1 An Introduction and Overview

Establishment of the Review

1.1. The Independent Review of Breaches and Penalties in the Social Security System was established by a number of organisations interested in issues relating to support for unemployed persons. The organisations are listed in appendix 1.

1.2. The organisations were concerned that the system for achieving compliance with obligations imposed on people receiving Newstart or Youth Allowances is not operating equitably and effectively in regard to all recipients. That system includes a process of designating certain conduct on the part of the recipient of an allowance as being a breach of the obligations that must be complied with in order to continue receiving the allowance. If a recipient is in breach, penalties must be imposed. These penalties involve reducing, or fully withholding, for a period the allowance that would otherwise be payable.

1.3. When establishing the Review, the organisations indicated that they accepted breaches and penalties as an inevitable part of a compliance regime in an active, employment-orientated social security system for unemployed people. However, they expressed concern at the changes in the incidence of breaches and penalties in recent years and the consequential impact on individuals, families, welfare agencies and other organisations.

1.4. The organisations were aware from their own activities that the increase in the levels of breaches that were being imposed was having a significant adverse impact not only on the recipients of the benefits but also on their families. This in turn was leading to a marked increase in requests for assistance to those organisations and government agencies that help the needy and destitute members of the community. These concerns were also being expressed more broadly in the community and, we understand, in some government quarters.

1.5. To address these concerns we were asked to:

"(i) identify factors affecting, and the consequences of, recent changes in the incidence of breaches and penalties relating to unemployed people receiving social security payments;

(ii) recommend any improvements in the effectiveness and fairness of the system which we consider desirable in relation to statutory provisions and policies and practices of governmental and non-governmental agencies."

Unemployment allowances

Allowances, activity tests and agreements

1.6. The right of unemployed people to receive a social security allowance is provided by the Commonwealth Social Security Act 1991 (the Act). It is important to note that the Act provides a statutory right to an allowance if the conditions set out in the Act are met. Maintenance of the entitlement to an allowance is dependent on satisfying an "activity test".

1.7. The central element of the activity test is a requirement that the person must be actively seeking and willing to undertake suitable paid work and/or be engaged in other approved activities. The approved activities are generally designed to improve a person's prospects of obtaining paid work. The range of approved activities that a person receiving an allowance might be required to undertake includes participation in training (including training in job search skills) or in other employment services and support programs, including "work for the dole".

1.8. As part of the activity test scheme, the Act provides for the specific job search requirements or mix of required activities applying to a particular jobseeker to be specified in an "activity agreement". The Act states that recipients of Newstart or Youth Allowance must enter into an activity agreement when required and take reasonable steps to comply with it. In practice, activity agreements may be given other names such as a "Preparing for Work Agreement" (being the agreement into which nearly all recipients of an unemployment allowance are obliged to enter when they commence to receive allowance) and an "Intensive Assistance Agreement" (being an agreement for jobseekers requiring special assistance to improve their capacity to obtain a job).

Organisational responsibilities

1.9. The income support part of the assistance system is the responsibility of the Commonwealth Department of Family and Community Services (DFACS). That Department determines the policy relevant to income support (including the penalties system). The administration of the system involving the determination of eligibility for assistance, the making of allowance payments and the administration of the penalty provisions is performed under a service agreement with DFACS by the Commonwealth's service delivery agency, Centrelink, which is a statutory authority.

1.10. The employment service part of the system is the responsibility of the Commonwealth Department of Employment and Workplace Relations (DEWR). Employment policy issues are determined by that Department. DEWR contracts with Centrelink to provide aspects of the employment services system. DEWR contracts separately with about 200 commercial and non-profit organisations to deliver employment services and support programs for jobseekers from about 2000 sites around Australia. Under its service agreement with DEWR, Centrelink refers jobseekers to these organisations (whom we refer to in this report as "providers") and receives information from them relating to jobseekers' employment activities. There is no contractual relationship between Centrelink and the providers.

1.11. A payment is made by DEWR to a provider after a jobseeker is referred to, and commences engagement with, that provider. Further payments are made if that person subsequently obtains and remains in employment for a specified period. Providers are under an obligation to advise Centrelink if they are aware of conduct by a person that could constitute a breach of that person's activity test obligations.

