Debt Collection:

Billions Are Owed While Collection and Accounting Problems Are Unresolved

AFMD-86-39: Published: May 23, 1986. Publicly Released: May 23, 1986.

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Pursuant to a congressional request, GAO: (1) reviewed selected federal agencies' efforts to implement the Debt Collection Act of 1982 and improve debt collection; and (2) evaluated agency systems that account for debts owed the government.

GAO noted that the largest portion of government debts related to loan programs, such as those for farming, housing, and education and, therefore, it reviewed the practices of the Departments of Education and Housing and Urban Development (HUD), the Farmers Home Administration (FmHA), and the Veterans Administration (VA). GAO found that agencies failed to: (1) consistently make progress in implementing improved debt collection procedures due to management priorities, system capability limitations, management uncertainty, and regulations; (2) report delinquent individual debtors to credit reporting agencies; (3) efficiently use private collection agencies' services; (4) collect delinquent debts by offsetting salaries of, or payments to, federal employees; and (5) assess interest, penalties, or administrative costs on delinquent debts. GAO also found that agencies' accounting systems often failed to provide management with current and accurate information on the status of debts owed to the government.

Matters for Congressional Consideration

  1. Status: Closed - Not Implemented

    Comments: This recommendation was not included in debt collection legislation introduced in Congress. Current work in the credit management area will continue to address this type of issue. Therefore, GAO believes the recommendation should be closed.

    Matter: Congress should amend the Debt Collection Act of 1982 to explicitly authorize the Internal Revenue Service (IRS) to provide taxpayer address information to agencies pursuing debt collection activities under authorities other than the Federal Claims Collection Act.

  2. Status: Closed - Implemented

    Comments: P.L. 99-578, dated October 28, 1986, authorized the use of private sector attorneys to litigate debts owed to the government.

    Matter: Congress should amend the Debt Collection Act of 1982 to authorize federal agencies to use, with proper supervision by the Attorney General, private-sector attorneys to litigate debts owed the government.

  3. Status: Closed - Implemented

    Comments: Legislation was introduced in response to this recommendation, but was not passed. Current work in the credit management area will continue to address this type of issue. Therefore, GAO believes the recommendation should be closed.

    Matter: Congress should amend the Debt Collection Act of 1982 to require federal agencies, except where they can provide to Congress reasons for not doing so, to implement improved credit management techniques, such as those discussed in this report, and debt collection practices, including a requirement to report information about individuals and businesses with delinquent debts to credit reporting agencies and to refer delinquent debtors to private collection contractors.

  4. Status: Closed - Implemented

    Comments: Legislation was introduced in response to this recommendation, but was not passed. Current work in the credit management area will continue to address this type of issue. Therefore, GAO believes the recommendation should be closed.

    Matter: Congress should amend the Debt Collection Act of 1982 to permit the notice and hearing procedural requirements for involuntary routine salary adjustments for federal employees to be completed after offset occurs.

  5. Status: Closed - Implemented

    Comments: Legislation was introduced in response to this recommendation, but was not passed. Current work in the credit management area will continue to address this type of issue. Therefore, GAO believes the recommendation should be closed.

    Matter: Congress should amend the Debt Collection Act of 1982 to require agencies to accurately prepare financial reports on their programs that generate receivables, including a requirement for operating statements, statements of financial position, and cash flow statements.

  6. Status: Closed - Implemented

    Comments: Legislation was introduced in response to this recommendation, but was not passed. Current work in the credit management area will continue to address this type of issue. Therefore, GAO believes the recommendation should be closed.

    Matter: Congress should consider amending the Debt Collection Act to provide agencies with additional incentive to collect debts. Options available to Congress include managerial incentives, such as: (1) holding managers more strictly accountable for attaining debt collection objectives and targets; (2) developing awards programs for improved collection practices; and (3) requiring annual evaluations of credit management and debt collection program operations.

