Centrelink has copped a lashing from the Administrative Appeals Tribunal after it found the agency misled a client who was later told she owed $37,000 in debts.
In a decision this month described as "extremely rare", the tribunal found Centrelink had made an error by combining information about two different types of benefits in a letter it sent to the woman.
One administrative law expert said the finding was made despite laws heavily weighted in Centrelink's favour, and called for the agency to check the letter's format was not in widespread use.
The Centrelink client received both family tax benefits and parenting payments, each requiring her to update the agency about changes to her partner's income.
After she told the agency her partner had started a new job in 2015, Centrelink found it had overpaid her more than $37,400 over four years, saying his income had not been accounted for when calculating her rate of parenting payments over several years.
But the tribunal directed criticism at the agency for the mishap, finding that although the woman sent it updates about her partner's earnings, Centrelink failed to tell her in writing that parenting payments and family tax benefits had different income reporting requirements.
The agency uses different income tests to calculate each benefit,measuring earnings with a fortnightly test for parenting payments, while paying the family tax benefit using an estimate of combined taxable income for the next financial year.
The client, or anyone of a "reasonable mind", would not have been able to understand this in a letter Centrelink sent her, the tribunal found.
"This was solely the administrative responsibility and error of Centrelink," it said.
The tribunal described the letter the agency sent about her payments as "not only confusing, but misleading" and ruled she did not need to repay debts accruing over four and a half years from 2011.
Centrelink's parent department, Human Services, told Fairfax Media it had a high payment correctness rate of more than 98 per cent.
A spokeswoman said it acknowledged the welfare system was complex.
The department was committed to the continual review of payment and services information, she said.
"We work hard to ensure our letters, SMS and website information is accurate and easy to understand."
Administrative law expert and senior lecturer at La Trobe University Darren O'Donovan said similar cases should be examined to see if other people were misled about the need to provide fortnightly earnings breakdowns.
"The decision underlines that those trying to report are often faced with a system that struggles to take accurate notes or pick up and correct errors," he said.
"Centrelink itself is not meeting the standards it demands of many ordinary Australians, who find themselves desperately trying to clarify inaccurate information through busy phone lines or uploaded documents.
"It does not help Australians when the evidential demands placed upon them are unclear or apt to mislead.
"The department must communicate clearly and take reasonable steps to update the personal information it holds on individuals."
The government's move to appeal an original decision about the case to the second level of the tribunal showed that the Human Services department realised the seriousness of the finding, he said.
Human Services said people receiving income support, including parenting payments, were required to meet mutual obligations to remain eligible.
"This includes keeping the department informed of any change in circumstances, which will also help avoid an overpayment," the spokeswoman said.
"These obligations are outlined on our website, during the claim process, and can be clarified directly with the department at any time."