Part 4: Understanding child support scheme obligations

Inland Revenue Department: Managing child support debt.

In this Part, we set out our findings about how Inland Revenue makes sure parents understand the child support scheme and their financial obligations.

We expected Inland Revenue to:

  • know whether parents have enough understanding of their child support obligations to enable them to make regular payments and stay out of debt; and
  • supply parents with standardised, clear, informative, timely, and accurate information on their child support obligations.

Overall, Inland Revenue needs to do more to ensure that liable parents get the information they need to understand the scheme and their financial obligations. That information needs to be readily accessible to parents. Also, the information needs to reflect that parents first entering the child support scheme will need different information than parents who have been in the scheme for a while.

Newly liable parents

A range of pressures can make it hard for parents to understand the child support scheme. Newly liable parents are supposed to get an explanatory telephone call shortly after entering the child support scheme. However, just over one-third of those calls get through to the liable parent. Some, but not all, liable parents are sent written information explaining the scheme.

People often enter into the child support scheme at a difficult emotional time in their lives. These pressures can make it hard for parents to understand the child support scheme. This is a challenge for Inland Revenue. Nevertheless, ensuring parental understanding is important because Inland Revenue's research shows that parents who understand the scheme tend to be more likely to make their child support payments voluntarily and less likely to go into debt.

Inland Revenue's policy is that a newly liable parent should receive a telephone call from Inland Revenue shortly after an application is accepted. This call explains how the scheme works and what a liable parent's obligations are. The liable parent should also get a follow-up telephone call before their first payment is due. If Inland Revenue staff reach an answering machine, then they will leave a message and ask the liable parent to call them back. In many cases, liable parents do not call back.

Inland Revenue refers to these telephone calls as "education calls". Figure 5 shows the completion rate of these telephone calls for the last five years. In that time, telephone calls about the child support scheme got through to only 30-40% of newly liable parents.

Figure 5
Percentage of newly liable parents contacted by telephone

Figure 5: Percentage of newly liable parents contacted by telephone.

Source: Inland Revenue internal document.

As well as telephone calls, a newly liable parent receives an acceptance letter from Inland Revenue explaining that the parent has been named as responsible for paying child support for a child or children. Newly liable parents will also get a notice of assessment. The notice of assessment sets out the amount of child support that the liable parent has to pay, based on the information that Inland Revenue has. If the assessment is based on incorrect information, the liable parent can correct that information and will be reassessed. If Inland Revenue is unable to locate a liable parent, it will still process an application, and assessment and penalty debt will accrue.

The acceptance letter that is sent to newly liable parents offers a brief description of the child support scheme, and suggests the parent calls Inland Revenue or checks its website if they would like more information. Sometimes, but not always, Inland Revenue will send newly liable parents a booklet titled Helping you understand child support. The booklet describes the child support scheme from both the liable parent's and custodian's perspective. It explains how the scheme works, the importance of keeping Inland Revenue up to date, how payments are made and received, and what happens if a liable parent goes into child support debt. In our view, Inland Revenue needs to send this information to all newly liable parents.

If a liable parent wants additional information, they need to speak to an officer at Inland Revenue or get the information from Inland Revenue's website.

Inland Revenue sends the custodian introductory letters and a booklet as part of their introduction to the child support scheme.

Given Inland Revenue's research linking understanding with compliance, we consider that Inland Revenue needs to ensure that all newly liable parents get a standardised introduction to the child support scheme that contains consistent and relevant information.

Increased parental understanding of the child support scheme makes it less likely that a parent will go into debt. Parents need certain kinds of information when they first enter the scheme, and other kinds of information during the period they stay in the scheme. That information needs to be responsive to parents needs by being clear, consistent, and relevant. In our view, Inland Revenue needs to do more to make sure that liable parents are getting the right information for their needs, and that the information is readily accessible to them. Comments from Inland Revenue staff during our audit support our view.

Recommendation 2
We recommend that the Inland Revenue Department provide all parents entering the child support scheme with information that clearly and consistently informs them about their rights and responsibilities, and how the scheme operates.

