Debt Collection Improvement Act of 1996:

Department of Agriculture's Farm Service Agency Has Not Yet Fully Implemented Certain Key Provisions

GAO-02-463: Published: Mar 29, 2002. Publicly Released: Apr 29, 2002.

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The Debt Collection Improvement Act of 1996 seeks to maximize the collection of billions of dollars of nontax delinquent debt owed to the federal government. The act requires agencies to refer eligible debts delinquent more than 180 days to the Department of the Treasury for payment offset and to Treasury or a Treasury-designated debt collection center for cross-servicing. The Treasury Offset Program includes the offset of benefit payments, vendor payments, and tax refunds. Cross-servicing involves locating debtors, issuing demand letters, and referring debts to private collection agencies. The Farm Service Agency (FSA) has initiatives to ensure the timely referral of all delinquent debt. However, the agency's failure to make the act a priority has left key provisions of the legislation unimplemented and has severely reduced opportunities for collection. FSA lacks effective procedures and controls to identify and promptly refer eligible delinquent debts to Treasury for collection action. GAO identified several obstacles to FSA's establishment and implementation of an effective and complete debt-referral process. In the four states with the highest dollar amounts of federal debt excluded from the Treasury Offset Program, GAO reviewed FSA's use of exclusions from referral requirements because of bankruptcy, forbearance/appeals, foreclosure and Department of Justice litigation. GAO found that about half of the exclusions in these states were inconsistent with established criteria.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: The Farm Service Agency (FSA) issued the final regulations for recognizing guaranteed farm loan losses as federal debt in July 2002. According to FSA officials, the regulations apply to guaranteed farm loans made on or after July 20, 2001, the date of the revised lender agreement that establishes guaranteed loan losses as federal debt. According to an FSA official, on April 28, 2003, FSA implemented software changes to automate the (1) tracking of losses paid on guaranteed loans as federal debt and (2) referral of such losses to the Treasury Offset Program (TOP). FSA provided an example and additional information concerning its Guaranteed Loan System's Debt Offset Maintenance page, which is now used to track losses on guaranteed loans for offset and referral as federal debt.

    Recommendation: To improve FSA's compliance with DCIA, GAO recommends that the Secretary of Agriculture direct the Administrator of FSA to take the following actions: monitor planned system enhancements to the Guaranteed Loan Accounting System to ensure that the software is completed that is needed to implement the revisions to the loan application forms to establish guaranteed loan losses as federal debt.

    Agency Affected: Department of Agriculture

  2. Status: Closed - Implemented

    Comments: In August 2002, the Farm Service Agency (FSA) issued guidance to the field offices for review of eligible debts for the December 2002 referral to the Treasury Offset Program (TOP). In September 2002, FSA informed its field offices that quarterly referrals are now required, and the agency has determined that the same due process notification and referral process that has been used annually will be used quarterly except under a shorter timeframe. In July 2003, an FSA official provided two FSA reports showing that in the first and second quarters of fiscal year 2003, FSA referred 98.62 and 98.58 percent, respectively, of eligible debt to TOP, thus demonstrating that FSA is referring eligible debt to TOP on a quarterly basis.

    Recommendation: To improve FSA's compliance with DCIA, GAO recommends that the Secretary of Agriculture direct the Administrator of FSA to take the following actions: monitor effective completion of the planned automated system modifications to refer eligible debt to TOP on a quarterly, rather than annual, basis by August 2002.

    Agency Affected: Department of Agriculture

  3. Status: Closed - Implemented

    Comments: According to the Farm Service Agency (FSA), an enhanced debt report is provided to the field offices on a monthly basis in an effort to prompt timely and routine review and updating of the status of delinquent debts in its automated Program Loan Accounting System (PLAS). Beginning in August 2002, county field offices are required to provide their respective state offices with documentation for loans that they determine are ineligible for Treasury's offset program because of bankruptcy, foreclosure, or litigation. The state offices, in turn, are responsible for making the final decision regarding the loans' eligibility for referral and for actually excluding the loans from referral. The Kansas City Finance Office is responsible for ensuring that discharged bankruptcy debts are accurately and timely reported to the Internal Revenue Service (IRS) as income to the debtor. FSA provided GAO a copy of their revised procedures concerning IRS reporting, including 1099 reporting. In addition, according to FSA, to further improve its oversight on this issue, FSA has amended its National Internal Review (NIR) Guide to include specific procedures that are designed to help ensure, among other things, that all debts discharged through bankruptcy are promptly closed out and reported to IRS. FSA's policy is to perform its NIRs at state offices not less than every 2 years. As part of the NIR process, FSA personnel complete a Form FSA-2110, State Office FLP Management Review Questionnaire, at each state office reviewed. Form FSA-2110 includes two questions regarding accurately tracking and closing accounts discharged through bankruptcy. An FSA official told GAO that, as of July 10, 2003, FSA has completed NIRs in 17 states for fiscal year (FY) 2003. Based on a GAO review of Forms FSA-2110 completed for three states in FY 2003, FSA has developed and implemented oversight procedures to help ensure that all debts discharged through bankruptcy are promptly closed out and reported to IRS as income to the debtor.

