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THE DEBT COLLECTION IMPROVEMENT ACT OF

1996: HOW WELL IS IT WORKING?

HEARING

BEFORE THE

SUBCOMMITTEE ON GOVERNMENT EFFICIENCY,

FINANCIAL MANAGEMENT AND

INTERGOVERNMENTAL RELATIONS

OF THE

COMMITTEE ON

GOVERNMENT REFORM

HOUSE OF REPRESENTATIVES

ONE HUNDRED SEVENTH CONGRESS

FIRST SESSION

DECEMBER 5, 2001

Serial No. 107–102

Printed for the use of the Committee on Government Reform

(

Available via the World Wide Web: http://www.gpo.gov/congress/house

http://www.house.gov/reform

(II)

COMMITTEE ON GOVERNMENT REFORM

DAN BURTON, Indiana, Chairman

BENJAMIN A. GILMAN, New York

CONSTANCE A. MORELLA, Maryland

CHRISTOPHER SHAYS, Connecticut

ILEANA ROS-LEHTINEN, Florida

JOHN M. MCHUGH, New York

STEPHEN HORN, California

JOHN L. MICA, Florida

THOMAS M. DAVIS, Virginia

MARK E. SOUDER, Indiana

STEVEN C. LATOURETTE, Ohio

BOB BARR, Georgia

DAN MILLER, Florida

DOUG OSE, California

RON LEWIS, Kentucky

JO ANN DAVIS, Virginia

TODD RUSSELL PLATTS, Pennsylvania

DAVE WELDON, Florida

CHRIS CANNON, Utah

ADAM H. PUTNAM, Florida

C.L. ‘‘BUTCH’’ OTTER, Idaho

EDWARD L. SCHROCK, Virginia

JOHN J. DUNCAN, JR., Tennessee

——— ———

HENRY A. WAXMAN, California

TOM LANTOS, California

MAJOR R. OWENS, New York

EDOLPHUS TOWNS, New York

PAUL E. KANJORSKI, Pennsylvania

PATSY T. MINK, Hawaii

CAROLYN B. MALONEY, New York

ELEANOR HOLMES NORTON, Washington,

DC

ELIJAH E. CUMMINGS, Maryland

DENNIS J. KUCINICH, Ohio

ROD R. BLAGOJEVICH, Illinois

DANNY K. DAVIS, Illinois

JOHN F. TIERNEY, Massachusetts

JIM TURNER, Texas

THOMAS H. ALLEN, Maine

JANICE D. SCHAKOWSKY, Illinois

WM. LACY CLAY, Missouri

DIANE E. WATSON, California

STEPHEN F. LYNCH, Massachusetts

———

BERNARD SANDERS, Vermont

(Independent)

KEVIN BINGER, Staff Director

DANIEL R. MOLL, Deputy Staff Director

JAMES C. WILSON, Chief Counsel

ROBERT A. BRIGGS, Chief Clerk

PHIL SCHILIRO, Minority Staff Director

SUBCOMMITTEE ON GOVERNMENT EFFICIENCY, FINANCIAL MANAGEMENT AND

INTERGOVERNMENTAL RELATIONS

STEPHEN HORN, California, Chairman

RON LEWIS, Kentucky

DAN MILLER, Florida

DOUG OSE, California

ADAM H. PUTNAM, Florida

JANICE D. SCHAKOWSKY, Illinois

MAJOR R. OWENS, New York

PAUL E. KANJORSKI, Pennsylvania

CAROLYN B. MALONEY, New York

EX OFFICIO

DAN BURTON, Indiana HENRY A. WAXMAN, California

J. RUSSELL GEORGE, Staff Director and Chief Counsel

HENRY WRAY, Senior Counsel

MARK JOHNSON, Clerk

DAVID MCMILLEN, Minority Professional Staff Member

(III)

C O N T E N T S

Page

Hearing held on December 5, 2001 ........................................................................ 1

Statement of:

Engel, Gary T., Director, Financial Management and Assurance, U.S.

General Accounting Office ............................................................................ 12

Gregg, Richard L., Commissioner, Financial Management Service, Department of the Treasury ............................................................................. 29

Moseley, James R., Deputy Secretary, Department of Agriculture .............. 4

Letters, statements, etc., submitted for the record by:

Engel, Gary T., Director, Financial Management and Assurance, U.S.

General Accounting Office, prepared statement of .................................... 14

Gregg, Richard L., Commissioner, Financial Management Service, Department of the Treasury, prepared statement of ...................................... 31

Horn, Hon. Stephen, a Representative in Congress from the State of

California, prepared statement of ................................................................ 3

Moseley, James R., Deputy Secretary, Department of Agriculture:

Memo dated November 2, 2001 ................................................................ 41

Prepared statement of ............................................................................... 8

Schakowsky, Hon. Janice D., a Representative in Congress from the

State of Illinois, prepared statement of ...................................................... 36

(1)

THE DEBT COLLECTION IMPROVEMENT ACT

OF 1996: HOW WELL IS IT WORKING?

WEDNESDAY, DECEMBER 5, 2001

HOUSE OF REPRESENTATIVES,

SUBCOMMITTEE ON GOVERNMENT EFFICIENCY, FINANCIAL

MANAGEMENT AND INTERGOVERNMENTAL RELATIONS,

COMMITTEE ON GOVERNMENT REFORM,

Washington, DC.

The subcommittee met, pursuant to notice, at 10 a.m., in room

2247, Rayburn House Office Building, Hon. Stephen Horn (chairman of the subcommittee) presiding.

Present: Representatives Horn, Ose, and Schakowsky.

Staff present: Henry Wray, senior counsel; Bonnie Heald, deputy

staff director and director of communications; Mark Johnson, clerk;

Jim Holmes, intern; David McMillen, minority professional staff

member; Jean Gosa, minority clerk; and Ellen Rayner, minority

chief clerk.

