The Commonwealth Ombudsman has agreed with thousands of Australians, saying Centrelink's debt recovery system lacks transparency and has treated customers unfairly.

The Department of Human Services (DHS) has been hammered after it began sending automatically-generated debt notices to welfare recipients, using an algorithm that compared their DHS details to those of the Tax Office.

This data-matching technique has been used for years, but has only recently become fully automated.

Acting Commonwealth Ombudsman Richard Glenn says the debts raised by DHS were largely accurate, despite one in five people who received a notice later proving that they did not owe any money.

Mr Glenn says these were not “errors”, and that the number of mistakes was about the same as under the new system.

But he did have a number of criticisms, calling for a range of improvements for the system to meet “minimum administrative law requirements”.

“There were deficiencies in (the department's) service delivery and communication to customers and staff when implementing the system,” he said.

“These issues affected the quality of decisions made by the [automated system].

“Many of these problems could have been reduced through better project planning, system testing and risk management.”

The Ombudsman said DHS had made a major improvement by allowing welfare recipients to trigger an internal review before debt proceedings.

Human Services Minister Alan Tudge says the Government is listening.

“The unfortunate reality is that while most welfare recipients do the right thing, some deliberately defraud the system while others inadvertently fail to accurately declare their income and consequently receive an overpayment,” he said.

“We want to be fair and reasonable to welfare recipients but also fair to the taxpayer who pays for the welfare payments.”

Mr Glenn said many debt notices were issued because welfare recipients did not provide complete information to the department.

The report said a lot of people were unaware that they had to enter their income more regularly under the new system.

“In some cases this was a more favourable outcome for the customer, and in others, the debt was overstated,” the report said.

The report’s strongest criticism was aimed at the shambolic way the department dealt with the complaints.

“Poor service delivery was a recurring theme in many complaints received by our office,” the report said.

“Customers had problems getting a clear explanation about the debt decision and the reasoning behind it.”

It found Centrelink staff did not fully understand the new system either, because they had not been properly trained on it.

“Many of the … implementation problems could have been mitigated through better project planning and risk management at the outset,” the report said.

“This includes more rigorous user testing with customers and service delivery staff, a more incremental rollout, and better communication to staff and stakeholders.”

The ombudsman called on the department to give the program a “comprehensive evaluation” before implementing more data-matching, calling for an incremental approach to any future.

The report is available in PDF form, here.