Centrelink's demands on former welfare recipients targeted by its "robo-debt" program were neither "reasonable" nor 'fair", the Commonwealth Ombudsman has found.
Now the public watchdog wants the government to conduct a "comprehensive evaluation" of the controversial "online compliance intervention" before it goes any further.
The Coalition welcomed the Ombudsman's report on Monday morning, saying it vindicated the basic approach of the debt recovery program and that many of the watchdog's recommendations were already in place.
But the Ombudsman's probe found serious deficiencies with robo-debt, mostly caused by the Department of Human Services failing to properly consider the issues involved, before it unleashed its massive debt recovery program on the public in 2016.
The Ombudsman's 113-page report, compiled after numerous complaints from the public, also found Centrelink had acted reasonably in its initial approaches to clients suspected of being overpaid.
The investigation confirmed that 20 per cent of people sent an initial "request for information" letter were able to prove they owed nothing to the welfare agency.
A request for information was reasonable, the Ombudsman concluded, and the widely reported 20 per cent error rate was not accurate, according to the report.
But overall, acting Ombudsman Richard Glenn said, many of the issues with the controversial online compliance initiative (OCI) were of the department's own making.
"We found there were issues with the usability and transparency of the system," Mr Glenn said on Monday morning.
"There were deficiencies in DHS' service delivery and communication to customers and staff when implementing the system.
"These issues affected the quality of decisions made by the OCI.
"Many of these problems could have been reduced through better project planning, system testing and risk management."
Centrelink's notorious customer service woes also emerged as a major theme in the robo-debt debacle, the Ombudsman found.
Clients were unable to contact Centrelink to provide the information the agency was demanding, public servants had not been trained to help and clients were unable to get clear information from Centrelink websites and apps.
The Ombudsman's findings are sharply at odds to the public position of senior Human Services' leaders, who blamed the crisis largely on a "failure to engage" by Centrelink clients.
One of the most contentious aspects of robo-debt, which is meant to detect overpayment by automatically matching information supplied to the Australian Taxation Office with that given to Centrelink, was the demands for clients suspected of overpayment to produce payslips going back several years.
"In our view, this is not reasonable or fair in situations where customers have to collect evidence from several years ago, or where the customer does not have the capacity to obtain the evidence," the report reads.
The Ombudsman's office has accepted DHS's response that it has refined and improved its systems and process and the department has accepted all of the Ombudsman's recommendations including that the system be evaluated.
Human Services Minister Alan Tudge issued a statement on Monday morning, welcoming the report and saying it vindicated the basic approach of robo-debt.
"The Ombudsman's report shows that the online compliance system is reasonable in its data-matching and can accurately calculate debt owing," the minister said.
But the Australian Council of Social Services said the revelations in the report were "shocking and "alarming" and Greens Senator Rachel Siewert, who is leading an inquiry into the crisis, said the Ombudsman had found "severe structural flaws" in the system.
Labor's Human Services spokeswoman, Linda Burney said the report was "damning", but that she was not surprised by its findings.
"What I am continually surprised by, is the lack of capacity for this minister, or this government, despite the mounting evidence they have now that the debt collection system is broken, that they don't cease it, or pause it and fix it," she said.