Mr. HORN. A quorum being present, the Subcommittee on Government Efficiency, Financial Management and Intergovernmental

Relations will come to order.

Today’s hearing is a continuation of this subcommittee’s October

10th hearing concerning implementation of the Debt Collection Improvement Act of 1996. On October 10th, the Deputy Secretaries of

the Departments of Education, Health and Human Services and

Veterans Affairs reported on their agencies’ efforts to comply with

the law and to collect more of the delinquent debts owed to American taxpayers. Deputy Secretary of Agriculture, James Moseley,

was scheduled to testify at that hearing but was unable to attend.

The primary purpose of today’s hearing is to receive Mr. Moseley’s

testimony on the Agriculture Department’s debt collection performance. The Agriculture Department’s compliance with this law is especially important as it is the Federal Government’s largest direct

lending agency. The Department holds over one-third of all Federal

non-tax debt.

The subcommittee will also hear today from the General Accounting Office which has audited debt collection efforts at several

of the Department’s components and from the Treasury Department Financial Management Service which has government-wide

responsibilities under the Debt Collection Improvement Act. GAO’s

findings, as well as our subcommittee’s oversight work, demonstrate that the Agriculture Department has been severely deficient in implementing the Debt Collection Improvement Act’s key

requirements and in taking advantage of the act’s other tools.

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This subcommittee recently wrote to Deputy Secretary Moseley

posing a series of questions about the Department’s debt collection

practices. In his response, Mr. Moseley assured us that the Department is moving forward with a number of actions to improve its

compliance with the law. Today, we will examine the status of

these efforts and we will also explore what barriers to improvement

may exist at the Department and how they can be overcome.

[The prepared statement of Hon. Stephen Horn follows:]

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Mr. HORN. I welcome Mr. Moseley and the other witnesses today.

I look forward to their testimony. Since this is an investigative

committee, we will ask all the members at the table, including assistants, to rise and raise your right hands and take the oath.

[Witnesses sworn.]

Mr. HORN. We will start with the testimony of Mr. Moseley, Deputy Secretary, Department of Agriculture. The way it works, we

have your written statement and we don’t need you to read it but

do summarize and give us whatever you like, whether it is in the

testimony or not. It will be put into the record at this time. Why,

then, don’t we proceed.

STATEMENT OF JAMES R. MOSELEY, DEPUTY SECRETARY,

DEPARTMENT OF AGRICULTURE

Mr. MOSELEY. Thank you, Mr. Chairman.

I want to thank you for the opportunity to discuss the progress

the Department of Agriculture has made in implementing the Debt

Collection Improvement Act of 1996. I want to apologize, Mr.

Chairman, for not being able to attend the first hearing. As you

know, we had a reason of homeland security that took priority immediately preceding that hearing and I was unable to attend. I do

sincerely appreciate your indulgence.

With me today are Chris Burgess and Caroline Cooksey and they

will be helping as we answer some of the questions I know you are

going to have.

First, I want to give a brief summary of the current status of our

Debt Collection Program and then I would like to focus on some

positives I have uncovered in my research on this issue, and finally, some areas I see as deficiencies in our progress to meet the

intent of the act.

Every day the Department of Agriculture’s programs serve those

needing assistance using a diverse array of programs. Many of

these programs include credit initiatives that finance water and

waste management systems, housing, electric, telephone utilities,

rural businesses, farm ownership and operation loans and emergency disaster assistance and relief. These are all programs that

Congress has agreed are important for specific sectors of our economy.

This extensive list of lending programs, however, makes the Department of Agriculture the Federal Government’s single largest

provider of direct credit. Our $103 billion in receivables as of September 10, 2001 represents, as you indicated, 36 percent of the

non-taxed debt owed to the Federal Government. Clearly that is a

large loan portfolio.

The Department of Agriculture, in the past, has used many

available tools to collect delinquent debt and we have had some

success. The Department has reduced our delinquent receivables by

about 29 percent to a current $6.2 billion from $8.7 billion in 1996.

The good news is that this amount equates to a delinquency rate

of about 6 percent compared to the government-wide average of

about 19 percent. It is really not too bad by business standards but

any unpaid loan is a problem for both the creditor and the debtor.

However, of the $6.2 billion, only 25 percent or $1.6 billion, is eligible for collection through Debt Collection Improvement Act tools.

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The remainder, about $4.6 billion, I am told, is precluded from

these tools due to statutory or administrative requirements such as

bankruptcy, litigation or debt owed by foreign or sovereign entities.

In fact, of the $4.6 billion, 74 percent or $3.4 billion is foreign debt

which requires other methods of collection beyond the Department’s current capabilities. That leaves us with the relatively small

amount of our total debt that we can collect via the Debt Collection

Act. However, $1.6 billion isn’t a small amount of money and those

that borrowed that money need, unless true hardship strikes them,

to meet their obligation to pay it back.

As a farmer, I watched with great interest and some reserve during the early 1990’s when efforts were underway to collect some of

the money loaned to farmers during the deep 1980’s agricultural

recession. I was somewhat dismayed when some individuals, a decade later, were not expected to pay it back despite the Federal Government’s best efforts to collect. We paid our Farmers Home Administration loan in 1975 from when we started farming in 1970,

not because we were well off and could but because it was a contract that we had agreed to. Later in 1993, I bought the farm next

door at a sheriff’s auction primarily because the debtor farmer

made no effort for 7 years to make a single payment and the Government finally cleared all the legal hurdles to liquidate and to collect. So I am understanding of the obligation of the debtor to pay

and I respect the right of the creditor to collect. I also continue to

be perplexed over the inability of government to sometimes collect

debts. As a taxpayer, I expect performance on the obligation made

at the time an individual signs a note pledging their commitment

to pay.

