Debt Collection:

Improved Reporting Needed on Billions of Dollars in Delinquent Debt and Agency Collection Performance

AIMD-97-48: Published: Jun 2, 1997. Publicly Released: Jun 2, 1997.

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Pursuant to a congressional request, GAO reviewed debt collection issues for nontax debts, focusing on: (1) reported governmentwide data on credit receivables and delinquencies for federally managed loans; (2) the status of efforts at four major credit agencies to resolve delinquencies; (3) the dollars collected using various legislatively-established collection tools; and (4) ways debt collection reporting can be enhanced to evaluate progress in collecting debt, and thereby assess agency efforts to meet the mandates of the Debt Collection Improvement Act of 1996. GAO did not verify the accuracy of the information provided to it by the Office of Management and Budget (OMB), the Financial Management Service (FMS), or by the four agencies included in the review.

GAO noted that: (1) governmentwide reporting to the Congress indicates that the amount of debt federal agencies are directly managing has remained at about $200 billion for the 5 years ended September 30, 1996; (2) during that time, reported delinquencies for these federal credit receivables varied between $31 billion to $38 billion; (3) at September 30, 1995, the most recent data available on program-level collection performance at the time of GAO's field work, the housing agencies were dealing with more than half of their delinquent debt through various involuntary collection tools and, for almost a third of their delinquent debt, were attempting to contact borrowers to get them to resume payments on the original or revised terms; (4) the Department of Education and its agents were attempting to locate and confirm or revise repayment agreements associated with about 70 percent of Education's delinquent debt; (5) contacting borrowers with delinquent student loans is an especially difficult task since they tend to be younger and thus more transient; (6) collection on such unsecured loans tends to be more difficult because there is no collateral to be seized if borrowers do not pay; (7) delinquent student loans accounted for 40 cents of every dollar of delinquent nontax debt directly managed by the government and over half of the delinquent federal credit receivable debt; (8) GAO identified several enhancements that would facilitate valid assessments of agency collection efforts; (9) better data and key analyses are crucial aspects of federal efforts to measure success in accomplishing the charter for a more business-like credit management environment as set out by the Debt Collection Improvement Act of 1996; (10) progress in this area will be especially critical to the success of FMS as it assumes new debt collection management and reporting responsibilities under the act; (11) such data is central to effective day-to-day management in terms of selecting collection strategies and deploying available staff and contract resources; and (12) among the enhancements are: (a) developing a reporting framework to identify and assess the status of agency efforts to collect delinquent balances; (b) providing more information on how actively, successfully, and cost-effectively agencies are using individual collection tools; (c) reporting actual delinquent amounts that agencies are trying to collect and showing how those figures relate to amounts reported on agency financial statements; and (d) improving the reliability and consistency of reporting on delinquencies and credit receivables.

Status Legend:

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  • Review Pending-GAO has not yet assessed implementation status.
  • Open-Actions to satisfy the intent of the recommendation have not been taken or are being planned, or actions that partially satisfy the intent of the recommendation have been taken.
  • Closed-implemented-Actions that satisfy the intent of the recommendation have been taken.
  • Closed-not implemented-While the intent of the recommendation has not been satisfied, time or circumstances have rendered the recommendation invalid.
    • Review Pending
    • Open
    • Closed - implemented
    • Closed - not implemented

    Recommendations for Executive Action

    Recommendation: The Secretary of the Treasury should require the Assistant Commissioner, FMS Debt Management Services, in conjunction with major credit agencies and OMB, to revise the framework and data requirements for agency reporting on debt collection to ensure that reports to the Congress report delinquent debt consistently from agency to agency or disclose inconsistencies.

    Agency Affected: Department of the Treasury

    Status: Closed - Implemented

    Comments: FMS' Debt Management Services has revised the Receivables Report for agencies' use as of the second quarter of fiscal year 1999. The report was revised to incorporate this recommendation and to capture data relevant to provisions of the Debt Collection Improvement Act. Agencies can access and submit the report via the Internet. The instructions for the revised receivables report require agencies to provide a footnote whenever agency data is inconsistent with the report definition. In addition, FMS now requires that all yearend reports are verified by the submitting agency's CFO or equivalent. Verification of the Receivables Report means that the report has been reconciled to the agency's Audited Financial Statements and to the Federal Agencies Centralized Trial-Balance System. FMS also submitted a revised write-off policy to OMB for inclusion in OMB Circular A-129, which is currently under review.

    Recommendation: The Secretary of the Treasury should require the Assistant Commissioner, FMS Debt Management Services, in conjunction with major credit agencies and OMB, to revise the framework and data requirements for agency reporting on debt collection to ensure that reports to the Congress provide information that is reliable based on independent audits and disclose information about the reliability of pertinent account balances that are questioned through audits.

    Agency Affected: Department of the Treasury

    Status: Closed - Implemented

    Comments: FMS' Debt Management Services has revised the Receivables Report for agencies' use as of the second quarter of fiscal year 1999. The report was revised to incorporate this recommendation and to capture data relevant to provisions of the Debt Collection Improvement Act. Agencies can access and submit the report via the Internet. In addition, FMS now requires that all yearend reports are verified by the submitting agency's CFO or equivalent. Verification of the Receivables Report means that the report has been reconciled to the agency's Audited Financial Statements and to the Federal Agencies Centralized Trial-Balance System. FMS also submitted a revised write-off policy to OMB for inclusion in OMB Circular A-129, which is currently under review.

