineteen family members have had their welfare payments cancelled after a wide-ranging investigation and another 19 have had their payments reduced.

Five members of the family have been referred to the Commonwealth Director of Public Prosecutions and debts have been raised against the fraudsters.

Nine people have to repay more than $50,000, including two people who attempted to hide more than $100,000.

Some money has been repaid, said a department spokesman, but the rest would be paid back over time.

The Human Services Minister, Senator Marise Payne, said the consequences of such fraud could include prison time.

"This rort was a blatant abuse of the welfare system and an offence to hard-working Australians who expect their taxes to be spent helping those in need," she said in a statement.

"Fortunately these cases are rare and do not represent the behaviour of millions of Centrelink customers."

The case, she said, highlighted the importance of tip offs in keeping integrity within the welfare system.

Senator Payne said she was surprised by the extent of the rorting.

"This is the most extreme example that I've seen in the time I've had this role," she told Macquarie Radio.

"People abusing it in this way simply damage the opportunities for the appropriate delivery of payments for others."

Senator Payne said her department's investigation will involve all levels of the alleged fraud including the doctors who may have given documentation to support a disability support pension.

She admitted there was one family member who had failed to report almost $1 million over 11 years, and her department is working closely with the Australian Tax Office and Australian Federal Police.

Senator Payne said her department last year conducted 3000 investigations into suspected fraudulent behaviour and 1150 of those were referred to the Commonwealth DPP.

"The debts we currently have in relation to social welfare fraud investigations are $39 million," she said.

She warned people who are rorting the system that "we will find you".