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United States Gfened Accoupting Of&e / 

Testimony 

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Friday 

fpril 15, 1988 

Justice Department: Impedirents Faced in 

Litigating and Collecting Debts Owed the 

Government 

Statement of - 

Arnold P. Jones,'Senior Associate Director 

General Government Division 

Before the 

Subcommittee on Courts and 

Administrative Practice 

Committee on the Judiciary 

United States Senate 

11111 Illll 11 

1351j53 

;AO/T-GGD-88-26 GAO Form MO (U/87) 

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IMPEDIMENTS TO THE JWTICE DEPARTMENT'S EFFORTS TO LITIGATE AND 

COLLECT ,DHSTS OWED THE FEDERAL GOVERNMENT 

SUMNARY STATEMENT 

ARNOLD P. JONES 

SENIOR ASSOCIATE DIRECTOR 

U.S. CENERAL ACCOdNTING OFFICE 

In 1986 and 1988 reports, GAO found that the Department of 

Justice faced several impediments in l~i‘ttgating and coilecting 

debts owed the federal,"government, such as delinquent koans, 

benef.it overpayments, fines, and penalties. These impediments 

included the following: 

-- Agency referral packages sometimes lacked the information 

Justice needed to litigate and collect the claims. 

-- U.S. attorneys offices lacked sufficient staff or enough 

trained staff to aggressively follow up and enforce, 

collections. 

-- Case backlogs were large, recordkeeping on case status and 

disposition was poor, and manag-ement oversight was lacking. 

-- Some.state laws impeded the collection of debts and federal 

bankruptcy laws delayed or prevented the recovery of money 

owed the government. 

Congress enacted laws in 1986 and Justice has taken other 

actions to improve debt litigation,and collection. Legislation 

(S. 1961) has been proposed to reduce state law obstacles which 

should help the government recover funds owed. The bill also 

proposes to amend federal bankruptcy laws to give the,government 

a better chance of recovering funds from federal debtors who file 

for bankruptcy. In addition, the proposal contains aNprovision 

regarding debt collection funding incentives that should be 

useful in helping reduce delinquent debts owed the federal 

government. 
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Mr. Chairman and Members of the Subcommittee: 

We are pleased to be here today to discuss the proposed Federal 

Debt Collection Procedures Act of 1988 (S. 1961), a bill that 

should facilitate the federal government's ability to litigate 

and collect delinquent debts owed the federal government. Over 

the years we have issued numerous reports identifying problems 

with the federal government's debt collection efforts. Included 

in our work were two recent reviews of Justice's debt litigation 

and collection efforts. Our testimony focuses on the problems we 

identified during these reviews and how the bill proposes to 

correct them. We also have some comments about another feature 

of the bill which is similar to a suggestion we previously made. 

BACKGROUND 

As the government's principal litigator, Justice is responsible 

for litigating and collecting delinquent loans, benefit 

overpayments, and civil monetary penalties referred by other 

federal agencies and for collecting criminal and civil fines 

handed down by the U.S. Courts. The 94 U.S. attorneys offices b 

and several Justice headquarter's divisions litigate and collect 

various debts including fines and penalties for violations of 2. 

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environmental, banking, tax, antitrust, and drug trafficking 

laws. However, the U.S. attorneys offices litigate the majority 

of delinquent debts referred by other federal agencies and 

collect most of the delinquent debts, fines, and penatlties for 

Justice. 
Each U.S. attorney's office has a debt collection unitthat is 

headed by an assistant U.S. attorney and may be staffed with a 

paralegal specialist and several collection clerks. Generally, 

these units prepare all the necessary paperwork to process small 

dollar debt cases, such as delinquent student loan payments and 

veterans overpayments. Other attorneys within the U.S, attorneys 

offices generally handle more complex high-dollar debt cases‘ 

dealing in, among other things, foreclosures and bankruptcies 

that require particular expertise and may involve extensive 

legal proceedings to identify and recover assets needed to 

collect the debt. 