Employment services and the Job Network

1.12. The principal types of employment services to which jobseekers may be referred are:

• "job matching", which is for those jobseekers who are regarded as "job ready" and are referred to a provider for simple assistance in accessing information about available jobs;

• "job search training" (JST), which gives a jobseeker assistance in personal and presentational skills;

• "intensive assistance" (IA), which is for jobseekers who are regarded as needing substantial further training, counselling or other special assistance in order to improve their employment prospects before becoming "job ready";

• the "Community Support Program" (CSP), which is for jobseekers who are regarded as likely to have very considerable difficulty in finding employment, often due to health problems or homelessness;

• "work for the dole" (WFD), which is a program under which certain persons in receipt of Newstart or Youth Allowance can undertake unpaid community work to satisfy part of their activity test obligations.

1.13. Providers who deliver services in the first three of these categories are known collectively as the Job Network. Some of them, as well as some other providers, deliver services in the latter two categories. This includes the Community Work Co-ordinators who are responsible for providing "work for the dole" places.

The breaches and penalties system

1.14. The breaches and penalties system applicable to recipients of Newstart Allowance and Youth Allowance is based on a recipient complying with two types of requirements. They are referred to as "administrative" requirements and "activity test" requirements. The former type constitutes such matters as attendance at Centrelink interviews and provision of certain types of information to Centrelink. The latter includes the general "looking for work" requirements indicated in the Act and any specific conditions included in the activity agreement. However, the distinction between "administrative" and "activity test" requirements (and the associated penalties) can often be blurred as a result of the way in which activity agreements are drawn up.

1.15. The Act specifies the range of activities and requirements that can be included in the terms of an activity agreement. These include activities such as job search, training, work experience, "work for the dole", rehabilitation and other measures designed to reduce labour market disadvantage. In practice, however, many administrative requirements, such as attendance at interview, have been included in activity agreements. Should a breach of such a requirement then occur, it attracts the higher penalties applicable to activity test breaches.

1.16. A person who breaches an administrative requirement is penalised by a reduction in allowance of 16% for 13 weeks. As at February 2002, this was an amount of $379 for persons receiving Newstart Allowance and $314 for those on Youth Allowance. An activity test breach attracts a graduated, higher penalty as follows:

[These amounts are based on the Allowance payable to a single person who has no dependants, is receiving no other assistance and, in the case of Youth Allowance, is living away from home.]

1.17. A study of patterns of breaching undertaken by the Australian Council of Social Service (ACOSS) and published in August 2001 reported that there had been an overall increase in penalties imposed for breaching of 189% in the period from June 1998 to February 2001. The increase in activity test penalties in the same period was reported as being 310%. These figures have not been disputed by government agencies although Centrelink has informed us that there has been a significant decrease in activity test breach incidence since reaching a peak in May 2001. Some initiatives that may have contributed to this decrease are mentioned below and described in greater detail in subsequent chapters. The incidence remains, however, at least twice as high as the levels which prevailed before large increases began three years ago.

Recent government initiatives

"Australians Working Together"

1.18. When releasing its 2001-2002 Budget, the government announced a wide-ranging package of changes entitled "Australians Working Together". Some of these changes may affect the operation of the breaches and penalties system when they start coming into operation, which in most instances is scheduled for the latter half of 2002.

1.19. The Community Support Program (CSP) will be re-named the Personal Support Program (PSP) and the number of places in it will be increased substantially. Intensive Assistance providers will be encouraged to assess all jobseekers referred to them and, if appropriate, to recommend transfer to the PSP or some other special program. Greater emphasis will be placed on PSP providers seeking to contact any of their jobseekers who have failed to comply with an obligation, in order to secure compliance without having to report them to Centrelink. A system of penalties for non-compliance by PSP participants will be established but we understand that the details have not yet been determined.

