Government Can Be More Productive in Collecting Its Debts by Following Commercial Practices

FGMSD-78-59: Published: Feb 23, 1979. Publicly Released: Feb 23, 1979.

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GAO was requested to study government debt collection practices and compared them with the methods used by commercial firms. This issue is becoming critical because of the rapidly rising number of debts owed to the government, now increasing at a rate of 21 percent annually. Debts include student loans, overpayments of supplemental security income benefits and veterans educational assistance, royalties, and payments for various goods and services. While most of these obligations will be paid routinely, many will require collection action and a considerable portion will be written off as uncollectible.

Of 12 federal agencies checked by GAO, only 3 were found to have provided for uncollectible accounts, writing off amounts not expected to be recovered. Among the agencies reviewed, GAO found that between 25 and 60 percent of the obligations were considered uncollectible. Naturally, this lost revenue must be replaced by increased taxes or charges against budget deficits, but graver concerns include the receipt of benefits without entitlement, conversion of self-help programs into grant programs without congressional approval, and the effect of the knowledge that payment can be avoided with impunity on those still discharging their debts voluntarily. Debts have outrun collections because many agencies have been laggard in pursuing repayment and present methods are slow, costly, and unreliable when compared with commercial practices. Clear comparisons between federal and commercial practice are difficult, but one striking discrepancy was found in the amount of debt for which court judgment is sought. Commercial firms have accepted $25 as the cost-effective cutoff for court action, whereas the customary federal limit is $600. Government collection expenses and time expended run more than double the commercial rate, measured on a per-case basis.

Recommendation for Executive Action

  1. Status: Closed

    Comments: Please call 202/512-6100 for additional information.

    Recommendation: Government agencies should report delinquent debts and loans to credit bureaus, use available locator services to trace delinquent debtors, and increase use of automation in the debt collection process. Demand letters should outline payment due dates, interest rates, consequences of nonpayment, and means for debtors to demonstrate their willingness to make payments. The Secretary of Health, Education, and Welfare and the Administrator of Veterans' Affairs should report loan delinquencies to credit bureaus and arrange to use debtor locator services to collect student loans and educational assistance overpayments.

    Agency Affected:

 

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