During fiscal 2001, the Department of Agriculture agencies col- lected $583 million using internal collection tools. This was primarily liquidation of remaining assets used to secure the loan. Another $287 million was collected using Treasury administrative offset programs and other debt collection improvement tools. I have

been told annual Department of Agriculture collections of delinquent debt using Debt Collection Improvement Act tools have more

than quadrupled since 1996.

As you well know, the Treasury Offset Program is a centralized

debt collection program offered through Treasury to offset delinquent debts against Federal payments to borrowers. The staff at

USDA has told me that the Treasury Offset Program has become

an excellent collection tool for the Department of Agriculture. Our

referrals to that program for fiscal year 2001 were 97 percent.

In addition, the Department of Agriculture’s National Finance

Center worked with Treasury in the development of the government-wide, centralized salary offset process for collecting delinquent employee debt for Federal agencies. The National Finance

Center is serving as the first payroll office in the Federal Government to interface with the Treasury Salary Offset Agency process

applications. The first matching process was completed in September and resulted in an October 2001 completion of the first salary

offset.

This brings us to the cross-servicing mechanism which is the primary process whereby Federal agencies refer delinquent debts to

Treasury for a series of appropriate collection actions after all other

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collection tools have been exhausted. The Department of Agriculture began referring debts to the Treasury Cross Servicing Program in July 1999. We continue to implement this program and I

personally pledge to make substantial progress and improvements

to the program as various Department of Agriculture agency issues

are resolved over the next year.

Now, for some of the problems that I think still remain. Treasury

determined that consumer food stamp debts collected by State

agencies were exempt from mandatory cross-servicing based on

Treasury’s cross-servicing regulations. However, we do send all eligible retailer debts to cross-servicing. The Farm Service Agency refers the vast majority of eligible debts on an annual basis which

corresponds with the loan cycle on farm operating loans, their current system capability and the Internal Revenue Service tax refund

cycle. The Farm Service Agency has committed to me to improve

its systems in order to move aggressively toward automatic quarterly referrals. I have also had discussions with them about once

a loan is in default and all statutory grace periods expire, they will

accelerate their referrals to a monthly cycle. That seems possible

as we improve our information technology systems to better track

these loans.

The main issue is to get these nonperforming loans to Treasury

as soon as possible. Also problematic, due to statute of limitation

issues that had to be resolved between Treasury and the Farm

Service Agency, were experiencing a backlog of cross-servicing referrals that occurred in fiscal year 2001. These issues have been resolved and the eligible backlog is scheduled for referral in the next

two quarters. I will follow-up with them to monitor this progress

and will report that to you, Mr. Chairman and the committee.

Unfortunately, another significant portion of debt that has not

been referred to cross-servicing belongs to Rural Development.

Rural Development’s current referral rate is low, about 7 percent

at the end of 2001 because the agency did not refer debt while a

final determination was being made by Treasury on Rural Development’s request for an exemption from mandatory cross-servicing so

that Rural Development could perform in-house servicing. In May

2001, the request was denied. Subsequently, Rural Development

developed a debt referral schedule which they now operate under.

The history and the nature of this issue isn’t what concerns me

now. It is the past. The issue is what we do about it now and what

performance we can now expect. My discussions with the agency

are that they intend to have this fully functional in 2002. By the

end of fiscal year 2002, close to 60 percent of eligible debt should

be referred to Treasury cross-servicing. The referral timeline is

based on Rural Development performing a detailed account review

to ensure that all requirements for transferring accounts to Treasury are met, including the assurance that the debts are legally enforceable and not under workable servicing agreements.

In summary, this statement reflects the progress the Department

of Agriculture has made in collecting delinquencies. It also represents some difficulties and represents our pledge to you, Mr.

Chairman, and to the subcommittee, that this issue commands the

highest priority and attention of the Department of Agriculture. I

can only pledge to you the commitment of myself as CEO and Ted

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McPherson who is our new CFO, to keep the issue of debt collection

concern before the right people within the Department to assure

that we do it well and we do it right.

I just came from the other side as a private citizen and expect

performance on any obligations to the Federal Government. The

hearing you have called has certainly focused Mr. McPherson and

myself to learn about the responsibilities that we now have and to

learn about the perhaps too longstanding challenges we have acquired at USDA with this issue. We both pledge to commit to get

it right.

Thank you for the little bit of extra time you allowed me in presenting my statement. But it was an expression of commitment and

also, again, your forbearance in rescheduling this hearing.

Thank you.

[The prepared statement of Mr. Moseley follows:]

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Mr. HORN. I appreciate that. I grew up on a farm and we almost

lost it in the 1930’s and my mother, who made all the accounts,

said never again will I ever have a mortgage; it will all be in cash.

When I see on television a sheriff coming out to a South Dakota

farm or something, tears come to my eyes. I am sure they came to

yours with your neighbor. That is very tough but we have to be

doing it right.

We will now move to the Director of Financial Management and

Assurance of the U.S. General Accounting Office, Gary T. Engel.

We would appreciate your testimony. Then we will hear Mr. Gregg

and go to questions.

STATEMENT OF GARY T. ENGEL, DIRECTOR, FINANCIAL MANAGEMENT AND ASSURANCE, U.S. GENERAL ACCOUNTING OFFICE

Mr. ENGEL. Thank you, Mr. Chairman and Congresswoman

Schakowsky.

Accompanying me today is Ken Rupar, the Assistant Director

performing our debt collection work for us.

