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Debt Collection: Billions Are Owed While Collection and Accounting Problems Are Unresolved

AFMD-86-39 Published: May 23, 1986. Publicly Released: May 23, 1986.
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Highlights

Pursuant to a congressional request, GAO: (1) reviewed selected federal agencies' efforts to implement the Debt Collection Act of 1982 and improve debt collection; and (2) evaluated agency systems that account for debts owed the government.

Recommendations

Matter for Congressional Consideration

Matter Status Comments
Congress should amend the Debt Collection Act of 1982 reporting requirements to provide that agencies shall, as part of their annual budget submissions: (1) report on their progress in implementing provisions of the act and other related debt collection initiatives; (2) disclose, on a program-by-program basis, the types of data listed in the act, for example, the amount of their receivables, age of delinquent debts, and amounts written off as uncollectible; and (3) set out their goals, both monetary and programmatic, for improving collections and reducing delinquencies and write-offs.
Closed – Implemented
Legislation was introduced in response to this recommendation, but was not passed. Current work in the credit management area will continue to address this type of issue. Therefore, GAO believes the recommendation should be closed.
Congress should amend the Debt Collection Act of 1982 to require federal agencies, except where they can provide to Congress reasons for not doing so, to implement improved credit management techniques, such as those discussed in this report, and debt collection practices, including a requirement to report information about individuals and businesses with delinquent debts to credit reporting agencies and to refer delinquent debtors to private collection contractors.
Closed – Implemented
Legislation was introduced in response to this recommendation, but was not passed. Current work in the credit management area will continue to address this type of issue. Therefore, GAO believes the recommendation should be closed.
Congress should amend the Debt Collection Act of 1982 to authorize federal agencies to use, with proper supervision by the Attorney General, private-sector attorneys to litigate debts owed the government.
Closed – Implemented
P.L. 99-578, dated October 28, 1986, authorized the use of private sector attorneys to litigate debts owed to the government.
Congress should amend the Debt Collection Act of 1982 to explicitly authorize the Internal Revenue Service (IRS) to provide taxpayer address information to agencies pursuing debt collection activities under authorities other than the Federal Claims Collection Act.
Closed – Not Implemented
This recommendation was not included in debt collection legislation introduced in Congress. Current work in the credit management area will continue to address this type of issue. Therefore, GAO believes the recommendation should be closed.
Congress should amend the Debt Collection Act of 1982 to permit the notice and hearing procedural requirements for involuntary routine salary adjustments for federal employees to be completed after offset occurs.
Closed – Implemented
Legislation was introduced in response to this recommendation, but was not passed. Current work in the credit management area will continue to address this type of issue. Therefore, GAO believes the recommendation should be closed.
Congress should amend the Debt Collection Act of 1982 to require agencies to accurately prepare financial reports on their programs that generate receivables, including a requirement for operating statements, statements of financial position, and cash flow statements.
Closed – Implemented
Legislation was introduced in response to this recommendation, but was not passed. Current work in the credit management area will continue to address this type of issue. Therefore, GAO believes the recommendation should be closed.
Congress should amend the Debt Collection Act of 1982 to require agencies to have their Inspectors General, or other appropriate organizations, periodically evaluate their systems of accounting for and reporting on receivables, and annually audit the financial reports containing receivables information to help ensure continued reliability of financial data on amounts owed, and to strengthen the control environment under which debt programs operate.
Closed – Implemented
Legislation was introduced in response to this recommendation, but was not passed. Current work in the credit management area will continue to address this type of issue. Therefore, GAO believes the recommendation should be closed.
Congress should consider amending the Debt Collection Act to provide agencies with additional incentive to collect debts. Options available to Congress include managerial incentives, such as: (1) holding managers more strictly accountable for attaining debt collection objectives and targets; (2) developing awards programs for improved collection practices; and (3) requiring annual evaluations of credit management and debt collection program operations.
Closed – Implemented
Legislation was introduced in response to this recommendation, but was not passed. Current work in the credit management area will continue to address this type of issue. Therefore, GAO believes the recommendation should be closed.

