a

GAO

United States General Accounting Office

Report to the Ranking Minority Member, 

Permanent Subcommittee on 

Investigations, Committee on 

Governmental Affairs, U.S. Senate

December 2001 CIVIL FINES AND 

PENALTIES DEBT

Review of OSM’s 

Management and 

Collection Processes

GAO-02-211
Page i GAO-02-211 OSM's Civil Fines and Penalties Debt

Contents

Letter 1

Results in Brief 2

Scope and Methodology 3

Background 4

Poor Financial Condition of CFP Debtors Is the Primary Reason for 

Low Collection Rates and Significant Write-Offs 8

Overall Adequacy of CFP Debt Collection Processes Cannot Be 

Determined, But Such Processes Can Be Strengthened 11

OMB’s and Treasury’s Roles in the Oversight and Monitoring of CFP 

Debt 15

Conclusion 15

Recommendations for Executive Action 16

Agency Comments and Our Evaluation 16

Appendixes

Appendix I: Briefing to the Permanent Subcommittee on Investigations, 

Senate Committee on Governmental Affairs 18

Appendix II: Comments From the Office of Surface Mining of the 

Department of the Interior 67

GAO’s Comments 70
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United States General Accounting Office

Washington, D.C. 20548

A

December 31, 2001 Letr

The Honorable Susan M. Collins

Ranking Minority Member

Permanent Subcommittee on Investigations

Committee on Governmental Affairs

United States Senate

Dear Senator Collins:

On December 14, 2001, we briefed your office on our review of selected 

federal agencies’ management and collection of civil fines and penalties 

(CFP) debt.1

 As agreed to with your staff, this work focused on the debt 

collection processes and procedures used by the Department of the 

Treasury’s U.S. Customs Service, the Department of the Interior’s Office of 

Surface Mining (OSM), and the Department of Health and Human Services’

Centers for Medicare and Medicaid Services (CMS).2

This report summarizes the information presented in our December 14, 

2001, briefing on OSM’s collection of CFP debt. The briefing slides are in 

appendix I. We will report separately on our work on Customs and CMS. 

As discussed with your staff, our objectives were to determine (1) the 

primary reasons for the low collection rates and significant write-offs of 

OSM’s CFP debt, (2) whether adequate processes exist at OSM to collect 

CFP debt, and (3) what role, if any, the Office of Management and Budget 

(OMB) and Treasury play in overseeing OSM’s collection of CFP debt. 

1

This work was part of a broad review that also looked at the management and collection of 

criminal fines and penalties at the Department of Justice and the U.S. Courts. See Criminal 

Debt: Oversight and Actions Needed to Address Deficiencies in the Collection Processes

(GAO-01-664, July 16, 2001).

2

Formerly the Health Care Financing Administration.
Page 2 GAO-02-211 OSM's Civil Fines and Penalties Debt

Results in Brief The primary reason for low collection rates and significant write-offs of 

OSM’s CFP debt is the poor financial condition of certain CFP debtors. We 

reported in 1989 that the majority of OSM’s CFP receivables were related to 

inactive mine sites or to mining operators who were either bankrupt or no 

longer mining.3

 According to OSM, most uncollected CFP receivables 

continue to be associated with mining companies that are not financially 

viable. Viable companies generally correct violations before they are 

assessed large-dollar civil penalties that accrue when violations go 

unabated. Companies in poor financial condition, however, are typically 

unable to correct violations and therefore incur large CFP debts. OSM’s 

annual collection rates for CFP receivables have remained low since 1996 

and are similar to the rates we found for fiscal years 1986 through 1988, the 

period covered in our 1989 report.

A lack of documentation for about 65 percent of the 184 CFP case files 

selected for testing prevented us from determining the overall adequacy of 

OSM’s past and present CFP debt collection processes. However, we did 

note several areas where OSM’s CFP debt collection policies and 

procedures can be strengthened. Specifically, for the 64 CFP case files (35 

percent) that were available for our review, we found that OSM did not 

always follow its procedures for (1) writing off debt as currently not 

collectible that was delinquent for over 2 years and had been referred to 

either the Interior’s Office of the Solicitor or to Treasury, (2) documenting 

the determination that a debtor is unable to immediately pay a debt in full 

for cases involving installment agreements, and (3) obtaining the required 

approval from the Department of Justice before writing off delinquent debt 

greater than or equal to $100,000. We also found that limitations on OSM’s 

legal authority to deny mining permits to applicants whose owners or 

controllers have uncorrected violations or unpaid CFP may reduce the 

agency’s ability to achieve its program objective of maximizing compliance 

with surface mining laws.

OMB and Treasury are provided with information helpful in performing 

their oversight roles. However, OMB stated that it had broad oversight 

responsibility in monitoring and evaluating governmentwide debt 

collection activities. OMB further stated that it is the specific responsibility 

of the agency to monitor, manage, and collect CFP debt and the 

3

Department of the Interior: Collection of Civil Penalty Fees (GAO/AFMD-89-73, August 16, 

1989).
Page 3 GAO-02-211 OSM's Civil Fines and Penalties Debt

responsibility of the agency’s Office of the Inspector General to provide 

oversight through the audit of the agency’s debt collection activities. In 

addition, Treasury officials stated that they rely on the agencies to 

determine what debt should be referred to Treasury for collection and 

offsets, as required by the Debt Collection Improvement Act of 1996, and 

accordingly, OSM does refer delinquent CFP debts to Treasury.

Our recommendations are designed to enable OSM to determine if changes 

in surface mining laws are needed and to strengthen its CFP debt collection 

policies and procedures. In commenting on a draft of the briefing slides, 

OSM agreed with our recommendations and stated that it will continue to 

explore all policy, regulatory, and legislative options that could improve its 

ability to keep applicants responsible for uncorrected violations and 

unpaid debts from receiving permits to mine coal. OSM also provided, and 

we evaluated, general comments that related to specific detailed 

information that OSM thought was important aspects of its surface mining 

program.

Scope and 

Methodology

To determine the primary reason for the low collection rates and significant 

write-offs of CFP debt, we obtained and reviewed OSM’s audited financial 

statements, annual reports, and other financial information related to its 

CFP collection activities, and we analyzed OSM’s CFP receivables and 

related accounts and information for fiscal years 1997 through 2000. We 

interviewed OSM officials for their perspective on the results of our review 

and analysis of this information.

To determine whether adequate processes exist to collect CFP debt, we 

acquired an understanding of OSM’s CFP debt collection policies and 

procedures, as well as applicable federal laws and regulations. We were 

provided access to OSM’s Civil Penalty Accounting Control System 

database. The database contained a universe of 490 cases that had CFP 

receivables balances reduced to zero by collection or write-off (closed 

cases) during fiscal years 1999 and 2000 or were outstanding (open cases) 

CFP receivables balances as of September 30, 2000. We further stratified 

the database into cases representing debts greater than or equal to $100,000 

(high-dollar cases) and those representing debts less than $100,000. We 

selected for review all nine high-dollar cases and a random statistical 

sample of 175 cases with initial receivable amounts less than $100,000. We 

did not independently verify the completeness or accuracy of financial data 

or test information security controls over the systems used to compile 
Page 4 GAO-02-211 OSM's Civil Fines and Penalties Debt

these data because such verification was not necessary for the purposes of 

this request.

OSM was unable to provide documentation of collection specialists’

actions for 120 of the 184 CFP cases selected.4

 As a result of this scope 

limitation, we could not project our findings to the entire universe of cases 

nor conclude on the overall adequacy of OSM’s past and present debt 

collection processes. Our findings therefore relate only to the applicable 

attributes in the 64 cases for which OSM had documentation of collection 

specialists’ actions. We interviewed OSM officials to obtain explanations 

for significant trends we observed and for findings and instances of 

noncompliance with its policies and procedures we identified during our 

review of the available cases.

To determine what role, if any, OMB and Treasury play in overseeing and 

monitoring the government’s collection of civil debt, we interviewed OMB 

and Treasury officials. We performed our review primarily in Denver, 

Colorado, from January 2001 through August 2001 in accordance with U.S. 

generally accepted government auditing standards. Prior to our December 

14, 2001, briefing to your office on the results of our work, we provided 

Interior, OSM, Treasury, and OMB with a draft of our detailed briefing 

slides for review and comments, which contained recommendations to the 

Acting Director of OSM. The comments received are discussed in the 

“Agency Comments and Our Evaluation” section of this report, on the 

“Agency Comments” slide, and are incorporated in the report as applicable. 

OSM’s letter is reprinted in appendix II.

Background The Surface Mining Control and Reclamation Act of 1977 (SMCRA) 

established OSM to administer and enforce a nationwide program to 

protect society and the environment from the adverse effects of surface 

coal mining operations and to promote the reclamation of unreclaimed 

mining areas. Under Titles IV and V of SMCRA, OSM administers and 

enforces nationwide surface mining laws.

Title IV of SMCRA authorizes OSM to collect quarterly Abandoned Mine 

Land (AML) reclamation fees. SMCRA also requires that coal mine 

operators obtain permits from OSM or the responsible state regulatory 

4

We are 95-percent confident that the actual proportion of cases for which OSM has no 

documentation of collection specialist actions is 64.4 percent (plus or minus 5.6 percent).
Page 5 GAO-02-211 OSM's Civil Fines and Penalties Debt

authority before undertaking any mining activity. These permits identify 

parties that actively mine coal and become the basis for OSM to generate 

Coal Reclamation Fee Reports (Form OSM-1), which are used to collect 

AML fees. Title V of SMCRA authorizes OSM to enforce environmental and 

reclamation standards for coal mining. Violations of these standards, 

referred to as “on the ground” (mine site) violations, typically involve harm 

to the environment. Section 518 of SMCRA authorizes OSM to assess CFP 

for violations of Titles IV and V.

OSM is to issue a Notice of Violation to (1) Title IV violators for unpaid 

reclamation fees or for not filing a Form OSM-1 and (2) Title V violators for 

noncompliance with environmental and reclamation standards. If the 

violation is not corrected within a specified time, OSM is to issue a Failure 

to Abate Cessation Order, which requires that mining operations cease and 

the violation be abated immediately.

