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Department misled independent watchdog on robodebt

A former senior public servant has become emotional after finding out key documents that would have helped end the robodebt scheme were withheld from her investigation.

The royal commission into the illegal scheme is seeking to understand the role of the Commonwealth Ombudsman, whose 2017 report identified a number of flaws but stopped short of declaring the robodebt "income averaging" debt-calculation process unlawful.

Former senior assistant ombudsman Louise Macleod said her team had concerns with how averaging was being used during an investigation of the human services department.

But she had been unable to convince her superior - acting ombudsman Richard Glenn - to include these concerns in a final report.

She was shown multiple documents she hadn't seen previously, including emails from 2014, that flagged legal problems with income averaging.

Ms Macleod said the ombudsman would have publicly called for the scheme to stop if the legal advice had been provided to her office.

She was also presented with documents showing income averaging was not being used as a "last resort" to raise debts as claimed by the department.

Instead, internal emails, not provided to the ombudsman, showed 76 per cent of debts had been based on averaging a person's earnings.

"I find it upsetting ... we were told by DHS that they didn't have that information," Ms Macleod said, becoming emotional.

She added that she "felt like a failure" because she hadn't been able to convince her superiors that there were problems with the scheme.

More than $750 million from 380,000 people was unlawfully recovered through the program and the automated debt notices have been blamed for contributing to multiple suicides.

Earlier, the commission heard all departments investigated by the watchdog were expected to be forthcoming with relevant information and it was an offence not to provide it.

The ombudsman's report was widely used by the former coalition government to defend the scheme continuing.

Ms Macleod said in hindsight the report should have been more direct about the limitations of robodebt.

She said former minister Alan Tudge had cherry-picked aspects of the report to defend the scheme in media releases.

The watchdog's investigation was triggered by a dramatic rise in complaints from people who had received Centrelink debt notices.

While social security complaints made up two-thirds of the total, Ms Macleod said they almost doubled between October and December 2016 after the scheme came into force.

"Increases in complaints are always a red flag for the ombudsman's office," she said.

Former ombudsman Michael Manthorpe, who started in the role after the 2017 investigation concluded, said the human services department pushed back strongly against suggestions the scheme was illegal.

"All of the officials from the Department of Human Services ... expressed a high degree of confidence in the legality of the program," he told the commission.

But Mr Manthorpe had doubts and commissioned a follow-up report in 2019.

This also faced push back from the department due to its commentary on the scheme's legality while a court challenge was under way.

Nevertheless, at that time the department had already received draft advice from the Australian Government Solicitor that averaging was unlawful.

Mr Manthorpe told the commission he did not know the department had this advice.

"I would have appreciated a more open and transparent engagement on some of these topics," he said.