B-197146 L/M, SEP 22, 1980, OFFICE OF GENERAL COUNSEL

B-197146 L/M, SEP 22, 1980, OFFICE OF GENERAL COUNSEL

PRECIS-UNAVAILABLE

MR. TONI LENANE, SOCIAL SECURITY ADMINISTRATION:

THIS IS IN RESPONSE TO YOUR REQUEST FOR OUR INTERPRETATION OF DEBT COLLECTION PROVISIONS IN THE SOCIAL SECURITY ACT AND THE FEDERAL CLAIMS COLLECTION ACT.

AS STATED IN YOUR REQUEST, THE SOCIAL SECURITY ADMINISTRATION (SSA) IS ADDRESSING METHODS OF RESOLVING BACKLOGGED SUPPLEMENTAL SECURITY INCOME (SSI) OVERPAYMENT CASES AND IS SEEKING ADVICE ON THE TERMINATION OF MANY OF THESE CLAIMS. THESE OVERPAYMENTS, WHICH OCCURRED PRIOR TO 1977, WERE MADE TO RECIPIENTS WHO ARE NO LONGER RECEIVING SSI BENEFITS. YOU POINT OUT THAT RECENT COST BENEFIT PROJECTIONS HAVE IDENTIFIED MANY OVERPAYMENTS WHICH, ON AVERAGE, WOULD NOT BE COST EFFECTIVE TO PURSUE. YOU ALSO POINT OUT THAT IT PREVIOUSLY HAS BEEN DETERMINED THAT IT WOULD NOT BE COST EFFECTIVE TO PURSUE SSI OVERPAYMENTS OF $45 OR LESS.

IN THE RECENT COST BENEFITS PROJECTIONS, SSA SELECTED SAMPLE OVERPAYMENT CASES FROM THE UNIVERSE OF ALL THE BACKLOGGED CASES GREATER THAN $45 AND STRATIFIED THE SAMPLE ON THE BASIS OF THE MOST PREVALENT PAY STATUS CODES. FN1 THE SAMPLE CASES WERE RELEASED TO SSA FIELD OFFICES FOR COLLECTION IN ACCORDANCE WITH SSA CLAIMS MANUAL INSTRUCTIONS. BASED ON THE ACTUAL COLLECTION COSTS AND RECOVERIES FOR THESE SAMPLE CASES AND WITH THE USE OF COST BENEFIT ANALYSES, SSA THEN COMPARED FOR VARIOUS DOLLAR RANGES WITHIN EACH PAY STATUS CODE THE PROJECTED COSTS AND RECOVERIES WHICH WOULD BE GENERATED BY RELEASING ALL OF THE BACKLOGGED CASES FOR COLLECTION.

THE RESULTS OF THE COST BENEFIT ANALYSES INDICATED THAT, AS MIGHT BE EXPECTED, COST EFFECTIVENESS GENERALLY WAS GREATER FOR DEBTS IN THE HIGHER DOLLAR RANGES AND THE PREPONDERANCE OF THE NET LOSSES WERE PROJECTED FOR OVERPAYMENTS IN RELATIVELY LOW DOLLAR RANGES. (IN A FEW PAY STATUS CODES, HOWEVER, NET LOSSES WERE PROJECTED FOR OVERPAYMENTS UP TO $1,000.) SSA RECOMMENDED COLLECTION EFFORTS BE UNDERTAKEN ON THE VAST MAJORITY OF THE OVERPAYMENTS OF $46 OR GREATER, SINCE SUCH EFFORTS WOULD BE COST EFFECTIVE. (THESE OVERPAYMENTS SUBSEQUENTLY WERE, IN FACT, RELEASED TO SSA FIELD OFFICES FOR COLLECTION.) SSA ALSO RECOMMENDS, BASED ON THE SAME COST BENEFIT ANALYSES, THAT EFFORTS TO COLLECT A SIGNIFICANT NUMBER OF OVERPAYMENTS THAT WOULD NOT BE COST EFFECTIVE, AND WOULD RESULT IN NET LOSSES OF WELL OVER ONE MILLION DOLLARS, NOT BE UNDERTAKEN. A GAO STATISTICIAN REVIEWED SSA'S COST BENEFIT STUDIES AND CONCLUDED THAT IMPLEMENTATION OF THESE RECOMMENDATIONS WOULD PRODUCE MORE COLLECTIONS FOR LESS COST TO COLLECT AMOUNTS PRESENTLY OWED.