OSM’s assessment unit is to review each violation cited to determine the 

appropriate CFP amount to assess for a violation and bases its 

determination on a point system directly related to the cited mine 

operator’s history of previous violations, including the seriousness of such 

violations, damage caused, negligence involved, and good faith in 

attempting to achieve compliance. Once the assessment amount is 

determined, OSM is to issue a Notice of Proposed Assessment (NOPA) to 

the mining operator. The assessment amount in the NOPA becomes the 

official CFP assessment when OSM issues a Final Order. The Final Order is 

to be issued within 30 days of the operator’s receipt of the NOPA, unless the 

operator appeals. Under SMCRA, CFP can be assessed only after the cited 

mine operator has had an opportunity to have a public hearing, which may 

include a potentially lengthy appeals process.

Since 1995, OSM has recorded proposed assessments as CFP receivables 

when (1) payment is made for the full amount of the assessment when the 

NOPA is issued, (2) a Final Order (First Demand Letter) is issued, (3) a 

payment plan is entered into, or (4) a final appeal decision has been made. 

The occurrence of any one of these events is to result in the establishment 

of an account receivable.

If a payment is not made in 15 days after OSM mails the Final Order, OSM is 

to issue a Second Demand Letter. The Second Demand Letter is to be 

followed 15 days later by a Final Demand Letter. Thus, all three demand 

letters are to be sent within 30 days. OSM is to classify CFP debt as 

delinquent if payment is not received within 30 days of the Final Order.
Page 6 GAO-02-211 OSM's Civil Fines and Penalties Debt

Once a CFP receivable is established, OSM is to enter the CFP debt into the 

Civil Penalty Accounting and Control System, and a collection specialist 

begins collection activity. Upon receipt of the Citation File, the collection 

specialist is to create a Collection Specialist Case File (CS File), or an 

Entity File if the violator has multiple CFP debts, to document collection 

actions taken on the CFP debt. The collection specialist then is to perform 

(1) a full compliance check on the entity to identify all outstanding debt or 

(2) skip tracing activity to locate the debtor and obtain the mailing address 

and telephone numbers of the entity involved. The collection specialist 

also is supposed to call the debtor and document each attempt at contact 

with the debtor.

If a debtor is unable to pay the debt in full, the collection specialist may 

offer an installment agreement or, under certain conditions, a compromise 

settlement. For either an installment agreement or a compromise 

settlement, the collection specialist is supposed to research the debtor’s 

ability to pay, document his or her determination of the debtor’s ability to 

pay, and have that determination reviewed and approved by other OSM 

staff.

If the debt remains unpaid, the collection specialist can refer the debt to 

the Solicitor if, for example, (1) the debt needs to be consolidated with 

debts previously referred to Solicitor, (2) the debtor files for bankruptcy, or 

(3) the debtor strongly disputes responsibility for the debt or raises a legal 

challenge that will likely result in litigation. The collection specialist can 

also refer the CFP debt to Treasury for collection and offset if (1) the 

debtor does not respond to direct collection efforts by paying in full, (2) the 

debtor cannot be located, (3) the debtor defaults on a payment agreement 

and does not correct the default, or (4) the debt has been delinquent for 180 

days or more.
Page 7 GAO-02-211 OSM's Civil Fines and Penalties Debt

If CFP debt remains uncollected after referrals to the Solicitor and 

Treasury, the Solicitor or Treasury can recommend that the debt be written 

off. The collection specialist would then terminate collection activity on 

the debt and write off the receivable. Reasons for the termination of 

collection activity and write-off of the CFP debt include (1) substantial 

amounts are uncollected, (2) the debtor cannot be located, (3) the cost of 

collection will exceed the amount recoverable, (4) the statue of limitations 

has expired, or (5) the case is without merit or there is insufficient 

evidence. The Department of Justice must approve the write-off of any 

CFP debt that is greater than or equal to $100,000. During fiscal year 2000, 

OSM began writing off CFP debt referred to the Solicitor that was 

delinquent more than 2 years and classifying it as currently not collectible 

(CNC).5

 In January 2000, OSM established formal guidance to write off 

such debts. In March 2001, OSM established formal guidance to write off 

other active debt that is referred to Treasury and has been delinquent more 

than 2 years.6

 OSM also is to include all unpaid CFP debt in its Applicant 

Violation System to track the debt’s status once the debt becomes 

delinquent.

OSM has a history of low collection rates for its CFP debt. In 1987, we 

reported that the financial quality of OSM’s CFP debts made them difficult 

to collect.7

 We noted that for fiscal year 1986, OSM reported about $158 

million in CFP receivables, of which $155 million was reported as 

delinquent. OSM also designated about 52 percent of the CFP receivables 

as uncollectible at that time.

In 1989, we reported that OSM had $38 million in CFP receivables as of 

September 30, 1988, after removing about $136 million of CFP receivables 

from fiscal years 1986 through 1988 that were deemed uncollectible and for 

which collection activities were terminated.8

 Of this CFP receivables 

5

CNC debts are debts the agency has written off for accounting purposes but has not 

discharged. Collection action can still be taken on such debts.

6

In November 2000, OMB revised Circular A-129 to make it mandatory that agencies write 

off debts over 2 years old unless documented and justified to OMB in consultation with 

Treasury.

7

Debt Collection: Interior’s Efforts to Collect Delinquent Royalties, Fines, and Assessments

(GAO/AFMD-87-21BR, June 18, 1987).

8

 GAO/AFMD-89-73, August 16, 1989.
Page 8 GAO-02-211 OSM's Civil Fines and Penalties Debt

balance, OSM reported approximately 99 percent as delinquent and 

designated about 90 percent as uncollectible.

After writing off about $10.8 million of CFP debts during fiscal year 2000, 

including about $9.3 million, about 86 percent of the $10.8 million, of debts 

more than 10 years old, OSM reported a CFP receivables balance of 

approximately $1.3 million as of September 30, 2000. Of this year-end 

receivable balance, OSM reported more than 92 percent as delinquent and 

designated about 88 percent as uncollectible.

Poor Financial 

Condition of CFP 

Debtors Is the Primary 

Reason for Low 

Collection Rates and 

Significant Write-Offs

Our review of OSM’s CFP receivables information revealed that the poor 

financial condition of CFP debtors is the primary reason for low collection 

rates and significant write-offs. In 1989, we reported on the poor financial 

quality of OSM’s CFP debt and the difficulties the agency faces in collecting 

CFP receivables from mining companies that are not financially viable. 

Specifically, we reported that OSM might never experience a high rate of 

collection for CFP debt because the majority of its CFP receivables were 

associated with inactive mine sites or mining operators who were either 

bankrupt or no longer mining and the debt had to be written off. We also 

reported that OSM’s overall annual collection rates combined for both 

Titles IV and V CFP receivables were approximately 1 percent for the 3 

years from fiscal year 1986 through fiscal year 1988,9

 which were about the 

same as those for the 4 years from fiscal year 1997 through fiscal year 2000.

9

The original annual collection rates, based on the method used in our 1989 report, were 

calculated by dividing the reported collections for each fiscal year by the sum of the 

beginning receivables balances from each fiscal year and net assessments recorded each 

fiscal year, including principal and interest.
Page 9 GAO-02-211 OSM's Civil Fines and Penalties Debt

During our fieldwork, OSM officials stated that the collection rates should 

not be calculated using the beginning receivables balances because such 

balances included a significant amount of old CFP receivables, including 

principal assessments and interest, that remained uncollected from prior 

years and which OSM eventually wrote off. Even though we recalculated 

OSM’s combined annual collection rates without the beginning balances, 

the modified annual collection rates remained low at approximately 5 

percent10 for the 4 years from fiscal year 1997 through fiscal year 2000. 

After we recalculated OSM’s collection rates using its modified method for 

the 3 years ended in fiscal year 1988, we found that the annual collection 

rates were similar to the rates calculated for the 4 years ended in fiscal year 

2000.

We also previously reported in 1987 that most of OSM’s CFP delinquencies 

were several years old and therefore difficult to collect.11 As industry 

statistics show, the likelihood of recovering amounts owed decreases 

dramatically as the age of the delinquency increases. During our review of 

the high-dollar debts, for example, we observed that eight out of the nine 

high-dollar debts averaged approximately 19 years in total processing 

time—from the issuance of the citation to the point at which the debt was 

eventually written off.

Our current analysis of OSM’s information clearly shows that the 

conditions we reported in 1987, regarding low collection rates, and in 1989, 

regarding older debt not being collected, still exist. Our analysis also 

showed that 77 percent and 95 percent of all CFP debt that was available to 

be collected12 were written off for the 3 years ended in fiscal year 1988 and 

the 4 years ended in fiscal year 2000, respectively. OSM officials stated that 

viable companies correct violations before they incur large civil penalties. 

Companies that are in weak financial condition often fail to correct the 

initial violation and therefore receive cessation orders and incur large 

10The modified annual collection rates, based on OSM’s methodology, were calculated by 

dividing the reported collections for each fiscal year by the net assessments recorded for 

each fiscal year.

11GAO/AFMD-87-21BR, June 18, 1987.

12All CFP debts that were available for collection during the 3 years from fiscal years 1986 

through 1988 and the 4 years from fiscal years 1997 through 2000, consisted of the CFP 

receivables balances as of October 1, 1985, and October 1, 1996, plus all net assessments 

recorded during the 3 years ended in fiscal year 1988 and the 4 years ended in fiscal year 

2000, respectively.
Page 10 GAO-02-211 OSM's Civil Fines and Penalties Debt

penalties. As a result, these CFP debts are often deemed uncollectible and 

eventually are written off.

Over the 4 years covering fiscal years 1997 through 2000, OSM:

• wrote off about $37.1 million in CFP receivables (plus another $12.6 

million in fiscal year 1996);

• annually estimated between 88 and 99 percent of its reported CFP 

receivables as uncollectible;

• recorded fewer CFP assessments each year, dropping from about $2.8 

million in fiscal year 1997 to about $591,000 in fiscal year 2000, of which 

the principal portion of new CFP assessments went from $680,320 for 

111 new debts in fiscal year 1997 to $180,370 for 22 new debts in fiscal 

year 2000; and 

• collected about $616,000 in CFP receivables.