    Recommendation: The Secretary of the Treasury should require the Assistant Commissioner, FMS Debt Management Services, in conjunction with major credit agencies and OMB, to revise the framework and data requirements for agency reporting on debt collection to ensure that reports to the Congress report amounts that agencies are actually trying to collect. This would include the gross receivables and interest receivable amounts that are currently included in the footnotes to their financial statements, plus: (a) principle that has been written off but that is still being pursued; and (b) accrued interest on delinquent debt that is still being pursued. The report should also explain differences between these amounts.

    Agency Affected: Department of the Treasury

    Status: Closed - Implemented

    Comments: FMS' Debt Management Services has revised the Receivables Report for agencies' use as of the second quarter of fiscal year 1999. The report was revised to incorporate this recommendation and to capture data relevant to provisions of the Debt Collection Improvement Act, including amounts that agencies are actually trying to collect including gross receivables and interest receivables amounts, and debts that have been written off but not closed out. For debts that have been written off but not closed out, the report includes whether the debts are at private collection agencies, Treasury designated debt collection centers, and/or in the Treasury Offset Program. Agencies can access and submit the report via the Internet. In addition, FMS now requires that all yearend reports are verified by the submitting agency's CFO or equivalent. Verification of the Receivables Report means that the report has been reconciled to the agency's Audited Financial Statements and to the Federal Agencies Centralized Trial-Balance System. FMS also submitted a revised write-off policy to OMB for inclusion in OMB Circular A-129, which is currently under review.

    Recommendation: The Secretary of the Treasury should require the Assistant Commissioner, FMS Debt Management Services, in conjunction with major credit agencies and OMB, to revise the framework and data requirements for agency reporting on debt collection to ensure that reports to the Congress offer an evaluation of agency use of individual collection tools. This evaluation should include agency and governmentwide assessments of how actively, successfully, and cost effectively agencies are pursuing delinquent debt. At a minimum, data should be available concerning the collection tools predominantly used, including: (a) the number of cases and the amount of delinquent dollars against which each tool was applied; (b) the number of cases for which the agency was successful in applying the tool; and (c) the cost of using the tool in relation to the dollars collected.

    Agency Affected: Department of the Treasury

    Status: Closed - Implemented

    Comments: The revised Receivables Report is designed, in part, to collect data pertaining to agencies' use of collection tools and identify the amount of debt collections by specific tool. The report includes a separate section entitled " Debt Management Tool and Technique Performance Data," which specifies the number and dollar amount of debts delinquent 180 days or less for which specific collection tools have been used including private collection agency, litigation, internal offset, wage garnishment, Treasury cross-servicing, and Treasury offset. The report also includes a section entitled "Collections," which includes the total number and dollar amount of collections on delinquent debt by various collection tools including those mentioned above. According to FMS officials, the revised report does not address the cost of using each tool in relation to the dollars collected. Although FMS has developed an activity based system to estimate costs for debt collection activity such as cross-servicing and payment offset, an FMS official stated that agencies have reported that they do not capture cost information for debt collection tools. The official stated that FMS has encouraged agencies to track costs, but has no authority to require agencies to track debt collection costs by collection tools. The CFO Council and the Federal Credit Policy Working Group are looking at ways to resolve issues related to capturing this information.

    Recommendation: The Secretary of the Treasury should require the Assistant Commissioner, FMS Debt Management Services, in conjunction with major credit agencies and OMB, to revise the framework and data requirements for agency reporting on debt collection to ensure that reports to the Congress provide complete reporting on the status of agency efforts to collect delinquent debt. FMS should clearly specify the reporting framework, such as the one discussed in this report, and ensure that it is uniformly followed by reporting agencies. Effective status reporting will offer a clear picture of agency progress in collecting delinquent debt and highlight any significant backlogs in resolution phases meriting administrative action or legislative consideration.

    Agency Affected: Department of the Treasury

    Status: Closed - Implemented

    Comments: FMS' Debt Management Services has revised the Receivables Report for agencies' use as of the second quarter of fiscal year 1999. The report was revised to incorporate this recommendation and to capture data relevant to the provisions of the Debt Collection Improvement Act. Agencies can access and submit the report via the Internet. In addition, FMS now requires that all yearend reports are verified by the submitting agency's CFO or equivalent. Verification of the Receivables Report means that the report has been reconciled to the agency's Audited Financial Statements and to the Federal Agencies Centralized Trial-Balance System. FMS also submitted a revised write-off policy to OMB for inclusion in OMB Circular A-129, which is currently under review.

    Recommendation: The Secretary of the Treasury should require the Assistant Commissioner, FMS Debt Management Services, in conjunction with major credit agencies and OMB, to revise the framework and data requirements for agency reporting on debt collection to ensure that reports to the Congress aggregate the credit data by similar program characteristics and provide explanatory information where necessary in order to more appropriately portray program differences and focus on collection challenges unique to similar programs.

    Agency Affected: Department of the Treasury

    Status: Closed - Implemented

    Comments: According to FMS, the revised Treasury Report on Receivables contains enhanced reporting capabilities allowing program-level credit data to be aggregated, sorted, and analyzed based on similar program characteristics. Recently, an automated mechanism was incorporated into a software enhancement of the revised Treasury Report, which allows for automatic generation of program-level reports of fiscal yearend data.

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