    Recommendation: To improve FSA's compliance with DCIA, GAO recommends that the Secretary of Agriculture direct the Administrator of FSA to take the following actions: develop and implement oversight procedures to ensure that all debts discharged through bankruptcy are promptly closed out and reported to the Internal Revenue Service as income to the debtor in accordance with the Federal Claims Collection Standards and Office of Management and Budget Circular A-129.

    Agency Affected: Department of Agriculture

  4. Status: Closed - Implemented

    Comments: During GAO's review of Agriculture's implementation of certain key provisions of DCIA, GAO found that the Farm Service Agency (FSA) has made progress toward improving its oversight procedures. For example, FSA is now using its Program Loan Accounting System (PLAS) and an enhanced system-generated report to facilitate field office review of debts to determine eligibility for referral to Treasury. In September 2002, FSA provided its field offices the enhanced report and directed the field offices to review debts listed on the report for accuracy. According to an FSA official, the report is provided to the field offices on a monthly basis in an effort to prompt timely and routine updating of the status of delinquent debts in PLAS. In addition, FSA amended its National Internal Review (NIR) Guide to include specific procedures that are designed to help ensure that state offices establish monitoring systems to track debtors and to facilitate the timely and routine updating of information in the PLAS. FSA's policy is to perform its National Internal Reviews at state offices not less than every 2 years. As part of the NIR process, FSA personnel complete a Form FSA-2112, Service Center FLP Management Review Questionnaire Direct Loans, at each center reviewed. Form FSA-2112 includes a question regarding the timely processing of automated data processing system transactions, which update borrower and account information in PLAS. An FSA official told GAO that, as of July 10, 2003, FSA has completed NIRs in 17 states for fiscal year (FY) 2003. Based on a GAO review of Forms FSA-2112 completed for three states in FY 2003, FSA has developed and implemented oversight procedures to help ensure that FSA field offices timely and routinely update PLAS to accurately reflect the status of delinquent debts.

    Recommendation: To improve FSA's compliance with DCIA, GAO recommends that the Secretary of Agriculture direct the Administrator of FSA to take the following actions: develop and implement oversight procedures to ensure that FSA field offices timely and routinely update the Program Loan Accounting System to accurately reflect the status of delinquent debts. Aside from requirements for database integrity, this is critical to determining allowable collection action, including whether debts are eligible for referral to FMS for collection action.

    Agency Affected: Department of Agriculture

  5. Status: Closed - Implemented

    Comments: Farm Service Agency (FSA) developed and tested enhancements to their Program Loan Accounting System (PLAS) to identify codebtors for all loan programs and began the selection process for referral of all eligible direct loans, including certain codebtors, to Treasury for offset and cross-servicing. According to FSA, 254 loans with codebtors totaling about $8.3 million had been identified for initiating the due process required for referral to the Treasury's offset program. In September 2002, due process letters were sent out, and automated referral of these loans began in December 2002.

    Recommendation: To improve FSA's compliance with DCIA, GAO recommends that the Secretary of Agriculture direct the Administrator of FSA to take the following actions: monitor planned system enhancements to the Program Loan Accounting System to ensure that capacity to record and use codebtor information is available and implemented by December 2002.

    Agency Affected: Department of Agriculture

  6. Status: Closed - Implemented

    Comments: During its review of Agriculture's progress in implementing certain key provisions of DCIA, GAO found that FSA had implemented automated system enhancements to its Program Loan Accounting System, and was using system-generated reports to better track the status of FSA's judgement debts. For example, FSA generated an enhanced debt report, called the 540 Report, which lists various types of debts under FSA's farm loan programs, including judgement debts. In September 2002, FSA provided its field offices the initial enhanced debt report and directed the field offices to review the current status of the debts listed on the report and determine each debt's eligibility for referral to Treasury. FSA plans to routinely use this report to facilitate field office reviews of judgement debts in the future.

    Recommendation: To improve FSA's compliance with DCIA, GAO recommends that the Secretary of Agriculture direct the Administrator of FSA to take the following actions: develop and implement automated system enhancements to make the Program Loan Accounting System capable of identifying all judgment debts eligible for referral to FMS for collection action. In the interim, continue with the manual project to identify judgment debts eligible for referral to FMS.

    Agency Affected: Department of Agriculture

  7. Status: Closed - Implemented

    Comments: The Farm Service Agency (FSA) issued the final regulations for recognizing guaranteed farm loan losses as federal debt in July 2002. FSA has paid final loss claim payments on 15 guaranteed loans made using its application form that was revised on July 20, 2001, to establish guaranteed loan losses as federal debt. As of July 11, 2003, of the 15 loans, three are not eligible for referral to the Treasury Offset Program (TOP) because the debtor has been discharged in bankruptcy and six are not eligible for referral to Internal Administrative Offset (IAO) because the 30-day notification period has not expired, but six have been referred for IAO. On or about July 15, 2003, the six loans referred for IAO will be eligible to receive the "Notice of Intent to Refer Account to Treasury Offset Program (TOP)." On or about September 30, 2003, these same six loans will be referred to TOP unless the debtor satisfies the debt or files for bankruptcy.

    Recommendation: To improve FSA's compliance with DCIA, GAO recommends that the Secretary of Agriculture direct the Administrator of FSA to take the following actions: once guaranteed loan losses are established as federal debt and are deemed eligible for referral to FMS, timely refer such debt to FMS for collection action in accordance with DCIA.

    Agency Affected: Department of Agriculture

 

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