Debt Collection

According to Treasury's Financial Management Service (FMS), about 89 percent of the $59.2 billion of debts more than 180 days delinquent were excluded from cross-servicing for fiscal year 1999. The accuracy and the completeness of amounts reported by agencies (including exclusions) were not independently verified. As of April 2000, about $3.7 billion of the $6.4 billion of eligible debt had been referred for cross-servicing. Many eligible debts were not promptly referred by the agencies, not referred at all, or not always eligible for cross-servicing. FMS had requested written debt referral plans from 22 of the 24 chief financial officers, but the plans were of limited use because they were incomprehensive, inaccurate, or incomplete. The FMS staff and some private collection agency contractors did not always follow established written standard operating procedures. Collection industry statistics as well as FMS' collection experience so far have shown that collection rates are generally higher on debts with smaller dollar balances and debts that are less delinquent. Cross-servicing fees FMS charged to agencies referring delinquent debts have not covered FMS' estimated cross-servicing costs and are not likely to in the near future.

GAO noted that: (1) FMS officials stated that as of September 30, 1999, about 89 percent of the $59.2 billion of debts over 180 days delinquent were excluded from cross-servicing; however, the accuracy and completeness of amounts reported by agencies including exclusions from cross-servicing were not required to be, and were not, independently verified; (2) FMS reported that as of April 2000, about $3.7 billion of the approximately $6.4 billion of eligible debt had been referred for cross-servicing; however, because the eligible amount is as of a specific date and the amount reported as referred is a cumulative amount covering about 3-1/2 years, these two amounts are not comparable; (3) many of the eligible debts were not promptly referred by the agencies or simply not referred by certain agencies, and the debts referred were not always eligible for cross-servicing because they were not valid and legally enforceable; (4) as the sole operator of a governmentwide cross-servicing debt collection center, FMS had well-developed written standard operating procedures for its collectors and requirements for its private collection agency (PCA) contractors; however, its staff and some of the PCAs did not always follow established procedures and requirements or effectively use certain debt collection tools; (5) GAO's analysis of FMS' distribution of debt accounts to PCAs from February 1998 through February 2000 showed that one PCA had received a significantly higher percentage of the debts with smaller balances and debts that were less than 1 year delinquent, even though collection industry statistics as well as FMS' collection experience to date have shown that collection rates are generally higher on debts with smaller dollar balances and debts that are less delinquent; and (6) the cross-servicing fees FMS charged to agencies referring delinquent debts have not covered FMS' estimated cross-servicing costs and are not likely to in the near future.

Recommendations

Our recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.

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