  7. Status: Closed - Implemented

    Comments: Legislation was introduced in response to this recommendation, but was not passed. Current work in the credit management area will continue to address this type of issue. Therefore, GAO believes the recommendation should be closed.

    Matter: Congress should amend the Debt Collection Act of 1982 to require agencies to have their Inspectors General, or other appropriate organizations, periodically evaluate their systems of accounting for and reporting on receivables, and annually audit the financial reports containing receivables information to help ensure continued reliability of financial data on amounts owed, and to strengthen the control environment under which debt programs operate.

  8. Status: Closed - Implemented

    Comments: Legislation was introduced in response to this recommendation, but was not passed. Current work in the credit management area will continue to address this type of issue. Therefore, GAO believes the recommendation should be closed.

    Matter: Congress should amend the Debt Collection Act of 1982 reporting requirements to provide that agencies shall, as part of their annual budget submissions: (1) report on their progress in implementing provisions of the act and other related debt collection initiatives; (2) disclose, on a program-by-program basis, the types of data listed in the act, for example, the amount of their receivables, age of delinquent debts, and amounts written off as uncollectible; and (3) set out their goals, both monetary and programmatic, for improving collections and reducing delinquencies and write-offs.

Recommendations for Executive Action

  1. Status: Closed - Not Implemented

    Comments: VA, based on information it received from IRS subsequent to the GAO report, will continue to independently verify addresses before referring addresses to third parties.

    Recommendation: The Administrator of Veterans Affairs should expeditiously disclose IRS-provided addresses to appropriate third parties.

    Agency Affected: Department of Education

  2. Status: Closed - Implemented

    Comments: OMB established an ongoing oversight program for implementation of OMB Circular A-129. Treasury provided additional staff to ensure that the credit management policies are carried out governmentwide in a consistent manner.

    Recommendation: The Director, OMB, in cooperation with the Secretary of the Treasury, should ensure that the provisions of OMB Circular A-129 are implemented and include a statement which tells Congress how this will be accomplished in his 1986 report.

    Agency Affected: Department of Education

  3. Status: Closed - Implemented

    Comments: OPM issued regulations on June 6, 1986, allowing for the exchange of federal employees between agencies to serve as hearing officials. OMB is monitoring an agreement between VA and Education to provide officials for each other's appeals.

    Recommendation: The Director of the Office of Management and Budget (OMB), should, in conjunction with the Office of Personnel Management (OPM), assist VA in ensuring that a sufficient number of hearing officials will be available to hear appeals on nonbenefit-related cases.

    Agency Affected: Department of Agriculture: Farmers Home Administration

  4. Status: Closed - Implemented

    Comments: Education published debt collection regulations providing for these changes on August 30, 1988. It is also developing a new debt collection system, DCS, which will allow for proper calculation and posting of these payments. These changes will be assessed when DCS is implemented in April 1989. GAO will continue to monitor this issue in its current credit management review.

    Recommendation: The Secretary of Education should take whatever steps are necessary to assess, or enable Education to assess, interest, penalties, and administrative costs under the Debt Collection Act of 1982 on defaulted student loans.

    Agency Affected: Veterans Administration

  5. Status: Closed - Implemented

    Comments: Administrative offset regulations were published in November 1986. Administrative offset was attempted, but was terminated because of a law suit challenging FmHA authority to do so. System limitations prohibit the reporting of all delinquent housing borrowers to credit bureaus at this time. GAO will continue to monitor this issue in its current credit management work.

    Recommendation: The Administrator, FmHA, should require that program managers refer information on delinquent debtors to credit reporting agencies, and implement administrative offset.

    Agency Affected: Department of Housing and Urban Development

  6. Status: Closed - Implemented

    Comments: VA issued regulations on June 16, 1986, requiring the collection of social security numbers from loan applicants. It started referring information on delinquent debtors to credit bureaus. VA implemented salary offsets in January 1987. VA is currently in the process of advising debtors of offset.

