Debt Collection:

Treasury Faces Challenges in Implementing Its Cross-Servicing Initiative

AIMD-00-234: Published: Aug 4, 2000. Publicly Released: Aug 4, 2000.

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Pursuant to a congressional request, GAO provided information on the challenges facing the Financial Management Service (FMS) in implementing the cross-servicing provision of the Debt Collection Improvement Act of 1996.

GAO noted that: (1) FMS officials stated that as of September 30, 1999, about 89 percent of the $59.2 billion of debts over 180 days delinquent were excluded from cross-servicing; however, the accuracy and completeness of amounts reported by agencies including exclusions from cross-servicing were not required to be, and were not, independently verified; (2) FMS reported that as of April 2000, about $3.7 billion of the approximately $6.4 billion of eligible debt had been referred for cross-servicing; however, because the eligible amount is as of a specific date and the amount reported as referred is a cumulative amount covering about 3-1/2 years, these two amounts are not comparable; (3) many of the eligible debts were not promptly referred by the agencies or simply not referred by certain agencies, and the debts referred were not always eligible for cross-servicing because they were not valid and legally enforceable; (4) as the sole operator of a governmentwide cross-servicing debt collection center, FMS had well-developed written standard operating procedures for its collectors and requirements for its private collection agency (PCA) contractors; however, its staff and some of the PCAs did not always follow established procedures and requirements or effectively use certain debt collection tools; (5) GAO's analysis of FMS' distribution of debt accounts to PCAs from February 1998 through February 2000 showed that one PCA had received a significantly higher percentage of the debts with smaller balances and debts that were less than 1 year delinquent, even though collection industry statistics as well as FMS' collection experience to date have shown that collection rates are generally higher on debts with smaller dollar balances and debts that are less delinquent; and (6) the cross-servicing fees FMS charged to agencies referring delinquent debts have not covered FMS' estimated cross-servicing costs and are not likely to in the near future.

Recommendations for Executive Action

  1. Status: Closed - Not Implemented

    Comments: In August 2000, FMS revised its guidance to agencies for preparing the Treasury Report on Receivables (TROR). As part this guidance, FMS requires each agency to report the amount of its debt eligible for referral to FMS for cross-servicing in the TROR category "Balance of Debt Eligible for referral by the Agency." FMS' guidance also requires each agency to report the amount of debt actually referred for cross-servicing using the definition, "Of the amount eligible, the number and dollar amount of delinquent debt over 180 days that has been referred to cross-servicing." Therefore, for each reporting period (quarterly or annually) that an agency reports, FMS and other users of the TROR should be able to ascertain the extent to which eligible debts have been referred. However, in its reports to Congress, FMS continues to make an unreasonable determination of this key performance measure by inappropriately reporting the cumulative amount of debt referred without any reductions for debts returned to the referring agency during the fiscal year, such as debts that have been collected and debts removed from cross-servicing for reasons such as foreclosures or bankruptcies. As a result, FMS continues to overstate federal agencies' progress in referring eligible nontax debts for cross-servicing. Further, in recent work at FMS, GAO identified additional problems with FMS' reporting of debt referred for cross-servicing and GAO made recommendations to address such problems.

    Recommendation: To help ensure that eligible delinquent debts are identified and promptly referred by the agencies for cross-servicing and that reporting on the status of delinquent debts by the agencies and FMS are reliable, GAO recommends that the Commissioner of FMS revise FMS' reporting of debt amounts referred for cross-servicing to reflect the extent to which eligible debts reported by agencies as of a specific date have been referred to FMS.