As a result of the significant amounts written off, collections received, and 

fewer recorded number and dollar value of assessments over the 4 years, 

OSM’s reported CFP receivables balance decreased from about $27 million 

as of October 1, 1996, to about $1.3 million as of September 30, 2000. 

According to OSM’s records for the 4 years from fiscal year 1997 through 

fiscal year 2000, approximately $35 million, 94 percent of the $37.1 million 

of CFP debt, for which collection activity was terminated and the 

receivables were written off, was delinquent more than 2 years. OSM 

records indicated the following reasons that most CFP debts were written 

off.

• $22.8 million was written off after the Solicitor’s or Treasury’s 

recommendation because they were unable to collect, including debt 

from companies that had filed for bankruptcy, were bankrupt, or were 

no longer mining;

• $4.6 million was written off after OSM classified the CFP debt as 

currently not collectible after being delinquent more than 2 years;

• $3.7 million was written off after compromise settlements were reached 

and companies defaulted on the CFP debts; and

• $3.4 million was written off after the statute of limitations for the 

violation had expired, for which OSM stated that the CFP debt was over 

5 years old, a suit was not filed, and the government can no longer file a 

suit for collection.

OSM believes that low CFP collection rates do not fairly indicate the 

effectiveness of the CFP program. OSM’s Strategic Plan states that the 
Page 11 GAO-02-211 OSM's Civil Fines and Penalties Debt

purpose of the CFP program is to maximize compliance with mining laws. 

OSM officials said that, although collecting CFP is an important objective, 

maximizing revenue from CFP collections is less important to management 

than achieving compliance with mining laws. OSM routinely writes off or 

accepts an offer-in-compromise for large dollar amounts of Title IV CFP 

debt when the agency has met its enforcement objectives. For example, 

even though its records continue to reflect low collection rates, OSM 

officials stated that 72 percent of notices of violations from fiscal years 

1997 through 2000 were abated and 99 percent of Title IV reclamation fees 

were collected during fiscal year 2000.

OSM officials also stated that with the decline in the numbers and amounts 

of new Title IV and V CFP debts in fiscal year 2000, they expect the number 

and amount of new CFP assessments to remain low for the following 

reasons.

• OSM now actively works with companies to prevent problems from 

occurring.

• Changes in the mining industry have resulted in better mining practices 

and fewer violations.

• OSM’s oversight of state regulatory programs now focuses on results 

rather than activities, such as issuing citations.

• OSM compliance auditors work with companies to resolve Title IV 

SMCRA violations before issuing a citation.

Overall Adequacy of 

CFP Debt Collection 

Processes Cannot Be 

Determined, But Such 

Processes Can Be 

Strengthened

While the lack of documentation of collection specialist actions prevented 

us from determining the overall adequacy of OSM’s past and present CFP 

debt collection processes, we did, however, find instances in which OSM 

did not follow certain of its debt collection policies and procedures. Thus, 

we believe these CFP debt collection processes can be strengthened in 

those areas. We also found that limitations in OSM’s legal authority to deny 

permits to certain applicants with unabated violations reduce the agency’s 

ability to achieve its program objective of maximizing compliance with 

surface mining laws.

Lack of Documentation Of the 184 CFP cases selected to test the extent to which OSM followed its 

debt collection policies and procedures, documentation of OSM collection 

specialists’ activity for 120—almost two-thirds—was unavailable. During 

fiscal years 1994 and 1995, OSM scanned into an optical imaging system the 
Page 12 GAO-02-211 OSM's Civil Fines and Penalties Debt

collection specialists’ case files for which they had completed their 

collection actions. The original documentation was destroyed after OSM 

used the scanned documents to archive these records. In 1998, the 

read/write feature of the imaging system broke, and the vendor went out of 

business. OSM officials stated that the system could not be repaired or 

replaced and the contents of the scanned documents were no longer 

available.

An OSM official stated that almost all original documentation of collection 

specialists’ activities has been maintained since fiscal year 1997 and that 

OSM is working on guidance that calls for archiving documents for 5 years 

and imaging only key documents. The testing of the 64 of the 184 CFP 

debts with available documentation provided evidence that OSM has 

maintained the collection specialists’ documentation for the debts where 

collection activity is still ongoing since the imaging problem in 1998.

In addition to preventing us from determining the extent to which OSM did 

or did not follow its CFP debt collection policies and procedures, the lack 

of documentation prevented us from appropriately projecting findings to 

the universe of CFP debt from the selected cases for which adequate 

documentation was available. Consequently, we were unable to determine 

the overall adequacy of OSM’s CFP debt collection process.13

Lack of Compliance with 

Debt Collection Policies and 

Procedures

Although the lack of documentation precluded us from determining the 

overall adequacy of OSM’s past and present CFP debt collection processes, 

we did identify instances in which OSM did not comply with its own debt 

collection policies and procedures,14 including the following:

• Of the 24 CFP debts that were delinquent more than 2 years and referred 

to the Solicitor or Treasury, 17 had not been written off as currently not 

collectible. Of these 17 CFP debts, 15 were referred to the Treasury and 

were not written off as currently not collectible until we brought them 

to OSM’s attention in April 2001.15 OSM subsequently established 

13We are 95-percent confident that the actual proportion of cases for which OSM has no 

documentation of collection specialist activity is 64.4 percent (plus or minus 5.6 percent).

14Because of the scope limitation, we were not able to project our findings to the entire 

universe of cases. However, we are presenting the results of the 64 cases we did review. 

These results should not be used as a basis for concluding about the adequacy of OSM’s debt 

collection process.
Page 13 GAO-02-211 OSM's Civil Fines and Penalties Debt

specific formal guidance for writing off such debts that are more than 2 

years old and had been referred to the Treasury.

• Of the 32 CFP debts that were delinquent less than 2 years, 4 were 

incorrectly written off as currently not collectible. In response, OSM 

stated that the debts were prematurely written off in error even though 

the collection actions being pursued by the Solicitor were not affected 

for three of the debts and the fourth debt was subsequently 

recommended to be written off by the Solicitor since the company was 

defunct and the owner was deceased.

• All five CFP debts with installment agreements issued between fiscal 

years 1994 and 1997 lacked the required documentation to support 

OSM’s determination that the debtor was unable to immediately pay in 

full. However, in August 2000, OSM began requiring management 

approval of payment agreements and developed an installment 

agreement worksheet to be used by the collection specialist. The 

worksheet requires that such supporting documentation be maintained.

• Of the nine high-dollar delinquent debts, two were written off and the 

cases terminated without the required approval of the Department of 

Justice. After we informed OSM officials, they reclassified the debts as 

currently not collectible because the debts were more than 2 years old.

Limited Regulatory 

Authority Under SMCRA

Section 510(c) of SMCRA prohibits the issuance of mining permits to 

applicants who are responsible for unabated violations: “Where . . . 

information available to the regulatory authority indicates that any surface 

coal mining operation owned or controlled by the applicant is currently in 

violation of this Act . . . the permit shall not be issued.” An unpaid CFP debt 

is considered an unabated violation. One purpose of this provision is to 

induce violators to correct violations and pay CFP.

In 1997, the U.S. Court of Appeals for the D.C. Circuit invalidated an OSM 

regulation that blocked the issuance of a permit to any surface coal mining 

operation owned or controlled by either the applicant or a person who 

owns or controls the applicant that is currently in violation of SMCRA 

(upstream owners or controllers). The court ruled that the regulation was 

inconsistent with the authority conferred on OSM by section 510(c) of 

15In November 2000, OMB revised Circular A-129 to make it mandatory that agencies writeoff debts over 2 years old unless documented and justified to OMB in consultation with 

Treasury.
Page 14 GAO-02-211 OSM's Civil Fines and Penalties Debt

SMCRA. This ruling limits OSM’s ability to deny permits to certain 

applicants associated with SMCRA violations.

OSM officials stated that since the court decision, OSM and the states have 

issued permits to three applicants who would have been denied permits 

under the regulation the court invalidated. OSM further stated that the 

denials would have been based on an upstream owner or controller 

violation, when at the time of the applications for new permits, the 

upstream owners or controllers were linked to unabated violations. These 

unabated violations included unpaid principal portions of CFP receivables 

balances totaling approximately $31,600 and another $122,697 of unpaid 

abandoned mine land fees and reclamation costs.16

For example, OSM stated that its Knoxville office issued a new surface 

mining permit in December 2000 to an applicant that consisted of three 30-

percent shareholders and one 10-percent shareholder. The shareholders 

were also managers of the limited liability company. Three of the 

shareholders had unabated SMCRA violations.

• One of the 30-percent shareholders was issued two cessation orders in 

1984 and was also convicted by a Tennessee jury of a criminal offense of 

continuing to conduct mining operations without a permit and failing to 

stop after notification by authorities. The shareholder’s federal 

violations were corrected, but the principal portion of the CFP, 

approximately $7,800, remained unpaid.

• Another of the 30-percent shareholders and the 10-percent shareholder 

are principals (shareholders/officers) in a company that owns 33.3 

percent of another company that was an operator for a third company 

that was issued a notice of violation in 1994 and a cessation order in 

1995. The violations were corrected, but the principal portion of the 

CFP, approximately $23,800, remained unpaid.

This limitation on OSM’s authority to deny the issuance of permits to 

applicants whose upstream owners or controllers have unabated SMCRA 

violations may reduce OSM’s ability to achieve compliance with SMCRA, 

including correction of violations and collection of unpaid CFP.

16OSM provided only the amount of the principal portion of the CFP receivable. Officials 

stated that the interest, administrative costs, penalties, and postjudgment portions were not 

readily available and that total CFP receivable amounts were generally equal to double the 

principal portion.
Page 15 GAO-02-211 OSM's Civil Fines and Penalties Debt

OMB’s and Treasury’s 

Roles in the Oversight 

and Monitoring of CFP 

Debt

OMB and Treasury are provided with information useful in performing their 

debt oversight roles through OSM’s reporting of CFP receivables and 

referral of CFP debt to Treasury for collection. With respect to reporting of 

CFP receivables, OSM reports total receivable amounts in its audited 

financial statements that include its CFP receivables. In addition, OSM 

reports annual CFP collections and the year-end CFP receivable balance in 

the financial management section of its annual report, which it submits to 

OMB and Treasury. In accordance with the requirements of the Debt 

Collection Improvement Act of 1996, OSM annually reports CFP 

receivables information, including annual collection activity, delinquent 

debt, and estimated amounts deemed uncollectible, to Treasury as part of 

the Report of Receivables Due from the Public.

