Federal Agencies Negligent in Collecting Debts Arising From Audits

AFMD-82-32: Published: Jan 22, 1982. Publicly Released: Feb 24, 1982.

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Pursuant to a congressional request, GAO examined the procedures that Federal agencies use for the collection of audit disallowances. This is the third in a series of reports on how Government agencies follow up and resolve findings identified through the audit process. This report concentrated on the debt collection phase of the audit resolution process which begins once questioned costs are disallowed.

GAO found that Federal agencies are doing a poor job of managing and collecting audit-related debts owed by contractors and grantees such as State and local governments. Most agencies do not know the total amount owed to them; nor do they collect debts promptly or charge interest, as required, when the payments are late. Additionally, when debts are paid, agencies usually do not know whether the amounts received have been taken from their own or other Federal programs. Finally, some agencies are inappropriately forgiving millions of dollars of audit-related debts without a reasonable collection effort as required by the Federal Claims Collection Standards.

Recommendations for Executive Action

  1. Status: Closed - Not Implemented

    Comments: All seven agencies agreed with this recommendation; five stated that they were already in compliance. HHS implemented a new policy in April 1982. The Department of Education implemented new procedures in August 1982.

    Recommendation: The head of each department or agency should implement policies and procedures that ensure the establishment of accounts receivable for all disallowed costs within 30 days of the written determination of indebtedness.

    Agency Affected: Heads of Federal Agencies

  2. Status: Closed - Not Implemented

    Comments: Most of the agencies agreed; some were already charging interest and those that were not, began to do so. Agriculture did not disagree, but felt that it was not bound by law and has decided not to charge interest on outstanding debts.

    Recommendation: The head of each department or agency should implement policies and procedures that require interest to be charged and collected on all debts at the rate specified by the Treasury Fiscal Requirements Manual, beginning no later than 30 days from the establishment of the debt and continuing until collection or final disposition.

    Agency Affected: Heads of Federal Agencies

  3. Status: Closed - Implemented

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Recommendation: The Director, Office of Management and Budget, should incorporate the recommendation to establish a followup system into the management circular on audit resolution and follow up to ensure that agencies are complying.

    Agency Affected: Executive Office of the President: Office of Management and Budget

  4. Status: Closed - Not Implemented

    Comments: Six of the seven agencies responding agree with the recommendation but plan no action since they feel their present systems are adequate and fulfill the intent of this recommendation. The Department of Labor is currently modifying its debt collection system to achieve the elements specified in this recommendation.

    Recommendation: The heads of departments and agencies should establish a followup system whereby grant management staff closely monitor performance of grantees to ensure that settlement of debts does not adversely affect grantee performance. This system should also include provision for audit followup, whereby routine verification is made part of the subsequent audit of grantees paying off audit-related debts.

    Agency Affected: Heads of Federal Agencies

  5. Status: Closed - Not Implemented

    Comments: All seven agencies agreed with the recommendation and stated that necesssary changes in their operating procedures have been made.

    Recommendation: The head of each department or agency should implement policies and procedures that ensure aggressive collection action in accordance with the Claims Collection Standards, which include written demands for payment at 30-day intervals, affecting the debtor's credit rating, offsetting the debt against amounts due from other Federal programs, and suspension or termination of funding.

    Agency Affected: Heads of Federal Agencies

  6. Status: Closed - Not Implemented

    Comments: Most of the agencies agreed in principle, but will still continue to hold grantees responsible for the debts of their subgrantees.

    Recommendation: The head of each department or agency should implement policies and procedures that hold grantees fully responsible for the debts of their subgrantees and apply the Claims Collection Standards in collecting these amounts from grantees.

    Agency Affected: Heads of Federal Agencies

  7. Status: Closed - Not Implemented

    Comments: Most of the agencies felt that their present policies were in substantial compliance and planned no further action. Agriculture developed a new debt management directive and HUD clarified its policy in a new claims collection handbook.

    Recommendation: The head of each department or agency should implement policies and procedures that ensure compliance with the Claims Collecton Standards to preclude the termination of any debts over $20,000 and ensure that all Claims Collection Standards concerning compromise and termination are met before settling debts of $20,000 or less.

    Agency Affected: Heads of Federal Agencies

  8. Status: Closed - Not Implemented

    Comments: Most of the agencies agreed to look for ways to streamline the appeals process. Some of the agencies cited Federal statutes as a hindrance to any streamlining effort.

    Recommendation: The head of each department or agency should implement policies and procedures that streamline the audit disallowance appeal process to ensure that unnecessary delays are eliminated and that interest is charged on all amounts under appeal.

    Agency Affected: Heads of Federal Agencies

  9. Status: Closed - Not Implemented

    Comments: Most of the agencies agreed with this recommendation. They were already complying or began to do so shortly after the report was issued. The Department of Education agreed to write new procedures to implement this recommendation and did so in summer 1982.

    Recommendation: The head of each department or agency should implement policies and procedures that require a written determination of the allowability of all questioned costs within 6 months of audit report issuance.

    Agency Affected: Heads of Federal Agencies

  10. Status: Closed - Not Implemented

    Comments: This recommendation duplicates another in the report.

    Recommendation: The head of each department or agency should implement policies and procedures that require grantees to certify that their payment of audit-related debts does not reduce the level of benefits of any Federal program and institute program and audit followup.

    Agency Affected: Heads of Federal Agencies

 

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