CHAPTER 2. DEBT ORIGINATION AND ROUTINE COLLECTION

2-1. HOW DEBTS ARISE. There are a number of ways by which HUD may

come to be owed money. (See Appendix 2 for a list of typical

debts.) Program participants contractors, area management

brokers, or employees may at any time in the course of their

interaction with HUD incur a debt to the agency. Many times,

however, this debt is not recognized at the time of its actual

occurrence.

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Debts generally have their origins in:

o Contract, grant, cooperative agreement, or program

monitoring;

o Sustained audit findings; and

o Investigation.

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Regardless of how the debt arises, the end result is the same:

the debt is recorded, and the debt recovery (i.e., collection)

process begins.

2-2. CONTRACT/PROGRAM MONITORING. A debt can originate during the

course of routine monitoring by Action Officials of contracts,

grants, cooperative agreements, and programs. Accounting

staffs, during their routine review of invoices received by HUD

for payment, can also expose irregularities and subsequently

debts owed HUD. When this occurs, the accounting staff notifies

the Action Official who follows up to determine the extent of

the debt.

The Action Official should then review the situation and

request legal counsel and/or Inspector General assistance if it

is appropriate. Procedures prescribed by FAR 32.6 and the

Contract Disputes Act of 1978 should also be followed as

appropriate.

If the case is not placed under audit or investigation, the

Action Official will document the amount and reasons for the

debt on an Invoice
([HUD-216](http://www.hud.gov/utilities/intercept.cfm?/offices/adm/hudclips/forms/files/216.pdf)).

2-3. SUSTAINED AUDIT FINDINGS. Audits are one of the more common

ways by which debts come into existence. In the field, audits

are made by either the Regional Inspector General for Audit

(RIGA), an independent public accountant (IPA), or the Assistant

Inspector General for Audit (AIGA). If, in the opinion of the

auditing official, an audit reveals disallowed or questioned

costs, five main actions are taken:

2-1

OCT 26 1987

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a\. Begin Tracking the Audit Findings. The RIGA or AIGA

assigns a unique number to the audit report and enters

summary data about the report into the Automated Audits

Management System (AAMS).

b\. Notify the Action Official. A copy of the audit report is

forwarded to the Action Official responsible for the

audited project, grant, or activity.

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The Action Official now has 120 days to resolve the

audit findings \-- that is, to determine if (and how)

the finding is to be sustained. If the Action

Official is within the Office of Procurement and

Contracts, he/she is allowed 150 days for resolution.

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c\. Begin Audit Resolution. Upon receipt of the audit report,

the Action Official evaluates the findings based on his/her

records, knowledge of the program, and coordination with

the auditee.

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If the coordination with the auditee leads to

discussion of repayment options and methods, see

paragraph 2-7b to negotiate a payment plan.

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The Action Official next decides which findings are to be

sustained as costs due HUD or costs due the program or

project.

d\. Prepare and Submit a Concurrence Memorandum to the AIGA or

RIGA. The Action Official reports his/her decisions on

sustained audit findings to the AIGA or RIGA. The vehicle

used for this purpose is the Concurrence Memorandum, which

should include the following:

o Audit report number;

o Auditee\'s name;

o Date the audit report was issued;

o Auditee\'s taxpayer identification number/Social

Security number;

o Project, grant, or contract number;

o For each finding:

\-- Audit finding number;

\-- Dollar amounts due HUD and/or program;

OCT 26 1987 2-2

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\-- Appropriation name and number; and

\-- Section of the Act.

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See Appendix 3 for a sample Concurrence Memorandum.

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e\. Complete Audit Resolution. Upon receiving the Concurrence

Memorandum from the Action Official, the AIGA or RIGA

validates the findings sustained by the Action Official.

The AIGA or RIGA then:

o Updates the AAMS entry;

o Countersigns the Concurrence Memorandum; and

o Returns the signed Concurrence Memorandum to the

Action Official and a copy to the RAD.

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If the AIGA or RIGA does not concur with the Action

Official\'s decisionS on the audit report, the AIGA

or RIGA may only validate some of the findings and

work with the Action Official to resolve the

remainder. Only validated findings will be recorded

as accounts receivable.