1.20. A potentially very useful initiative in the government's Budget package involves establishment of a system of Personal Advisers within Centrelink who will seek to provide ongoing and personalised support for some categories of jobseekers. The categories include jobseekers who are older, Indigenous, recently released from prison or temporarily incapacitated. It remains to be seen whether an adequate supply of these advisers will be established promptly and whether they will provide substantial assistance in ways that reduce the incidence of breaches amongst the designated categories of jobseekers. A substantial limitation is that many jobseekers who are at great risk of incurring breaches are not within the categories of people whom the new advisers will be allowed to assist.

1.21. Another change of relevance in this context is that the package provides that many unemployed people will become subject to stricter activity requirements. This applies principally to middle-aged unemployed people. In addition, many parents of dependent children will become subject to a form of activity requirements and a system of breaches and penalties. In consequence, many more people will be at risk if procedures for determining activity requirements in individual cases, investigating and deciding upon potential breaches, and imposing penalties are not satisfactorily designed and administered.

Other initiatives

1.22. During the last nine months or so, the government has introduced a number of initiatives of relevance to the operation of the breaches and penalties system. They include a new policy statement about the circumstances in which receipt of Centrelink letters by jobseekers can be presumed, and a supplementary assessment process when the initial Centrelink interview indicates that a specialist officer should explore whether referral to the Community Support Program or other special assistance may be appropriate.

1.23. Other recent initiatives have been a Second Breach Intervention Pilot which trialed thorough reviews of jobseekers who had incurred a second breach, in order to see what steps could be taken to ensure future compliance or to provide other forms of assistance, and a Third Breach Alert process which involves somewhat analogous reviews when a jobseeker is under investigation for a possible third breach.

1.24. A Streamlined Referral pilot operated recently in a few Centrelink offices in an attempt to increase the incidence of providers being selected by the jobseeker rather than by a computer system, and then arranging rapid referral to that provider. Some limited attempts have also been made to improve aspects of breach investigations. Further details of these initiatives are provided and discussed later in the report.

Conduct of the Review

1.25. In the course of the review, we examined a number of reports and commentaries relating to various aspects of the subject of the review, including statistics and studies of the incidence of breaching (see appendix 4). We called for written and on-line submissions from the public and interested organisations and received 138 such submissions (see appendix 2). We consulted representatives of Commonwealth and State governments, providers, welfare organisations and other bodies both directly and through convening a number of public forums held in various centres around Australia (see appendix 3).

1.26. We gratefully acknowledge the assistance provide by these various persons and bodies in advising us of the issues involved and providing us with information and ideas which we have drawn on for the purposes of this report. We were especially impressed by the care with which many submissions had been prepared and the constructive approach that they adopted.

1.27. In conducting the Review, we have focussed especially on the types of failures or other conduct by jobseekers that have been identified as most likely to lead to breaches of their obligations with the consequent imposition of a penalty. The most recent table published by ACOSS in August 2001 sets out the top ten reasons for activity test breaches in the period September 2000 to February 2001 as follows:

1.28. Similar tables for previous periods are not directly comparable because of changes to categories of activity test breaches but the information they contain is consistent with that in the table above.

1.29. We have given particular attention to the impact of the system on recipients of an allowance whom we have described as "especially vulnerable". This description includes people who are homeless or have transitory or uncertain accommodation, who have literacy or language difficulties, who have physical or intellectual disabilities, who suffer from substance dependency or who have other relevant problems. Our report puts special emphasis on identifying and addressing the problems that these people encounter in meeting the obligations imposed by the system.

1.30. In the time available to us, we have not been able to deal with all aspects of the breaches and penalties system. Further work can usefully be done on other matters relating to the system that were identified in the material and submissions provided to us. In particular, there needs to be a detailed examination of the impact in this context of the overall design and management of the Job Network system and the work of its members as well as of other providers. A review of many of these issues is currently being undertaken by the Productivity Commission. Some key aspects of the breaches and penalties system are also the subject of a current review by the Commonwealth Ombudsman.

Some basic principles

1.31. We outline below a number of basic principles that have guided our assessment of strengths and weaknesses relating to the current system of breaches and penalties, and the development of the recommendations in this report. Their significance and application in relation to particular aspects of the system are discussed when considering those aspects later in this report.

