Sheffield City Council has apologised to hundreds of pensioners who were wrongly sent demands for overpayments in an administrative "cock up".
Bills for excess housing benefits from 3p to £3.50 were sent to 785 residents by council contractors Liberata.
The council said it was a major error and an investigation was under way.
Letters of apology have been sent to all those affected by the blunder and £1,000 has been donated to Age Concern as a goodwill gesture.
The council's assistant director of finance, Andy Dolling, said a technical error earlier in the year had led to some pensioners receiving overpayments of up to £3.50.
He said however the council decided not to reclaim the money.
Liberata, which runs the benefits system on behalf of the council, was told of the decision but still sent out the reminder bills.
"I can only apologise to those affected," said Mr Dolling.
"We've cocked up and we're holding our hands up.
"I have told Liberata this is not acceptable and need a full explanation as to how this has happened.
"We've got a lot of elderly people that are upset because we sent them a reminder for something we didn't want back anyway.
"We're not going to chase them for the overpayment and those that have already paid, who should not have done, will get a refund."