It's been making headlines since summer, when thousands of Australians suddenly found out they owed money to Centrelink.

Critics call it "robodebt", but how does the controversial system actually work?

What is it?

The official name is the Online Compliance Intervention. Sorry, this audio has expired Listen to the Background Briefing

It's a newly automated debt recovery system that the Federal Government hopes will recover $4.5 million in welfare debt every day.

How does it work?

The Department of Human Services, which looks after Centrelink, has a computer program that gathers data from other government agencies like the Australian Tax Office and then compares it with data that people have reported to Centrelink.

The system is designed to quickly check whether the income that you reported to Centrelink — used to calculate what benefits you're entitled to — is the same as what your employer has told the tax office.

Centrelink has used data matching for a long time and as Human Services Minister Alan Tudge has pointed out, this particular algorithm was used by the previous Labor government.

OK, so what's changed?

The main change is what happens after the computer detects a discrepancy.

In the past a Centrelink officer would do a basic investigation before deciding whether to send out a letter. But since July 2016, the computer prints out and sends the letter on its own.

The letter asks people to log on to myGov and explain why the income they've reported to the welfare agency is different to what their employer has reported to the tax office.

Before the system was automated, only 20,000 interventions were made a year. Now the amped up system is running at 20,000 a week.

The Government says it's wrong to characterise these as "debt letters" — Centrelink is just trying to get more information about what's behind the discrepancy.

If these are just requests for more information, why are people getting debts?

Many people report that they never got those initial letters, and the first they heard of a problem with Centrelink was when they started getting calls from private debt collectors contracted by the department.

This is likely because the initial letters had been sent to old addresses, or messages to myGov accounts people didn't check anymore.

You have 21 days to log on and correct the record. You may be asked to submit payslips or other proof of income from up to six years ago.

If you don't, the discrepancy is assumed to be evidence of an overpayment and a debt is raised.

How is that allowed?

For anyone but the Government, it's not. But Simon Rice, a professor of law at the Australian National University, explains that there's an exception for the welfare agency.

"The Government has an entitlement, a right, that ordinary people don't. It can convert an overpayment into a debt. The Social Security Act does that."

But that privilege, he says, should come with an expectation that they "have absolutely impeccable systems in place so that when they exercise these privileges they do so fairly".

How many of the debts are real?

Alan Tudge says the system is working. ( ABC News: Nick Haggarty )

Mr Tudge says that "on 20 per cent of occasions, the recipient is able to validly explain the discrepancy in the data. In the other 80 per cent of occasions, a debt notice is subsequently issued."



Critics say this is evidence of a 20 per cent error rate, though the Government disputes this.

It may in fact be higher.

That figure doesn't include the number of people who are still trying to prove that their debts have been miscalculated, a process which can take months.

How do miscalculations happen?

There are two main ways:

1. Many people receive Centrelink payments for short periods of unemployment or illness. The automated program uses annual income data from the tax office and averages it out. If your boss has given the wrong dates to the tax office, or if you earned more some weeks that others, then averaging creates a false impression that you were earning undeclared income while you were getting Centrelink. 2. If the information you have given Centrelink about your employer is slightly different to that recorded by the tax office, it appears you have two jobs and didn't declare one of them to Centrelink. This can be as simple as a typo in the name.

So are some people paying debts they don't think they owe?

Yes, some people have had to go on a payment plan for their debt, even if they are in the process of contesting them.



That doesn't seem fair...

Over the past few months the Government has made a number of changes to how the system operates.

One major change is that people won't have to start paying back their debts if they are under review.

Another is that the letters are now being sent out by registered post, to make sure they're going to the right addresses and people don't have debts raised against them without their knowledge.

But the changes are not retrospective.

How many people are trying to prove they don't owe these debts?

Background Briefing filed a freedom of information request to find out how many people were asking for an online reassessment or a formal review of their debt.

It was blocked by the department, who said it would generate too much work for them to find out.

(That's after they said they'd found the documents, and after Background Briefing paid them $45 in search and retrieval fees.)

How much money has it recovered so far?

The department also refused to provide numbers on how much money had been paid back to date.

What happens next?

A Senate inquiry is underway and the Commonwealth ombudsman has also launched an investigation into the system, which will report later this year.