YOU REQUESTED OUR ADVICE ON DISPOSITION OF THREE CATEGORIES OF OVERPAYMENT CASES FOR WHICH THE PROJECTED COSTS OF COLLECTION EXCEED THE PROJECTED COLLECTIONS. THE THREE CATEGORIES OF CASES ARE AS FOLLOWS:

1. OVERPAYMENTS OF $45 OR LESS (APPROXIMATELY 63,000 CASES AVERAGING $22 EACH);

2. OVERPAYMENTS OF $46-$1,000 IN THE PAY STATUS CODE REPRESENTING THE DEATH OF THE RECIPIENT (APPROXIMATELY 42,000 CASES AVERAGING $321 EACH); AND

3. OVERPAYMENTS OF $46-$1,000 REPRESENTING AN AGGREGATION OF THE DEBTS IN CERTAIN OTHER PAY STATUS CODES (APPROXIMATELY 59,500 CASES AVERAGING $141 EACH).

THE FEDERAL CLAIMS COLLECTION ACT PROVIDES "THE HEAD OF AN AGENCY *** SHALL ATTEMPT COLLECTION OF ALL CLAIMS OF THE UNITED STATES FOR MONEY OR PROPERTY ARISING OUT OF THE ACTIVITIES OF, OR REFERRED TO, HIS AGENCY." 31 U.S.C. SEC. 952(A). THE FIRST QUESTION FOR CONSIDERATION IS WHETHER, IN VIEW OF THIS REQUIREMENT TO "ATTEMPT COLLECTION OF ALL CLAIMS", THE ACT READ AS A WHOLE ALLOWS AN AGENCY TO TERMINATE COLLECTION ACTION ON CLAIMS WHERE, BASED ON A PROJECTED ESTIMATE, THE COST OF ATTEMPTING COLLECTION FROM EACH MEMBER OF A REASONABLY DETERMINED CLASS OF DEBTORS IS LIKELY TO EXCEED THE AVERAGE AMOUNT THAT COULD BE RECOVERED. WE BELIEVE IT DOES.

SECTION 952(B) OF THE CLAIMS COLLECTION ACT ALLOWS:

"THE HEAD OF AN AGENCY ***, PURSUANT TO REGULATIONS PRESCRIBED BY HIM AND IN CONFORMITY WITH SUCH STANDARDS AS MAY BE PROMULGATED JOINTLY BY THE ATTORNEY GENERAL AND THE COMPTROLLER GENERAL, *** TO CAUSE COLLECTION ACTION ON ANY SUCH CLAIM TO BE TERMINATED OR SUSPENDED WHERE IT APPEARS THAT NO PERSON LIABLE ON THE CLAIM HAS THE PRESENT OR PROSPECTIVE FINANCIAL ABILITY TO PAY ANY SIGNIFICANT SUM THEREON OR THAT THE COST OF COLLECTING THE CLAIM IS LIKELY TO EXCEED THE AMOUNT OF RECOVERY." U.S.C. SEC. 952(B).

ONE OF THE PURPOSES OF THE ACT, IT SEEMS EVIDENT TO US, IS TO ENABLE AGENCIES TO RESOLVE CLAIMS IN AN EFFICIENT AND ECONOMICAL MANNER. CONGRESS RECOGNIZED THAT LACK OF AUTHORITY TO TERMINATE CLAIMS WHERE THERE WAS NO LIKELIHOOD OF RECOVERY RESULTED IN IMPROVIDENT EXPENDITURES OF AGENCY FUNDS. IN ITS REPORT ON H.R. 13651, WHICH BECAME THE FEDERAL CLAIMS COLLECTION ACT, THE SENATE COMMITTEE ON THE JUDICIARY NOTED THE FOLLOWING:

"THE COMMITTEE IS FAMILIAR WITH MANY OF THE PROBLEMS WHICH PROMPTED THE DEPARTMENT OF JUSTICE TO RECOMMEND THE LEGISLATION, AND THE COMMITTEE FEELS THAT THIS BILL EMBODIES A PRACTICAL AND WELL DRAFTED MEANS TO DEAL WITH THOSE PROBLEMS. MUCH OF THE DIFFICULTY DERIVES FROM THE FACT THAT EXISTING LAW, WITH A FEW EXCEPTIONS, RESTRICTS THE AUTHORITY OF THE AGENCIES TO DEAL ADEQUATELY AND REALISTICALLY WITH CLAIMS OF THE UNITED STATES ARISING OUT OF THEIR RESPECTIVE ACTIVITIES. IF THE AGENCY CANNOT COLLECT THE AMOUNT IT BELIEVES DUE THE GOVERNMENT, IT CAN DO LITTLE MORE THAN REFER IT TO THE GENERAL ACCOUNTING OFFICE WHICH IN TURN MUST ATTEMPT COLLECTION ON THE SAME BASIS. VERY FEW OF THE AGENCIES CAN COMPROMISE SUCH CLAIMS; THAT IS, ACCEPT A LESSER AMOUNT IN FULL SETTLEMENT EVEN IF SUCH A SETTLEMENT WOULD BE IN THE INTEREST OF THE GOVERNMENT AND JUSTIFIED BY NORMAL PRACTICE IN BUSINESS IN THE LIGHT OF THE DEBTOR'S ABILITY TO PAY AND THE RISKS AND COSTS INHERENT IN LITIGATION. SIMILARLY, THE AGENCIES CANNOT TERMINATE OR SUSPEND EFFORTS TO COLLECT A CLAIM EVEN WHEN THE VERY FUTILITY OF THESE EFFORTS SERVES TO ADD TO THE COST OF GOVERNMENT AND THEREFORE COMPOUND THE LOSS TO THE UNITED STATES. IS NOT UNTIL THE MATTER IS FINALLY REFERRED TO THE DEPARTMENT OF JUSTICE THAT IT IS POSSIBLE TO MAKE A COMPROMISE SETTLEMENT. THE COMMITTEE NOTES THAT IT IS THE PRESENT INFLEXIBILITY IN THE LAW WHICH HAS RESULTED IN RECURRENT APPEALS TO THE CONGRESS FOR RELIEF. MANY OF THE CASES WHICH ULTIMATELY BECAME THE SUBJECTS OF PRIVATE RELIEF BILLS COULD HAVE BEEN RESOLVED PROMPTLY AND EQUITABLY ON THE AGENCY LEVEL IF THE PROVISIONS OF THIS BILL WERE A PART OF THE LAW." S.REP. NO. 1331, 89TH CONG., 2ND SESS. REPRINTED IN 1966 U.S.C. CONG. & AD. NEWS 2532, 2533.

BY HAVING ENACTED THE TERMINATION, SUSPENSION AND COMPROMISE PROVISIONS OF THE ACT, CONGRESS NOT ONLY ALLOWED AGENCIES TO EXERCISE CONTROL OVER CLAIMS COLLECTION COSTS BUT ALSO ENCOURAGED THEM TO TAKE COST INTO ACCOUNT WHEN ADDRESSING THE EXTENT TO WHICH THEIR EFFORTS TO FULLY COLLECT A CLAIM WOULD BE PRUDENT.

INTERPRETING THE ACT AS PERMITTING TERMINATION BY CLASS ON THE BASIS OF PROJECTED ESTIMATES ALLOWS AN AGENCY TO USE THE AGGREGATION PROCEDURE FOR CONDUCTING COST BENEFIT ANALYSES. AGGREGATION IS A STANDARD STATISTICAL PROCEDURE OFTEN USED IN CONDUCTING COST BENEFIT ANALYSIS. IT ALLOWS FOR CONSIDERATION OF A NUMBER OF FACTORS THAT WOULD NOT BE PRESENT IN EACH INDIVIDUAL CASE. FURTHERMORE, ITS RESULTS CAN BE PROJECTED, E.G., THAT FOR EVERY DOLLAR SPENT THE AGENCY WILL GET $1.50 BACK, ON AVERAGE, FOR CLAIMS WITHIN THE CLASS. THUS, IT PROVIDES THE AVERAGE COST FOR COLLECTING ALL THE CLAIMS IN A PARTICULAR CLASS.

