Derpartment Department of Human Services continues to cover itself in glory* this week hundreds of people go public with their stories of incorrect debts being raised against them and the Kafka-esque bureaucracy that awaits anyone caught in its dragnet.
I’ve been digging into the financial justifications for the automation effort, and it’s a convoluted beast. The numbers being bandied about sound good in a headline, but figuring out the real numbers has been surprisingly difficult. Little wonder that the stories containing any of the figures, particularly the ones used by Ministers Alan Tudge and Christian Porter, are confusing at best.
Here’s my attempt to unravel what’s really going on here. I’ll provide links to primary sources, rather than media reports, where I can.
The Headline Number: $4 billion.
As best I can work out, this number comes from the balance sheet value of the amount of money paid to people that shouldn’t have been, for whatever reason.
The Department of Human Services operates the social welfare payment system (aka Centrelink) on behalf of the Department of Social Services (DSS). Both of them therefore report on the finances of social welfare payments, but they do it in slightly different ways. DSS has more of a governance and oversight role, while Centrelink is more operational.
We can therefore find financial information about Centrelink in DSS’ Annual Reports. It’s here that we can see, in the financial statements, a bunch of information about the money administered by DSS on behalf of the Government. This is different from the financials of DSS itself, which is more concerned with how DSS runs itself than how it looks after the Government’s money (even though it’s all ultimately Government money, i.e. our money).
For 2015-16, the important figure is in Part 4 (Financial Statements), specifically note 4.1A: Receivables.
Here we can see that DSS expects that there is about $4bn of money paid as personal benefits payments that it should be able to recover, i.e. overpayments.
Importantly, there’s also an impairment allowance:
An impairment allowance how much money you don’t think you’ll be able to actually get back, for whatever reason. It’s writing off a bad debt, essentially.
Note the substantial change from FY 2014-15 (at the right) to FY 2015-16: $765 million dollar, or about 25% of the total balance. That means that DSS has re-evaluated how much of the debts (receivables) it thought it would be able to get back, and decided that it wouldn’t be able to recover quite a lot of it. 25% is a big change.
Why did this happen? Good question, and I haven’t figured that out yet.
There’s also this detail on Aged Receivables, which shows how overdue the debts are. As we can see, most of them, again around $4bn, are not at all overdue.
Finally we get to a consolidation of all this stuff to see how much money DSS reckons it will be able to actually get paid in the coming year, and how much will take longer than that:
Just under $1.2 billion this year, and another $2.64 billion ‘eventually’.
An important thing to note here: with accruals accounting (which is what is being used here, like most organisations) you never get your receivables to zero. Receivables are used to track the difference in timing between when a debt is incurred (you owe the money) and when you actually get the cash. Whenever anyone buys something on credit, this happens. The bigger the organisation, the larger this number will be, because the total volume of payments is larger.
What we’d need to look at (and I haven’t yet) is how large this running balance of receivables should be. Is it too high? Maybe. But by how much?
The bottom line here is that it will not get to zero unless DSS/Centrelink can manage to never overpay anyone for any reason, ever. That’s unrealistic, because it would require Centrelink’s systems to be perfect, and no system is perfect.
And that’s okay! As long as the running balance isn’t too large (and we need to know what that amount is and why) and stays relatively constant over time, then the money is flowing in and out of the system nice and smoothly. There will always be errors and mistakes, because we’re dealing with humans and human made systems, which always have flaws. It’s how you manage those flaws that matters.
Double-entry book-keeping and accruals accounting have been developed for just this reason. Provided you do it properly, and that’s where we should be focusing our attention. What does a properly run system look like, and how different is that from what we currently have.
Unless you can clearly articulate that, then you cannot fix the system. And this is the big, big problem with the Government’s current approach.
The Other Number: $1.7 Billion
Or is it $1.5 billion? That’s the other number being bandied about, and I’ll address that in another post because this one is already long enough.