Recommendations for Executive Action

Agency Affected Recommendation Status
Department of Housing and Urban Development The Secretary of Housing and Urban Development should require that managers of the Single Family Assignment Program refer information on those debtors who do not meet their repayment schedules to credit-reporting agencies.
Closed – Implemented
According to HUD officials, delinquent debtors who are not yet in foreclosure are now reported to credit reporting agencies.
Department of Housing and Urban Development The Secretary of Housing and Urban Development and the Administrator of Veterans Affairs should require managers of programs, which are not using private collection agencies, to use General Services Administration (GSA) contractors.
Closed – Implemented
HUD started a pilot project to refer about 2,000 cases to private collection agencies. In 1987, HUD placed 1,200 accounts, valued at $8,054,000, with the GSA contractor.
Veterans Administration The Secretary of Housing and Urban Development and the Administrator of Veterans Affairs should require managers of programs, which are not using private collection agencies, to use General Services Administration (GSA) contractors.
Closed – Implemented
VA started using collection agencies under GSA governmentwide control. VA has referred about $425 million to GSA contractors.
Department of Education The Secretaries of Housing and Urban Development and Education should begin selling portions of their loan portfolios when deemed to be advantageous to the government.
Closed – Implemented
Education has realized $578 million in its loan sales efforts through prepayment of college housing loans. Limited sales of other college housing and academic facilities loans is planned.
Department of Housing and Urban Development The Secretaries of Housing and Urban Development and Education should begin selling portions of their loan portfolios when deemed to be advantageous to the government.
Closed – Implemented
In 1988, HUD realized proceeds of $202 million from public facilities loan sales and single family loan prepayments.
Veterans Administration The Administrator of Veterans Affairs should ensure that: (1) taxpayer identification numbers are obtained from loan applicants; (2) information on delinquent debtors is referred to credit reporting agencies; and (3) the salary offset provision of the Debt Collection Act of 1982 is implemented.
Closed – Implemented
VA issued regulations on June 16, 1986, requiring the collection of social security numbers from loan applicants. It started referring information on delinquent debtors to credit bureaus. VA implemented salary offsets in January 1987. VA is currently in the process of advising debtors of offset.
Farmers Home Administration The Administrator, FmHA, should require that program managers refer information on delinquent debtors to credit reporting agencies, and implement administrative offset.
Closed – Implemented
Administrative offset regulations were published in November 1986. Administrative offset was attempted, but was terminated because of a law suit challenging FmHA authority to do so. System limitations prohibit the reporting of all delinquent housing borrowers to credit bureaus at this time. GAO will continue to monitor this issue in its current credit management work.
Department of Education The Secretary of Education should take whatever steps are necessary to assess, or enable Education to assess, interest, penalties, and administrative costs under the Debt Collection Act of 1982 on defaulted student loans.
Closed – Implemented
Education published debt collection regulations providing for these changes on August 30, 1988. It is also developing a new debt collection system, DCS, which will allow for proper calculation and posting of these payments. These changes will be assessed when DCS is implemented in April 1989. GAO will continue to monitor this issue in its current credit management review.
Office of Management and Budget The Director of the Office of Management and Budget (OMB), should, in conjunction with the Office of Personnel Management (OPM), assist VA in ensuring that a sufficient number of hearing officials will be available to hear appeals on nonbenefit-related cases.
Closed – Implemented
OPM issued regulations on June 6, 1986, allowing for the exchange of federal employees between agencies to serve as hearing officials. OMB is monitoring an agreement between VA and Education to provide officials for each other's appeals.
Office of Management and Budget The Director, OMB, in cooperation with the Secretary of the Treasury, should ensure that the provisions of OMB Circular A-129 are implemented and include a statement which tells Congress how this will be accomplished in his 1986 report.
Closed – Implemented
OMB established an ongoing oversight program for implementation of OMB Circular A-129. Treasury provided additional staff to ensure that the credit management policies are carried out governmentwide in a consistent manner.
Farmers Home Administration The Secretaries of Education and Housing and Urban Development and the Administrators of FmHA and Veterans Affairs, should strengthen their receivables accounting and control systems in order to produce accurate and reliable information on the amount of debt owed to the government by ensuring that systems that account for and control receivables conform to Comptroller General and OMB requirements.
Closed – Implemented
FmHA is developing a new loan and grant accounting system. The target date for implementation is 1990. GAO will continue to monitor this issue in its current credit management review. Therefore, the recommendation should be closed.
Department of Education The Secretaries of Education and Housing and Urban Development and the Administrators of FmHA and Veterans Affairs, should strengthen their receivables accounting and control systems in order to produce accurate and reliable information on the amount of debt owed to the government by ensuring that systems that account for and control receivables conform to Comptroller General and OMB requirements.
