Part 7: Recovering debt

7.1
In this Part, we set out our findings about how Inland Revenue:

• recovers debt from liable parents living in New Zealand;
• recovers debt from liable parents living in Australia;
• recovers debt from liable parents living in other countries; and
• monitors the operation of the child support scheme and provides policy advice about improving aspects of the scheme.

7.2
We expected Inland Revenue to:

• recover debt using all of the tools available to staff;
• use a range of methods to trace debtors and ensure that debtors are aware of their obligations;
• identify child support debt that is unlikely to be collected; and
• regularly and consistently monitor and report on its effectiveness in managing child support debt, and use this information in its child support debt management strategies, operations, and policy advice.

7.3
Overall, Inland Revenue is doing a good job collecting child support debt given the difficulties in administering the child support scheme. Inland Revenue has effective tools it can use to recover child support debt from people living in New Zealand. It is more difficult for Inland Revenue to recover debts from people who have variable incomes or lack identifiable assets, but Inland Revenue has adequate tools for this task.

7.4
New Zealand has a reciprocal agreement with Australia that enables Inland Revenue to pass child support cases to the Australian Child Support Agency for collection and enforcement. In our view, this agreement works well.

7.5
It is much harder for Inland Revenue to recover debt from countries other than Australia, because it does not have any authority to collect debt in other countries and must rely on voluntary compliance. Inland Revenue has a data matching scheme with the New Zealand Customs Service. This allows Inland Revenue to better track the movements of child support debtors, and this is a helpful, albeit limited, tool for collecting child support debt.

7.6
Opportunities may arise for Inland Revenue to improve child support debt collection if treaties such as the Hague Convention for the International Recovery of Child Support and Other Forms of Family Maintenance come into force (New Zealand is a signatory to this Convention).

7.7
Inland Revenue monitors the child support scheme through monthly reports that show how it is performing against its performance standards. Some staff have proactively created and use additional reports that provide a more detailed view of how teams and individual staff are performing. We commend the initiative shown by these staff. We encourage Inland Revenue to consider expanding its regular internal reporting to include aspects that go beyond monitoring how it is meeting the agreed performance measures.

7.8
In our view, the performance information collected and reported by Inland Revenue internally and externally is consistent.

Domestic debt recovery

Inland Revenue has effective and efficient tools to collect debt from parents receiving a regular income. Inland Revenue has a greater challenge when collecting debt from people not receiving a regular income but has enough tools to do so.

7.9
For people believed to be living in New Zealand, the total child support debt was calculated, at 30 June 2009, to be $1,058 million (comprising $375 million in assessment debt and $683 million in penalties). However, Inland Revenue suspects that $208 million of this debt belongs to liable parents who are living overseas.

7.10
As previously discussed, Inland Revenue regularly monitors the income of liable parents with a child support debt, and an automatic report will highlight any such parents who receive new income. When Inland Revenue monitoring finds that a liable parent is receiving a regular salary or wage, Inland Revenue can issue a deduction notice to the employer under section 154 of the Child Support Act. The employer is then legally required to begin deducting child support payments from their employee's salary or wage. Inland Revenue must deduct a child support payment from a liable parent receiving a benefit, and it can also collect repayment for a debt in this way.

7.11
We reviewed 82 domestic child support cases and found that Inland Revenue was generally quick to apply a deduction notice when it detected income. The biggest challenge we saw in cases of a salary or wage was that some people frequently changed sources of income. It is important for liable parents to inform Inland Revenue if they have changes in their employment to minimise falling into debt.

7.12
If a liable parent is not a salary or wage earner, it is more difficult for Inland Revenue to recover a debt when the parent does not pay voluntarily, because Inland Revenue cannot recover a debt with a deduction notice. Inland Revenue's general approach in these circumstances is to review the case, contact the liable parent, and enter into negotiations about resolving the debt.

7.13
If negotiations are unsuccessful, Inland Revenue can seize assets directly from the liable parent. An Inland Revenue officer will search for assets and then attempt to seize them to resolve a debt. Inland Revenue will begin by attempting to seize any funds it can identify in the liable parent's bank account. It will then look for other assets, such as a house, car, boat, or shares. If other assets are found, Inland Revenue can seize them or place a charging order against the asset (this enables money to be recovered when the asset is sold).

7.14
If Inland Revenue is unable to negotiate payment or find assets, it can apply to the District or Family Court to summon the liable parent to court for an examination. At an examination, the court will hear arguments from Inland Revenue and the liable parent before making a ruling that could either remove the debt or require the liable parent to pay it.

