Debt Collection:

Treasury Faces Challenges in Implementing Its Cross-Servicing Initiative

T-AIMD-00-213: Published: Jun 8, 2000. Publicly Released: Jun 8, 2000.

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Pursuant to a congressional request, GAO discussed the Department of the Treasury's progress in implementing the cross-service provision of the Debt Collection Improvement Act (DCIA) of 1996, focusing on the: (1) status of nontax delinquent debts that federal agencies have referred to Treasury for cross-servicing and Treasury's actions to encourage these referrals; (2) Treasury's cross-servicing process for collecting referred debts; (3) Treasury's method for allocating debts to private collection agencies (PCA) for collection; and (4) Treasury's estimated cross-servicing costs and related fees earned on collections.

GAO noted that: (1) several agencies' reporting of debt balances and related aging was not accurate, and the accuracy and completeness of significant amounts reported as exclusions from cross-servicing were not required to be and were not independently verified; (2) for various reasons, many debts eligible for referral by certain agencies were delayed in being referred or simply not referred even though the Financial Management Service (FMS) took steps to encourage agencies to refer such debt; (3) in addition, even when agencies referred debts, the debts were not always valid and legally enforceable and thus not eligible for cross-servicing; (4) DCIA authorize Treasury to designate other government agencies as debt collection centers based on their performance in collecting delinquent claims owed to the government; (5) Treasury established standards for agencies that wanted to be a debt collection center; (6) three agencies have applied to be governmentwide debt collection centers, but were not found by Treasury to have the needed capabilities; (7) only FMS is operating a governmentwide cross-servicing debt collection center; (8) FMS developed a methodology for distributing debts to PCAs for collection that FMS intended to be performance based; (9) for each distribution, FMS placed all the debts available into a pool and applied a systematic process to distribute the debts to PCAs; (10) GAO's analysis of the debts found that the debts within each distribution's pool were generally not of the same composition; (11) GAO's analysis of FMS' distribution of debt accounts to PCA from February 1998 through February 2000 showed that one PCA had received a significantly higher percentage of the debts with smaller balances; (12) concerns relating to FMS' distribution method have been raised by some of the PCAs; (13) FMS has not covered its cross-servicing costs through related fees collected and is not likely to in the near future; and (14) based on FMS' own estimated cross-servicing costs and using the current fee structure and FMS' fiscal year 1999 collection experience, GAO determined that collection volume would need to rise over sevenfold to put this operation on a full cost-recovery basis.

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