    Agency Affected: Department of the Treasury: Financial Management Service

  2. Status: Closed - Implemented

    Comments: According to FMS, procedures have been formulated and documented and are now in place. The "Guidelines and Operating Procedures for Debt Referrals and Referral Plans" were completed in February 2001. This guidance formally documents the reporting requirements for the Treasury Report on Receivables, the year-end reporting and analysis, the delinquent debt walkdown--calculation of eligible numbers, the referral letters, and the reports generated throughout the fiscal year to ensure agencies are complying with the DCIA. According to this formal guidance, FMS issues a referral letter to each of the 24 CFO agencies as well as select non-CFO agencies requesting referral goals and schedules. Once all referral goals and schedules are received, FMS is to analyze the submissions for accuracy and contact the agencies to resolve any problems. Reports are to be created to document each agency's submission against actual referrals and are to be reviewed on a monthly basis. Agencies are to be contacted and meetings are scheduled if agencies are not referring debts as indicated on their referral schedule. At the end of the fiscal year, agency referrals are to be reviewed to determine whether agencies met their referral goals. If they have not, FMS is to contact the agencies to resolve any problems and address ways to more successfully meet future goals.

    Recommendation: To help ensure that eligible delinquent debts are identified and promptly referred by the agencies for cross-servicing and that reporting on the status of delinquent debts by the agencies and FMS are reliable, GAO recommends that the Commissioner of FMS establish and implement procedures for obtaining, reviewing, and monitoring written debt referral plans from the Chief Financial Officer Act agencies and all non-Chief Financial Officer Act agencies with signigicant accounts receivable activity, to help ensure that: (1) the plans are complete, agree with debt amounts agencies have reported as eligible for cross-servicing, and specify timetables for referral of all such debt; (2) actual agency referrals are compared with agency plans, and explanations for any significant deviations from planned referrals or revisions to the plans are obtained from the agencies; and (3) appropriate agency officials are notified and requested to initiate corrective actions when agencies do not substantially comply with their referral plans.

    Agency Affected: Department of the Treasury: Financial Management Service

  3. Status: Closed - Not Implemented

    Comments: On May 17, 2004, FMS stated that it developed a report for determining collection rates by agency in September 2001. However, GAO's recommendation was for FMS to analyze referred debts by type (e.g., by age of delinquency, debt balance, etc.) and the collection rates experienced on those debts, as part of an overall assessment of FMS' debt collection strategy. FMS did not perform, and it gave no indication that it would perform, a comprehensive review of its overall debt collection strategy.

    Recommendation: To help ensure that debt collection efforts are efficient, cost-effective, and performed by the most capable entity (i.e., FMS, a PCA, or any agency approved to be a debt collection center), GAO recommends that the Commissioner of FMS perform a comprehensive review of FMS' cross-servicing process to determine whether FMS' debt collection strategy and standard operating procedures are appropriate for optimizing collections. This should be done by analyzing the types of debts referred to FMS (e.g., by age of delinquency, debt balance, etc.) and the collection rates experienced on those debts.

    Agency Affected: Department of the Treasury: Financial Management Service

  4. Status: Closed - Not Implemented

    Comments: FMS stated that, because debts are referred by federal agencies sporadically and randomly, assessing the level of effort FMS collectors should perform is impractical. FMS also stated that most workload issues occurred when new agencies began using cross-servicing and referred thousands of their old debts to FMS at one time. According to FMS, it is prohibitively costly for FMS to temporarily staff up for these large numbers of referrals and, instead, it relies on PCAs for these situations because they have a greater ability to react to fluctuating volumes. However, partially because large fluctuations in the number of debts referred by agencies do occur and can have a significant impact on workloads, GAO maintains that FMS should perform a comprehensive review of its cross-servicing process, including assessing the level of effort its collectors should perform by considering the number of collectors assigned, the number and types of debts individual collectors can be expected to effectively cross-service, and fluctuations in the volume of debts referred by agencies and the related impact, if any, on collector workloads. As a result, FMS would be in a position to make informed decisions about how to strategically target its efforts and effectively use available resources, FMS collectors, and private collection agency contractors. According to FMS, no action will be taken because FMS did not concur with key parts of the recommendation to perform a comprehensive review.

    Recommendation: To help ensure that debt collection efforts are efficient, cost-effective, and performed by the most capable entity (i.e., FMS, a PCA, or any agency approved to be a debt collection center), GAO recommends that the Commissioner of FMS perform a comprehensive review of FMS' cross-servicing process to determine whether FMS' current debt collection strategy and standard operating procedures are appropriate for optimizing collections. This should be done by assessing the level of effort FMS collectors should perform by considering the number of collectors assigned, the number and types of debts individual FMS collectors can be expected to effectively cross-service, and fluctuations in the volume of debts referred by agencies and the related impact, if any, on FMS collector workloads.