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At this point, the Concurrence Memorandum and the audit

report serve as official source documents of the debt and

are referred to when recording the account receivable.

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The Concurrence Memorandum is filed by the Action

Official in the debt file (which may later become the

claim file). See paragraph 2-7c(l).

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2-4. INVESTIGATIONS. If an investigation reveals an adverse finding

with money owed HUD, debt collection activities might be

initiated. If so, the Assistant Inspector General for

Investigation (AIGI) or Regional Inspector General for

Investigation (RIGI) will first enter the finding in the

Investigative Case Management System (ICMS) for tracking

purposes and then forward the investigation report to the

Action Official. After reviewing the investigation report and

deciding on the proper course of action, the Action Official

completes the Disposition Report
([HUD-1416](http://www.hud.gov/utilities/intercept.cfm?/offices/adm/hudclips/forms/files/1416.pdf))
and forwards it to

the AIGI/RIGI.

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See Appendix 4 for a sample Disposition Report (HUD-1416).

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2-3

OCT 26 1987

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If the Disposition Report
([HUD-1416](http://www.hud.gov/utilities/intercept.cfm?/offices/adm/hudclips/forms/files/1416.pdf))
indicates that the case was

referred to a Claims Collection Officer (CCO) for collection or

money was recovered, the Action Official will send a copy of the

Disposition Report (HUD-1416) to the Regional Accounting

Division (RAD) to establish an account receivable.

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In cases where court prosecution results in a judgment

against an individual, the individual may be required to

make restitution to HUD \-- either directly or through the

court. Notification of the court\'s judgment should be

provided to the RIGI and the Action Official.

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2-5. ESTABLISHMENT AND MONITORING OF ACCOUNTS RECEIVABLE.

The RAD establishes the debt as an account receivable upon

receipt of any of the following required documentation.

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The following documentation is required to set up an

account receivable:

o Transmittal Memorandum requesting set up of a

receivable;

o A copy of the Initial Letter Requesting Payment of

Debt (see paragraph 2-6);

o A copy of the Invoice
([HUD-216](http://www.hud.gov/utilities/intercept.cfm?/offices/adm/hudclips/forms/files/216.pdf))
sent to the debtor

with the above letter (see paragraph 2-6); or

o A sustained audit Concurrence Memorandum; or

o A Disposition Report (HUD-1416).

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a\. Determine Proper Ledger. Based on the documentation

received, the RAD will determine if the debt is of the

type normally maintained in a RAD general ledger account or

one maintained at HUD Headquarters.

\(1\) Debts Due HUD, Accounted for by the RAD. If a debt to

HUD is of the type normally maintained in a RAD

general ledger account, the RAD will simply record the

receivable in the appropriate general ledger account.

OCT 26 1987 2-4

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\(2\) Debts Due HUD, Accounted for by Headquarters. If a

debt to HUD is of the type normally maintained at HUD

Headquarters, the RAD will establish a subsidiary tracking

account and will forward the new receivable source

documentation to the Office of Finance and Accounting

(OFA) to be recorded in the appropriate general ledger.

b\. Verify Documentation. The Action Official will ensure that the

RAD has or is provided with the following information (this is

particularly required for establishing receivables from

completed investigations):

o Debtor\'s full name and current address;

o Debtor\'s taxpayer identification number/Social Security

number;

o Date debt arose, its amount, and its basis;

o Documentation supporting the basis of the debt;

o Date debtor was officially notified of indebtedness (see

paragraph 2-6);

o Repayment terms (if these have been established);

o Appropriation name, number, and section of the Act;

o Office responsible for accounting on the general ledger;

o Action Official name, organization, and phone number.

The RAD will follow-up with the Action Official to obtain any of

the above information that is missing.

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It is extremely important that the RAD and the Action

Official report any and all information affecting the

status, nature, or condition of the receivable to each

other promptly and accurately.

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At least quarterly, the RAD will make reconciliations of the

RAD and Headquarters accounts as well as the accounts maintained

in other systems, such as the AAMS, the investigative Audits

Management System, and the delinquent Debt Collection System

(also known as the A97 System).

2-5

OCT 26 1987

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2-6. Notification AND DEMAND FOR PAYMENT.