In discussions with OMB officials, they emphasized that OMB’s oversight is 

broad and consists of monitoring and evaluating governmentwide credit 

management, debt collection activities, and federal agency performance. 

OMB also stated that it is the specific responsibility of the agency Chief 

Financial Officer and program managers to manage and be accountable for 

the debt collection of their agency’s credit portfolios in accordance with 

applicable federal debt statutes, regulations, and guidance. OMB added 

that it is the (1) role of each agency to specifically monitor and collect its 

civil penalty debt regardless of dollar magnitude and (2) responsibility of 

each agency’s Office of the Inspector General to provide oversight through 

audit of the agency’s debt collection activities.

Regarding the referral of CFP debt to Treasury, the Debt Collection 

Improvement Act of 1996 also requires that federal agencies transfer 

eligible nontax debt or claims17 delinquent more than 180 days to Treasury 

for collection actions. Treasury officials stated that they rely on agencies 

to determine what debt should be referred to Treasury for collection and 

offsets, as required by the act, and OSM does refer delinquent CFP debts to 

Treasury for collection action.

Conclusion The poor financial condition of CFP debtors is the primary reason that a 

significant amount of OSM’s CFP receivables continue to be delinquent 

and, in most cases, are deemed uncollectible and eventually written off. 

17Claims include debts owed to the United States or debts being collected by the United 

States on behalf of others.
Page 16 GAO-02-211 OSM's Civil Fines and Penalties Debt

While a lack of documentation of its collection specialists’ activities 

precluded us from determining the overall adequacy of OSM’s past and 

present debt collection processes and the poor financial condition of CFP 

debtors makes substantial improvements in collection rates problematic, 

OSM could strengthen its debt collection process by better adhering to 

certain of its own CFP debt collection policies and procedures. We also 

found that OSM’s inability to prevent upstream owners and controllers of 

companies with unabated SMCRA violations from obtaining new mining 

permits could reduce the effectiveness of OSM’s CFP program.

Recommendations for 

Executive Action

We recommend that the Secretary of the Interior direct the Acting Director 

of the Office of Surface Mining to take the following actions:

• Evaluate the potential significance of the court decision to limit OSM’s 

ability to deny new permits to applicants whose upstream owners and 

controllers have unabated SMCRA violations. If a change in SMCRA is 

needed to expand OSM’s authority to deny new permits to applicants 

whose upstream owners and controllers have uncorrected violations or 

unpaid CFP, work with the Congress to determine the appropriate 

legislative action to take.

• Monitor to ensure effective implementation of OSM’s new guidance on 

the

• write-off of CFP debt that is referred to either the Solicitor or 

Treasury and delinquent more than 2 years by classifying the debt as 

currently not collectible and

• maintenance, in cases involving installment agreements, of 

documentation used to determine a debtor’s inability to immediately 

pay CFP debt in full.

• Reinforce to its CFP collection and management personnel the need to 

fully adhere to CFP debt collection policies and procedures for 

obtaining the required approval from the Department of Justice to 

terminate collection efforts and write-off delinquent CFP debt greater 

than or equal to $100,000.

Agency Comments and 

Our Evaluation

In commenting on a draft of our detailed briefing slides, OSM agreed with 

our recommendations and stated that it will continue to explore all policy, 

regulatory, and legislative options with the potential to improve its ability 

to keep applicants responsible for uncorrected violations and unpaid debt 

from receiving permits to mine coal. OSM, OMB, and Treasury also 
Page 17 GAO-02-211 OSM's Civil Fines and Penalties Debt

provided additional technical comments and suggestions that were 

incorporated as appropriate.

We are sending copies of this report and briefing slides to the Chairman of 

your Subcommittee as well as to the Chairman and Ranking Minority 

Member of the Senate Committee on Governmental Affairs. We will also 

provide copies to the Secretary of the Interior, the Acting Director of the 

Office of Surface Mining, the Secretary of the Treasury, and the Director of 

the Office of Management and Budget. Copies will also be made available 

to others upon request.

If you have any questions about this report, please contact me at (202) 512-

3406 or Steven Haughton, Assistant Director, at (202) 512-5999. Additional 

key contributors to this assignment were John Lord, William Wright, David 

Grindstaff, Richard Cambosos, Mike LaForge, Miguel Lujuan, and Robin 

Hodge.

Sincerely yours,

Gary T. Engel

Director

Financial Management and Assurance
Page 18 GAO-02-211 OSM's Civil Fines and Penalties Debt

Appendix I

Briefing to the Permanent Subcommittee on Apendxies

Investigations, Senate Committee on 

Governmental Affairs ApendxiI

1

Financial Management and Assurance Team

Review of Office of Surface Mining’s

Management and Collection of Civil Fines and

Penalties

Briefing to the Permanent Subcommittee on Investigations,

Senate Committee on Governmental Affairs

December 14, 2001
Appendix I

Briefing to the Permanent Subcommittee on 

Investigations, Senate Committee on 

Governmental Affairs

Page 19 GAO-02-211 OSM's Civil Fines and Penalties Debt

2

Contents

• Objectives

• Overview

• Background

• Scope and Methodology

• Poor Financial Condition of Certain CFP Debtors is the Primary Reason

for Low Collection Rates and Significant Write-offs

• Overall Adequacy of CFP Debt Collection Process Cannot Be

Determined, But Such Processes Can Be Strengthened

• OMB’s and Treasury’s Role in the Oversight and Monitoring of CFP Debt

• Conclusion

• Recommendations

• Agency Comments
Appendix I

Briefing to the Permanent Subcommittee on 

Investigations, Senate Committee on 

Governmental Affairs

Page 20 GAO-02-211 OSM's Civil Fines and Penalties Debt

3

Objectives

• You expressed concern over low collection rates for and significant

write-offs of civil fines and penalties (CFP) debt at the Department of

Interior’s (Interior) Office of Surface Mining (OSM).

• You requested that we determine

• the primary reason for the low collection rates and significant writeoffs of OSM’s CFP debt,

• whether adequate processes exist at OSM to collect CFP debt, and

• what role, if any, the Office of Management and Budget (OMB) or the

Department of Treasury play in overseeing OSM’s collection of CFP

debt.
Appendix I

Briefing to the Permanent Subcommittee on 

Investigations, Senate Committee on 

Governmental Affairs

Page 21 GAO-02-211 OSM's Civil Fines and Penalties Debt

4

Overview

• We found the following.

• The primary reason for the low collection rates for and significant

write- offs of CFP debt is the poor financial condition of certain CFP

debtors.

• A lack of certain documentation prevented us from determining the

overall adequacy of OSM’s past and present CFP debt collection

process, but such processes can be strengthened. In addition, the

extent of OSM’s legislative authority could reduce the effectiveness

of OSM’s ability to achieve its program objective of maximizing

compliance with surface mining laws.
Appendix I

Briefing to the Permanent Subcommittee on 

Investigations, Senate Committee on 

Governmental Affairs

Page 22 GAO-02-211 OSM's Civil Fines and Penalties Debt

5

Overview (cont’d)

• OMB and Treasury are provided with information useful in

performing CFP debt oversight roles. However, OMB stated that it

has broad oversight responsibility and that each agency has specific

responsibility to monitor, manage, and collect CFP debt while it is

the responsibility of the agency’s Office of the Inspector General to

provide oversight through the audit of the agency’s debt collection

activities. Treasury stated that it relies on agencies to determine

what debt should be referred to Treasury for collection actions, as

required by the Debt Collection Improvement Act of 1996 (DCIA)

and OSM does refer delinquent CFP debts to Treasury.
Appendix I

Briefing to the Permanent Subcommittee on 

Investigations, Senate Committee on 

Governmental Affairs

Page 23 GAO-02-211 OSM's Civil Fines and Penalties Debt

6

Background

• The Surface Mining Control and Reclamation Act of 1977 (SMCRA)

established OSM to administer and enforce a nationwide program to

protect society and the environment from the adverse effects of surface

coal mining operations and to promote the reclamation of unreclaimed

mining areas.

• Title IV of SMCRA authorizes OSM to collect quarterly abandoned mine

land (AML) reclamation fees. SMCRA also requires coal mine operators

to obtain permits from OSM, or the responsible state regulatory

authority, prior to any mining activity. These permits identify parties

actively mining coal and become the basis for OSM to generate Coal

Reclamation Fee Reports (Form OSM-1), that are used to collect AML

fees.
Appendix I

Briefing to the Permanent Subcommittee on 

Investigations, Senate Committee on 

Governmental Affairs

Page 24 GAO-02-211 OSM's Civil Fines and Penalties Debt

7

Background (cont’d)

• Title V of SMCRA authorizes OSM to enforce environmental and

reclamation standards for coal mining. Failure by coal mine operators to

comply with these standards are referred to as “on the ground” (mine

site) violations and typically involve harm to the environment

• Section 518 authorizes OSM to assess CFP for violations of Title IV and V

of SMCRA.

• OSM is to issue a Notice of Violation (NOV) to violators for (1) Title IV

unpaid reclamation fees or for not filing an OSM-1 report and (2) Title V

noncompliance with SMCRA from inspections of mining operations.
Appendix I

Briefing to the Permanent Subcommittee on 

Investigations, Senate Committee on 

Governmental Affairs

Page 25 GAO-02-211 OSM's Civil Fines and Penalties Debt

8

Background (cont’d)

• OSM then is to issue a Failure to Abate Cessation Order (CO), which

requires that mining operations cease and the violation be abated

immediately, if the violation is not corrected within a specified time

period.

• OSM’s assessment unit is to review each citation to determine the

appropriate penalty amount to be assessed for a violation based on a

point system directly related to the history of previous violations,

including the seriousness of such violations, extent of damage, negligence

and good faith in attempting to achieve compliance.

