Part 6: Monitoring and prioritising debt

Inland Revenue Department: Managing child support debt.

In this Part, we set out our findings about Inland Revenue's:

We expected Inland Revenue to:

  • have systems supporting early and automatic detection of debt;
  • have a method to prioritise which debt cases to pursue both in New Zealand and overseas – one that is fair to all parents and takes into account cost-effectiveness; and
  • actively manage all debt cases.

Overall, Inland Revenue has effective automated systems to monitor and detect when a liable parent begins to receive new income. Also, Inland Revenue has in place an effective system for prioritising which debt to pursue, one that is responsive to the needs of custodial parents.

Sometimes, Inland Revenue's information about liable parents is either limited or missing. This means that Inland Revenue has to make certain assumptions when calculating child support. This can lead to an incorrect debt assessment being made. However, the amount of debt owing can be revised if additional information becomes available to Inland Revenue. In our view, Inland Revenue takes a sensible approach to handling missing information.

Monitoring debt

Inland Revenue regularly monitors debt, and it has effective automated systems that will identify when a person in debt begins to receive income.

Inland Revenue runs a monthly child support income report that will identify and highlight any new income (including a benefit) that a liable parent with a child support debt has received. It will also identify when someone with a child support debt who does not already have a current repayment arrangement in place receives income.

It is important for Inland Revenue to identify benefit income because a liable parent who is receiving a benefit must have their assessment and any repayment towards a debt deducted from their benefit.

Inland Revenue gets income information from employers, the Accident Compensation Corporation, and the Ministry of Social Development on the fifth or twentieth of each month. Inland Revenue notes this income early in the following month when it runs a new child support income report.

Inland Revenue's monitoring will identify any new income or changes in employer, but it can take up to a month for new income information to appear in the monthly child support income report because of the time it takes to receive and process information supplied by employers.

Our view is that Inland Revenue has a good and effective system in place for monitoring when a person in debt begins to receive new income.

Prioritising debt

Inland Revenue has a method of prioritising which debt to pursue that takes into account the effect of a missed payment on a custodian.

A custodian who has not received a child support payment can contact Inland Revenue. The notification of non-payment will usually be handled by the Assistance division for further investigation. Because of requirements set out in the Privacy Act 1993, much of the information Inland Revenue may have about the liable parent cannot normally be discussed with the custodian.

There is a more formal process for allocating debt cases to officers for follow up. Inland Revenue runs a report every month that highlights cases where certain conditions are met – such as recently missed payment, debt that has reached a certain threshold, or when new income has been noted. This report is used to allocate cases to a particular team, and a team leader assigns those cases to their staff.

During our audit, we found that Inland Revenue is less likely to have a child support officer involved with cases regarded as uncollectible. Our review of child support cases found that these cases tended to have longer gaps between periods when an officer was involved. In our view, this is appropriate. Inland Revenue's current automated monitoring will pick up any travel activity or income for these parents, and child support officers' time can be used more effectively on other cases where a debt is more likely to be recovered.

Overall, Inland Revenue has a system for prioritising child support debt cases that is responsive to custodians and focuses efforts on cases where it is most likely to recover a debt.

Accuracy of debt

When Inland Revenue lacks information about a liable parent, it will make assumptions about income levels, which may be revised when more accurate information becomes available.

The debt information that Inland Revenue holds for an individual uses the child support assessment. The assessment is based on the eligibility, income, and living allowance of the liable parent. Inland Revenue needs to make assumptions when it is unable to confirm the details of any of these three main criteria. These assumptions can be updated when more information becomes available. This might change debt levels, sometimes significantly.

A parent must be a New Zealand citizen or a resident of New Zealand to be eligible or liable for child support payments. Sometimes, liable parents leave the country without notifying Inland Revenue.

A resident's liability will end when they leave the country, but a citizen's will not. The assessment and penalties will continue accruing until Inland Revenue can confirm that the person has left the country and is not a citizen. If a non-citizen returns to New Zealand as a resident, they will again be liable for child support payments.

When Inland Revenue does not have information about a parent's living allowance, it will assume that the liable parent is a single individual with no dependents (a scenario that sets child support at the maximum level). However, a liable parent can inform Inland Revenue if that assumption is incorrect, and this can reduce their assessment.

Inland Revenue will estimate a person's income if it does not have enough information about that individual's income. This generally applies to people living outside of New Zealand or Australia, because Inland Revenue and the Australian Child Support Agency share income information with each other.

For liable parents living in other countries, Inland Revenue's current policy is to initially set the income at the maximum level (a $120,463 salary with the minimum deduction of $14,158 for a living allowance). The aim is to get a liable parent's attention.

Setting the income at the maximum level can lead to an estimated debt for the individual that is larger than an actual debt; this can be corrected only if Inland Revenue receives the correct income information. After a period of time, if a liable parent does not respond to requests to provide income levels, Inland Revenue will set the income to a nil level, leading to a minimum assessment.

Updated information can have a major effect on an unpaid debt. For example, during our audit, we saw a case where an application for child support payments was filed in 1994. The custodian stopped receiving payments in 1995. Debt on this case had reached about $400,000 by the time an officer was able to verify that the liable parent had left the country in 1995. The debt was then recalculated with the assessment ceasing from when the liable parent had left the country. This brought the outstanding assessment to about $300 and a total debt (with penalties) of about $11,000. As this remains a valid assessment, penalties will continue to accrue until the debt is recovered or Inland Revenue can resolve the debt under the limited grounds discussed in Part 2.

In our view, it is reasonable for Inland Revenue to make assumptions when it lacks information. But it is important to note the direct link between the accuracy of an outstanding debt and the amount of information that Inland Revenue can collect. If parents live overseas, Inland Revenue might have only limited information. We discuss collecting debt from overseas parents further in Part 7.

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