It is important that the individual circumstances of the client and relevant reasons and circumstances surrounding the overpayment are not assumed. In most circumstances it is likely to be distressing for a client to discover that they have been overpaid and that they may/will be the subject of recovery action. Delegates should be aware of this and handle overpayment cases in a sensitive manner.
What action will be appropriate and reasonable will depend on the circumstances, such as whether the overpayment is the result of inadvertence, departmental error or fraud and the known state of the client’s physical and mental health.
Early engagement is important and notification of the overpayment must be provided to the affected client, including the details and circumstances of why the overpayment occurred.
Recovery should be made with regard to the following principles.
Principle 1: an overpayment should be recovered only if it is economically viable for DVA to pursue the recovery of this debt. |
When deciding whether this is the case, the following factors should be taken into account:
If a delegate determines that it is not economically viable to pursue the recovery of a debt, they should then consider whether it would be appropriate to write-off or waive the debt.
Principle 2: an overpayment should be recovered as soon as feasible, having regard to principles 3 and 4. |
Principle 3: the method and timing of recovery should be established with reference to the client's capacity to pay. |
It is important that at this stage, enquiries are made with the affected client about their financial circumstances (including income, other debts, assets and significant outgoings) if such information is not already held by DVA.
When seeking to recover it is important to take into account whether hardship will be caused for vulnerable clients. There are no specific criteria for judging hardship and each case must be assessed on its own merits.
The aim of debt recovery is not to cause the client financial hardship and the recovery process should be a cooperative one in which a reasonable rate of recovery can be negotiated and agreed with the client and recorded in a Recovery Plan.
Principle 4: when recovering an overpayment, reference should be made to the DVA Protocols for dealing with clients at risk. |
Under the Protocol for Dealing with Clients at Risk a client is considered potentially at risk if they are seriously ill, vulnerable or at risk of self-harm or harm to others. The protocol outlines the steps to be taken when delivering advice to existing DVA clients considered at risk.
There are no statutory time limits for the recovery of overpayments in the MRCA or DRCA. Section 415 of the MRCA and section 114 of the DRCA allow the MRCC and Commonwealth respectively to take certain actions to recover any overpayment.
However, it is DVA policy not to commence legal proceedings to recover a debt that has arisen under DRCA or MRCA after the end of the six-year period that began on the day a DVA officer became aware, or could reasonably be expected to have become aware, of the circumstances that gave rise to a debt. This position is consistent with s 206(2) of the Veterans’ Entitlement Act 1986 (VEA). This policy ensures a consistent approach across the legislation.
Under the MRCA, a determination made under section 415(4) to recover an overpayment is not an ‘original determination’ (subsection 345(2)(i)) that can be the subject of an own motion review (pursuant to section 347) or that can be reviewed by the Veterans Review Board (VRB). However, any determination as to the amount that should be recovered is an original determination (subsection 345(2)(i)) and can be reviewed both by another delegate or the VRB.
Under section 114 of the DRCA, an overpayment that has given rise to a debt to the Commonwealth can be recovered without a ‘determination’ being made by the MRCC or the Commonwealth. Decisions to recover an overpayment under s 114(2) are not merits reviewable under the DRCA. An exception to this arises where the MRCC makes a determination under subsection 114B(5)(a), which deals with the requirement to determine whether an overpayment of compensation has occurred as a result of a superannuation payment. These determinations can be the subject of an ‘own motion review’ under s 62 and are, potentially, merits reviewable.
DVA allows the following methods of recovery with regard to MRCA and DRCA debts in order of preference:
Recovery of an overpayment in a one off lump sum is the most efficient and economical method for the Commonwealth.
In requesting a lump sum, a delegate should have reasonable regard to the amount of pension or other entitlements payable to the client, the client’s financial circumstances, and the client’s readily available funds.
If a full refund is not possible but the client has readily available funds equal to or more than 80 per cent but less than 100 per cent of the total debt, consideration should be given to offering a discount of up to 20 per cent on the total debt. In all circumstances when this offer is made and accepted, the 80 per cent or more of the total original debt must be paid within 30 days. The discount on an original debt does not apply to a person who has already entered into a recovery plan.
The offer can be made in respect of all types of MRCA or DRCA debts, except where the client or the estate has the capacity to repay the debt in full or the overpayment was caused by fraud.
The remaining 20% of the overpayment must be waived by way of a written determination under either section 429 of the MRCA or section 114D of the DRCA. See the section on waiving debts.
If a client is in receipt of ongoing payments (e.g. incapacity payments or periodic PI payments) but is unable to repay their debt in a lump sum, then deductions can be made from these ongoing payments provided they are under the same Act. The person should be given sufficient notice prior to the deductions taking place.
Before recovering, by way of deduction from payment under the MRCA, a debt that has arisen under that Act, the MRCC must make a determination (see s415(4) of the MRCA). No determination is required prior to an amount being recovered by way of a deduction from an amount payable under the DRCA (see s 114(2) of the DRCA).