THIS PROCEDURE CANNOT BE USED TO PROJECT THE COST OF COLLECTING A CLAIM ON AN INDIVIDUAL BASIS. NOR CAN IT BE USED AS A BASIS FOR PROJECTING THE COST OF COLLECTING AN INDIVIDUAL CLAIM WITHIN A CLASS OF CLAIMS. WITHOUT USE OF THE AGGREGATION PROCEDURE, THE MOST PROBABLE MEANS OF ASCERTAINING WHEN "THE COST OF COLLECTING THE CLAIM IS LIKELY TO EXCEED THE AMOUNT OF RECOVERY" WOULD APPEAR TO SOMETIMES PLACE AGENCIES IN THE POSITION OF HAVING TO INCUR COLLECTION COSTS ON EACH INDIVIDUAL CLAIM UNTIL THOSE COSTS ARE ABOUT TO EXCEED OR ARE EQUIVALENT TO THE AMOUNT OF RECOVERY. SUCH COSTLY AND OFTEN FUTILE COLLECTION EFFORTS WOULD, IN THE WORDS OF THE SENATE COMMITTEE QUOTED ABOVE, "COMPOUND THE LOSS TO THE UNITED STATES."

THE ACT PROVIDES AGENCIES WITH THE DISCRETION TO CONSIDER THE CIRCUMSTANCES OF THE CLAIMS IN DECIDING THEIR RESOLUTION. AS SHOWN BY THE SENATE COMMITTEE'S VIEWS QUOTED ABOVE, CONGRESS RECOGNIZED THE NEED FOR FLEXIBILITY. THE ACT IN OUR VIEW WAS INTENDED TO PROVIDE AGENCIES WITH THIS FLEXIBILITY BY AUTHORIZING THEM TO TERMINATE AND SUSPEND CLAIMS WHEN IT IS FINANCIALLY UNPRODUCTIVE TO COLLECT THEM. IN VIEW OF THE CONGRESS' EXPECTATION THAT AGENCIES TAKE COST INTO ACCOUNT WHEN ADDRESSING THE EXTENT TO WHICH THEY EXPEND EFFORTS TO FULLY COLLECT A CLAIM, AND THE FACT THAT IN SOME CIRCUMSTANCES SUCH AS THOSE NOW FACING SSA, THE MOST EFFICIENT AND POSSIBLY ONLY COST EFFECTIVE MEANS OF DOING THIS IS BY USING AGGREGATION, WE CONCLUDE THAT THE ACT ALLOWS TERMINATION OF CLAIMS BY CLASS BASED ON THIS PROCEDURE WITHOUT ANY ATTEMPT TO COLLECT THE INDIVIDUAL CLAIMS WITHIN THE CLASS.

THE USE OF COST BENEFIT ANALYSIS BASED UPON AGGREGATION IS ALSO CONSISTENT WITH THE STANDARDS PRESCRIBED JOINTLY BY THE ATTORNEY GENERAL AND THE COMPTROLLER GENERAL PURSUANT TO THE ACT, WHICH ARE CONTAINED IN 4 C.F.R. 101-105. IN THESE REGULATIONS SECTION 102.12 CONTAINS THE FOLLOWING GUIDANCE CONCERNING THE ANALYSIS OF COSTS:

"AGENCY COLLECTION PROCEDURES SHOULD PROVIDE FOR PERIODIC COMPARISON OF COSTS INCURRED AND AMOUNTS COLLECTED. DATA ON COSTS AND CORRESPONDING RECOVERY RATES FOR DEBTS OF DIFFERENT TYPES AND IN VARIOUS DOLLAR RANGES SHOULD BE USED TO COMPARE THE COST EFFECTIVENESS OF ALTERNATIVE COLLECTION TECHNIQUES, ESTABLISH GUIDELINES WITH RESPECT TO THE POINTS AT WHICH COSTS OF FURTHER COLLECTION EFFORTS ARE LIKELY TO EXCEED RECOVERIES, ASSIST IN EVALUATING OFFERS IN COMPROMISE, AND ESTABLISH MINIMUM DEBT AMOUNTS BELOW WHICH COLLECTION EFFORTS NEED NOT BE TAKEN. COST AND RECOVERY DATA SHOULD ALSO BE USEFUL IN JUSTIFYING ADEQUATE RESOURCES FOR AN EFFECTIVE COLLECTION PROGRAM."