1.32. Jobseekers' obligations. Unemployed people who wish to receive government allowances and employment assistance can reasonably be required to make reasonable efforts to obtain suitable employment. It is also reasonable that continued eligibility for those allowances should be dependent upon compliance with (a) basic reporting requirements to establish continuing eligibility and level of assistance; (b) reasonable requirements to attend interviews and other meetings for determining and providing appropriate employment services; (c) reasonable activity test requirements.

1.33. The need for sanctions. It must be recognised that some recipients of unemployment allowances will deliberately fail to comply with their obligations or will make no reasonable effort to do so. Some of these people will seek to conceal such failure. The imposition of sanctions is justified if reasonable efforts have been made by those administering the payment of allowances to ensure that these people are aware of, and have had an opportunity to comply with, their statutory obligations. In some cases, this may eventually involve full loss of income support.

1.34. Pressures on the system. Due account must also be taken of the fact that the income support and employment assistance system operates in respect of a very large number of people and involves a very large number of decisions. This places particular strains on many front-line Centrelink and provider staff who may be obliged to work under pressure of high volume work, perceived pressure to reach formal or informal quotas, confusions and frustrations that can often arise in communicating with some jobseekers, limitations in systems for communications and record keeping and other constraints. No system of this size and complexity can be expected to operate perfectly in all cases.

1.35. Reasonable requirements. The requirements that can reasonably be placed upon a jobseeker may vary substantially according to personal circumstances. It must be recognised that some people are more vulnerable than others to difficulties in undertaking job search and other activities to improve their employment opportunities. Some are less able to manage administrative requirements; indeed, this may well be a substantial reason for their difficulties in obtaining employment.

1.36. Personal pressures. The system should also take due account of the fact that many jobseekers are under acute pressures arising from their own personal circumstances. The impact of such circumstances is not always easily understood by people who have not experienced them personally. It is especially important to recognise the severe and demoralising pressures faced by long-term jobseekers, particularly if very few jobs are available which they can realistically hope to secure.

1.37. Active engagement. The requirements imposed on jobseekers should be designed and applied in ways that will encourage them to engage positively in the labour market. Active and effective job search and positive participation in training and other assistance programs are usually the best ways for individuals to improve their chances of employment. Accordingly, the requirements should not be such as to prevent or deter them from seeking and obtaining paid work. If breaches and penalties have to be imposed, care should be taken to avoid discouraging people from cooperating in a system that is intended to increase their prospects of obtaining work.

1.38. Imposition of breaches. The breach system should be designed and administered principally to assist and reinforce compliance rather than focusing mainly on identifying and punishing non-compliance. Breaches should be reserved for those who clearly have not made reasonable efforts to meet their obligations. A high incidence of breaches should not be regarded as a desirable, or even acceptable, outcome of the system, especially if it continues over a substantial period. Indeed, it should be seen as a serious failure in the system.

1.39. Constructive responses. Save in exceptional circumstances, the first response to apparent non-compliance should be to make extra efforts to achieve compliance without the imposition of a sanction. It should not be assumed that such failure is deliberate, let alone being part of an entrenched pattern of unwillingness to comply. There may be good reason why a person who is genuinely willing to undertake required obligations nevertheless fails to comply on a particular occasion. This applies particularly to people whose circumstances suggest that they may be especially vulnerable to difficulties with compliance and not be deliberately flouting their obligations.

1.40. Appropriate penalties. If these attempts to achieve compliance are unsuccessful, it may be necessary to withhold some payment until communication is established and compliance can be achieved. But such a penalty should not be so severe that it is likely to cause greater hardship to people who are already in straitened circumstances and to further reduce their ability to engage in employment. It should be recognised that unemployment allowances are already at or below bedrock level for the maintenance of basic necessities and the capability of continuing to search for work. Any substantial reduction of an allowance should be a last resort after all other reasonable means of obtaining compliance with a jobseeker's obligations have failed.

Directions for improvement

1.41. We describe in subsequent chapters a number of ways in which we believe the current system needs to be improved. Before summarising them here, we wish to reiterate that administration of such a high-volume and complex system is a very challenging task. Difficult judgments and decisions have to be made, often in adverse circumstances, and it is not realistic or reasonable to expect entirely satisfactory performance in all situations.