I am pleased to be here today to discuss debt collection initiatives

at two major components of the Department of Agriculture, the

Rural Housing Service and the Farm Service Agency. While my

testimony today is limited primarily to our work at these two entities, our audit results are based on a larger body of work on which

I testified before the subcommittee in October. That work assessed

the progress of selected agencies’ implementation of key aspects of

the Debt Collection Improvement Act of 1996, which was developed

under the leadership of this subcommittee. It is essential that

agencies be accountable for putting effective practices in place to

maximize the collections of billions of dollars of non-tax delinquent

debt owed the Federal Government.

The DCIA provides agencies with important tools to achieve this

objective. We have previously testified before this subcommittee on

the Government’s slow pace toward fully and effectively using

these practices the act allows. Since its passage 5 years ago, our

message has been clear and consistent. If DCIA’s benefits are to be

more fully realized, improvements are necessary in agency implementation efforts.

While there has been important progress such as FMS implementation of its offset program, especially in the tax refund area,

unfortunately our work over the past several months at selected

agencies, including Agriculture, has not allayed our concerns about

the lack of priority agencies have placed on implementing DCIA.

Besides payment offsets, the DCIA makes available other means to

collect delinquencies as well. These collection techniques include,

for instance, FMS’s centralized debt collection effort known as

cross-servicing but for these efforts to be successful, agencies must

fully and promptly identify and refer all delinquent debt. While

DCIA requires such referrals, this is not always the case as significant amounts of eligible delinquent debts are still not being referred.

As I will highlight today, the Rural Housing Service and the

Farm Service Agency have not yet taken effective actions to ensure

all eligible delinquent debt is promptly referred to FMS for collecVerDate 11-MAY-2000 09:27 Sep 19, 2002 Jkt 000000 PO 00000 Frm 00016 Fmt 6633 Sfmt 6633 C:\DOCS\81653.TXT HGOVREF1 PsN: HGOVREF1
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tion action. For example, Rural Housing Service may have understated by about $348 million the amount of direct single family

housing loans reported as eligible for referral to Treasury’s Offset

Program as of September 30, 2000. Also as of that date, this agency

had not referred any direct single family housing loans for crossservicing primarily because its system which was implemented

after the DCIA was enacted does not contain significant data to differentiate between such loans that are eligible for cross-servicing

and those that are not. The Farm Service Agency did not have a

process or sufficient controls to adequately identify and report direct farm loans eligible for referral to FMS as of September 30,

2000. In addition, as of that date, only $38 million of such loans

were referred to FMS for cross-servicing. This is because this agency suspended its referrals in April 2000 pending the development

and implementation of a new policy covering such loans. According

to Agriculture, the first referral to FMS under this new policy was

made in September 2001. Further, the Farm Service Agency has

lost and continues to lose opportunities for maximizing collections

because it does not refer co-debtors on direct farm loans to FMS for

offset. Moreover, the Rural Housing Servicing and the Farm Service Agency both have missed opportunities to potentially collect

millions of dollars related to losses on guaranteed loans because

neither agency treated such losses as non-taxed Federal debts.

To facilitate debt collection, DCIA also authorizes agencies to administratively garnish up to 15 percent of a delinquent, non-tax

debtor’s disposable pay until the debt is fully recovered. However,

Agriculture and most other agencies still have not utilized this authority to collect delinquent debt. This is disappointing in light of

the fact that experts have testified before this subcommittee that

wage garnishment can be an extremely powerful debt collection

tool as the mere threat of garnishing wages is often enough to motivate better repayment.

Agriculture stated that it plans to implement administrative

wage garnishment in fiscal year 2002 but as of the completion of

our field work, it had not yet established a written implementation

plan. Such a plan will be important to the effective implementation

of this debt collection tool. Challenges lie ahead for Agriculture to

successfully implement certain provisions of DCIA. As a result,

until these provisions are fully implemented, Agriculture will continue to miss opportunities to collect millions of dollars of delinquent Federal non-taxed debt. We have noted that these agencies

recognize the challenges they face and have several efforts underway to address them. To assist them in addressing these challenges, we plan to recommend corrective measures that can be

taken by Agriculture.

Mr. Chairman, this concludes my statement. We would be

pleased to respond to any questions.

[The prepared statement of Mr. Engel follows:]

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Mr. HORN. Thank you very much for a very thorough analysis.

Now we go to Commissioner Richard L. Gregg, Financial Management Service, Department of the Treasury. Mr. Gregg.

STATEMENT OF RICHARD L. GREGG, COMMISSIONER, FINANCIAL MANAGEMENT SERVICE, DEPARTMENT OF THE TREASURY

Mr. GREGG. Thank you, Mr. Chairman, Congresswoman

Schakowsky.

I am pleased to join Agriculture Secretary Moseley and Mr.

Engel from the General Accounting Office in a continued discussion

of the implementation of the Debt Collection Improvement Act of

1996. In my October 10th statement before the subcommittee, I reported on fiscal year 2001 collections, described the significant new

elements of FMS’s Debt Collection Program and provided a status

report on those that are near completion. This morning I will share

the most recent data on collections and discuss the Department of

Agriculture’s participation in debt collection. As I stated at the October 10th hearing, $12 million in delinquent debt owed to the Federal Government has been collected

since the enactment of DCIA, with a record amount of $3.2 billion

collected in fiscal year 2001. I attribute this success to a strong and

effective payment offset and cross-servicing operation and expansion of the capabilities of collection systems, improved management

by the agencies that have debt portfolios and a steady increase in

the amount of delinquent debt referred to Treasury for collection by

agencies. For purposes of this hearing, I will provide collection statistics for the first 2 months of fiscal year 2002 that highlight continued growth in the offset and levy programs. During this time period during November, $16.2 million has been

collected to the offset of Federal payments other than tax refunds.

This compares to $25.3 million in collections for all of fiscal 2001.