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The Action Official initiates the debt collection process

by making the first payment request and follows up with

two more requests for payment. The two follow-up requests

will be prepared by the RAD for the Action Official\'s use.

If these three attempts at collection are unsuccessful,

the RAD notifies the Action Official, who then refers the

delinquent debt to the CCO.

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a\. Formal Notification to Debtor. After the Action Official

has determined the amount due HUD, he/she will prepare both

an Invoice
([HUD-216](http://www.hud.gov/utilities/intercept.cfm?/offices/adm/hudclips/forms/files/216.pdf))
and the Initial Letter Requesting

Payment of Debt. The letter and two copies of the Invoice

(HUD-216) should be mailed or hand delivered to the debtor.

The debtor should be instructed to return one copy of the

Invoice (HUD-216) along with the payment to the RAD.

Procedures prescribed by FAR 32.6 should be followed as

appropriate.

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See Appendix 5 for content and examples of the

letter. See Appendix 6 for a sample Invoice (HUD-

216).

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The Action Official will send the required documentation to

the RAD to establish an account receivable. (See paragraph

2-5.)

b\. Follow-up Notices. The Action Official will send out

follow-up notices if payment has not been received by the

RAD by the due date specified in the initial notification

or by the past due date of the established payment

schedule. The debt is now considered delinquent.

\(1\) Second Notice. Not more than 30 days after the due

date set forth in the Initial Letter Requesting

Payment of Debt, the RAD will prepare a follow-up

letter for payment to the debtor. This request will

be stamped \"Second Notice,\" and will note that

payment is delinquent and past due. The Action

Official will send this letter by certified mail,

return receipt requested. This will establish debtor

residency if at that address.

\(2\) Third Notice. If payment is not received within 30

days after the follow-up letter, the Action Official

will send a second follow-up letter for payment. This

request will note that the amount is delinquent and

past due, and that, if not paid within 30 days, the

debt will be turned over to a CCO.

2-6

OCT 26 1987

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See Appendix 5 for the contents and examples of the

follow-up letters.

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2-7. METHODS OF PAYMENT.

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The debtor\'s method of payment will fall into one of the

following categories:

o payment in full;

o payment by installment; or

o Nonpayment, leading to more aggressive collection

action.

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Through telephone calls, letters, and personal contacts with the

debtor, the Action Official should determine the collectibility

of the debt. The Claims Collection Litigation Report and Claims

Collection Checklist (see Appendices 7A, 7B, and 8) should be

used to document contacts and collection efforts. As stated

above, if there are any changes in the status of the debt, the

Action Official should notify the RAD promptly so these changes

can be reflected in the appropriate accounting records.

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All payments for debts arising in the field should be sent

to the RAD unless program area exceptions dictate or U.S.

Treasury regulations indicate that they should be wire

transferred to the Federal Reserve Bank in New York with a

copy of the remittance advice forwarded to the RAD.

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a\. Payment in Full. Payment in full within the time

specified in the initial notification or in any other

contractual document satisfies the debt in full and avoids

any record of delinquency. This is the most desirable way

of collecting a debt and should be the goal of every Action

Official.

When a payment in full is received by the RAD, the proper

adjustments are made to the accounts. The RAD is

responsible for notifying OFA officials when an account

receivable maintained by OFA has been satisfied.

2-7

OCT 26 1987

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Payment in full after a debt has become delinquent should

be noted in the debtor\'s file for future credit reference

purposes.

b\. Payment by Installment. If the Action Official determines

that the debt cannot be paid in one lump sum, he/she has

the authority to set up regular installment payments. The

Action Official should:

\(1\) Negotiate a reasonable installment plan that is

mutually convenient and acceptable. The size and

frequency of the payments should bear a reasonable

relation to the size of the debt and the debtor\'s

ability to pay. If possible, the installment payments

should be sufficient in size and frequency to

liquidate the government\'s claim in not more than

three years. Payments of less than \$50 per month

should be discouraged. Interest should be charged.

This installment plan should include an acceleration

provision in the event of nonpayment.

\(2\) Obtain an executed promissory note containing

agreement for judgment. When the total amount of the

deferred installments will exceed \$750, and lesser

amounts if possible, the Action Official should

attempt to obtain an executed promissory note

containing agreement for judgment. (See Appendix 9.)