1.42. Nevertheless, our inquiries have led to the conclusion that, while the system often functions in an appropriate manner, there are many occasions on which its operation in relation to particular jobseekers can be reasonably described as arbitrary, unfair or excessively harsh. There are also many occasions when it diminishes people's capacity and opportunity to continue seeking work and become less dependent on social security.

1.43. These problems are often contributed to by poor communication with jobseekers, or by inappropriate selection of the particular job search activities which individual jobseekers must undertake. They also often arise from breaches being imposed without sufficient regard for the relevant law or without sufficient investigation and consideration of individual circumstances. As a result, breaches are imposed too frequently. Moreover, penalties for the breaches are often too severe, thereby causing unnecessary and unjustifiable hardship.

1.44. This review did not include overall assessment of the design of the current system for requiring and helping people to look for work, including the Job Network scheme. But it is clear that weaknesses in that design contribute significantly to the inappropriately high level of breaches. It is also clear that there is insufficient coordination and cooperation between key governmental and non-governmental agencies involved.

1.45. Some improvements in the practical operation of the system have been initiated in recent months, following widespread expressions of public concern. Other changes are being trialled and may prove beneficial if implemented more widely. Nevertheless we believe that substantial further improvements in relevant laws, policies and administrative practices are necessary. The principal directions for improvement that we consider necessary are summarised below. Detailed explanation and recommendations are to be found in the subsequent chapters.

Communicating and working with jobseekers

1.46. Our inquiries indicate that the system is not sufficiently effective or efficient in communicating with jobseekers, determining their obligations, and helping them meet those obligations. This flows in large measure from an undue rigidity in its design and implementation, and also from insufficient provision of time and appropriate training for the staff by whom most of the relevant processes are undertaken and decisions are made.

1.47. The system must continue to operate on the basis that there is no right to assistance where there is a persistent failure to comply with obligations, especially if deliberate or reckless. But the policies and rules adopted in administering the system pay insufficient regard to identifying, understanding and taking account of the particular circumstances of individuals and the reasons why failures occur.

1.48. In particular, there is commonly inadequate recognition of the fact that some members of our society, because of difficulties such as homelessness, transitory or uncertain accommodation, literacy or language limitations, or physical or intellectual disabilities, are less able than others to understand or comply with the obligations imposed on them.

1.49. We consider that

• greater care should be taken to ensure that the obligations imposed on jobseekers are appropriate to their particular circumstances;

• processes for selection of the programs and providers to which jobseekers are referred should be improved;

• greater attention should be paid to the effectiveness of the means used to communicate obligations and provide other important information to jobseekers;

• greater care should be taken to ensure that non-compliance with obligations is not automatically presumed to be a deliberate failure by the jobseeker;

• greater attention should be paid to helping jobseekers achieve compliance with their obligations.

Imposing breaches and penalties

1.50. The design of the penalty system and its application to particular jobseekers do not pay sufficient regard to the degree of seriousness of the conduct in question or to the likely impact of the penalty on the individual jobseeker. These are both factors that are regarded as fundamental in the sentencing practices of the courts, yet the amounts involved in breach penalties can be substantially greater than many court-imposed penalties.

1.51. The existence of phrases such as "reasonable steps", "reasonable excuse", "without sufficient reason" and "special circumstances" in the relevant legislation indicates that the Parliament intended to guard against arbitrary and unfair imposition of penalties. In practice, however, insufficient investigation and consideration of reasons and surrounding circumstances have often prevented achievement of this intention.

1.52. Courts have always placed strict requirements on the right of a person to be afforded natural justice before a penalty is imposed. This carries two principles relevant in the present context. First, the onus of establishing a breach of the law leading to the imposition of a penalty is on the party asserting that a breach has occurred. Second, a penalty cannot be imposed unless the person affected has a reasonable opportunity to present their case in answer to the assertions being made against them. Neither of these basic principles of the rule of law are sufficiently observed in the administration of the breaches and penalties system.