The full implementation of the Social Security Benefit Payment

Offset Program in October accounts for the significant increase in

offset collections. Also, in the first 2 months of fiscal year 2002,

$2.8 million has been collected in delinquent Federal tax debts

through the continuous Tax Levy Program. For the same reporting

period in fiscal year 2001, $1 million was collected. I believe these

statistics are a strong indication that the levy program will be even

more successful in February at which time the Internal Revenue

Service will begin levying Social Security benefit payments.

Mr. Chairman, before proceeding with the remainder of my statement, I would like to give a brief update on Treasury’s use of private collection agencies for debt collection. Treasury successfully

implemented a new contract that went into effect October 1st.

Since that time, nearly 45,000 debts for an associated dollar

amount of nearly $831 million have been distributed to five agencies under contract.

As you know, critical to the success of the Debt Collection Program is the referral of delinquent debt by agencies to Treasury for

collection. Moreover, referring the debts in a timely manner is

equally important and can make the difference between collecting

and not collecting. With respect to referrals of debts to the Treasury Offset Program, USDA has generally complied with the DCA

30

requirements that debts more than 180 days delinquent be referred

for collection. Specifically, I would like to single out and commend

USDA’s Food and Nutrition Service with which Treasury has had

a longstanding and close working relationship. The agency is exemplary in its referral of Food Assistance Program debts owed to the

agency and serves as a model for other program agencies.

On another front, as mentioned earlier, USDA is the first major

payroll payment processing organization, of which there are five, to

participate in the centralized Federal Salary Offset Program. As I

stated at the October hearing, this debt collection program is a

fully automated system designed to centralize the offset of Federal

salary payments to collect non-tax debts and delinquent child support debts. Ultimately, the system will be used to levy Federal salary payments to collect tax debts. USDA’s National Finance Center

participated in the pilot program, was closely involved in the system planning and development and has established itself as a leader in program implementation.

In contrast, USDA’s participation in Treasury’s Cross-Servicing

Program has lagged behind other agencies. Based on data supplied

by USDA as of September 30th, 22 percent of Agriculture’s delinquent that are eligible for collection have been referred to Treasury. The government-wide average for cross-servicing referrals is

73 percent. Participation by two USDA agencies in particular, the

Farm Service Agency and the Rural Housing Service, is marginal

at best. While the USDA has provided several reasons for this low

rate of referral, I believe any barriers to participation can be overcome providing it is a USDA priority.

Currently, FMS is in discussions with Agriculture to establish

ambitious cross-servicing referral goals for fiscal year 2002 for both

RHS and FSA. FMS will assist Agriculture in developing individual

DCIA implementation plans and will closely monitor debt performance indicators devoting special attention to identify all debts eligible for referral.

On the subject of administrative wage garnishment, USDA has

stated its intentions to authorize use of this important tool as part

of the cross-servicing program. I encourage the Department of Agriculture to work with Treasury on developing a plan to take full advantage of this collection process. It is important to note, however,

that a significant percentage of USDA’s delinquent portfolio, such

as Food Stamp Program debts, is exempt from cross-servicing by

Treasury and is therefore not eligible for collection through Treasury’s Administrative Wage Garnishment Program.

I will conclude my remarks by stating that Treasury stands

ready to work with USDA to overcome the barriers to program participation. I believe that by working together we can greatly improve debt collection performance.

I would be happy to answer any questions.

[The prepared statement of Mr. Gregg follows:]

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Mr. HORN. Thank you very much.

Since you came out of South Dakota, I wondered, do you have a

farm in your background?

Mr. GREGG. Yes, more ranching than farming where I grew up

but I certainly understand the situation with the loans and the repayments, and I have seen many farms sold.

Mr. HORN. I am going to yield for 10 minutes to the ranking

member, Ms. Schakowsky because she has another subcommittee

going on and also she would like to read her statement into the

record.

Ms. SCHAKOWSKY. Thank you, Mr. Chairman.

I apologize to these witnesses today. There is a subcommittee

hearing of the same committee going on and another in another

room that I have to be at as well. I would like to orally make my

comments to the record.

I want to thank all of you who took time out of your busy schedules to appear before our committee today.

Today, we are focusing on debt collection in the Department of

Agriculture. I would like to reiterate the cautions that I raised at

the last hearing. The Debt Collection Improvement Act was passed

in the middle of an expanding economy at a time when debt collection was somewhat easier. It is unfortunate that the agencies have

not moved more quickly to implement the provisions of that act.

Those provisions will be less effective in the coming months I fear.

As the economy slumps, the effect ripples through the government.

Tax revenue goes down because businesses and individuals are

earning less; debt goes up as individuals struggle to make ends

meet. Those of you who are testifying before the subcommittee, I

am sure, realize that your job will become increasingly difficult as

a result.

When the President was promoting his $2 trillion tax cut, there

were many of us who criticized that effort, saying the tax cuts

would leave us without the resources necessary to respond to emergencies. Now we have had an emergency and the spending in response to that emergency coupled with the recession threatens to

compromise funding for important domestic priorities like housing,

healthcare, school modernization and prescription drug coverage

for seniors. Our commitment to these domestic programs will be

tested in the difficult budgetary times that lie ahead. There are

calls for increased defense spending both in the United States and

abroad; the President has created a new Cabinet level office for

Homeland Security that must be funded; and the President is calling for new tax cuts which I believe do little to stimulate the economy.

I fully support increased spending for domestic security. However, we can pay for those increases without sacrificing our critical

national priorities. My bill, H.R. 2999, the First Things First Act,

is a blueprint for doing just that. The work your agencies do in collecting the debt will make some of these tradeoffs unnecessary.

In closing, I would make one comment on the priorities shown

in the reports of the Department of Defense. Though it is not the

focus of this hearing today, DOD has moved quickly to collect debt

from the men and women who have retired from the Armed Forces

or worked in a civilian capacity; 100 percent of the delinquent debt

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from those individuals has been referred for collection. I find it

shameful that the Department has at the same time moved slowly

to collect delinquent debt from contractors, referral contractor debt

will not begin until the end of this month.