THE REGULATION ALLOWS FOR ESTABLISHING MINIMUM AMOUNTS BELOW WHICH COLLECTION ACTION NEED NOT BE TAKEN ON THE BASIS OF COSTS AND RECOVERY RATES FOR DEBTS OF DIFFERENT TYPES AND IN VARIOUS DOLLAR RANGES. WE VIEW THAT REGULATION AS A LOGICAL EXTENSION OF THE RATIONALE USED IN THE COLLECTION CASES INVOLVING DE MINIMIS CLAIMS. IN THOSE CLAIMS, AGENCIES HAVE BEEN INSTRUCTED TO CONSIDER THE POINT OF DIMINISHING RETURNS BEYOND WHICH FURTHER COLLECTION EFFORTS ARE NOT JUSTIFIED, GIVING CONSIDERATION TO THE ESTIMATED RECOVERY IN RELATION TO: (1) THE COST; (2) THE SIZE OF THE DEBT; AND (3) THE APPARENT POSSIBILITIES OF COLLECTION. QUITE OFTEN, THESE DETERMINATIONS ARE NOT BASED ON AN ANALYSIS OF EACH CLAIM, BUT RATHER ON A CATEGORY OF CLAIMS. SEE IN THIS REGARD, B-181467, JULY 29, 1976. ALSO SEE B-115800, B-117604, AUGUST 17, 1976, IN WHICH OUR OFFICE TOOK NO OBJECTION IN PRINCIPLE TO THE USE OF COST BENEFIT ANALYSIS BASED ON THE AGGREGATION OF CLAIMS OR TO THE USE OF ANY OTHER REASONABLE METHOD OF ESTABLISHING REALISTIC POINTS OF DIMINISHING RETURNS FOR DEBT COLLECTION PURPOSES.

NOTWITHSTANDING OUR CONCLUSION THAT THE ACT AND ITS REGULATION ALLOW TERMINATION OF CLAIMS BY CLASS, WE OBSERVE THAT COST BENEFIT ANALYSES HAVE SOME LIMITATIONS WHICH SHOULD BE RECOGNIZED WHEN ESTABLISHING MINIMUM AMOUNTS BELOW WHICH COLLECTION EFFORTS WOULD NOT BE TAKEN. FOR EXAMPLE, LOW COLLECTION RATES AND HIGH COLLECTION COSTS MAY BE SYMPTOMS OF INEFFECTIVE AND INEFFICIENT COLLECTION TECHNIQUES, WHICH IF IMPROVED, WOULD REQUIRE A REEVALUATION OF MINIMUMS PREVIOUSLY ESTABLISHED. ALSO COST BENEFIT ANALYSES SHOULD NOT ALWAYS BE THE SOLE DETERMINANT FOR THE TERMINATION OF CLAIMS. OTHER FACTORS, WHICH ARE NOT EASILY QUANTIFIABLE, SUCH AS MAINTAINING THE INTEGRITY OF A COLLECTION PROGRAM, SHOULD ALSO BE CONSIDERED.

