Risks relating to the robodebt scheme were understated while benefits were oversold, a royal commission has been told.
A senior official also said departments overseeing the scheme were faced with a "demanding and difficult leadership environment" which potentially contributed to a breakdown in communications.
The commission is investigating how the problematic scheme was rolled out despite departmental advice raising significant questions about its legality when it was proposed.
The policy began in 2015 under the Liberal-National coalition and falsely accused welfare recipients of owing the government money.
The scheme was initially proposed by the Department of Human Services (DHS), now known as Services Australia, as a means of debt recovery for the government.
Debt notices were issued by a process called income averaging, which compared people's reported income with tax office figures.
Hundreds of thousands of Australians were caught up in the debacle, which recovered more than $750 million.
Deputy chief executive Christopher Birrer said unrealistic expectations were set about how much debt could be recovered based on questionable data.
"It's disappointing that the benefits were oversold and the risks were understated," he said.
He said the department should have paid more attention to its primary role as a welfare agency, instead of assuming individuals could appeal the debt if they identified problems with it.
"I think (that) is a very poor way of doing service delivery," he said.
"Particularly when we know we're delivering services to Australians who are in tough times quite often."
The department completed a trial involving 1000 people before it was rolled out to everyone.
Mr Birrer said the department did not sufficiently manage the scaled up version of the policy, which worked on an automated basis rather than being manually checked to ensure debts were owed.
"The DHS wasn't well positioned and ready to scale it up at the level it did. It created quite a deal of operational challenges - to put it mildly - and also a bit of chaos," Mr Birrer said.
"The term 'robodebt' in that sense is slightly misleading because it actually involved a very large number of staff often working under a lot of pressure within the agency."
Mr Birrer - who did not work in the department when the scheme was underway - said he had been told staff at the time were impacted by "aggressive and demanding leadership".
"The impression I have is that, particularly in the early stages of robodebt, there wasn't a lot of advice that was putting forward either potential risks or or realised risks," he said.
"There was an attempt to essentially make it look like everything was going fine."
The commission had earlier heard legal and policy advice flagging issues with the scheme were potentially not provided to cabinet.
The Department of Social Services (DSS) initially rejected the DHS proposal because the debt collection method was unlawful.
Senior public servant Matthew Flavel, a deputy secretary at DSS, told the commission he had not been able to find documents to suggest advice related to the proposal's risks were passed on to the minister in charge.
"There is no evidence of a piece of advice from DHS to the minister for social services identifying risks," he said on Monday.
Asked why, he simply said: "It is a mystery."
"In the early part of 2015 these concerns were raised with DHS ... the critical issue is what happened and what was changed or not changed in the proposal that went to (cabinet)," Mr Flavel said.
The commission is accepting submissions from people affected by the scheme until February 2023, with a final report due by mid-April.