Again, Mr. Chairman, I thank you for calling this hearing. I look

forward to working with you on this issue and again, I apologize

for having to bop in and out. I appreciate your testimony.

Thank you.

[The prepared statement of Ms. Schakowsky follows:]

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Mr. HORN. Thank you.

We will now go to the questioning. We will begin with Secretary

Moseley.

The General Accounting Office testified that the Agriculture Department had not really demonstrated a sense of urgency. I realize

you are new to the administration and you said to us that basically, you want to turn that around. When it comes to implementing the Debt Collection Improvement Act, what are you doing to

supply a sense of urgency to the Department and its component

over the need to comply with the Act? Just summarize that.

Mr. MOSELEY. Mr. Chairman, first of all, as you indicated, we

just arrived on the scene and are just finding out about the responsibilities was enlightening to me. Within the Department, we have

made a major commitment to improving management. I come to

the Department with a business background. Our CFO, Ted

McPherson, who is with me today, comes to the Department with

a business background. We have a deep understanding of the need

for the Department of Agriculture to operate as a business. That

requires improved management practices which we are going to undertake.

As a matter of principle, I am also on the President’s Management Council at the deputy level and I can share with you conclusively that every meeting we have of that council, and I have one

this afternoon, we talk about management across government and

there is a strong commitment from this administration to improve

that management.

That takes us to some of the issues of management within the

Department and they are diverse and broad. One of those that became apparent to me as a result of your questioning and preparation for the hearing was the Debt Collection Act and what we were

doing in that regard. So practically everyone here with me today

has sat in a room twice now and discussed this issue. Mr. McPherson and I have gotten together and both agreed to being committed

to making sure that we do this and do it correctly.

There are some recommendations that he is going to bring forward that I think are going to have a significant improvement.

Quite frankly, my comment to him was I don’t know what all those

recommendations really mean but in my position, I just want it

fixed. He said, we will get it fixed.

Mr. HORN. Well, that is good but do you have a particular compliance date when you think most of these things will be done?

Mr. MOSELEY. I believe we will be able to accomplish most of this

in 2002. That comes from discussions with the people that are currently working in this area, sitting around the table and reviewing

it. We have made substantial progress. I would make a note that

the GAO report is as of September 2000; this is December 2001

and there has been significant progress made. Those actions that

have been undertaken will be and are being implemented as we

speak. We will see the benefit of that in 2002. I expect a significant

improvement during next year.

Mr. HORN. I have been impressed with the President’s commitment to management. That hasn’t been done in most departments

over the last 30 years. He is serious. The Director of OMB goes to

the Deputy Secretaries to make sure that happens. That is why

38

those of you with backgrounds in management are in those positions. So you think, what, January 2002 basically, the Department

will know on these various components and their compliance with

the Debt Collection Improvement Act?

Mr. MOSELEY. If you are going to make me make a promise of

a specific time, I am going to hedge just a little bit and move that

back to say January 2002, that worries me, but during 2002, we

can get this done. It will be a process. This is not something that

we will just walk in and say, as of today we have everything accomplished. It will be step by step but I can commit that we will

follow this step by step so that at the end of 2002, you will see a

much different situation than what you do today.

Mr. HORN. You are talking about the fiscal year or the calendar

year?

Mr. MOSELEY. Calendar year.

Mr. HORN. Calendar year. So you are saying that December 31,

2002?

Mr. MOSELEY. Yes.

Mr. HORN. What specific Results Act performance goals and

measures have the Rural Housing Service and the Farm Service

Agency established to improve their debt collection performance?

Has that occurred?

Mr. MOSELEY. I have been told that there are goals that are registered in the agency’s strategic plans and that those goals are an

intent to comply with the Debt Collection Improvement Act. I also

understand that the agency managers have performance goals in

their performance evaluation. I believe those steps have been taken

but in our discussions of this, and as we look ahead at some of the

changes we are going to make, there will be very specific job descriptions related to overseeing this particular activity. At that

point in time, then I know we will have those things well stated

and that there will be numeric goals that will be established that

will we will move on.

Mr. HORN. I looked yesterday at some very interesting charts

with OMB and I assume that from their standpoint it won’t just

be budget review, it will be management review. They assure me

that there is a very real commitment to that particular approach

and it will be a part of the President’s budget as it goes in. That

normally is done in late January-February and obviously with the

May renewal, that is another chance to get on top of this situation.

The budget people will have to also get with management people

because we are serious here and they are serious in the White

House, thank heavens.

According to the General Accounting Office, neither the Rural

Housing Service, nor the Farm Service Agency, has automated systems with sufficient data to distinguish those debts that are eligible for referral to Treasury from those that are not. What are you

doing to fix this basic problem and when will that be completely

fixed?

Mr. MOSELEY. I am going to turn to my two counterparts here

to help me on this but my understanding is that FSA doesn’t have

that capability now and Rural Housing indicates they will have

that capability in April as some new IT technology comes online.

Mr. HORN. This is April 2002?

39

Mr. MOSELEY. 2002.

Ms. BURGESS. The Rural Housing Service is currently working to

enhance their dedicated loan origination system to be able to identify debts after they have completed all the required borrower servicing that can be referred to Treasury taking into account various

State laws that do offer homeowners certain rights like redemption

rights, being able to come back and get their home a year after

foreclosure if they can share the debt.

In addition, they need to automate their system so that the caller

feature, we have automatic call dialing, that we will no longer be

contacting those borrowers after they are referred to Treasury, so

once again we can comply with the law. Those changes will be implemented in April 2002 and at that time, all debt qualifying for

cross-servicing at that point on and forward will be automatically

referred.