    Agency Affected: Department of the Treasury: Financial Management Service

  5. Status: Closed - Not Implemented

    Comments: FMS stated that its procedure for working a debt at its debt operations center for 30 days prior to sending it to a private collection agency contractor (PCA) is appropriate and FMS should make full and appropriate use of the private sector. FMS further stated that an assessment of the level of effort FMS collectors should perform is impractical because federal agencies refer debts sporadically and randomly and FMS' ability to analyze workloads will continually improve as agencies continue to refer debts on a regular basis. However, partially because large fluctuations in the number of debts referred by agencies do occur and can have a significant impact on workloads, GAO maintains that FMS will benefit from a comprehensive review of its cross-servicing process, including assessing the level of effort FMS collectors should perform, to make informed decisions about how to strategically target its efforts and effectively use available resources, FMS collectors, and PCAs. FMS' standard operating procedures should be revised, if necessary, after such a comprehensive review is conducted. FMS revised its operating procedures in September 2002, but did not perform a comprehensive review of its cross-servicing process, including assessing the level of effort FMS collectors should perform, to determine whether FMS' existing debt collection strategy and standard operating procedures were appropriate for optimizing collections.

    Recommendation: To help ensure that debt collection efforts are efficient, cost-effective, and performed by the most capable entity (i.e., FMS, a PCA, or any agency approved to be a debt collection center), GAO recommends that the Commissioner of FMS perform a comprehensive review of FMS' cross-servicing process to determine whether FMS' current debt collection strategy and standard operating procedures are appropriate for optimizing collections. This should be done by revising, if necessary, the standard operating procedures based on the assessment of the level of collection efforts FMS collectors should perform while maintaining appropriate internal controls and accountability over FMS collection efforts.

    Agency Affected: Department of the Treasury: Financial Management Service

  6. Status: Closed - Not Implemented

    Comments: FMS stated that its procedure for working a debt at its debt operations center for 30 days prior to sending it to a private collection agency contractor (PCA) is appropriate and FMS should make full and appropriate use of the private sector. FMS further stated that an assessment of the level of effort FMS collectors should perform is impractical because federal agencies refer debts sporadically and randomly and FMS' ability to analyze workloads will continually improve as agencies continue to refer debts on a regular basis. However, partially because large fluctuations in the number of debts referred by agencies do occur and can have a significant impact on workloads, GAO maintains that FMS will benefit from a comprehensive review of its cross-servicing process, including identifying specific types of debts that should be sent promptly to the PCAs for cross-servicing and determining the appropriate level of involvement by FMS collectors on such debts to make informed decisions about how to strategically target its efforts and effectively use available resources, FMS collectors, and PCAs. According to FMS, no action will be taken because FMS did not concur with the recommendation.

    Recommendation: To help ensure that debt collection efforts are efficient, cost-effective, and performed by the most capable entity (i.e., FMS, a PCA, or any agency approved to be a debt collection center), GAO recommends that the Commissioner of FMS perform a comprehensive review of FMS' cross-servicing process to determine whether FMS' current debt collection strategy and standard operating procedures are appropriate for optimizing collections. This should be done by identifying specific types of debts, if any, that should be sent promptly to the PCAs for cross-servicing and determining the appropriate level of involvement by FMS collectors on such debts.

    Agency Affected: Department of the Treasury: Financial Management Service

  7. Status: Closed - Implemented

    Comments: According to FMS officials, beginning in December 2001, the Birmingham Debt Management Operations Center (BDMOC) instituted a process by which program analysts in the Debt Services Branch (DSB), who report directly to the DSB manager, review the work of the branch's FMS collectors. Since May 2003, the BDMOC has utilized four program analysts to review the work of its 29 collectors. The program analyst's responsibilities include (1) reviewing the collectors' work lists, (2) ensuring that each task is completed on time, and (3) doing the tasks those collectors fail to do. The program analysts rotate among the collectors they oversee. Each afternoon, each program analyst reviews a collector's work list to determine that the next course of action (e.g., referral to the Treasury Offset Program or a PCA) is completed on time. The DSB manager said that FMS implemented the above procedures based on GAO's cross-servicing work done in about 2000 (i.e., AIMD-00-234).

