Two federal government agencies have been warned to speed up their work to fix tens of thousands of unlawfully miscalculated welfare debts.

As many as 100,000 welfare debts were miscalculated by Services Australia and the Department of Social Services between 2003 and 2020, a Commonwealth Ombudsman report found in August.

The departments’ “income apportionment” practices misinterpreted and unlawfully applied the Social Security Act from at least 2003 until December 7, 2020, when the law changed.

This resulted in some Centrelink customers’ employment income being assessed in the wrong fortnight and potentially affected a significant number of Centrelink payments made before December 7, 2020.

Services Australia paused its review of about 20,000 debts while it obtained legal advice and identified about 87,000 other files that might have been affected by the unlawful or incorrect “income apportionment” calculations.

The issue was not related to the controversial robodebt scheme, but rather was a result of agencies holding an incorrect understanding of relevant legislative provisions.

But a new report by the ombudsman released on Monday found the two agencies were still unable to advise how many people were affected or how much payments went up or down because of unlawful calculations.

The agencies were also still settling a final legal position about how to lawfully calculate employment income before they recommenced assessing cases.

“Services Australia and DSS did not act promptly to address this issue – in the three years the agencies have known about this issue, we expected more action to have been taken to address it,” the report said.

The ombudsman said there was a clear principle that if “agencies make a mistake that impacts people, they should acknowledge it and develop a fair way to address the mistake”.

“They should also clearly explain what the mistake was and what they intend to do to fix it. The public deserve no less.”

The report made eight recommendations which the two agencies have accepted.

They included developing a strategy to assess a sample of historic debts, underpayments, Administrative Appeals Tribunal decisions and debts referred to the prosecutor that were potentially affected by unlawful income apportionment, and a way to manage remedies for affected customers.

– AAP