• After OSM determines the amount of the assessment, it is to issue a

Notice of Proposed Assessment (NOPA) that becomes the official civil

penalty debt in a “Final Order” that is to be issued within 30 days of

receipt of the NOPA, unless appealed.
Appendix I

Briefing to the Permanent Subcommittee on 

Investigations, Senate Committee on 

Governmental Affairs

Page 26 GAO-02-211 OSM's Civil Fines and Penalties Debt

9

Background (cont’d)

• Under SMCRA, CFP can only be assessed after the cited mine operator

has been given an opportunity for a public hearing, which may include a

potentially lengthy appeals process.

• Since 1995, OSM records a proposed assessment as a CFP receivable

when any one of the following events occur that establish an amount

owed to OSM:

• payments are made for the full amount of the assessment when a

NOPA is issued,

• a Final Order (First Demand Letter) is issued,

• a payment plan is entered into, or

• the final appeal decision has been made.
Appendix I

Briefing to the Permanent Subcommittee on 

Investigations, Senate Committee on 

Governmental Affairs

Page 27 GAO-02-211 OSM's Civil Fines and Penalties Debt

10

Background (cont’d)

• OSM is to issue a Second Demand Letter 15 days after it mails the Final

Order which is to be followed by a Final Demand Letter in 15 more days.

Thus, all 3 demand letters are required to be sent in a 30-day period.

• OSM is to classify CFP debt as delinquent if the payment is not received

within 30 days of the Final Order.

• Once a CFP receivable is established, OSM is to input the CFP debt into

the Civil Penalty Accounting and Control System (CPACS) and a

Collection Specialist (CS) begins collection activity.
Appendix I

Briefing to the Permanent Subcommittee on 

Investigations, Senate Committee on 

Governmental Affairs

Page 28 GAO-02-211 OSM's Civil Fines and Penalties Debt

11

Background (cont’d)

• Upon receipt of the Citation File, the CS is to create a “Collection

Specialist Case File” (CS File) or an “Entity File” if the violator has

multiple CFP debts, to document collection actions taken on the CFP

debt. Then the CS is to perform a “full compliance check” to identify all

outstanding debt or “skip tracing” to locate a debtor. The CS also is to

call the debtor and document each time there is an attempt or actual

contact with the debtor.

• If the debtor is unable to pay the debt in full, the CS may offer an

installment agreement or under certain conditions, a compromise

settlement. Both are to be researched to determine the debtors ability to

pay, documented as to the decision rendered, and reviewed and approved

by other OSM staff.
Appendix I

Briefing to the Permanent Subcommittee on 

Investigations, Senate Committee on 

Governmental Affairs

Page 29 GAO-02-211 OSM's Civil Fines and Penalties Debt

12

Background (cont’d)

• If the debt is unpaid, the CS can take one of the following possible actions

• refer the CFP debt to the Interior Office of the Solicitor (Solicitor) if,

for example

(1) the debt needs to be consolidated with debts previously referred

to the Solicitor,

(2) the debtor files for bankruptcy, or

(3) the debtor strongly disputes responsibility for the debt or raises

a legal challenge showing a high likelihood for litigation.
Appendix I

Briefing to the Permanent Subcommittee on 

Investigations, Senate Committee on 

Governmental Affairs

Page 30 GAO-02-211 OSM's Civil Fines and Penalties Debt

13

Background (cont’d)

• refer the CFP debt to Treasury for collection and offset if

(1) the debtor does not respond to direct collection efforts by

paying in full,

(2) the debtor cannot be located,

(3) the debtor defaults in a payment agreement and does not

correct the default, or

(4) the debt has been delinquent for 180 days.

• If CFP debt remains uncollected after referrals to the Solicitor and

Treasury, the Solicitor or Treasury can recommend that the debt be

written off. The CS would then terminate collection activity on the CFP

debt and write-off the CFP receivable for reasons that include
Appendix I

Briefing to the Permanent Subcommittee on 

Investigations, Senate Committee on 

Governmental Affairs

Page 31 GAO-02-211 OSM's Civil Fines and Penalties Debt

14

Background (cont’d)

(1) substantial amounts are not collected,

(2) the debtor can not be located,

(3) the cost of collection will exceed the amount recoverable,

(4) the statute of limitations have expired, or

(5) the case is without merit or there was insufficient evidence.

• The Department of Justice must approve the write off of all CFP debts

greater than or equal to $100,000.

• During fiscal year (FY) 2000, OSM began writing off CFP debt referred to

the Solicitor for collection action that was delinquent over 2 years and

classifying it as currently not collectible (CNC). In January 2000, OSM

established formal guidance to write off such debts as CNC. In March

2001, OSM established formal guidance to write off debt referred to

Treasury for collection action that is delinquent over 2 years as CNC.1

1In November 2000, OMB Revised Circular A-129 to make it mandatory that agencies write off debts over two years old unless

documented and justified to OMB in consultation with Treasury.
Appendix I

Briefing to the Permanent Subcommittee on 

Investigations, Senate Committee on 

Governmental Affairs

Page 32 GAO-02-211 OSM's Civil Fines and Penalties Debt

15

Background (cont’d)

• OSM is to include unpaid CFP debt in its Applicant Violator System to

track the debts status once the debt becomes delinquent.

• OSM has a history of low collection rates for its CFP debt. In 1987, we

reported2 that the financial quality of OSM’s CFP debts make them

difficult to collect. We noted that for FY 1986, OSM reported about $158

million in CFP receivables, of which $155 million was reported as

delinquent. OSM designated about 52 percent of these CFP receivables as

uncollectible at that time.

• In 1989, we reported3 that OSM had $38 million in CFP receivables, as of

September 30, 1988, after terminating collection activities from FY 1986 to

FY 1988 on CFP debts totaling about $136 million that it considered

uncollectible. Of this CFP receivable balance, OSM reported about 99

percent as delinquent and designated about 90 percent as uncollectible.

2

Debt Collection: Interior’s Efforts to Collect Delinquent Royalties, Fines, and Assessments (GAO/AFMD-87-21BR, June 1987). 3

Department of Interior: Collection of Civil Penalty Fees (GAO/AFMD-89-73, August 1989).
Appendix I

Briefing to the Permanent Subcommittee on 

Investigations, Senate Committee on 

Governmental Affairs

Page 33 GAO-02-211 OSM's Civil Fines and Penalties Debt

16

Background (cont’d)

• After writing off about $10.8 million of CFP debts during FY 2000,

including about $9.3 million, or about 86 percent of the $10.8 million, of

debts more than 10 years old, OSM reported a CFP receivable balance of

approximately $1.3 million as of September 30, 2000. Of this year-end

receivable balance, OSM reported more than 92 percent as delinquent and

designated about 88 percent as uncollectible.
Appendix I

Briefing to the Permanent Subcommittee on 

Investigations, Senate Committee on 

Governmental Affairs

Page 34 GAO-02-211 OSM's Civil Fines and Penalties Debt

17

Scope and Methodology

• To accomplish our objectives we

• Obtained and reviewed OSM’s audited financial statements, annual

reports, and other financial information that relate to its CFP

collection activities.

• Analyzed OSM’s CFP receivables and related accounts and

information for FY 1997 through FY 2000.

• Obtained an understanding of OSM’s CFP debt collection policies and

procedures, and applicable federal rules and regulations.
Appendix I

Briefing to the Permanent Subcommittee on 

Investigations, Senate Committee on 

Governmental Affairs

Page 35 GAO-02-211 OSM's Civil Fines and Penalties Debt

18

Scope and Methodology (cont’d)

• Obtained access to OSM’s CPACS database of 490 cases for which the

CFP receivable balances were reduced to zero by collection or writeoff (closed) during FYs 1999 and 2000 or that had outstanding (open)

CFP receivable balances as of September 30, 2000.

• Stratified the database into cases equal to or greater than $100,000

(high dollar debts) and less than $100,000.

• In order to review OSM’s CFP debt collection process we selected the

following 184 open or closed cases

• all 9 high-dollar debts and

• a random statistical sample of 175 CFP cases with initial

receivable amounts less than $100,000.
Appendix I

Briefing to the Permanent Subcommittee on 

Investigations, Senate Committee on 

Governmental Affairs

Page 36 GAO-02-211 OSM's Civil Fines and Penalties Debt

19

Scope and Methodology (cont’d)

• OSM was not able to provide documentation of collection specialist

actions for 120 of the 184 cases we selected for our review.4

• Due to the lack of documentation for a significant portion of our

sample, we were not able to project our findings to the entire

universe of cases (discussed later).

• As a result of this scope limitation, we were unable to conclude on

the overall adequacy of OSM’s past and present CFP debt collection

processes and have thus presented our findings as they relate to the

applicable attributes in the 64 cases for which OSM had

documentation.

4 We are 95 percent confident that the actual proportion of cases for which OSM has no documentation of collection

specialist actions is 64.4 percent (plus or minus 5.6 percent).
Appendix I

Briefing to the Permanent Subcommittee on 

Investigations, Senate Committee on 

Governmental Affairs

Page 37 GAO-02-211 OSM's Civil Fines and Penalties Debt

20

Scope and Methodology (cont’d)

• Interviewed OSM officials to obtain explanations for observed trends,

and identified findings and exceptions to policies and procedures.

• Interviewed OMB and Treasury officials to determine what role, if

any, OMB and Treasury play in overseeing and monitoring the

government’s collection of civil debts.

• We did not independently verify the completeness or accuracy of

financial data or test information security controls over the systems

used to compile these data because that verification was not

necessary for the purposes of this request.
Appendix I

Briefing to the Permanent Subcommittee on 

Investigations, Senate Committee on 

Governmental Affairs

Page 38 GAO-02-211 OSM's Civil Fines and Penalties Debt

21

Scope and Methodology (cont’d)

• Provided Interior, OSM, OMB, and Treasury with a draft of our

detailed briefing slides, which contained recommendations to the

Acting Director of OSM for review and comment. The comments

received are discussed on the “Agency Comments” slides or

incorporated into the slides as applicable.