7.15
Overall, Inland Revenue's ability to deduct money from a liable parent's wages is an effective and efficient way to recover a debt. Inland Revenue has a range of tools for recovering debt in other situations that are more complicated to administer because the debt is more difficult to recover. However, these tools do allow Inland Revenue to recover the debt when an individual has the resources to repay the debt. In cases where Inland Revenue is unable to identify the resources needed to repay a debt, that debt will remain outstanding and penalties will continue to accrue.

Debt recovery in Australia

The reciprocal agreement on child support between New Zealand and Australia is effective in recovering debt from liable parents living in Australia.

7.16
At 30 June 2009, there was $471 million in outstanding child support debt owed by liable parents confirmed to be living in Australia. Of this, $158 million was assessment debt and the remaining $313 million was penalties. Inland Revenue suspects that there is an additional $63.8 million in debt owed by liable parents who are currently classed as living in New Zealand but are believed to be living in Australia.

7.17
The reciprocal agreement on child support between New Zealand and Australia came into effect on 1 July 2000. Inland Revenue's website describes the agreement as follows:

The agreement allows one country to use the other country to collect child support from liable parents who are living in the other country. For example, New Zealand could send a request to Australia about a liable parent who owes child support for their children in New Zealand. Australia would use their own process to collect the child support and pass it on to Child Support in New Zealand, who would distribute it to the custodian.

7.18
Inland Revenue will usually find out that a liable parent has gone overseas because the custodian or liable parent has told them, or through information from the New Zealand Customs Service. Inland Revenue can verify with the Australian Child Support Agency that the liable parent is in Australia. If so, Inland Revenue can transfer the case to the Australian Child Support Agency for enforcement.

7.19
The Australian Child Support Agency was managing slightly more than 10,000 New Zealand cases, representing about $406.9 million in debt, at the end of the 2008/09 financial year. The Australian Child Support Agency collected $27.4 million in assessments and penalties during that year.

7.20
Cases passed on to the Australian Child Support Agency are managed in one of two ways – on an exchange basis, where cases are exchanged on a one-to-one basis, or under a fee-for-service model. Fee-for-service cases involve Inland Revenue paying a separate fee to the Australian Child Support Agency for managing cases additional to those covered by the reciprocal agreement. In 2009/10, Inland Revenue paid the Australian Child Support Agency $2.4 million to manage 4000 fee-for-service cases (about $600 a case).

7.21
We have not audited the collection approaches used by the Australian Child Support Agency to collect child support debt, and we do not have a view on the efficiency of the arrangement. However, given the difficulties in collecting child support payments once a parent has gone overseas, our view is that the relationship between Inland Revenue and the Australian Child Support Agency is effective.

Debt recovery in other countries

Inland Revenue has few options for recovering debt from people living in countries other than Australia. A New Zealand Customs Service data-matching scheme has provided Inland Revenue with a helpful, albeit limited, tool to help collect overseas debt. The situation could be improved if some international agreements come into force.

7.22
At 30 June 2009, there was $27 million in outstanding child support debt owed by liable parents confirmed to be living overseas but not in Australia. Of this, $7 million was assessment debt and the remaining $20 million was penalties. Inland Revenue suspects that there is an additional $144 million in debt owed by liable parents who are currently classed as living in New Zealand but are believed to be living overseas in a country other than Australia.

7.23
It is difficult for Inland Revenue to administer and recover a debt after a liable parent moves overseas. A liable parent living overseas may not have any assets or income in New Zealand. Inland Revenue may not know the individual's address, and finding it can be a challenge. Inland Revenue has no authority to enforce the payment of child support by liable parents living in countries other than New Zealand or Australia, so it has to rely on negotiated voluntary agreements. In these circumstances, Inland Revenue takes a different approach to recovering a debt.

7.24
In some instances, Inland Revenue may know that a parent has moved overseas because the custodian or liable parent has told them. Information from the New Zealand Customs Service can also be used to establish whether a person has left New Zealand.

7.25
By checking with the New Zealand Customs Service, Inland Revenue can verify that a person has left the country, which flight they were on, and their initial destination. However, Inland Revenue is not always able to collect information about the person's final destination. For example, if a person is flying from Auckland to London through Hong Kong, the travel data may confirm that the person had travelled to Hong Kong but not to London.