    Recommendation: To help ensure that debt collection efforts are efficient, cost-effective, and performed by the most capable entity (i.e., FMS, a PCA, or any agency approved to be a debt collection center), GAO recommends that the Commissioner of FMS perform a comprehensive review of FMS' cross-servicing process to determine whether FMS' current debt collection strategy and standard operating procedures are appropriate for optimizing collections. This should be done by enforcing compliance with established collection procedures performed by FMS collectors and taking appropriate corrective actions when deviations from established procedures are found.

    Agency Affected: Department of the Treasury: Financial Management Service

  8. Status: Closed - Implemented

    Comments: The Financial Management Service (FMS) requirement for compliance monitoring of a private collection agency (PCA) is at section C.9 of the PCA contract task order statement of work. Section C.9 requires that, at least annually, FMS staff conduct an on-site review of the PCA's compliance (1) to the specifications listed in the task order and (2) in fulfilling the approach outlined by the contractor's proposal. If the contractor is not in compliance, no account referrals will be made until all areas of non-compliance are resolved. Other actions, including terminations for default or convenience, may be taken by the Contracting Officer (CO), as appropriate. Follow-up compliance reviews ensure that corrective actions have been implemented. In fiscal year (FY) 2002, FMS had a total of five PCAs. FMS provided GAO documentation of its FY 2002 compliance reviews, one for each of its five PCAs. For each compliance review, the FMS CO sent to the appropriate PCA a letter that discussed the results of the review, specifying the areas of non-compliance. FMS required the PCAs to take corrective action for areas of non-compliance, which included items such as the PCA failing to (1) send demand letters within 7 days on accounts with addresses provided or (2) document in their system the justification for accepting multiple payments and/or a compromised amount. The CO letters requested that the PCAs provide by a specified date the Contracting Officer's Technical Representative with documentation demonstrating that the instances of non-compliance were corrected. The due date for the PCAs' responses was approximately 3 weeks after the week in which the CO letters were dated. All five of the PCAs responded to FMS within the allotted time period and provided responses that addressed each of the areas of non-compliance.

    Recommendation: To help ensure that debt collection efforts are efficient, cost-effective, and performed by the most capable entity (i.e., FMS, a PCA, or any agency approved to be a debt collection center), GAO recommends that the Commissioner of FMS perform a comprehensive review of FMS' cross-servicing process to determine whether FMS' current debt collection strategy and standard operating procedures are appropriate for optimizing collections. This should be done by enforcing compliance with established procedures for FMS staff to monitor PCAs' collection activities and taking appropriate corrective actions when PCAs deviate from established requirements.

    Agency Affected: Department of the Treasury: Financial Management Service

  9. Status: Closed - Not Implemented

    Comments: The intent of GAO's recommendation was that FMS review its cross-servicing costs and fees on a functional basis as part of an overall assessment of FMS' debt collection strategy. GAO's analysis of FMS' cross-servicing fees and related operating costs at the time of its review found that collection volume would need to rise more than sevenfold above its fiscal year 1999 collections to put FMS cross-servicing operations on a full cost-recovery basis. In conducting a periodic assessment, FMS should consider the costs of its operations and the revenues collected and make any necessary adjustments to help ensure that its collection efforts are providing the optimal return to the federal government. Although FMS stated that it reviews its cross-servicing costs and fee structure annually, it provided no evidence that showed FMS adequately analyzed its costs in conjunction with its operations.