The MRCC does have the legislative authority to recover an overpayment from a pending PI lump sum payment without the permission of the veteran. However, procedural fairness requires that the veteran be informed prior to doing so. Moreover, there are situations in which it is procedurally inappropriate to recover an overpayment from a pending PI lump sum. For example, if the client already has an ongoing payment plan, and is adhering to this, then it wold be inappropriate to recover from a PI lump sum without the permission of the veteran.
The MRCC does not have legislative authority to recover an overpayment under one Act from a payment made under another Act. Although a delegate could do this with the permission of the client, there are legal risks in doing so. If the client were to renege on the agreement later, the MRCC would not have the legislative authority to enforce the agreement.
There are no provisions under the MRCA and DRCA that allow for any financial penalties, such as penalty interest or administrative charges, to be applied to an overpayment.
Where the preferred methods are not available a number of alternatives are permitted under the MRCA and DRCA, including:
Under the DRCA and the MRCA there are no provisions for the wages of claimants to be garnished. The only regular payments that can be reduced are those paid by DVA for compensation under the DRCA or the MRCA.
However, repayment by instalments can be arranged with the client through direct deductions from wages or salary or from funds held in a financial institution. This action is initiated at the client’s request by approaching the relevant authority. The client can, however, revoke this action at any time.
A spouse or other willing third party may offer to repay an overpayment. Before DVA can accept, the third party must be advised in writing that they are under no legal obligation to repay the overpayment and that consent can be withdrawn at any time. If consent is withdrawn, the client must be contacted and negotiations begun for recovery of the amount outstanding.
In some circumstances civil recovery can be sought through the courts, although this is a last resort. If you think legal action offers the best way of recovering debt or of potentially holding a charge over an asset in order to protect the Commonwealth’s interest, this should be discussed with DVA’s General Counsel Division.
When a person becomes bankrupt management of their assets and debts passes to the Official Receiver in Bankruptcy or Trustee. The person’s assets may be used to repay debts. The bankruptcy of a client affects DVA’s methods of recovery. Any debt incurred before the date of the bankruptcy is subject to restrictions on its recovery under the Bankruptcy Act 1966.
If a client becomes bankrupt, DVA should not continue to recover an overpayment via deductions from the client’s payment, because a bankrupt client would not have the capacity to make debt repayments. Deductions should only continue if approved by the Trustee. In addition, there are payments such as compensation payments which cannot be garnished from a bankrupt.
In the event that DVA has commenced a debt recovery action, the recovery action and any contact with the client should cease as soon as DVA becomes aware of the bankruptcy. Any civil action being taken against a bankrupt client should also be reviewed in this circumstance.
Under subsection 153(1) of the Bankruptcy Act, the effect of a discharged bankruptcy proceeding is that the person is released from all debts provable in relation to any proceedings under the Act. This means that the debt cannot be pursued after the discharge by any of the creditors. This is particularly the case when the overpayment occurred before the person was declared a bankrupt. Subsection 153(2) provides a list of circumstances in which a bankrupt cannot be discharged from their debt. For example, where the overpayment occurred by fraud, and prosecution proceedings are to be commenced or have commenced.
Consult the General Counsel Division to discuss what to do when a client’s business has gone into administration and the implications of this for the recovery of payments.
When a client has died and there is an outstanding overpayment, a formal claim must be made on the estate. The deceased debtor’s family (including the client’s spouse or partner) are not personally liable for the debt and a family member should only be approached regarding the debt if they are the executor or trustee. Family members who are not the executor/trustee should not be contacted regarding the debt or asked to repay the debt.
If an overpayment has been raised after a client’s death but before the estate has been distributed, action can be taken to recover the debt. Action can also be continued against a deceased client’s estate to recover an existing departmental debt. The statute of limitations or time limits imposed by state and territory legislation are, however, applicable.
Whether action can be taken is contingent on whether there are identifiable traceable assets. An identifiable traceable asset is an asset that was once owned by the deceased but has passed to the beneficiaries by virtue of the deceased’s will or local intestacy rules (for example, shares, bank accounts, and real or personal property). Superannuation, insurance and compensation are not traceable assets.
The executor/trustee of the estate must be contacted in order for DVA to lodge a claim for the repayment of the debt. If the representative is not known, the Public Trustee, the Probate Office or the Official Trustee should be contacted for details of who is handling the estate. Alternatively, you can write to the executor of the estate at the deceased client’s last known address.
When a client dies during a period in which it would have been open for them to apply for review of a decision relating to the debt, or if a formal claim on the estate serves as the first notification of the debt, the claim must provide details about rights of review.
If the trustee/executor is notified of a client’s debt after the estate has been distributed, the only remaining debt recovery option available to DVA is for a beneficiary of the estate (such as a family member) to make a voluntary repayment. The debt should normally be written off for 6 months to allow for a possible voluntary payment. If a voluntary repayment is not forthcoming, a waiver should be considered. The lack of capacity to recover is relevant to the exercise of the waiver discretion. It may be the case that a waiver is appropriate in the first instance, having regard to the circumstances of the individual case.
If there is no estate and no surviving family members, such that there is no prospect of receiving a voluntary repayment, this will be relevant to the waiver discretion such that the debt would normally be waived.
Links
[1] https://clik.dva.gov.au/user/login?destination=comment/reply/19220%23comment-form