# Presentation: 677598

## Write-Off and OMB Circular A-129

- Office of Management and Budget
- Office of Federal Financial Management
- Debt Collection Conference
- May 12, 2004

## Agenda

- Write-Off and OMB Circular A-129
- Delinquent Debt
- OMB Circular A-129 Provisions
- Delinquent Debt Collection Process
- _[Memorandum M-04-10 (dated April 19, 2004)](file:///OMB_memo04-10.pdf)_

**Notes:**
Review items that presentation will address.

A-129 is a framework with prescribed policies, procedures, and standards.  The term framework is used because A-129 doesn’t address every detail of write-off.

Clarify that the presentation has references to materials outside of A-129, but I will indicate whenever possible those items and their source.

## Delinquent Debt

- Direct Loans
- A payment has not been made by the date specified in the agreement
- Guaranteed Loans
- Borrower breaches the loan agreement with the private sector lender
- Other Debt
- Debtor does not pay or resolve the debt by the date specified in the agency’s initial written demand for payment

**Notes:**
Common understanding of delinquent debit.

In A-129, under Standards for Defining Delinquent and Defaulted Debt, general definitions are provided for delinquent debt.  Those categories of delinquent debt are presented and defined here.  

Agencies may further define delinquency to meet specific types of debt or program requirements.

## OMB Circular A-129 Provisions

- Refer debts 180 days delinquent to Treasury
- Establish Currently Not Collectible (CNC) as a reporting category
- Write-off all debt older than two years
- Review (continuously) delinquent debt

**Notes:**
Agencies shall refer debts 180 days delinquent to Treasury for cross servicing under DCIA, unless an exemption is granted or an agency receives a debt collection center designation as prescribed by DCIA.

Establish Currently Not Collectible (CNC) as a reporting category for receivables reporting.  CNC requires the use of debt collection tools e.g., tax offset, salary offset and administrative offset, cross servicing and private collection agencies.

Agencies should write-off all debt older than two years unless it has empirical documentation that justifies a different write-off standard which should be reviewed by OMB in consultation with Treasury.  Debt written off should either be (a) closed out with 1099Cs where applicable or (b) reclassified as CNC and continue working debts using debt collection tools or loan asset sales.

Agencies should continuously review delinquent debt and at least annually purge portfolios of Active Debt and CNC debt to reclassify debt that should be written-off and closed out.

## Delinquent Debt Collection Process

**Write-Off**

**Notes:**
Review overall flow of the delinquent debt collection process.

At the time of write-off, the agency must classify the debt as currently not collectible (CNC) or closed-out.  By permitting agencies to write-off and not close out recognizes that the future use of the tools is likely to realize more dollars than the 1099C process.  

Note:  Agencies don’t need DOJ approval to write-off debt since the agency is only adjusting its accounting records.  DOJ concurrence is required, however, when an agency suspends or terminates debt collection action on debts over $100,000.

## Delinquent Debt Collection Process Write-Off

- Occurs when the agency determines that the likelihood of collection is less than 50%
*Mandatory* (unless documented and justified to OMB in consultation with Treasury) for delinquent debt that
- Has no value for accounting purposes or
- Is older than two years
- Once the debt is written-off, the agency must classify the debt as either one of the following:
- Currently Not Collectible (CNC)
- Closed-Out

**Notes:**
FASAB.  Standards indicate that losses on receivables should be recognized when it is more likely than not that the receivables will not be totally collected.

Write off is an accounting action to remove an account from an entity’s assets.  All debt must be reserved for in the allowance account, and all write-offs must be made through the allowance account.  Under no circumstances are debts to be written-off directly to expense. Agency reports debt as having no value on financial and management reports.  

Some agencies write-off but don’t close-out for indefinite periods to maximize use of collection tools for up to the statutory limit of ten (10) years under DCIA.

## Delinquent Debt Collection Process

**Write-Off**

**Close-**
**Out?**

**1099C?**

**Close-Out**

**Close-Out**

**CNC**

- Report on TROR
- Continue all cost-effective collection tools

- Report on TROR
- Cease all collection action

- Issue 1099C
- Report on TROR
- Cease all collection action

- Accounting Action

**No**

**No**

**Yes**

**Yes**

**Notes:**
Close-out can only occur after write-off and termination of collection action.
Can represent an agency’s experience with borrowers/debtors.  
Can also occur after CNC classification, if debt was initially classified as CNC at the time of write-off.  

