Outsourced employment consultants who are not required to have qualifications have used their powers to impose 5.2 million penalties on welfare recipients since July 2015.
The government's JobActive program, where job seekers receiving government payments such as the unemployment benefit Newstart must attend meetings with private job service providers, has been in place since July 2015, and the arrangement is up for review in 2020.
A Senate inquiry into how appropriate and effective the program is heard on Thursday the program wasn't "fit for purpose" and needed to be fundamentally reformed.
Advocates described job seekers often felt the employment consultants were managing too many cases, and that their case workers weren't necessarily focused on finding the right job for the job seeker, and had limited knowledge of the job market. The committee heard there was no qualification required for people to fill these roles, which often supported vulnerable, long-term unemployed people.
Since 2015 there has been a significant increase in the number of penalties imposed on welfare recipients. There were 1.47 million penalties handed out in 2014-15, jumping to 2.11 million in 2015-16 and 2.17 million in 2016-17.
The Unemployed Workers Union gave evidence that in 2015-16, Centrelink rejected nearly half of the penalties, including having payments suspended or reduced, handed out by job service providers.
"What we're saying then is somebody has to suffer through having their only form if income stopped, and I've had that happen myself and it involves a very sleepless night, and then it's discovered it's through no fault of their own," the union's administration officer Anne Maxwell said.
The compliance system was overhauled this year, coming into effect on July 1. Where Centrelink previously had the ability to overturn all types of penalties doled out by the private job service providers, that avenue has now been limited.
Unlike under the previous system, demerit points imposed by the providers can't be challenged to the agency, and financial penalties can be appealed to the Administrative Appeals Tribunal.
Now the same employment consultants who were responsible for supporting people to find work are also able to enforce penalties that could see payments cancelled, with less oversight from Centrelink.
Greens spokeswoman for family and community services Rachel Siewert sits on the committee investigating the program and said the evidence showed the system was flawed.
"There are some bad [job service providers] and there are some good [job service providers], but even the good ones have to work within the system, and the system is flawed – the whole punitive approach where you're fundamentally setting up job providers to be in that position of being judgmental," Senator Siewert said.
Problems stemmed from the same people who were enforcing compliance with welfare obligations, also needing to support job seekers to find work. She said an approach was needed where compliance, support and assessment of job seekers were kept separate, and that a possible hybrid model between government and the not-for-profit sector be explored.
"We need an individualised approach that genuinely helps people at where they are, the holistic approach. Some of the job active providers, particularly not for profit providers are either embedded in or have close ties to other services such as homelessness services, mental health services, those sorts of services, where they have counsellors involved, occupational therapists, allied health services where they can do that wrap around service. For young people that is particularly important."