• Performed our work primarily in Denver, CO between January 2001

and August 2001 in accordance with U.S. generally accepted

government auditing standards.
Appendix I

Briefing to the Permanent Subcommittee on 

Investigations, Senate Committee on 

Governmental Affairs

Page 39 GAO-02-211 OSM's Civil Fines and Penalties Debt

22

Poor Financial Condition of CFP Debtors is the

Primary Reason for Low Collection Rates and

Significant Write-offs

• We previously reported on the poor financial quality of OSM’s CFP debt

and the difficulties the agency faces in collecting CFP receivables from

mining companies that are not financially viable.

• In 1989, we reported that OSM may never experience a high rate of

collection because the majority of its CFP receivables related to inactive

mine sites or mining operators who were either bankrupt or no longer

mining. We also reported that OSM’s overall annual collection rates

combined for both Title IV and V CFP receivables was approximately one

percent for the 3-year period for FY 1986 through 1988,5 which is about

the same rate collected for the 4-year period for FY 1997 through FY 2000.

5

The annual collection rates, as per the method used in our1989 report, were calculated by dividing reported collections

 made each year by the sum of the beginning receivable balance from each year and net assessments for each year,

 including principal and interest.
Appendix I

Briefing to the Permanent Subcommittee on 

Investigations, Senate Committee on 

Governmental Affairs

Page 40 GAO-02-211 OSM's Civil Fines and Penalties Debt

23

Poor Financial Condition of CFP Debtors is the

Primary Reason for Low Collection Rates and

Significant Write-offs (cont’d)

• During our fieldwork, OSM officials stated that the collection rates

should not be calculated using the beginning receivable balances because

such balances included the significant amount of old CFP receivables,

including principal assessments and interest, that remained uncollected

from prior years of which OSM eventually wrote off. Even though we

recalculated OSM’s combined annual collection rates without the

beginning receivable balances, the revised annual collection rates

remained low at approximately 5 percent6 for the 4-year period ended in

2000. After we recalculated OSM’s collection rates using its modified

method for the 3-year period ended in 1988, we found that the annual

collection rates were similar to the rates calculated for the 4-year period

ended in 2000.

6The modified annual collection rates, based on OSM’s methodology, were calculated by dividing the reported collections

 made each year by the net assessments for each year.
Appendix I

Briefing to the Permanent Subcommittee on 

Investigations, Senate Committee on 

Governmental Affairs

Page 41 GAO-02-211 OSM's Civil Fines and Penalties Debt

24

Poor Financial Condition of CFP Debtors is the

Primary Reason for Low Collection Rates and

Significant Write-offs (cont’d) 

• In 1987, we reported that most of OSM’s CFP delinquencies were several

years old and therefore, were difficult to collect. As industry statistics

have shown, the likelihood of recovering amounts owed decreases

dramatically with the age of delinquency.

• During our limited review, we observed that 8 of the 9 high-dollar debts

averaged approximately 19 years for the total processing time from the

issuance of the citation to the point at which the debt was eventually

terminated (written off).

• Based on our analysis of information provided to us by OSM, collection

rates remain low and older debts are still not collected. Our analysis also

showed that 77 and 95 percent of all CFP debt that was available to be

collected7 were written off for the 3-year period ended in FY 1988 and the

4-year period ended in FY 2000, respectively.

7

All available CFP debts consisted of the CFP receivable balances for the beginning of FY 1986 and FY 1997 plus all net

 assessments recorded during the 3-year period ended in FY 1988 and the 4-year period ended in FY 2000, respectively.
Appendix I

Briefing to the Permanent Subcommittee on 

Investigations, Senate Committee on 

Governmental Affairs

Page 42 GAO-02-211 OSM's Civil Fines and Penalties Debt

25

Poor Financial Condition of CFP Debtors is the

Primary Reason for Low Collection Rates and

Significant Write-offs (cont’d) 

• OSM officials stated that viable companies correct violations before they

incur large civil penalties and that companies that are typically not in

good financial condition often do not correct the initial violation and

therefore receive cessation orders and incur large civil penalties. This

has lead to these CFP debts being deemed uncollectible and eventually

written off.

• Over the 4-year period covering from FY 1997 through FY 2000, OSM has

• written-off about $37.1 million in CFP receivables (plus another $12.6

million in FY 1996),

• annually estimated between 88 and 99 percent of its reported CFP

receivables as uncollectible,

• recorded less CFP assessments each year, going from about $2.8

million in FY 1997 to $591,000 in FY 2000,8 and

• collected about $616,000 in CFP receivables. 8The principal portion of new CFP assessments went from $680,320 for 111 new debts in FY 1997 to $180,370 for 22 new

 debts in FY 2000.
Appendix I

Briefing to the Permanent Subcommittee on 

Investigations, Senate Committee on 

Governmental Affairs

Page 43 GAO-02-211 OSM's Civil Fines and Penalties Debt

26

Poor Financial Condition of CFP Debtors is the

Primary Reason for Low Collection Rates and

Significant Write-offs (cont’d)

• As a result of the significant write offs, collections, and fewer recorded

numbers and dollars of assessments over the 4 year period, OSM’s

reported CFP receivables balance has decreased from about $27.3 million

as of October 1, 1996, to about $1.3 million as of September 30, 2000.

• According to OSM data, from FY 1997 through FY 2000, about $35 million

or 94 percent of the $37.1 million of CFP debt that collection activity was

terminated and receivables were written off was delinquent more than 2

years. OSM wrote off most of the CFP debts for the following reasons

• $22.8 million for inability to collect, including companies that have filed

for bankruptcy, are bankrupt, or are no longer mining.

• $4.6 million that was classified as currently not collectible after being

delinquent for more than 2 years,

• $3.7 million after a compromise was reached, and

• $3.4 million due to expiration of statute of limitations.
Appendix I

Briefing to the Permanent Subcommittee on 

Investigations, Senate Committee on 

Governmental Affairs

Page 44 GAO-02-211 OSM's Civil Fines and Penalties Debt

27

Poor Financial Condition of CFP Debtors is the

Primary Reason for Low Collection Rates and

Significant Write-offs (cont’d)

• OSM does not believe that low collection rates and significant write-offs

are a fair indication of the effectiveness of the CFP program. The

agency’s Strategic Plan states that the purpose of its CFP program is to

maximize compliance with mining laws.

• OSM officials stated that, while collecting CFP is an important objective

for OSM, maximizing revenues from the collection of CFP is not as

important to management as achieving compliance with mining laws.

OSM routinely writes off or accepts an offer-in-compromise of large

dollar amounts on Title IV CFP debt when its enforcement objectives

have been met. For example, even though collection rates on CFP debts

remained low, OSM officials stated that 72 percent of notices of

violations between FY 1997 and 2000 were abated and 99 percent of Title

IV reclamation fees were collected during FY 2000.
Appendix I

Briefing to the Permanent Subcommittee on 

Investigations, Senate Committee on 

Governmental Affairs

Page 45 GAO-02-211 OSM's Civil Fines and Penalties Debt

28

Poor Financial Condition of CFP Debtors is the

Primary Reason for Low Collection Rates and

Significant Write-offs (cont’d)

• OSM officials also stated that with the decline in the number and amount

of new Title IV and V CFP debts in FY 2000, they expect the number and

amount of new CFP assessments to remain low in the future because

• OSM is now actively working with companies to prevent problems

from occurring,

• The mining industry has undergone change resulting in better mining

practices and fewer violations,

• OSM has changed the way it oversees state regulatory programs to

focus on results instead of activities such as issuing citations, and

• OSM compliance auditors work with companies to resolve Title IV

SMCRA violations before issuing a citation.
Appendix I

Briefing to the Permanent Subcommittee on 

Investigations, Senate Committee on 

Governmental Affairs

Page 46 GAO-02-211 OSM's Civil Fines and Penalties Debt

29

Overall Adequacy of CFP Debt Collection Processes

Can Not Be Determined, But Such Processes Can

Be Strengthened

• The scope limitation prevented us from determining the overall adequacy

of OSM’s past and present CFP debt collection processes. However, such

CFP debt collection processes can be strengthened in certain areas where

we found several instances that OSM did not follow various internal debt

collection policies and procedures.

• In addition, the extent of OSM’s legislative authority could reduce the

effectiveness of OSM’s ability to achieve its program objective of

maximizing compliance with surface mining laws.
Appendix I

Briefing to the Permanent Subcommittee on 

Investigations, Senate Committee on 

Governmental Affairs

Page 47 GAO-02-211 OSM's Civil Fines and Penalties Debt

30

Overall Adequacy of CFP Debt Collection Processes

Can Not Be Determined, But Such Processes Can

Be Strengthened - Scope Limitation

• OSM did not retain documentation of certain CFP collection files for 120

out of the 184 cases that we selected for testing.

• During FYs 1994 and 1995, OSM scanned CS files, for cases that CS

had completed its collection process, into an optical imaging system

and destroyed the original documentation. OSM destroyed the

original documentation after it used the scanned documents to

archive these files. However, the read/write feature of the imaging

system broke in 1998 and the vendor went out of business. OSM

officials stated that the system’s feature could not be repaired or

replaced; thus, those documents were no longer available.

• An OSM official stated that since the imaging problem, they have

maintained most original documentation and are working on guidance

for archiving documents for 5 years and only imaging key documents.
Appendix I

Briefing to the Permanent Subcommittee on 

Investigations, Senate Committee on 

Governmental Affairs

Page 48 GAO-02-211 OSM's Civil Fines and Penalties Debt

31

Overall Adequacy of CFP Debt Collection Processes

Can Not Be Determined, But Such Processes Can

Be Strengthened - Scope Limitation (cont’d)

• The testing of the 64 CFP debts with available documentation

provided evidence that OSM has maintained CS documentation for

the debts with collection activity since the imaging problem.

• As a result of the lack of documentation, we were unable to test

about 2/3 of the sampled cases we selected for review to determine

the extent to which OSM did or did not follow its CFP debt collection

policies and procedures. Additionally, this scope limitation precluded

our ability to appropriately project findings for those cases for which

we had sufficient documentation for our review to the universe of

CFP debts. Consequently, we are unable to conclude on the overall

adequacy of OSM’s CFP debt collection processes.9

9We are 95 percent confident that the actual proportion of cases for which OSM has no documentation of collection

 specialist actions is 64.4 percent (plus or minus 5.6 percent).
Appendix I

Briefing to the Permanent Subcommittee on 

Investigations, Senate Committee on 

Governmental Affairs

Page 49 GAO-02-211 OSM's Civil Fines and Penalties Debt

32

Overall Adequacy of CFP Debt Collection Processes

Can Not Be Determined, But Such Processes Can

Be Strengthened - Noncompliance

• Although we could not determine the overall adequacy of OSM’s CFP

past and present debt collection processes, we identified several

instances where OSM did not comply with its own debt collection

policies and procedures,10 including the following

• 17 out of 24 CFP debts that were delinquent more than 2 years and

referred to the Solicitor or Treasury were not written off as CNC.