    Recommendation: The Administrator of Veterans Affairs should ensure that: (1) taxpayer identification numbers are obtained from loan applicants; (2) information on delinquent debtors is referred to credit reporting agencies; and (3) the salary offset provision of the Debt Collection Act of 1982 is implemented.

    Agency Affected: Department of Education

  7. Status: Closed - Implemented

    Comments: Education has realized $578 million in its loan sales efforts through prepayment of college housing loans. Limited sales of other college housing and academic facilities loans is planned.

    Recommendation: The Secretaries of Housing and Urban Development and Education should begin selling portions of their loan portfolios when deemed to be advantageous to the government.

    Agency Affected: Congress

  8. Status: Closed - Implemented

    Comments: In 1988, HUD realized proceeds of $202 million from public facilities loan sales and single family loan prepayments.

    Recommendation: The Secretaries of Housing and Urban Development and Education should begin selling portions of their loan portfolios when deemed to be advantageous to the government.

    Agency Affected: Department of Housing and Urban Development

  9. Status: Closed - Implemented

    Comments: HUD started a pilot project to refer about 2,000 cases to private collection agencies. In 1987, HUD placed 1,200 accounts, valued at $8,054,000, with the GSA contractor.

    Recommendation: The Secretary of Housing and Urban Development and the Administrator of Veterans Affairs should require managers of programs, which are not using private collection agencies, to use General Services Administration (GSA) contractors.

    Agency Affected: Veterans Administration

  10. Status: Closed - Implemented

    Comments: VA started using collection agencies under GSA governmentwide control. VA has referred about $425 million to GSA contractors.

    Recommendation: The Secretary of Housing and Urban Development and the Administrator of Veterans Affairs should require managers of programs, which are not using private collection agencies, to use General Services Administration (GSA) contractors.

    Agency Affected: Veterans Administration

  11. Status: Closed - Implemented

    Comments: According to HUD officials, delinquent debtors who are not yet in foreclosure are now reported to credit reporting agencies.

    Recommendation: The Secretary of Housing and Urban Development should require that managers of the Single Family Assignment Program refer information on those debtors who do not meet their repayment schedules to credit-reporting agencies.

    Agency Affected: Department of Housing and Urban Development

  12. Status: Closed - Implemented

    Comments: VA is currently putting the necessary systems in place to raise the interest rate to the governmentwide standard for interest rates on delinquent debts. The target date for implementation is 1991. GAO will continue to monitor this issue in its current credit management review. Therefore, this recommendation should be closed.

    Recommendation: The Administrator of Veterans Affairs should raise the 4-percent interest rate currently charged on defaulted home loan guaranty cases.

    Agency Affected: Department of Agriculture: Farmers Home Administration

  13. Status: Closed - Implemented

    Comments: FmHA: (1) is developing the capability to assess interest, penalties, and administrative costs in its new accounting system; (2) is developing interest, penalty, and administrative cost requirements; (3) published salary offset requirements and eligible accounts were referred to employing agencies for offset; and (4) sold about $4.8 billion in loans. GAO will continue to monitor this issue.

    Recommendation: The Administrator, FmHA, should require, where applicable, that program managers: (1) assess interest, penalties, and administrative costs; (2) implement the salary offset provision; and (3) explore selling portions of the FmHA loan portfolio. In carrying this out, FmHA may, under the Federal Claims Collection Standards, give appropriate consideration of any undue financial hardships that might result from its use of the particular collection tools available to it, especially in view of the current farm crisis.

    Agency Affected: Veterans Administration

  14. Status: Closed - Implemented

    Comments: As part of its pilot program for using private collection agencies, HUD is developing a procedure for passing on to Title I debtors the actual private contractor collection costs. GAO will continue to monitor this issue in its current credit management review. Therefore, the recommendation should be closed.

