A report by the Commonwealth Ombudsman into Services Australia's controversial income compliance program has shown the agency continued to raise debts despite question marks over the quality of the income data it held.

The agency's income compliance program, or "robodebt", began raising debts for Australians based on averaged income data from the Australian Taxation Office through Centrelink from 2015 until 2019.

It compared tax office data with reported income to Centrelink and raised debts where discrepancies were detected, but in November 2019, the agency conceded the debts raised using this information alone were "legally insufficient".

The ombudsman's report, published Tuesday, found while Services Australia admitted debts raised using this data were not valid, it continued to proceed with those that had a high chance of falling under the category for months.

The agency argued its debt management system was not capable of easily freezing specific debts.

But the ombudsman said a more appropriate response would have been to pause all income compliance debt collecting until it was possible to differentiate between debts raised based on incomplete or poor quality data.

"We consider this created a high degree of risk for Services Australia and unnecessary hardship for individuals affected, which was compounded by Services Australia's knowledge that the identification process would be largely manual and therefore take some time to complete," the report read.

"The more appropriate approach would have been for Services Australia to be able to immediately freeze recovery on all income compliance debts while it conducted its identification process, only re-starting recovery once a debt was determined to have not been raised relying on income averaging."

The ombudsman also criticised the agency's lack of transparency and communication with affected recipients, saying this caused further confusion.

"Services Australia did not provide substantive communication about its actions to impacted individuals. There was a short message on the website, but no direct communications to individuals," the report read.

"We are of the view that Services Australia should have communicated in a more transparent manner with impacted individuals, ideally to complement the November 2019 announcement, rather than waiting until the further announcement in May 2020."

Nine recommendations were given to the debt recovery agency, including better written communication to affected individuals and to implement improved processes to find further proof of income beyond the tax office.

Services Australia accepted seven of the recommendations, noting two that recommended the agency publish general information and write to affected individuals if it plans to re-raise the debts of those who have already been subjected to refunds.

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In November, the federal government agreed to pay nearly half a million Australians affected by the controversial robodebt scheme a total of $1.2 billion.

The payout to members of the class action was agreed to on the basis the government, nor any of its officers, not admit it was legally liable.

"I think no money amount will ever compensate people for the hardship they've been through," partners of the law firm representing the class action group said following the announcement.

"We've listened intently over a long period of time now to the more than 70,000 people that have contacted us and there are some really dreadful stories that we've heard through that process."

Of the $1.2 billion total, $721 million had already been agreed to be paid back in May 2020. A further $398 million of invalid debts under the scheme would be erased, with $112 million being provided in compensation to those affected.

Once legal costs and other fees are deducted from the compensation payout, the remainder of the $112 million will be available for the 400,000 members to share.

As of September 2020, the agency told the ombudsman it had paid back 356,570 people, equating to approximately $620.4 million or 86 per cent of the refund money owed.

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