Closed – Implemented
Education purchased a standard off-the-shelf system for the College Housing Loan and Higher Education Facilities Loan Programs, as well as other receivables. A system to replace the General Ledger Fund Control Reporting System was implemented on October 22, 1988.
Department of Housing and Urban Development The Secretaries of Education and Housing and Urban Development and the Administrators of FmHA and Veterans Affairs, should strengthen their receivables accounting and control systems in order to produce accurate and reliable information on the amount of debt owed to the government by ensuring that systems that account for and control receivables conform to Comptroller General and OMB requirements.
Closed – Implemented
HUD implemented this recommendation.
Veterans Administration The Secretaries of Education and Housing and Urban Development and the Administrators of FmHA and Veterans Affairs, should strengthen their receivables accounting and control systems in order to produce accurate and reliable information on the amount of debt owed to the government by ensuring that systems that account for and control receivables conform to Comptroller General and OMB requirements.
Closed – Implemented
VA agreed that its accounting and control systems should conform to Comptroller General and OMB requirements. VA is emphasizing to its components that valid debts must be recorded, billed, and collected.
Farmers Home Administration The Secretary of Education, and the Administrators of FmHA and Veterans Affairs, should closely monitor efforts to develop and implement new systems of accounting for receivables to help ensure that known problems are corrected and development efforts are completed without significant slippage of established milestones.
Closed – Implemented
Oversight of major system development efforts in FmHA is being maintained by agency heads and interested FmHA officials.
Department of Education The Secretary of Education, and the Administrators of FmHA and Veterans Affairs, should closely monitor efforts to develop and implement new systems of accounting for receivables to help ensure that known problems are corrected and development efforts are completed without significant slippage of established milestones.
Closed – Implemented
The Secretary of Education will monitor efforts to develop and implement new systems of accounting for receivables.
Veterans Administration The Secretary of Education, and the Administrators of FmHA and Veterans Affairs, should closely monitor efforts to develop and implement new systems of accounting for receivables to help ensure that known problems are corrected and development efforts are completed without significant slippage of established milestones.
Closed – Implemented
VA established a debt management staff to more closely monitor and coordinate efforts to develop and implement new systems of accounting for receivables.
Department of Housing and Urban Development The Secretary of Housing and Urban Development should explore the use of involuntary salary deductions in the Single Family Assignment Program.
Closed – Implemented
HUD has decided not to use salary offset for its Single Family Housing Program. It will instead rely on foreclosure.
Department of Housing and Urban Development The Secretary of Housing and Urban Development should require that all program managers comply with the act's interest, penalty, and administrative cost requirements.
Closed – Implemented
As part of its pilot program for using private collection agencies, HUD is developing a procedure for passing on to Title I debtors the actual private contractor collection costs. GAO will continue to monitor this issue in its current credit management review. Therefore, the recommendation should be closed.
Farmers Home Administration The Administrator, FmHA, should require, where applicable, that program managers: (1) assess interest, penalties, and administrative costs; (2) implement the salary offset provision; and (3) explore selling portions of the FmHA loan portfolio. In carrying this out, FmHA may, under the Federal Claims Collection Standards, give appropriate consideration of any undue financial hardships that might result from its use of the particular collection tools available to it, especially in view of the current farm crisis.
Closed – Implemented
FmHA: (1) is developing the capability to assess interest, penalties, and administrative costs in its new accounting system; (2) is developing interest, penalty, and administrative cost requirements; (3) published salary offset requirements and eligible accounts were referred to employing agencies for offset; and (4) sold about $4.8 billion in loans. GAO will continue to monitor this issue.
Veterans Administration The Administrator of Veterans Affairs should raise the 4-percent interest rate currently charged on defaulted home loan guaranty cases.
Closed – Implemented
VA is currently putting the necessary systems in place to raise the interest rate to the governmentwide standard for interest rates on delinquent debts. The target date for implementation is 1991. GAO will continue to monitor this issue in its current credit management review. Therefore, this recommendation should be closed.
Veterans Administration The Administrator of Veterans Affairs should expeditiously disclose IRS-provided addresses to appropriate third parties.
Closed – Not Implemented
VA, based on information it received from IRS subsequent to the GAO report, will continue to independently verify addresses before referring addresses to third parties.

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Topics

Accounting systemsCollection proceduresDelinquent loansFederal agenciesFederal employeesGovernment collectionsGovernment guaranteed loansOffsetting collectionsDebt collectionMortgage credit