1.53. We consider that

• greater efforts should be made to ensure that investigations and assessments of the circumstances behind apparent non-compliance are thorough and objective;

• closer attention should be paid to the legal requirements of procedural fairness (especially giving jobseekers a reasonable opportunity to explain their action before a decision is taken);

• more rigorous action should be taken to ensure that Centrelink staff apply the relevant statutory requirements, and appropriate policy criteria, when deciding whether a breach has occurred;

• the penalty system should be made fairer and more effective, including through refunding penalties in the event of prompt compliance;

• greater efforts should be made to avoid excessively harsh consequences of penalties.

Coordination, management and accountability

1.54. Our inquiries indicate that some aspects of the contractual and other relationships between DFACS, DEWR, Centrelink and providers do not promote the system's overall objective of helping all jobseekers to gain employment. For example, they can create undue pressures or incentives for Centrelink staff and providers to impose breaches on jobseekers. They also can unduly encourage providers to concentrate on those jobseekers for whom it is likely to be easier to find work, to the detriment of other jobseekers whom it is harder to place.

1.55. Many Centrelink and provider staff perform admirably, often under difficult circumstances, but greater steps need to be taken to ensure that all staff adopt their practices. These and other issues warrant the adoption of new procedures for monitoring and supporting their activities, including special measures in particular areas of high need. In particular, it is clear that insufficient use is made of the information and advice that can be provided by community organisations that work closely with jobseekers.

1.56. It is inevitable that mistakes will be made, or appear to be made, in some of the very high volume of matters handled by the system. The prospects of resolving such situations, however, are compromised considerably by undue difficulties in accessing independent advice and administrative review of official decisions.

1.57. We consider that

• greater efforts should be made to ensure that performance requirements, indicators and incentives do not induce unfair or counter-productive practices;

• communication between governmental and non-governmental organisations which deal with jobseekers should be improved;

• relevant government agencies should consult more widely with community organisations in formulating, applying and monitoring policy affecting jobseekers;

• greater access should be provided to independent advice and to effective administrative review for jobseekers who are adversely affected by Centrelink decisions;

• systems for monitoring and supporting Centrelink areas which have special needs or difficulties should be strengthened.

Conclusion

1.58. The recommendations in this report are premised on continuance of the key elements of the current system, including obligations that are enforceable through a system of breaches and penalties, and delivery of the system through service contracts with Centrelink and a wide array of non-governmental providers. On that basis, they endeavour to achieve a substantially greater level of effectiveness and fairness within the system. Jobseekers who are not willing to make reasonable efforts to find work would continue to lose benefit, while those whose efforts are substantially limited by external factors or personal difficulties would not be coerced unduly or penalised unfairly. The outcome of this approach would be to increase the overall level of compliance and successful job search.

1.59. We have been conscious in making the recommendations that government resources are limited. However, we note that when announcing its last Budget the Commonwealth Government emphasised that greater assistance must be provided to jobseekers in need and that substantial improvements in recent levels of funding for that purpose would be necessary. A number of our proposals could readily be pursued within the overall policy and funding announced at that time in the "Australians Working Together" package. Indeed, some of our proposals would build on and enhance initiatives promised in that statement.

1.60. Our recommendations would improve the efficiency and effectiveness of the employment services system and thus generate long-term savings. This would be achieved principally by encouraging active and constructive job search, thereby increasing employment outcomes and reducing social security expenditure. But it would also be achieved by reducing the time and resources involved in unproductive processing of breaches and penalties. It is reasonable to anticipate that these savings would substantially outweigh any additional expenditure arising from fewer reductions in jobseekers' allowance payments. Moreover, significant improvements in cost-effectiveness would flow from a number of our recommendations affecting management and allocation of resources within Centrelink and providers.

1.61. Our recommendations constitute an integrated and balanced package. Consideration of them separately is likely to lead to misunderstanding, misapplication and inappropriate outcomes. We have been requested to publish a brief assessment later this year of the extent to which we consider that our recommendations have been addressed by that time and we have agreed to do so. But, more importantly, we recommend in this report that the government itself should establish better processes for frank, detailed and regular consultation with community organisations about the design and implementation of the employment assistance system and related aspects of the income support system. We also recommend that a regular annual review of matters affecting the breaches and penalties system should be undertaken by an appropriate parliamentary committee in cooperation with the Commonwealth Ombudsman.