The Office of Management and Budget (OMB) reported that as of 

September 30, 1987, federal agencies had nontax delinquent debts 

of about $32 billion. As of that date, OMB also reported that 

agencies had referred about 92,000 debt cases valued at about 

$8.5 billion to Justice for litigation and collection. 

Generally, S. 1961 would help reduce state and federal law 

obstacles to federal debt collection by (1) establishing uniform 

judicial enforcement remedies and uniform property exemptions to 

ensure that federal debtors can be treated equitably in federal 

court actions, and (2) giving the federal government eriority for 'y 

unsecured claims in bankruptcy cases. In addition, the bill 

would establish a debt collection fund where 5 percenl; of the 

monies collected by Justice would be used for Justice"s 

collection-related costs and expenses. 

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RECENT GAO WORK CONCERNING 

JUSTICE'S DEBT COLLECTION EFFORTS 

On October 15, 19,86, we issued a report to Representative John R. 

Kasich entitled Justice Department: Impediments Faced in 

Litigating and Collecting Debts Owed the Government 

(GAO/GGD-87-7BR). On January 7, 1988, we issued a report to / 

Senator Alfonse D'Amato entitled"'Justice Department: Litiqation 

and Collection of Civil Fines and Penalties (GAO/GGD-88-23FS). 

For these reports, we visited a total of seven U.S. attorneys 

offices and visited various Justice headquarter's offioes that 

are responsible for the litigation, collection, accoun:ting, and 

oversight of debts. We interviewed officials at these offices 

and reviewed judgmental samples of cases to determine the 

problems Justice was experiencing in litigation and collection. 

For our 1986 report, we also reviewed internal evaluations 

conducted by U.S. attorney office officials during fiscal year 

1985. These studies evaluated the operations and management of 

the debt collection units of 35 U.S. attorney offices, 

In both reviews, we found that Justice faced a number of 

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impediments in litigating and collecting debts owed the 

government and that various actions had been taken or were being 

considered that could improve the debt collection proicess. 
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REVIEW RESULTS 

Both of our reviews showed that although Justice had made 

progress to improve its debt litigation and collection 

performance, its ability to collect a large part of the debts was 

affected by the nature of the debts and the ability of the 

debtors to pay their obligations. For example, many cases - 

involved bankruptcy matters where collections may not have been 

possible. We also found that Justice was experiencing other 

problems which affected the timely litigation and collection of 

debts. The problems included the following: 

-- Agency referral packages sometimes lacked the information 

Justice needed to litigate and collect the claims. 

-- U.S. attorneys offices lacked sufficient staff or enough 

trained staff to aggressively follow up and enforce 

collections. 

-- Case backlogs were large, recordkeeping on case sta'tus and 

disposition was poor, and management oversight was lacking. 

We also .found that some state laws impeded the recovery of money ? 

owed the government. Following are some state law im@ediments 

that our work identified that S. 1961 would help correct. 
In the northern district of Texas the debt collection unit was 

able to recover only 2.8 percent of the $5.5 million in debts 

referred to it by the Department of Education and the Veterans 

I 

Administration. U.S. attorney office officials said that a 

major reason for this low recovery rate was Texas state laws 

that limit their ability to enforce collections. For example, 

officials said that in Texas debtor wages cannot be garnished; a 

single debtor's property valued at $15,000 or less is exempt from 

attachment: and homestead laws generally prevent the forced sale 

of residential property. 

The proposed legislation would enhance debt collection by 

providing standard procedures for wage and property garnishments 

for federal debtors and substitute for state law provisions in 

federal court actions. According to Justice officials, wage 

garnishments would be in accordance with the provisions outlined 

in the Federal Consumer Credit Protection Act of 1968 (15 U.S.C. 

1672 6 1673). Under these provisions, Justice could garnish up 

to 25 percent of a debtor's weekly disposable earnings. S. 1961 

would also deal with the property exemption problem by allowing a 

"homestead" exemption of $7,500 for real or personal property. b 

With a lower exemption, the government could reach more assets 

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for collection in Texas. L - 

We also found that some state laws cause the U.S. attorneys 

additional work in collecting debts. For example, in Illinois 

the assistant U.S. attorney in charge of debt collection told us 

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that to obtain an Illinois wage garnishment, a wage deduction 

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summons must be personally served on the employer, and the 

garnishment must be renewed and served every 8 weeks. 'A similar 

process in Ohio made it difficult ,for the debt collection unit to 

enforce collections. At this unit, 742 out of 1,725 cdses (43 

percent) had court judgments that had not been enforced by the 

unit. 