    Recommendation: To help ensure that debt collection efforts are efficient, cost-effective, and performed by the most capable entity (i.e., FMS, a PCA, or any agency approved to be a debt collection center), GAO recommends that the Commissioner of FMS perform a comprehensive review of FMS' cross-servicing process to determine whether FMS' current debt collection strategy and standard operating procedures are appropriate for optimizing collections. This should be done by periodically analyzing FMS' cross-servicing costs and related fee structure.

    Agency Affected: Department of the Treasury: Financial Management Service

  10. Status: Closed - Implemented

    Comments: According to an FMS memo to file in April 2001, FMS administered a survey in February 2000 with the PCAs under contract. This survey allowed the contractors an opportunity to comment on areas that worked well and areas that needed improvement. A few PCAs commented that the account distribution process needed to be revised. In addition, a PCA conference was held on June 12 and 13, 2000 after GAO's testimony at the hearing held on June 8, 2000. FMS solicited comments from the PCAs on what changes they would like to see for the new debt collection contract, including how debts are distributed and has shared the feedback with all of the PCAs from that conference. The PCAs suggested that FMS alter account distribution to consider the following: separate consumer and commercial accounts, separate 1st and 2nd referrals, separate accounts by age range, separate accounts by dollar range, establish that poor performers receive no referrals in the next placement, and exclude higher balance accounts.

    Recommendation: To help ensure that a proportionate mix of debts is being distributed to the PCAs and competition among the PCAs is more fully promoted, GAO recommends that the Commissioner of FMS work with the PCAs to determine what characteristics of the debts--age of delinquency, type of debt (consumer or commercial), agency referring the debt, or debt balance--should be considered when distributing debts to PCAs for collection.

    Agency Affected: Department of the Treasury: Financial Management Service

  11. Status: Closed - Not Implemented

    Comments: As of August 2000, FMS requires agencies' Chief Financial Officers (CFOs) or equivalent to certify their year-end Treasury Report on Receivables (TROR). According to FMS, certification means the amounts reported on the TROR for cross-servicing and offset are correct and will be used to monitor compliance with the DCIA. By having the CFO certify such information, FMS expects that the reporting agencies will place more importance on providing accurate and reliable debt information. In addition, FMS sought cooperation with OMB in encouraging the various agencies' Inspectors General to audit the numbers provided by the agencies on the TROR, including the exclusions from TOP and cross-servicing. In OMB's Audit Requirements for Federal Financial Statements, OMB requires auditors to perform tests of compliance with laws and regulations that could have a direct and material effect on the Principal Statements and any other laws, regulations, and governmentwide policies identified by OMB. OMB has identified the Debt Collection Improvement Act as one of these laws. However, while these actions are positive steps, the intent of GAO's recommendation was that FMS, as the sole governmentwide debt collection center, lead and coordinate efforts among FMS, OMB, and agency OIGs in the development and implementation of a formal process for obtaining independent verifications of agency reported debt amounts eligible and excluded from the DCIA cross-servicing provisions. Based on information FMS provided, no such action has been taken.

    Recommendation: To help ensure that eligible delinquent debts are identified and promptly referred by the agencies for cross-servicing and that reporting on the status of delinquent debts by the agencies and FMS are reliable, GAO recommends that the Commissioner of FMS work with the Office of Management and Budget and the agencies' Offices of Inspector General to develop and implement a process for obtaining periodic independent verification of the accuracy, completeness, and validity of debts reported by agencies as eligible and excluded from the Debt Collection Improvement Act cross-servicing provisions.

    Agency Affected: Department of the Treasury: Financial Management Service

  12. Status: Closed - Implemented

    Comments: FMS made adjustments to the new debt collection contract to allow for changes in debt distribution. FMS has recently changed its distribution methodology by distributing debts by dollar category. FMS officials stated that they would periodically review the distribution methodology to PCAs with each major new software release and with input from the PCAs during the annual PCA conference.

    Recommendation: To help ensure that a proportionate mix of debts is being distributed to the PCAs and competition among the PCAs is more fully promoted, GAO recommends that the Commissioner of FMS establish and implement a process to periodically analyze the distribution and collection data to determine whether adjustment to the distribution model is needed.

    Agency Affected: Department of the Treasury: Financial Management Service

 

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