If a note is not feasible in a given situation, the

plan should be in writing, signed by the debtor.

\(3\) Forward the resulting information to the RAD for

entry into the subsidiary tracking system or the RAD

general ledger accounts.

Payment by installments according to the terms of the

installment plan satisfies the debt in full and without any

record of delinquency. The timeliness of payments received

should be noted in the debtor\'s file for future credit

reference purposes. Procedures prescribed by FAR 32.6

should be followed as appropriate.

c\. Nonpayment. If no payment is received, or if less than the

required number of installment payments are received and

then no more are received, the debt becomes delinquent

after the allowable time specified. Once a debt is

delinquent, both follow-up letters have been issued, and no

further response is forthcoming from the debtor, the debt

and the accompanying debt file are transferred by the

Action Official to the appropriate CCO for further action.

2-8

OCT 26 1987

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\(1\) Debt File. The information contained in the debt file

that is passed on to the CCO is important for the timely

resolution of the debt. The Action Official must ensure

that the debt file contains the following:

o Debtor\'s name and address;

o Taxpayer identification number/Social Security

number;

o Date of the debt, its amount, and its basis;

o Documentation supporting the basis of the debt;

o Record of attempts to collect the debt;

o Record of collections received;

o Debtor correspondence or a note that none was

received;

o Record of legal review in Field Office;

o Credit reports, if obtained (note if not requested);

o Verification of employment;

o Repayment terms;

o Appropriation name, number, and section of the Act;

o Office responsible for accounting on general ledger;

o RAD name and phone number;

o Action Official name, organization and phone number;

o Recommended action.

\(2\) Continuity of Accounts. The RAD will continue to maintain

the accounts related to this debt and will be responsible

for coordinating with the CCO to keep him/her informed of

any changes in the status of the account.

d\. Collection by Offset. Action Officials recommend to the CCO to

use administrative offsets to collect a debt due HUD. Some

programs routinely use administrative offsets, e.g., some

assistance programs, such as Section 8 offsets for the Section

202 program for direct loans for the elderly and handicapped.

For those programs that do not have routine offsets, collection

directly from the debtor must be attempted before initiating an

administrative offset. The due process provisions of the law,

standards, and applicable regulations must be observed, and

their observance certified in writing. (See Chapter 8.)

Action Officials must determine the feasibility of

administrative offset by considering, on a case-by-case basis:

\(1\) The debtor\'s financial condition;

\(2\) Whether offset would substantially interfere with or

defeat the purpose of the grants program, or reduce the

performance level of the grant or program participant; and

\(3\) Whether offset best serves to further and protect all of

the government\'s interests.

2-9

OCT 26 1987

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Action Officials are not required to recommend administrative

offset in every instance in which there is an available source

of funds.

An Action Official can withhold unpaid funds remaining on a

single contract, or agree to a price reduction to that

contract, to effect the return of misused or misspent contract

funds. Such recoveries are not considered a collection of a

\"debt\" and need not be treated as an \"offset\" within the meaning

of the Debt Collection Act. Withholding unpaid funds or

reducing a contract will settle a debt only if the goods or

services provided are not reduced accordingly.

2-8. PROCESSING PAYMENTS.

a\. Handling Payments. All payments received will be handled

in accordance with proper cash management techniques and

with [HUD Handbook
1911.1](http://www.hud.gov/offices/adm/hudclips/handbooks/cfoh/19111/index.cfm)
REV, Handling and Protecting Cash

and Other Negotiable Instruments.

b\. Processing Payments. All payments will be promptly

deposited within 24 hours of receipt by the RAD. All

payments received by other offices should be promptly

forwarded to the RAD for deposit.

c\. Recording Payments.

\(1\) All collections accounted for by the RAD will be

properly posted to the appropriate general ledger

accounts by the RAD.

\(2\) All collections received in the field for

Headquarters accounts will be promptly recorded by the

RAD in the subsidiary tracking accounts and will be

reported to OFA on a journal voucher with appropriate

source documentation.

\(3\) When a debt is paid in full by either a lump sum or a

final installment payment, the RAD will close the

subsidiary tracking account and will notify the

relevant Action Official and OFA.

OCT 26 1987 2-10

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