Mr. HORN. So you feel confident then?

Ms. BURGESS. Yes.

Mr. HORN. Most of the Department’s delinquent data is excluded

from referral to the Treasury under the Debt Collection Improvement Act and the exclusions amounted to $4.6 billion out of a total

of $6.2 billion for fiscal year 2001. However, the General Accounting Office has raised a number of questions about the accuracy of

your exclusions. What are you doing to ensure that exclusion determinations are correct and up-to-date?

Mr. MOSELEY. Let me take a crack at that and then I may need

some help on this one. First of all, I would say the majority, which

is $3.5 billion of the excluded debt, is foreign and it is my understanding that is off the table or it happens to be debt that is collected via statutorily required mechanisms. In other words, it is in

some state of liquidation. If there is not proper documentation of

that debt by the agency at the time of an audit, that is a problem

that must be addressed. I would understand that is difficult, tracking this by the paper trail. However, I would think the newer, computerized tracking systems would allow that.

Mr. OSE [assuming Chair]. Deputy Secretary Moseley, if I might

follow-up on Chairman Horn’s question, as I understand your letter

to us, the Department does not plan to conduct a systematic, independent verification of its exclusions per the recommendation of

the General Accounting Office. What is the rationale behind that

decision?

Mr. MOSELEY. We are looking at an independent verification. Obviously the agency cannot do that themselves and what we are

doing is looking at OIG as a possible resource to do that. In fact,

I have a letter here indicating OIG has been notified. One of the

real problems I have as Deputy Secretary, and particularly in this

time of homeland security issues, is that our OIG is absolutely

overwhelmed in terms of the workload they have. So it is going to

be very difficult, quite frankly, for them to get to these kinds of

issues in a timely fashion. I talked with Mr. McPherson on this

issue and we would certainly consider the option of going outside

40

to some kind of private sector entity that could provide that verification.

Mr. OSE. Would you like to enter that letter into the record?

Mr. MOSELEY. Yes.

[The information referred to follows:]

41

42

Mr. OSE. The FSA has delinquent loans on which the documents

list co-debtors and it seems to us that FSA loses the opportunity

to collect on those loans because it does not refer the names of

those co-debtors to Treasury. That is largely a reflection of the data

systems having not been programmed to accept taxpayer ID number for more than one debtor on each loan. We have been aware

of the problem since 1986 but it is not scheduled to be fixed until

2005. Is that correct?

Mr. MOSELEY. I frankly had the same question in this regard.

What I found out was, first of all, I think this was a mistake made

at the beginning of the particular program where there wasn’t a

recognition by FSA that the co-signature on those particular loans

had the level of liability for that loan they should have had, so

there weren’t provisions made. While they were co-signatures, they

didn’t have all the information or data available in order to really

pursue the cosigner of the note. That was an error that has been

recognized. My understanding, and I will ask for verification on

this, is the target date is not any longer 2005 but December 2002.

Mr. OSE. So a year from now?

Mr. MOSELEY. Yes. I thought this has to be fairly simple and yet

I found out that as we know, nothing in government is simple and

all of a sudden we recognize as we upgrade our IT systems, we are

making the necessary changes for us to be able to accomplish this.

Clearly, I think it was an oversight early on. It is being fixed.

Mr. OSE. I can tell you, having been a borrower with other partners on the line, the lender doesn’t have any compunction about

calling the subsequent names, so we shouldn’t either.

Mr. MOSELEY. I have been one of those cosigners myself and I

do understand the circumstances. I have been called as well.

Mr. OSE. The lesson in all that is to have 50 percent plus 1.

I think we are going to recess so we can vote. We have 8 minutes

and a vote, then we have two 5 minute votes. We will recess until

that time at which point Chairman Horn will be back, if you will

be patient with us.

[Recess.]

Mr. HORN. The recess is over.

Commissioner Gregg, I am going to make sure you are out of

here. You have another commitment. Let me ask you a few things.

What specific suggestions can you offer the Department of Agriculture on how to make better use of the Debt Collection Improvement Act?

Mr. GREGG. I think one thing I mentioned several times is to

make sure the documentation for the debts is accurate and referred

to us as quickly as possible, especially in the cross-servicing area.

Also, I think all of us have struggled with the systems issues. In

some cases, I think they are short-term solutions, may not be the

ideal solution but look at some things that could be done in the

shorter period of time. I was really encouraged by the reference

earlier to moving along quickly the idea of when you have two

debtors being able to do something perhaps by the end of next year,

things like that, taking a fresh look at issues and working out

maybe short-term solutions even though you know it is not the

ideal.

43

Mr. HORN. Was Secretary O’Neil familiar with this particular

law and is he going to have a letter for his colleagues?

Mr. GREGG. He is very familiar with the law. I briefed him on

it several months ago and we talked about the progress being made

and also the challenges. If you think it was helpful, we could go

back and suggest a letter going to other department heads to reemphasize the importance.

Mr. HORN. I think Secretary Rubin did that, didn’t he?

Mr. GREGG. Yes, he did.

Mr. HORN. I am sure the Secretary would be glad to do this. Do

you see any conflicts between the agriculture program statutes and

the Debt Collection Improvement Act requirements, and if so, what

conflicts do you see that needs to be resolved?

Mr. GREGG. One of the requirements in the DCIA is to refer

debts that are delinquent within 180 days after they become delinquent. I think in some cases, as mentioned earlier, some of the

servicing requirements for the loans may well take longer to go

through that entire process. The only thing I would say, without

trying to be an expert in the loan portfolios of Agriculture, is as

quickly as possible, to go through those processes to get the debts

referred to us.

Mr. HORN. Thank you. I will move to Mr. Engel now on behalf

of the General Accounting Office.