The proposed legislation would help streamline debt collection 

operations by allowing for service of a garnishment order by 

first-class mail. The bill would also allow the original 

garnishment to remain in effect until the debt has been paid or 

other actions taken. As a result,, the amount of follow-up and 

paperwork needed to continually enforce the judgment could be 

reduced. 

In New York, the attorney in charge of a debt collection unit 

said that because New York state statutes have detaile,d 

requirements for identifying real property and recording liens, 

it takes several weeks before the government's interest can be 

protected by recording a lien in the court for the county where b 

the property is located. According to a Justice officlial, in the 

interim, 2 .the property may be sold or transferred which could 

prevent the government from reaching it. The proposed 

legislation allows a lien to be recorded upon a debtor's real 

property by the U.S. attorney simply filing a copy of a federal 

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court judgment in one office within the state where the property 

is located. 

Justice's internal evaluations of 35 U.S. attorney offices 

disclosed that state statutes hampered 13 debt collection units 

(37 percent) by either precluding them from enforcing collections 

/ I on court judgments or creating additional work for the units -to 

/ recover the debts. 

We also found that the federal bankruptcy laws have delayed the 

recovery of money owed the government and in,other cases 

involving bankruptcy matters, collections may not be possible 

unless the government has a secured interest in the ,property. 

The proposed legislation re-establishes a priority in bankruptcy . 

cases for dertain types of unsecured claims of the United States 

and should increase the likelihood of recovering funds from 

debtors who file for bankruptcy. 

ACTIONS TAKEN AND UNDERWAY 

TO IMPROVE DEBT COLLECTIONS 

Justice has taken several actions to.improve its debt 'collection 

program. *-These actions include, among other things, adding 

staff to debt collection units and developing training programs 

on debt collection techniques for U.S. attorney office and 

referring agency personnel. Justice's fiscal year 1989 budget 

request includes an additional 80 positions and about $2.9 

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million for U.S. attorneys to address the serious backlog of 

civil debts and criminal fines. It also includes $10 million to 

establish a debt collection fund to be used for training debt 

collection staff and enhancing other debt collection efforts. 

In 1986, Congress enacted legislation to help improve debt 

enforcement and collection. The ,Program Fraud Civil Remedies Act 

(Public Law 99-509 ,dated Oct. 2i, 1986), among other things, 

authorizes agencies to administratively handle small fraud cases 

($150,000 or less) before an agency hearing examiner. One reason 

Congress passed this law was because U.S. attorneys offices were 

not acting on many of these cases due to cost/benefit 

considerations and limited resources. 

In 1986, Congress passed the'Debt Collection Amendments (Public 

Law 99-578 dated Oct. 28, 1686), which authorized the Attorney 

General to use private lawyers on a test basis to collect debts. 

As of April 6, 1988, Justice was in the process of contracting 

with law firms to run the program in five districts--eastern New 

York, southern Florida, southern Texas, eastern Michigan, and 

central California. These districts were selected beoause of b 

their large backlogs of debt cases and insufficient resources to 

devote to collection litigation. The-law requires us to review -_ 

various aspects of this program once it is underway. 
DEBT COLLECTION FUND 

We also support the concept behind the bill's proposal ;(section 

225) to establish a fund to pay for the training of Justice staff 

in debt collection and related functions. The fund would be 

financed from 5 percent of the proceeds of Justice's debt 

collections. GAO has previously suggested that similar funding 

incentives be used to help improve the federal government's debt 

collection eff0rts.l 

This concludes my prepared statement. I would be pleased to 

answer questions. 

. . . 

lDebt Collection: Billions Are Owed While Collectionand 

Accounting Problems Are Unresolved (GAO/AFMD-86-39, May 23, 

1986). 

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