YOU ALSO INQUIRED ABOUT OUR VIEWS ON THE RELATIONSHIP OF THE FEDERAL CLAIMS COLLECTION ACT AND SECTION 1631(B) OF THE SOCIAL SECURITY ACT. SECTION 1631(B), AS YOU POINT OUT, PROVIDES THAT PROPER ADJUSTMENT OR RECOVERY SHALL BE MADE UNLESS THE REQUIREMENTS FOR WAIVER ARE SATISFIED. IN OUR VIEW, THE FEDERAL CLAIMS COLLECTION ACT AND SEC. 1631(B) ARE COMPATIBLE WITH EACH OTHER. DISPOSITION OF CLAIMS UNDER EITHER LAW WOULD REQUIRE THE APPLICATION OF THE STANDARDS PRESCRIBED JOINTLY BY THE ATTORNEY GENERAL AND THE COMPTROLLER GENERAL, WHICH ARE CONTAINED IN 4 C.F.R. 101-105. THE FEDERAL CLAIMS COLLECTION ACT IS SILENT WITH RESPECT TO WHAT IS REQUIRED OF AGENCIES WHEN DISPOSING OF CLAIMS UNDER OTHER AUTHORITIES SUCH AS SECTION 1631(B). THE JOINT STANDARDS STATE THAT AN AGENCY IS NOT PRECLUDED FROM DISPOSING OF A CLAIM UNDER A STATUTE OTHER THAN THE FEDERAL CLAIMS COLLECTION ACT THAT PROVIDES FOR COMPROMISE, TERMINATION OR WAIVER. 4 C.F.R. 101.4. THIS PROVISION ALSO ADVISES THAT AN AGENCY FOLLOW THE JOINT STANDARDS WHEN DISPOSING OF A CLAIM UNDER A STATUTE OTHER THAN THE FEDERAL CLAIMS COLLECTION ACT WHERE THE OTHER STATUTE OR REGULATIONS PROMULGATED THEREUNDER DOES NOT ESTABLISH STANDARDS GOVERNING THE DISPOSITION OF THE CLAIM IN QUESTION. THE DEPARTMENT OF HEALTH AND HUMAN SERVICES REITERATED THIS POINT IN ITS OWN REGULATIONS PROMULGATED UNDER THE FEDERAL CLAIMS COLLECTION ACT. 45 C.F.R. PART 30. THESE REGULATIONS INCORPORATE AND SUPPLEMENT THE JOINT STANDARDS. SECTION 30.2 STATES THAT THE STANDARDS SET OUT IN PART 30 DO NOT APPLY WHERE STANDARDS ARE PRESCRIBED UNDER STATUTES OTHER THAN THE FEDERAL CLAIMS COLLECTION ACT. SSA'S REGULATIONS GOVERNING THE ADMINISTRATION OF THE SSA PROGRAM ARE PUBLISHED IN 20 C.F.R. PART 416. THESE REGULATIONS DEFINE THE TERM "OVERPAYMENT" AND EXPLAIN THE CIRCUMSTANCES UNDER WHICH AN OVERPAYMENT CAN BE WAIVED IN ACCORD WITH SECTION 1631(B). HOWEVER, NEITHER THESE REGULATIONS NOR ANY OTHERS OF WHICH WE ARE AWARE PRESCRIBE STANDARDS THAT RELATE TO THE COMPROMISE AND TERMINATION OF CLAIMS, OTHER THAN BY WAIVER, ARISING UNDER THE SSI PROGRAM. CONSEQUENTLY, THE JOINT STANDARDS APPEAR APPLICABLE TO THE DISPOSITION OF THE CLAIMS UNDER CONSIDERATION, EXCEPT, OF COURSE, WHERE YOU DETERMINE THAT THESE CLAIMS ARE SUITABLE FOR WAIVER.

IF YOU WISH TO DISCUSS ANY MATTERS OF IMPLEMENTATION, PLEASE CALL MR. CHRIS FARLEY, OF OUR FINANCIAL AND GENERAL MANAGEMENT STUDIES DIVISION, ON FTS 275-6087.

FN1 PAY STATUS CODES ARE GENERALLY DESCRIPTIVE OF THE CAUSE OF THE OVERPAYMENT (E.G., RECIPIENT RECEIVED DUPLICATE PAYMENTS OR HAD GREATER THAN MINIMUM INCOME ALLOWABLE IN ORDER TO BE ELIGIBLE FOR SSI BENEFITS) OR DESCRIPTIVE OF THE CURRENT STATUS OF THE OVERPAID RECIPIENT (E.G., RECIPIENT IS DECEASED OR IS AN INMATE OF A PUBLIC INSTITUTION)9