The federal government has so far pocketed just $24 million of the $300 million worth of overpayments through Centrelink's automated debt recovery system.
More than 133,000 debts were raised in the second half of last year under the program, but only eight per cent of the amount owed has so far been retrieved.
Human Services boss Kathryn Campbell told a Senate inquiry that was mostly due to people opting to go on repayment plans - some starting as low as $5.
"If it's a large debt and they're only paying it back at $5 per fortnight, that means there will be a lag in the payment," she said in Canberra on Wednesday.
While acknowledging people will be distressed, Ms Campbell defended the online compliance system and again dismissed calls for it to be suspended.
It followed claims by welfare lobby chiefs that the program was aggressive and had created and fuelled a climate of fear among vulnerable Australians.
The Australian Council of Social Services told senators more than 200,000 people have been affected and at least one in five notices issued were incorrect.
The government's "dragnet" approach to clawing back welfare debts was an abuse of power that stoked depression, anxiety, fear and frustration, ACOSS boss Cassandra Goldie said.
"The government has created a climate of fear around this program, from threatening people with jail time to threatening to release people's personal information if they speak out," Ms Goldie said.
About 6600 people first learned they were being targeted via debt collectors, after somehow missing initial correspondence.
Ms Campbell said those debts had been recalled from the collection agencies, with the department now using different means to contact those people.
Collectors have reportedly threatened to seize assets or take people to court and ACOSS said it was concerned an unknown number of people may have been frightened or bullied into repaying debts they didn't have.
But the department rejects those claims, saying they have no evidence of such conduct.
Human Services also dismissed claims by the Community and Public Sector Union that there had been a rise in aggression towards frontline staff.
Reported incidents in the last six months of 2016 were much lower than during the same period the previous year, the inquiry was told.
CPSU's Nadine Flood said earlier the agency was in crisis and years of funding cuts and poor policy decisions were having a big impact on staff.
Centrelink workers wanting to speak out faced a "vicious and draconian" reaction from their department and feared speaking to their union, she said.
Meanwhile, the Australian Taxation Office sought to distance itself from the debacle, saying it cannot be held accountable for how its data is used.
Officials told the inquiry they'd provided annual income data to the DHS for 20 years, and were not consulted by the department about the ramp up of its automated data-matching.
When the agencies spoke about the program earlier this year after widespread criticisms were aired, the tax office was told its help was not required.