Improving the Collection of Debts Owed the Government

Gao ID: 115032 April 23, 1981

Debts arise from a host of Federal activities including tax assessments, benefit and administrative overpayments, and overdue student and housing program loans. Amounts which are owed to the Government and are being written off as uncollectable are substantial and growing rapidly. Before the Government's debt collection problems can be remedied, many administrative and legislative actions must be taken. Debt collection has generally been afforded low priority. Present Government collection methods are expensive, slow, and ineffective when compared with commercial practices. GAO initiated a revision to the Federal Claims Collection Standards to require that agencies establish procedures for reporting delinquent debts to commercial credit bureaus. The new provision has not been implemented primarily because of the objection by participating credit bureaus to complying with the Privacy Act. GAO supports: (1) legislation that would exempt credit bureaus from the Privacy Act for all Government agency debts; (2) the provision in a proposed bill which authorizes the use of social security numbers as a collection aid; (3) a proposed amendment to allow offset of general debts against the current salaries of Federal employees; and (4) a proposed bill to remove the present restriction on the redisclosure of an address obtained from the Internal Revenue Service (IRS) to credit bureaus or other contractors who are assisting in a collection effort. GAO recommends that, on a test basis, delinquent nontax receivables be collected by reducing future income tax refunds due the debtors. IRS-assessed interest on delinquent taxes is generally lower than the rate available in commercial money markets, thus discouraging prompt payment. Therefore, GAO recommends that the rate be determined semiannually based on the Government's cost of financing and administering unpaid taxes. GAO also favors the unrestricted authority to collect by offset and a proposed amendment that would make the charging of interest on delinquent debts a requirement of law. Proposed legislation provides for improved accounting for agencies' debt activities. GAO urged the Treasury Department, in cooperation with the Office of Management and Budget, to take an active role in monitoring, analyzing, and following up on the information reported. Agencies should include in their loan agreements a provision allowing for the rate of interest to be increased to the prescribed Treasury rate if delinquency occurs.

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