Debt Collection

This testimony discusses the Department of the Treasury's progress in implementing the cross-servicing provision of the Debt Collection Improvement Act of 1996. The act includes several tools to facilitate collection of defaulted obligations to the federal government. GAO focuses on the collection of nontax delinquent debt. Among the options available for recovering these debts are Treasury's consolidated federal payment offset program; wage garnishment; and the transfer of nontax debt over 180 days delinquent to Treasury for collection, known as "cross-servicing." GAO discusses (1) the status of nontax delinquent debts that agencies have transferred to Treasury for cross-servicing and Treasury's efforts 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, 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.