Part 4: Inland Revenue Department: Managing child support debt

Background

4.1
Under the Child Support Act 1991, the Inland Revenue Department (Inland Revenue) is responsible for ensuring that parents take financial responsibility for their children when a relationship ends and the parents are unable to come to a voluntary arrangement for child support payments.

4.2
Child support money is paid as monthly child support payments, usually by the liable parent (that is, the non-custodial parent). Debt will start accumulating unless a liable parent pays the full amount they owe, on time, every month. As well as the amount of money owed by the liable parent, a range of penalties (payable to the Crown) are imposed. When a debt is not paid, the penalties compound.

4.3
Total child support debt at 30 June 2009 was $1.56 billion (comprising $540 million for unpaid child support assessments and $1.02 billion for unpaid penalties).

The scope of our performance audit

4.4
Our audit examined Inland Revenue's:

• strategy for managing child support debt;
• approach to making sure parents understand the child support scheme and their financial obligations;
• child support payments penalty regime; and
• monitoring and prioritising of child support debt.

Our findings and recommendations

4.5
We found that the penalty regime is inflexible and does not help to effectively and efficiently manage child support debt. We made four recommendations to help Inland Revenue to control the growth of child support debt, to do more to prevent debt, and to address the effect that the penalty regime has on debt.

Inland Revenue's response to our findings and recommendations

4.6
Inland Revenue accepted our recommendations, and has made satisfactory progress on all of them. Inland Revenue will fully address the recommendations when it successfully carries out a plan to collect child support debt, and completes a review of all customer notices and communication about child support debt.

4.7
In October 2011, the Minister of Revenue's Child Support Amendment Bill was introduced in Parliament. At the time of writing, it is before Parliament. If passed, the proposed legislation will help to fully address the recommendations. The proposed amendments include major changes to the child support scheme's penalty regime.

Child support debt strategy

4.8
We recommended that Inland Revenue update its child support debt strategy to better promote voluntary compliance by parents and better reflect the effect the penalty regime has on debt levels.

4.9
Inland Revenue has told us that it is introducing a plan for its child support work for 2011-15. The plan focuses on six areas:

• understanding customers so that Inland Revenue can tailor its responses to them;
• encouraging customers to comply and self-manage their payments;
• managing non-compliance in a timely manner;
• enhancing the capability of staff and resources allocated to child support debt;
• managing information to make sound decisions; and
• enhancing external collaboration to help and compel customers to meet their obligations.

Information for parents entering the child support scheme

4.10
We recommended that Inland Revenue provide all parents entering the child support scheme with information that clearly and consistently informs them about their rights and responsibilities, and how the scheme works.

4.11
Inland Revenue has completed an audit of the information available for child support customers on its website. Inland Revenue's intent was to refresh and update the website content informed by this audit's findings. Inland Revenue told us that the Canterbury earthquakes delayed this work.

4.12
Inland Revenue plans to review all its customer notices and communication after proposed changes in the Child Support Amendment Bill pass through Parliament.

4.13
Inland Revenue plans to change its information technology system, beginning in January 2013. This should allow changes to the content and style of child support notices to be made more easily.

Information for parents in the child support scheme

4.14
We recommended that Inland Revenue identify information that parents are likely to need to understand their continuing obligations while they are in the child support scheme and ensure that this information is made readily available to them.

4.15
Addressing this recommendation depends largely on Inland Revenue's audit and review work (see paragraphs 4.11 and 4.12).

4.16
Inland Revenue told us that, since our audit, changes to the Individuals and Families workspace on the Inland Revenue website give child support customers the ability to update and revoke estimates of their income and update changes in their circumstances. The technology allows this information to be provided over a secure connection.

Penalty regime

4.17
We recommended that Inland Revenue assess whether the child support penalty regime makes it more difficult for parents to comply with child support obligations.

4.18
We note that the Child Support Amendment Bill, if passed through Parliament (see paragraph 4.7), will come into effect over two years and will require significant changes to Inland Revenue's systems and processes. Inland Revenue will make these changes in two phases:

• Phase 1 – from 1 April 2013, introducing the revised child support formula; and
• Phase 2 – from 1 April 2014, introducing all other changes.

4.19
Inland Revenue told us that it continues to improve its information system after an internal review of its computer systems and processes for managing child support debt.

4.20
We will keep a watching brief on Inland Revenue's progress in turning its planning into action.

4.21
We note that the passage of the Child Support Amendment Bill through the Parliamentary processes is a critical step towards Inland Revenue's planned changes.