A for-profit ParentsNext provider told staff to avoid granting medical exemptions to sick welfare recipients to keep them on the company’s books, a former employee has alleged.

The $350m scheme, which has faced significant criticism in recent months, places compulsory activity requirements on people receiving parenting payment who are classified as “disadvantaged” by Centrelink.

Providers are paid $600 per participant to get them ready to return to work, but the service fee does not apply when an exemption is granted.

PeoplePlus, which has 24 ParentsNext offices across New South Wales, South Australia and Victoria, is accused of telling staff to avoid granting these exemptions when participants present evidence from a doctor saying they are too sick to take part.

A former case worker told Guardian Australia staff at PeoplePlus were told “not to accept a medical certificate” from participants.

“What we were told to do if somebody had a medical condition, or a lot going on, a complex situation, we were told to not exempt them but go easy on them.”

Staff were also told not to inform parents with more than three children they did not have to take part in the program, according to the former employee, who asked not to be named due to a non-disclosure clause in their contract.

The chief executive of PeoplePlus, Con Kittos, denied the allegations. “If there is any evidence … we’ll jump on that,” he said.

The Department of Jobs and Small Business said it was aware of the allegations and was examining them.

The jobs minister, Kelly O’Dwyer, said last month she would consider penalising providers that flouted the rules, following reporting by Guardian Australia. A Senate inquiry report, released last week, said the committee was “concerned about the number of reports” it had received suggesting providers had failed “to grant appropriate exemptions”.

Guardian Australia has spoken to a number of women who have faced difficulties gaining an exemption – which ensures eligible parents will not face payment suspensions or compulsory activity requirements– including a Sydney mother who spent months battling to get an exemption while pregnant.

Participants can be eligible for an exemption for reasons such as illness, pregnancy, family size and family violence.

On Tuesday, the department said it was reviewing providers’ “exemption decisions, to ensure providers are granting exemptions in accordance with program policy and Social Security Law”.

“With any system, there are always improvements that can be made and we will always strive to ensure the program meets the needs of the people who need it the most,” a spokesman said.

Participants in the ParentsNext program are meant to work with their case manager to choose an activity to help them meet employment or personal development goals.

Guardian Australia reported last year that parents were instead instructed to attend activities such as story time, swimming lessons and playgroup in order to keep their payments.

The former PeoplePlus employee said case mangers were told to place all participants who had not selected an activity onto an activity called “career mentoring”.

“It doesn’t mean anything,” the source said. “It means they are not doing anything and the company wants to pretend that they are.”

Kittos told Guardian Australia the company had recently been audited by the department, as occurs for all ParentsNext providers. The audit found “no issues”, he said.

He noted that PeoplePlus had been involved in the ParentsNext trial and was then selected to take part in the national rollout.

The department’s spokesman said it was “aware of the allegations and is looking into the matter”.

“It would be inappropriate to comment on an individual complaint,” he said.

“Where a provider is found to not be administering the program in accordance with the Deed, they may face sanctions.”

He said the program’s guidelines “clearly outline that Participation Plans must be individually tailored”.

“Career mentoring is an acceptable activity, where it is a genuine activity and the parent agrees that it is appropriate to their education and employment goals.”