Debt Collection Improvement Act of 1996:

Status of Treasury's Centralized Efforts to Collect Delinquent Federal Nontax Debt

GAO-12-870R: Published: Sep 13, 2012. Publicly Released: Sep 13, 2012.

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What GAO Found

In summary, according to FMS officials, FMS considers both TOP and the cross-servicing program to be fully mature in that all key elements of the programs have been implemented. As such, FMS's current and future efforts will focus on enhancements that will (1) for TOP, facilitate its ability to increase federal nontax debt collections through additional offsets and (2) for the cross-servicing program, enable it to collect such debt more efficiently and effectively. Further, FMS is considering a number of initiatives intended to improve centralized collection of delinquent federal nontax debt. These initiatives primarily involve increasing the amount of debt subject to collection by FMS, bolstering FMS's set of debt collection tools, and enhancing FMS's internal operations and interactions with referring federal agencies. Several of FMS's initiatives, which are in the early stages of development, could, if approved and effectively implemented, address long-standing concerns about FMS's centralized debt collection program.

According to data provided by FMS, the amount of delinquent federal nontax debt referred to Treasury for collection as of the fiscal year-end for the last 5 fiscal years (i.e., fiscal years 2007 through 2011) and the amount of collections for those fiscal years were as follows: (1) Federal nontax debt referred to TOP and eligible for offset increased from $29.8 billion in fiscal year 2007 to $102.0 billion in fiscal year 2011, and FMS's annual TOP collections fluctuated, ranging from $1.4 billion in fiscal year 2007 to the highest amount for the 5-year period of $2.6 billion in fiscal year 2011. (2) Federal nontax debt referred to the cross-servicing program and eligible for collection increased from $8.6 billion in fiscal year 2007 to $17.3 billion in fiscal year 2011, and FMS's annual cross-servicing program collections fluctuated, ranging from $95 million in fiscal year 2007 to the highest amount for the 5-year period of $193 million in fiscal year 2009.

According to the TRORs, federal agencies did not refer a significant amount of debt prior to or at 180 days delinquent to FMS for TOP or the cross-servicing program. Accordingly, we did not perform any specific analysis of collection results for the limited amount of debt referred early to TOP or the cross-servicing program.

DCIA authorizes Treasury to grant exemptions from mandatory transfer of debt for cross-servicing for specific classes of debt at the request of the head of a federal agency or upon the Secretary of the Treasury's own initiative and determination. According to FMS officials, Treasury has granted exemptions for certain classes of nontax debt to four agencies--the Department of Education, the Social Security Administration, the Small Business Administration, and the Department of Health and Human Services. According to FMS officials, the exemptions, which totaled $35.5 billion as reported by the agencies in their TRORs as of September 30, 2011, were granted during the 1999 to 2002 time frame.

According to FMS officials, FMS's primary mechanisms used to help ensure that delinquent federal nontax debtors do not receive additional federal loans, loan insurance, or loan guarantees involve referring delinquent federal nontax debt information to credit bureaus as part of the cross-servicing program, and administering Debt Check, which is an Internet-based information system designed to assist federal agencies in identifying delinquent debtors by providing information that is obtained from TOP. According to these officials, there is no legislative or regulatory requirement for federal agencies to use Debt Check. According to data provided by FMS, only the Small Business Administration and the National Oceanic and Atmospheric Administration have used Debt Check during the last 5 calendar years (i.e., 2007 through 2011).

Why GAO Did This Study

This report is in response to Congressional request for a description of the status of the Department of the Treasury's (Treasury) centralized debt collection efforts under the Debt Collection Improvement Act of 1996 (DCIA). DCIA was intended, among other things, to maximize collection of delinquent federal nontax debt. DCIA requires federal agencies to notify Treasury of federal nontax debt delinquent over 180 days for purposes of payment offset and requires agencies to refer such debt to Treasury for centralized collection action (known as cross-servicing). To facilitate debt collection, DCIA, in concert with other federal debt collection laws that the act amended, authorizes several debt collection tools and bars delinquent federal nontax debtors from receiving additional federal loans, loan insurance, or loan guarantees until such debtors resolve their delinquencies. Treasury's centralized delinquent federal nontax debt collection efforts include the Treasury Offset Program (TOP) and the cross-servicing program, both of which are managed by Treasury's Financial Management Service (FMS).

As discussed with the congressional requestors' offices, our objectives were to describe (1) actions Treasury has taken to implement its centralized delinquent federal nontax debt collection program as authorized by DCIA, and efforts under way or planned by Treasury to enhance or supplement its ability to collect delinquent federal nontax debt; (2) Treasury's collection experience over the last 5 years (i.e., fiscal years 2007 through 2011) for delinquent federal nontax debt relative to the amount of such debt that was referred to Treasury for collection; (3) whether agencies have reported referring significant amounts of federal nontax debt to Treasury for collection prior to or at 180 days delinquent, and if so, Treasury's collection results for such referrals compared to collection results for the debt referred that is more than 180 days delinquent; (4) agency exemptions from mandatory transfer of delinquent federal nontax debt to Treasury for cross-servicing, and Treasury's actions to evaluate these exemptions and associated collections; and (5) Treasury's mechanisms and controls to help ensure that federal agencies do not make new loans, loan insurance, or loan guarantees to delinquent federal nontax debtors to the extent required by the debtor bar provision of DCIA.

For information, contact Gary T. Engel at (202) 512-3406 or engelg@gao.gov.

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