Continuing information for parents

Along with regular monthly statements to liable parents, Inland Revenue sends out other written information from time to time. In our view, Inland Revenue needs to be more proactive in sending out this information.

As well as the correspondence designed for newly liable and custodial parents, Inland Revenue sends regular statements about accounts to liable parents, information about assessments to both parents, and other information from time to time. Inland Revenue will include reminders in the letters for parents to make sure that the information held about them is up to date.

Parents can seek information on their own initiative by calling Inland Revenue or by checking Inland Revenue's website. We reviewed the materials that Inland Revenue gives to parents and have noted some aspects that we consider could be improved. These are noted in Figure 6, and include opportunities to more clearly:

  • explain how penalties may be incurred;
  • inform parents about repayment plans;
  • identify the debt that must be repaid; and
  • note the voluntary nature of the child support scheme (unless a custodian is receiving a benefit).

Figure 6
Examples of improvements needed to Inland Revenue's information to parents

Example 1 – Highlighting potential penalties on a statement of account

When Inland Revenue sends a monthly statement of account, it clearly states the amount of child support that is due. The penalties that would be incurred if the payment is late are mentioned only on the back of the statement, and the amount of the penalty is not stated. If a child support payment is received one day late, it incurs an immediate 10% penalty, and a 2% compounding penalty is added each month after the assessment has not been paid unless an arrangement is made. A description of the penalties is contained in the booklet that some parents receive, and penalties should be discussed in the education telephone call if that call is completed. See Appendix 2 for an example of a statement of account.
Example 2 – Informing parents about repayment plans

A liable parent who has missed a payment will receive a notice stating that the payment is late, and the next statement will note any outstanding balance. The statements do not note that Inland Revenue can set up a payment plan to help the parent get out of debt, and that penalties will stop accruing once they have negotiated an arrangement with Inland Revenue. Parents might contact Inland Revenue more quickly if this information were proactively supplied.
Example 3 – Clearly identifying debt that must be repaid

Once a liable parent is in debt, they will receive a statement showing their total debt, with no distinction between the amount of debt that is owing under the original assessment and that owing for penalties. There is no mention on the statements that some of the penalties can be written off under certain circumstances. The liable parent will see only a total dollar amount outstanding. There is a brief mention about the ability to write off some penalties in the booklet that some parents receive, but this is not noted on the statement. See Appendix 3 for an example of a statement showing an outstanding debt.
Example 4 – Clearly noting the voluntary nature of child support

Unless a custodian is on a benefit, participating in the Inland Revenue child support scheme is voluntary. The voluntary nature of the scheme is difficult to find on Inland Revenue's website and is not noted in the booklet. Communicating this information more clearly may lead to some parents moving to a private arrangement that does not require Inland Revenue resources to administer. Inland Revenue staff we spoke with noted that parents they work with are not always aware that the scheme is voluntary unless the custodian is on a benefit.

We have noted some examples where Inland Revenue can improve the information it makes available to parents, and we expect that there are others as well. In our view, it would be useful for Inland Revenue to identify the information that parents are likely to need and proactively make this information available to parents.

More than 96% of parents who have been liable for making child support payments have been charged a penalty while they have been in the scheme. In our view, this shows the need to improve the information that is provided to parents.

Proactively providing parents with information they are likely to need makes it more likely that parents might feel they can make child support payments (or other arrangements) without the help of Inland Revenue (in part because they feel Inland Revenue has made the paying and collecting of child support easy). This in turn should improve compliance, reduce the number of telephone calls that Inland Revenue gets, and possibly reduce the number of parents in the child support scheme.

Recommendation 3
We recommend that the Inland Revenue Department identify information that parents are likely to need to understand their ongoing obligations while they are in the child support scheme, and ensure that this information is made readily available to them.

Inland Revenue told us that it accepts Recommendations 2 and 3, and that it will work across the organisation to evolve and enhance the content, timing, and distribution methods of information for both new and existing child support customers.

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