Fifteen of the CFP debts were referred to Treasury and due to

oversight, were not written off as CNC until we brought it to OSM’s

attention, wherein, OSM subsequently established specific formal

guidance for the write-off of such types of debts.

• 4 out of 32 CFP debts that were delinquent less than 2 years were

incorrectly written off as CNC. 10Because of the scope limitation discussed earlier, we were not able to project our findings to the entire universe of cases.

 However, we are presenting the results of the cases we did review. These results should not be used as a basis for

 concluding about the adequacy of OSM’s debt collection process.
Appendix I

Briefing to the Permanent Subcommittee on 

Investigations, Senate Committee on 

Governmental Affairs

Page 50 GAO-02-211 OSM's Civil Fines and Penalties Debt

33

Overall Adequacy of CFP Debt Collection Processes

Can Not Be Determined, But Such Processes Can

Be Strengthened - Noncompliance (cont’d)

• 5 of 5 CFP debts involving installment agreements issued between

1994 and 1997 did not have documentation supporting the debtor’s

inability to immediately pay in full. However, in August 2000, OSM

began requiring management approval of installment agreements and

developed an installment agreement worksheet to be used by CS that

requires that such documentation be maintained.

• 2 out of the 9 high-dollar delinquent debts were written off and the

cases terminated without the required approval from the Department

of Justice. After we informed OSM officials of this situation, they

subsequently reclassified the debts as CNC since the debts were over

2 years old.
Appendix I

Briefing to the Permanent Subcommittee on 

Investigations, Senate Committee on 

Governmental Affairs

Page 51 GAO-02-211 OSM's Civil Fines and Penalties Debt

34

Overall Adequacy of CFP Debt Collection Processes

Can Not Be Determined, But Such Processes Can

Be Strengthened - OSM’s Legislative Authority

• Section 510(c) of SMCRA prohibits the issuance of mining permits to

applicants who are responsible for unabated violations. An unpaid CFP

debt is treated as an unabated violation. One of the purposes of a denial

of a new permit is to induce violators to correct violations and pay CFP.

• Section 510(c) reads: Where....information available to the regulatory

authority indicates that any surface coal mining operation owned or

controlled by the applicant is currently in violation of this Act....the

permit shall not be issued.
Appendix I

Briefing to the Permanent Subcommittee on 

Investigations, Senate Committee on 

Governmental Affairs

Page 52 GAO-02-211 OSM's Civil Fines and Penalties Debt

35

Overall Adequacy of CFP Debt Collection Processes

Can Not Be Determined, But Such Processes Can

Be Strengthened-OSM’s Legislative Authority(cont’d)

• In 1997, the U.S. Court of Appeals for the D.C. Circuit invalidated an OSM

regulation that blocked the issuance of a permit to any surface coal

mining operation owned or controlled by either the applicant or by a

person who owns or controls the applicant that is currently in violation

of the SMCRA (upstream owner or controller). The court ruled that the

regulation was inconsistent with the authority conferred on OSM by

section 510(c) of SMCRA.

• As a result, Section 510(c) of SMCRA limits OSM’s ability to deny permits

to certain applicants associated with SMCRA violations.
Appendix I

Briefing to the Permanent Subcommittee on 

Investigations, Senate Committee on 

Governmental Affairs

Page 53 GAO-02-211 OSM's Civil Fines and Penalties Debt

36

Overall Adequacy of CFP Debt Collection Processes

Can Not Be Determined, But Such Processes Can

Be Strengthened-OSM’s Legislative Authority(cont’d)

• Since this court decision, OSM stated it and the States have issued

permits to three applicants where “they would have been denied” under

the regulations the court invalidated. OSM further stated that the denials

would have been based on an upstream owner or controller violation,

where at the time of the applications for new permits, the upstream

owners or controllers were linked to unabated violations, including the

unpaid principal portion11 of the CFP receivable balances totaling

approximately $31,600, plus another $122,697 of unpaid AML fees and

reclamation costs.

• For example, OSM stated that its Knoxville office issued an applicant

a new surface mining permit in December 2000. The applicant was

comprised of three 30 percent and one 10 percent shareholders, who

were also managers of the limited liability company. Three of the

shareholders had unabated violations.

11OSM provided only the principal portion of the CFP receivable and stated that the interest, administrative costs, penalties,

 and post judgements portions were not readily available and that generally, the total CFP receivable amounts were equal

 to double the principal portion.
Appendix I

Briefing to the Permanent Subcommittee on 

Investigations, Senate Committee on 

Governmental Affairs

Page 54 GAO-02-211 OSM's Civil Fines and Penalties Debt

37

Overall Adequacy of CFP Debt Collection Processes

Can Not Be Determined, But Such Processes Can Be

Strengthened-OSM’s Legislative Authority (cont’d)

• One of the 30 percent shareholders was issued 2 COs in 1984, and

was convicted by a Tennessee jury of a criminal offense of

continuing to conduct surface coal mining operations without a

permit and failing to stop after being notified by the authorities. The

federal violations have been corrected, but the principal portion of

CFP totaling approximately $7,800 remains unpaid, and

• One of the other 30 percent shareholders and the 10 percent

shareholder are principals (shareholders/officers) in a company that

owns 33.3 percent of another company that was an operator for a

third company that was issued a NOV and CO in 1994 and 1995,

respectively. The violations have been corrected, but the principal

portion of CFP totaling approximately $23,800 remains unpaid.
Appendix I

Briefing to the Permanent Subcommittee on 

Investigations, Senate Committee on 

Governmental Affairs

Page 55 GAO-02-211 OSM's Civil Fines and Penalties Debt

38

Overall Adequacy of CFP Debt Collection Processes

Can Not Be Determined, But Such Processes Can Be

Strengthened-OSM’s Legislative Authority (cont’d)

• This limitation in OSM’s ability to deny the issuance of permits to

applicants whose upstream owners or controllers have unabated

SMCRA violations may reduce OSM’s ability to achieve compliance

with SMCRA, including the correction of violations and the

collection of unpaid CFP.
Appendix I

Briefing to the Permanent Subcommittee on 

Investigations, Senate Committee on 

Governmental Affairs

Page 56 GAO-02-211 OSM's Civil Fines and Penalties Debt

39

OMB’s and Treasury’s Roles in the Oversight and

Monitoring of CFP Debt

• Reporting of CFP Receivables

• OSM reports total receivable amounts in its audited financial

statements, which includes CFP receivable amounts. In addition,

OSM reports annual CFP collections and the year-end receivables

balance in the financial management section of its annual report,

which is submitted to OMB and Treasury.

• In accordance with requirements of the Debt Collection Improvement

Act of 1996 (DCIA), OSM annually reports CFP receivables

information, including annual collection activity, delinquent debt, and

estimated uncollectibles, to Treasury as part of the Report of

Receivables Due from the Public.

• OMB and Treasury are provided with information useful in

performing CFP debt oversight roles.
Appendix I

Briefing to the Permanent Subcommittee on 

Investigations, Senate Committee on 

Governmental Affairs

Page 57 GAO-02-211 OSM's Civil Fines and Penalties Debt

40

OMB’s and Treasury’s Roles in the Oversight and

Monitoring of CFP Debt (cont’d)

• However, in discussions with OMB officials, they emphasized that

OMB’s oversight is broad and consists of monitoring and evaluating

government-wide credit management, debt collection activities, and

federal agency performance. OMB also stated that it is the specific

responsibility of the agency Chief Financial Officer and program

managers to manage and be accountable for the debt collection of

their agency’s credit portfolios in accordance with applicable federal

debt statutes, regulations, and guidance. OMB further added that it is

the role of each agency to specifically monitor and collect their civil

penalty debt regardless of dollar magnitude and the responsibility of

each agency’s Office of the Inspector General to provide oversight

through audit of agency’s debt collection activities.
Appendix I

Briefing to the Permanent Subcommittee on 

Investigations, Senate Committee on 

Governmental Affairs

Page 58 GAO-02-211 OSM's Civil Fines and Penalties Debt

41

OMB’s and Treasury’s Roles in the Oversight and

Monitoring of CFP Debt (cont’d)

Referral of CFP Debt to Treasury

• DCIA requires federal agencies to transfer eligible non-tax debt or

claims over 180 days delinquent to Treasury for collection action.

• Treasury officials stated that they rely on the agencies to determine

what debt should be referred to Treasury for collection action, as

required by DCIA.

• OSM’s policy is to refer CFP debt to Treasury for collection action.
Appendix I

Briefing to the Permanent Subcommittee on 

Investigations, Senate Committee on 

Governmental Affairs

Page 59 GAO-02-211 OSM's Civil Fines and Penalties Debt

42

Conclusion

• The poor financial condition of CFP debtors is the primary reason that

OSM continues to experience significantly delinquent, and in most cases,

uncollectible CFP receivables that are eventually written off. While a

lack of documentation of certain collection specialist actions prevented

us from determining the adequacy of OSM’s past and present debt

collection processes and the poor financial condition of CFP debtors

makes substantial improvement in collection rates problematic,

opportunities exist for OSM to strengthen its debt collection processes

through better adherence to certain of its own debt collection policies

and procedures. Additionally, OSM’s inability to prevent owners and

controllers of companies with unabated violations from obtaining new

mining permits could reduce the effectiveness of its CFP program.
Appendix I

Briefing to the Permanent Subcommittee on 

Investigations, Senate Committee on 

Governmental Affairs

Page 60 GAO-02-211 OSM's Civil Fines and Penalties Debt

43

• We recommend that the Secretary of Interior direct the Acting Director

of OSM to take the following actions

• Evaluate the potential significance of the court decision on OSM’s

ability to limit new permits to applicants with upstream owners and

controllers with unabated SMCRA violations. If a change in SMCRA

is needed that would expand OSM’s authority to deny a new permit

to applicants whose upstream owners and controllers have

uncorrected violations and/or unpaid CFP, work with the Congress

to determine the appropriate legislative action to take.