7.26
In August 2008, a data-matching scheme between Inland Revenue and the New Zealand Customs Service went live. This scheme allows Inland Revenue to be notified immediately when a parent with a child support debt enters or leaves New Zealand.

7.27
Inland Revenue uses the data matching to pass cases on to the Australian Child Support Agency, or to contact parents and try to negotiate child support payments with them. Sometimes, to resolve a debt, Inland Revenue will apply for an arrest warrant to stop a liable parent from leaving the New Zealand.

7.28
In our view, the data-matching scheme helps locate parents Inland Revenue has lost track of, and has led to Inland Revenue collecting child support debt that might not otherwise have been collected.

7.29
Opportunities may arise for Inland Revenue to improve child support debt collection if treaties such as the Hague Convention for the International Recovery of Child Support and Other Forms of Family Maintenance come into force. New Zealand is a signatory to this Convention, and it would provide a basis for collecting child support payments from liable parents living overseas.

Performance monitoring and improvement

Inland Revenue regularly monitors the operation of the child support scheme and provides policy advice about improving aspects of the scheme. We commend the work of some staff in proactively creating and using reports that expand beyond performance standards agreed to between Inland Revenue and the Government.

7.30
In its Annual Report 2009, Inland Revenue reports on performance standards agreed with the Government. Internal management reporting focuses on how well it is meeting those performance standards. Performance against all standards is updated internally through monthly management reports.

7.31
The performance standards that Inland Revenue reports on in its annual report include the following performance indicators:

• the accuracy of information given to parents;
• how quickly Inland Revenue responds to correspondence;
• how often, and by what means, parents contact Inland Revenue;
• how long it takes Inland Revenue to carry out core administrative tasks such as registering parents new to the child support scheme, issuing child support assessments, and doing administrative reviews;
• the number of child support assessments paid on time;
• the value of child support assessments collected;
• the percentage of debt cases resolved within the previous 12 months;
• the growth in assessment debt, excluding penalties; and
• the amount and types of debt that is outstanding.

7.32
Inland Revenue's internal management reporting covers the same topics as the external reporting, but has additional comparisons between time periods and trends. This internal reporting allows Inland Revenue to track its performance figures monthly instead of annually. Inland Revenue's internal reporting also monitors the levels of child support debt and reports on how these levels have changed over time. In our view, the performance information collected and reported by Inland Revenue is consistent, internally and externally.

7.33
Figure 9 shows some of Inland Revenue's performance standards that are most relevant to child support debt. Although Inland Revenue has been slightly below its target in collecting all of a particular year's assessment, it has slightly exceeded its targets in collecting debt and limiting the growth of debt.

Figure 9
Examples of child support scheme performance standards

7.34
Some Inland Revenue staff we met with during our audit showed us additional reporting information they had created because existing reports did not provide them with all of the information they required. Staff (including managers) use this information to gain a more detailed view of the performance of specific teams (some teams do quite specialised tasks), and the performance of individual staff. The performance standards that Inland Revenue monitors, when combined with the additional internal information staff collect, provide a reasonable view of the current operations of the child support scheme.

7.35
Quarterly surveys gauge parents' satisfaction with the services they receive while they are in the child support scheme. Results are reported in Inland Revenue's annual report. Inland Revenue also commissions research on how parents respond to specific aspects of the child support scheme.

7.36
Inland Revenue also conducts specialised research about the effectiveness of various pilots and programmes. This research uses the information Inland Revenue collects while administering the child support scheme. Inland Revenue can also use information from its systems to respond to specific queries for information that may fall outside of its normal reporting (for example, when we sought additional information about child support debt – see Appendix 1).

7.37
As well as monitoring its performance, we expect Inland Revenue to provide policy advice about making improvements to the child support scheme. In September 2007, Inland Revenue provided a briefing to the Minister of Revenue about possible updates to the child support scheme. Work continued in this area, leading to the preparation of an as yet unreleased discussion paper.

7.38
In our view, an organisation needs to regularly review the information it collects if it wishes to better understand and improve its operations. For example, as Inland Revenue makes adjustments to the way that it helps parents understand child support, it needs to make sure it is collecting information that allows it to assess how effective its efforts have been.

7.39
We commend the initiative taken by some staff to improve performance monitoring in their areas. In our view, Inland Revenue needs to encourage staff efforts at improving performance measurement. We also encourage Inland Revenue to expand its regular internal reporting to areas that go beyond monitoring how it is meeting performance measures it has agreed with the Government.