The case started as "minor unchecked oversights," the report said, but "the negative impact on the life of this veteran cannot be overstated". He had considered suicide and experienced the breakdown of relationships while dealing with the department.

Poor record keeping, quality assurance and internal review processes led to more than a decade of struggle for the veteran as he tried to claim a benefit from Veterans' Affairs. Commonwealth Ombudsman Michael Manthorpe said the veteran, identified only as Mr A, "lives in constant fear that tomorrow there may be no payment in his account, or that payments may be recovered in the future and he may not be able to meet his basic needs".

Mr A served in the navy from the 1970s to 1997 and again from 2000 to 2007, during which he completed war-like service, the ombudsman said. Upon his first discharge in 1997, Mr A was paid a lump sum under the Defence Force Retirement and Death Benefits Act. When he moved from permanent Navy to the Navy reserves in 2007, Mr A was paid another commuted portion of his payment under that legislation. He then went on to apply for and receive an incapacity payment from Veterans' Affairs. This was calculated incorrectly because the Commonwealth Superannuation Commission didn't notify Veterans' Affairs about both of the lump sum payments.

"On multiple occasions, CSC failed to provide complete information to DVA regarding the lump sum payments provided to Mr A. Each failure resulted in the incorrect calculation of the entitlement," the ombudsman wrote.

Veterans' Affairs didn't identify the overpayment until 2013, and didn't act on it until 2015, sending Mr A a debt notice of more than $50,000. Between May and June 2016, the veteran tried to lodge a review of the debt, but due to issues with uploading documents to MyGov and the subsequent manual processing of the application, he ran out of time for the review, and the debt was pursued.

In September 2016, the department told Mr A the debt was incorrectly raised, and that he was in fact owed more than $500,000 because the department had not acknowledged his service in the Navy reserves from 2007 to 2016. This was paid in a lump payment, causing a $200,000 tax liability in the 2016-17 financial year.

In May 2017, the department raised a new debt against Mr A, this time of $28,000, which was reduced to $17,000 when the tax component was removed. The tax implications of both the debts and the under payments "results in harsh impacts to individuals," the ombudsman wrote, committing to raise the issue with the Treasury secretary and the Inspector-General of Taxation.

"While each isolated event may appear to be limited, the sustained and continued errors and resulting actions had a profound negative impact on Mr A’s financial, physical, psychological and emotional state," the ombudsman wrote.

The ombudsman made six recommendations regarding Veterans' Affairs' practices, including improving quality assurance when raising debts and interacting with the Commonwealth Superannuation Commission and the Defence force. The report also recommended the department look for other members who could have been affected in the same way, as well as apologise to Mr A, waiving his current debt of $17,000 and committing to not raising any more debts against him.

In her response to the report, Veterans' Affairs secretary Liz Cosson apologised to Mr A. She expressed "deep disappointment for the long-term stress and hardship that this situation has caused".

Ms Cosson said Mr A had been offered a special rate disability pension in May this year and he had 12 months to accept the offer.

Veterans' Affairs has changed the way it explains how payments are calculated in letters to veterans, and how it communicates with the Department of Defence and the Commonwealth Superannuation Commission. In the response, the department said the debt raised against Mr A had been waived, but that it could not commit to not raise debts against him again in future.