• Monitor to ensure the effective implementation of its new guidance

on:

• writing off CFP debt referred to either SOL or Treasury and over

2 years delinquent by classifying the debt as CNC and

Recommendations
Appendix I

Briefing to the Permanent Subcommittee on 

Investigations, Senate Committee on 

Governmental Affairs

Page 61 GAO-02-211 OSM's Civil Fines and Penalties Debt

44

• maintaining documentation used to determine debtor’s inability

to immediately pay CPF debt in full for cases involving

installment agreements.

• reinforce to its CFP collection and management personnel the need

to fully adhere to CFP debt collection policies and procedures for

obtaining the required approval from the Department of Justice to

terminate collection efforts and write off delinquent CFP debt greater

than or equal to $100,000.

Recommendations (cont’d)
Appendix I

Briefing to the Permanent Subcommittee on 

Investigations, Senate Committee on 

Governmental Affairs

Page 62 GAO-02-211 OSM's Civil Fines and Penalties Debt

45

• In commenting on a draft of these briefing slides, OSM agreed with our

recommendations and stated that it will continue to explore all policy,

regulatory, and legislative options with the potential to improve its ability

to keep applicants responsible for uncorrected violations and unpaid

debt from receiving permits to mine coal.

• OSM stated that during our May 17, 2001, exit conference, we

acknowledged that the instances of non-compliance with debt collection

policies and procedures we found did not have a material impact on

collections. In addition, OSM also stated that there is ample evidence

that OSM’s current procedures are effective and controls are sound,

which it stated, was based on 64 cases out of only 81 cases with

outstanding CFP receivables as of the end of FY 2000.

Agency Comments
Appendix I

Briefing to the Permanent Subcommittee on 

Investigations, Senate Committee on 

Governmental Affairs

Page 63 GAO-02-211 OSM's Civil Fines and Penalties Debt

46

• As we stated in our Scope and Methodology section, we selected a total

of 184 open and closed CFP cases from a total of 490 cases. Although we

did state at the exit conference that the instances of non-compliance may

not have affected OSM’s ability to collect the CFP debts, the fact remains

that these instances have resulted in misstatements in OSM’s reported

CFP receivables. Further and more importantly, because of the lack of

documentation of the collection specialists’ actions for the majority of

the sampled cases, we are unable to assess whether there were material

instances of non-compliance with OSM’s past and present debt collection

policies and procedures.

Agency Comments (cont’d)
Appendix I

Briefing to the Permanent Subcommittee on 

Investigations, Senate Committee on 

Governmental Affairs

Page 64 GAO-02-211 OSM's Civil Fines and Penalties Debt

47

• OSM then stated that the primary reason for the low collection rates was

the poor financial condition of CFP debtors, not the poor quality of CFP

debt. We agree that the primary reason for the low collection rates was

the poor financial condition of certain CFP debtors instead of poor

financial quality of CFP debts. Poor financial quality of CFP debts is

typically caused by the poor financial condition of the related debtors.

As a result, we revised our report and slides except where we refer to our

1987 report that described this issue as poor financial quality.

• OSM stated that our high level summarized report obscures important

aspects of the program, by not including the number of debts collected,

differentiating between Title IV and V debts, measuring collection rates

by age of debt, and focusing on the current process. In particular, OSM

stated that collection rates should be calculated only on the principal

portion of the net assessments recorded as CFP receivables.

Agency Comments (cont’d)
Appendix I

Briefing to the Permanent Subcommittee on 

Investigations, Senate Committee on 

Governmental Affairs

Page 65 GAO-02-211 OSM's Civil Fines and Penalties Debt

48

• As such, OSM again modified its method and recalculated its combined

annual collection rates at approximately 11 percent – 4 percent for Title

IV and 17 percent for Title V – based on only the principal portion of the

net assessments from the CFP receivables for the 4-year period ended in

fiscal year 2000. Both modified calculation methods used by OSM

inappropriately overstate its annual collection rates. Each method uses

only the new CFP net assessments or just the principal portion of new

CFP debts and inappropriately excludes current CFP debts that are a part

of the beginning receivable balances and earned interest and late charges

on the current debts that were recorded during the 4-year period ended in

fiscal year 2000. Regardless of the method used to calculate collection

rates, the main point remains that each collection rate is low and when

the same method was applied for both the 3-year period ended in FY 1988

and the 4-year period ended in FY 2000, the collection rates were similar

and did not show any significant increase from one period to the other.12

12 A comparison of the collection rates for the 3-year period ended in FY 1988, based on the second modified calculation

 method, could not be made since the principal portions of net assessments recorded during the 3-year period were not

 available.

Agency Comments (cont’d)
Appendix I

Briefing to the Permanent Subcommittee on 

Investigations, Senate Committee on 

Governmental Affairs

Page 66 GAO-02-211 OSM's Civil Fines and Penalties Debt

49

• While we incorporated some of the suggested CFP detail that OSM

provided in its response, the other suggestions were not incorporated

because they did not agree with the detailed information provided to us

during our review. In addition, the suggestions focused primarily on the

principal portion of CFP debts, which as we stated, overstates collection

rates. Furthermore, it does not change our conclusion as to the primary

reason for OSM’s low collection rates and its significant amount of CFP

debts that were written off, which continued to represent a significant

amount of the CFP receivables available for collection from the 3-year

period ended in FY 1988 and the 4-year period ended in FY 2000.

Agency Comments (cont’d)
Page 67 GAO-02-211 OSM's Civil Fines and Penalties Debt

Appendix II

Comments From the Office of Surface Mining 

of the Department of the Interior ApendxiI

See comment 1.

See comment 2.

See comment 3.

See comment 4.
Appendix II

Comments From the Office of Surface Mining 

of the Department of the Interior

Page 68 GAO-02-211 OSM's Civil Fines and Penalties Debt

See comment 4.

See comment 5.

See comment 4.
Appendix II

Comments From the Office of Surface Mining 

of the Department of the Interior

Page 69 GAO-02-211 OSM's Civil Fines and Penalties Debt

See comment 6.

See comment 7.

See comment 7.

See comment 6.

See comment 8.
Appendix II

Comments From the Office of Surface Mining 

of the Department of the Interior

Page 70 GAO-02-211 OSM's Civil Fines and Penalties Debt

GAO’s Comments The following are our comments on the Office of Surface Mining’s letter 

dated October 1, 2001.

1. Although we did state at the exit conference that the instances of 

noncompliance may not have affected OSM’s ability to collect the CFP 

debts, the fact remains that these instances have resulted in 

misstatements of OSM’s reported CFP receivables. Further and more 

importantly, because of the lack of documentation of the collection 

specialists’ actions for two-thirds of the sampled cases, we are unable 

to assess whether there were material instances of noncompliance with 

OSM’s past and present debt collection policies and procedures.

2. The draft briefing slides already discussed the policies and procedures 

established by OSM to write-off cases over 2 years old as currently not 

collectible and we included OSM’s management approval of payment 

agreements and development of an installment agreement worksheet in 

the briefing slides. The steps taken by OSM to address the identified 

areas of noncompliance are also discussed in the report. 

3. We agree that the primary reason for the low collection rates was the 

poor financial condition of certain CFP debtors. Poor financial quality 

of CFP debts is typically caused by the poor financial condition of the 

related debtors. As a result, we revised our report and slides except 

where we refer to our 1987 report that described this issue as poor 

financial quality.

4. We incorporated several of OSM’s suggested CFP detail related to the 

number of debts collected, differentiating between Title IV and V debts, 

measuring collection rates by age of debt, and focusing on the current 

process into our briefing slides and reports. However, the other 

suggestions were not incorporated because they did not agree with the 

detailed information provided to us during our review. In addition, the 

suggestions focused primarily on the principal portion of CFP debts, 

which as we stated at the May 17, 2001, exit conference, overstates 

OSM’s overall collection rates. Further, it does not change our 

conclusion as to the primary reason for OSM’s low collection rates and 

the significant amount of CFP debts that were written off during both 

the 3 years ended in fiscal year 1988 and the 4 years ended in fiscal year 

2000.
Appendix II

Comments From the Office of Surface Mining 

of the Department of the Interior

Page 71 GAO-02-211 OSM's Civil Fines and Penalties Debt

5. OSM modified its calculation method from the one discussed in the 

briefing slides. OSM recalculated its combined annual collection rates 

at approximately 11 percent—4 percent for Title IV and 17 percent for 

Title V—based on only the principal portion of the net assessments 

from the CFP receivables for the 4 years ended in fiscal year 2000. Both 

modified calculation methods used by OSM inappropriately overstate 

its annual collection rates. Each method uses only the new CFP net 

assessments or just the principal portion of new CFP debts and 

inappropriately excludes current CFP debts that are a part of the 

beginning receivable balances and earned interest and late charges on 

the current debts that were recorded during the 4 years ended in fiscal 

year 2000. Regardless of the method used to calculate collection rates, 

the main point remains that each collection rate is low and when the 

same method was applied for both the 3 years ended in fiscal year 1988 

and the 4 years ended in fiscal year 2000, the collection rates were 

similar and did not show any significant increase from one period to the 

other.18

6. The “Primary Reason” section of the briefing slides and report were 

revised and include the changes in the number and amount of the new 

CFP principal assessments from fiscal year 1997 to fiscal year 2000.

7. As stated in the “Scope and Methodology” section, we selected a total 

of 184 open and closed CFP cases from a total of 490 cases. And as 

stated in GAO Comment no. 1, the lack of documentation of the 

collection specialists’ actions for two-thirds of the sampled cases 

prevented us from determining whether there were material instances 

of noncompliance with OSM’s past and present debt collection policies 

and procedures.

8. See “Agency Comments and Our Evaluation” section.

18A comparison of the collection rates for the 3 years ended in fiscal year 1988, based on the 

second modified calculation method, could not be made since the principal portions of net 

assessments recorded during the 3 years were not available.

191001
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