Department of Social Services officials told a Senate inquiry on Monday the $545 million figure amounted to about 80 per cent of cases.
The automated welfare recovery scheme matched Australian Taxation Office and Centrelink data to claw back overpaid welfare payments.
It was ruled unlawful last year, with the Federal Court saying Centrelink could not have been satisfied the debt was correct.
The Morrison government announced in May it would repay all debts, estimated to cost about $721 million.
Department secretary Kathryn Campbell acknowledged the scheme caused hurt and harm, and that it was “legally insufficient”.
“I believe there were many people who felt uneasy, frustrated, had some difficulty managing through this system,” she said.
Labor senator Deborah O’Neill read Campbell a letter from a mother whose son died after receiving multiple letters through the system saying he owed up to $17,000.
“Of course we apologise for the hurt and harm caused to that family. That is a tragic story. No one wants that to happen,” Campbell said.
The scheme is facing a class action lawsuit.
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