## Delinquent Debt Collection Process Close-Out

- After mandatory write-off, an agency determines that it is no longer cost effective to pursue collection
- File a 1099C with the Internal Revenue Service
- Notify the debtor in accordance with IRS Code
- Report closed-out debts on the Treasury Report on Receivables
- Stop all collection activity, including the sale of debts, once debts are closed

**Notes:**
Agency has determined that future additional collection attempts would be futile.  
All appropriate steps to collect the debts need to have been taken by the agency including 
(1) Administrative Offset (2) tax refund offset (3) Federal salary offset (4) referral to Treasury, Treasury-designated debt collection centers or private collection contractors (5) credit bureau reporting (6) administrative wage garnishment (7) litigation (foreclosure).

1099C.  
Debts less than $600.  
Some canceled debts such as certain student loans, certain debts reduced by the seller after purchase, qualified farm debt, qualified real property business debt, or debts canceled in bankruptcy are not includible in one’s income and not reportable on the 1099C.

Voluntary repayments.
Agency may take voluntary repayments of the debt at any time (without any obligation to notify IRS of a change in the account).
The voluntary payment could remove a statutory bar the debtor may have from receiving Federal loans or loan guarantees.

## Delinquent Debt Collection Process

**Write-Off**

**Close-**
**Out?**

**1099C?**

**Close-Out**

**Close-Out**

**CNC**

- Report on TROR
- Continue all cost-effective collection tools

- Report on TROR
- Cease all collection action

- Issue 1099C
- Report on TROR
- Cease all collection action

- Accounting Action

**No**

**No**

**Yes**

**Yes**

**Notes:**
While CNC debts are not accounts receivables on financial statements, the CNC process permits and encourages the use of the DCIA allowing delinquent debt to be worked until the end of its statutory collection life cycle. 

CNC permits a flexible approach which maximizes total returns to the government while still placing realistic values on this debt.  If debt is written-off and classified as CNC, the debt may be reclassified as closed-out in the future, when all collection activities pertaining to the debt cease.

Note:  In the past, the TROR didn’t accurately reflect its economic value.  As a result, the treatment created misperceptions about the prudent management of Federal non-tax delinquent debt.

## Delinquent Debt Collection Process Currently Not Collectible

- Continued collection efforts are likely to yield higher return for the government than the 1099C process
- Maintain the debt for administrative offset and other collection tools until one of the following occur:
- Debt is paid;
- Debt is closed-out; or
- All collection activities are legally precluded; or
- The debt is sold, whichever occurs first.

**Notes:**
When classifying as CNC, the agency, in a note to its financial statements, should specifically state the amount of written-off debts under collection and whenever possible based upon historical experience, the amount it expects to collect.

Further, the agency should establish accounting procedures to account for collection on written-off debts
If the agency receives a one-time payment on a written-off debt, it may restore the amount collected as a receivable at the time of collection or credit the amount to a recovery account
If the payment on a written-off debt is recurring and/or regular, the agency would restore the total amount of the debt as a receivable in both its General and Subsidiary Ledgers and record each collection as if the debt had never been written-off

## Memorandum M-04-10

- Purpose
- Establish a new reporting requirement pursuant to the DCIA of 1996
- Remind Federal agencies of current and ongoing responsibilities under the debt collection provisions of the DCA of 1992, as amended by DCIA, and OMB Circular A-129

## Memorandum M-04-10 New Requirements

- Review and report annually on internal standards and policies regarding compromising, writing-down, forgiving, or discharging debt
- Description of agency policies
- Description of policy deficiencies and corrective actions
- Statement whether policies are consistently implemented
- Statement whether all eligible discharged / closed-out debt has been reported to the IRS on Form 1099-C and on the Treasury Report on Receivables

## Memorandum M-04-10 Current / Ongoing Requirements

- Fully participate in centralized offset, that is, the Treasury Offset Program
- Aggressively service and collect delinquent debts
- Denial of direct and indirect loans to delinquent debtors
- Accurately and timely report on receivables

## Contact Information

- Adam Goldberg
- Office of Federal Financial Management
- Financial Integrity and Analysis Branch
- 202-395-7583
- agoldber@omb.eop.gov