One of the most significant of those issues occurred in September 2017 when the DSS legal team sought advice to justify the income averaging as it was being used in the scheme and in “circumstances where its lawfulness was being questioned”.

Not only did the advice find the legality of the income averaging was a “last resort” – and without citing any legislative provisions or case law – but the position on the scheme was “obviously inconsistent” with advice that had been given on the same question in 2014.

This advice was relied on in representations to the Commonwealth Ombudsman to justify the scheme as being lawful.

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Relying on this advice, there was no mention of the lawfulness of income averaging in the Ombudsman’s April 2017 report into Centrelink’s “automated debt raising and recovery systems”.

“The subsequent reliance on this advice by ministers and department officers to justify income averaging as used in the scheme demonstrates the significant consequences that can result from the advice of an in-house lawyer,” commissioner Holmes said.

Speaking of a failure to cite legislation, commissioner Holmes said this was a normal practice within the in-house teams, with legislative and judicial authority “seldom referred to”. She said this missing critical analysis would be “expected of a qualified lawyer”.

It was one of many strange shortcuts, with commissioner Holmes ultimately finding that the in-house lawyers took a “remarkably passive approach to the provision of legal advice”.

“What is truly striking about the advices and legal commentary the commission has seen is that for all the many DHS and DSS lawyers involved, so little attention was paid to the provisions of the social security legislation which actually governs entitlement, payment, authority to require information, debt recovery and imposition of penalties,” commissioner Holmes wrote in the report.

Another “alarming feature” was the practice of leaving advice in draft form and failing to ensure senior department officials saw them.

The most prominent example was advice from Clayton Utz, which was never finalised or provided to the DSS secretary, who said she did not become aware of the advice until November 2019.

Despite advice never being finalised, an invoice was approved and paid for by the DSS legal team. Commissioner Holmes said there is no record of how the decision to pay without finalising was made.

Another concern was the role and behaviours of leaders, including DHS chief counsel Annette Musolino who attempted to downplay her responsibilities. This, the report found, was “problematic”.

Ms Musolino said that while she ensured there were “systems in place to make sure that they were conducted ethically and appropriately”, she also tended to rely on services that were provided by “very, very experienced lawyers across the practice areas”.

The commission found Ms Musolino downplayed “her professional obligation to be independent and the need to independently form her own view about matters where she was providing advice”.

There were a number of recommendations made to improve the operation of in-house legal teams in future, including regular training for all in-house lawyers and a fresh appointment panel consisting of the Australian Government Solicitor.

In a shocking recommendation – and only because it is baffling why it needed to be made in the first place – commissioner Holmes said legal advice should be shared across departments and agencies.

The failure of DSS and DHS to share legal advice was one of its most significant failings. It meant the Office of Legal Services Coordination (OLSC) and the Attorney-General had no oversight of the scheme’s controversies for much of the duration.

“As agencies with the high volume of intersecting work, you would think that advice prepared by DSS and DHS on common topics would be disclosed between the two agencies, at the very least, to avoid duplication of work,” commissioner Holmes said.

In May 2018, DHS referred an Administrative Appeals Tribunal (AAT) decision to DSS that found the legislation did not authorise the calculation of youth allowance by reference to averaging of income. Consequently, DSS sought advice from Clayton Utz on the lawfulness of using this income averaging as a method to determine a person’s social security debt.

Despite the advice being vital for the DHS, specifically because it could mean the Commonwealth was “unlawfully taking money from social security recipients on a massive scale”, this advice was not urgently communicated with the DHS.

“Had DSS disclosed Clayton Utz advice in August 2018, given the significance of the advice to the scheme, it should have caused DHS to seek advice from the Solicitor-General earlier,” the report found.

In August 2019, DHS briefed the Solicitor-General and received advice in September that the Commonwealth did not have a proper legal basis to raise, demand or recover asserted debts solely on the basis of income averaging.

This advice was not disclosed to the DSS for six weeks.

“In the commission’s view, DHS was required to disclose that advice to DSS as a matter of urgency. It did not do so,” the report found.

The hierarchal culture that compromised in-house lawyers

The DSS’s former principal legal officer, Anna Fredericks, told the commission the culture was “very siloed”, and it prevented in-house lawyers from thinking or acting further than what the department wanted them to. That is, she said her role was not to “turn our mind to broader risks than what was being explicitly asked”.

Australian National University Public Policy Professor Andrew Podger told the commission the “strict hierarchal control … seems to have presented serious obstacles to the provision of independent advice”. The commission said it agreed with his finding.

Even the principal legal officer who provided the advice mentioned at the top of this article said she felt pressured to “meet the departmental business need” for a legal justification for what the scheme was doing. This, she added, was placed on her by the DSS payments policy group acting manager Emma McGuirk.

Some lawyers said that even when they sought to act independently, they were given the perception they “were constrained by the culture of the department, which discouraged this behaviour”.

Former DHS lawyer Anna Fredericks said she felt there was an imperative to “stick to the DHS talking points”.

Former acting chief counsel at DHS, Tim French, said the culture and leadership at DHS was not “conducive to a proper examination of issues relating to this particular program”.

“The position that income average was a long-standing practice was so entrenched within DHS that lawyers at all levels were unable to question it in accordance with their professional obligations,” commissioner Holmes found in her report.