    Recommendation: The Secretary of Housing and Urban Development should require that all program managers comply with the act's interest, penalty, and administrative cost requirements.

    Agency Affected: Department of Agriculture: Farmers Home Administration

  15. Status: Closed - Implemented

    Comments: HUD has decided not to use salary offset for its Single Family Housing Program. It will instead rely on foreclosure.

    Recommendation: The Secretary of Housing and Urban Development should explore the use of involuntary salary deductions in the Single Family Assignment Program.

    Agency Affected: Department of Education

  16. Status: Closed - Implemented

    Comments: The Secretary of Education will monitor efforts to develop and implement new systems of accounting for receivables.

    Recommendation: The Secretary of Education, and the Administrators of FmHA and Veterans Affairs, should closely monitor efforts to develop and implement new systems of accounting for receivables to help ensure that known problems are corrected and development efforts are completed without significant slippage of established milestones.

    Agency Affected: Congress

  17. Status: Closed - Implemented

    Comments: VA established a debt management staff to more closely monitor and coordinate efforts to develop and implement new systems of accounting for receivables.

    Recommendation: The Secretary of Education, and the Administrators of FmHA and Veterans Affairs, should closely monitor efforts to develop and implement new systems of accounting for receivables to help ensure that known problems are corrected and development efforts are completed without significant slippage of established milestones.

    Agency Affected: Congress

  18. Status: Closed - Implemented

    Comments: Oversight of major system development efforts in FmHA is being maintained by agency heads and interested FmHA officials.

    Recommendation: The Secretary of Education, and the Administrators of FmHA and Veterans Affairs, should closely monitor efforts to develop and implement new systems of accounting for receivables to help ensure that known problems are corrected and development efforts are completed without significant slippage of established milestones.

    Agency Affected: Congress

  19. Status: Closed - Implemented

    Comments: VA agreed that its accounting and control systems should conform to Comptroller General and OMB requirements. VA is emphasizing to its components that valid debts must be recorded, billed, and collected.

    Recommendation: The Secretaries of Education and Housing and Urban Development and the Administrators of FmHA and Veterans Affairs, should strengthen their receivables accounting and control systems in order to produce accurate and reliable information on the amount of debt owed to the government by ensuring that systems that account for and control receivables conform to Comptroller General and OMB requirements.

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

  20. Status: Closed - Implemented

    Comments: FmHA is developing a new loan and grant accounting system. The target date for implementation is 1990. GAO will continue to monitor this issue in its current credit management review. Therefore, the recommendation should be closed.

    Recommendation: The Secretaries of Education and Housing and Urban Development and the Administrators of FmHA and Veterans Affairs, should strengthen their receivables accounting and control systems in order to produce accurate and reliable information on the amount of debt owed to the government by ensuring that systems that account for and control receivables conform to Comptroller General and OMB requirements.

    Agency Affected: Department of Education

  21. Status: Closed - Implemented

    Comments: HUD implemented this recommendation.

    Recommendation: The Secretaries of Education and Housing and Urban Development and the Administrators of FmHA and Veterans Affairs, should strengthen their receivables accounting and control systems in order to produce accurate and reliable information on the amount of debt owed to the government by ensuring that systems that account for and control receivables conform to Comptroller General and OMB requirements.

    Agency Affected: Department of Agriculture: Farmers Home Administration

  22. Status: Closed - Implemented

    Comments: Education purchased a standard off-the-shelf system for the College Housing Loan and Higher Education Facilities Loan Programs, as well as other receivables. A system to replace the General Ledger Fund Control Reporting System was implemented on October 22, 1988.

    Recommendation: The Secretaries of Education and Housing and Urban Development and the Administrators of FmHA and Veterans Affairs, should strengthen their receivables accounting and control systems in order to produce accurate and reliable information on the amount of debt owed to the government by ensuring that systems that account for and control receivables conform to Comptroller General and OMB requirements.

    Agency Affected: Congress

 

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