You have identified major deficiencies in the Agriculture Department’s compliance with the Debt Collection Improvement Act. In

your judgment, what key steps should be taken by the Department

to correct those deficiencies?

Mr. ENGEL. I would say one of the key steps is to have top level

management’s commitment and to share that throughout the entity. I was encouraged by the remarks that we have heard today

from Agriculture because it seems we have that type of commitment in place now. In addition, as we have talked about, some of

these areas that need to be corrected do involve system enhancements which many times are more longer term type fixes. In the

interim, we think there is going to need to be some corrective action taken which may actually involve manual procedures. Based

upon some of the dates that we were hearing today, likely some of

those manual procedures will have to take place while the system

enhancements are being finalized.

I think also from an accountability standpoint, we talked a bit

earlier about performance measures. I think that is important in

a situation like this to hold individuals at the senior management

level accountable for meeting particular performance measures and

goals, and enforcing that.

The last thing I would probably say to reiterate Mr. Gregg’s comment is that it is encouraging to hear that the Inspector General’s

Office, or if it ends up having to be a public accounting firm, will

come in and look at the propriety of the exclusions. That is something we actually recommended and worked with FMS about 11⁄2

years ago to try to have done at a lot of the large agencies because

we do have the concern that there are significant amounts of debt

being reported as excluded but there is no independent verification

being done on those. So we are encouraged by the efforts of AgriVerDate 11-MAY-2000 09:27 Sep 19, 2002 Jkt 000000 PO 00000 Frm 00047 Fmt 6633 Sfmt 6633 C:\DOCS\81653.TXT HGOVREF1 PsN: HGOVREF1
44

culture to take that on and would be interested to see the results

of those.

Mr. HORN. I take it Mr. Secretary that you will be able to deal

with the Rural Housing Service and the Farm Service Agency because apparently they haven’t really seen and put it as their priority for debt collection. What is your feeling on that? How do you

feel about Mr. Gregg’s organization as well as the GAO?

Mr. MOSELEY. I think there is a spirit of cooperation here and

I guess that maybe is a significant point that needs to be made.

It is obvious to me coming in that there have been some difficulties

in the past. There have been some challenges, some disputes, disagreements which I think have been taken care of, have been resolved. We are really interested in moving from this point forward.

We are making the commitment to look at these issues and try and

resolve them. Quite frankly, I was fairly satisfied with the responses I got from the agencies in terms of the things they recognized as problems and the way in which they were addressing

those problems and trying to bring them to the table and put some

finality, so my expectation is with the help of Treasury and the

continued commitment to communicate if there are difficulties as

they arise, we will be able to accomplish what I know needs to be

done.

Mr. HORN. Do you have opportunities to talk to the Secretary?

Has she been briefed about this act?

Mr. MOSELEY. The Secretary is well aware of the fact that I had

this hearing; she is aware of the responsibilities. The Secretary was

also Deputy Secretary a few years ago, so she had some recognition

of the debt collection difficulties of the Department because they go

back a number of years even before the act was passed. So yes, the

Secretary is aware of the responsibilities that we have here.

Mr. HORN. Mr. Engel, you mentioned you reviewed the Deputy

Secretary’s October 31 letter to the subcommittee responding to our

questions. Are you satisfied from his responses that the Department is on top of its debt collection problems? Could you provide

for the record your analysis of his specific responses to the extent

that they will relate to areas the General Accounting Office has reviewed?

Mr. ENGEL. Yes, we did look at that letter. I would say in general

most of the points made in the letter were consistent with our testimony. In some areas where it maybe was not as clear as far as

the actions that were going to be taken to meet some of the dates,

I think today we are hearing a little more about when some of

these dates are that the corrective actions will be taking place.

As related to a more detailed analysis, if you like, we could do

that. I would point out that we are in the process of preparing reports on our work and there will be a separate report that will go

to FSA and one to RHS, on which the agency will have an opportunity to comment. That may be one avenue for us to be able to

get our views back and forth. That will be a public document that

will be shared with you.

Mr. HORN. We will leave an opening at this point in the hearing

and have the letter of the Deputy Secretary and your answers to

that.

45

Are you going to say where it is not fully compliant and in other

parts, is compliant just so we know what GAO thinks of it?

Mr. ENGEL. OK.

Mr. HORN. Most of the Agriculture Department’s delinquent debt

is not subject to referral to Treasury under the Debt Collection Improvement Act. What would the Department do to improve its own

collection efforts for those debts that never reach the Treasury?

Mr. ENGEL. Some of the debts that are excluded are for various

reasons. I think we mentioned foreign debts. I think the things

that should be focused on would be those type of debts that do not

fit into an exclusion category under the DCIA and to establish as

soon as possible what the validity of those debts are, and then look

at past experiences as to collection tools which ones they have had

the most success with, look for opportunities where things such as

administrative wage garnishment which we believe is potentially a

very powerful tool, as well as referring over debts if allowable to

the offset program which has also been a very successful program.

The act calls for eligible debts to be referred over after 180 days.

However, it does not exclude debts to be referred sooner than that.

In some cases, I think agencies should take a look at their in-house

operations and if they believe the referral at an earlier date would

make the most sense, to go ahead and do that.

Mr. HORN. Any response on your part, Mr. Gregg, on all of that?

Mr. GREGG. We do have some agencies, Food and Nutrition from

Agriculture actually refers debts to us sooner than that. I think the

point on taking advantage of the offset program is a good one.

Sometimes the perception is that only happens in March and April.

As we showed this past year with the tax rebate payments, we had

language included in that to do offsets. We collected $470 million

in delinquent debt as a result of the tax rebate program. It is a

year round viable program now and we certainly encourage agencies to take advantage of it and more of them are doing so.

Mr. HORN. Is there a need to have some other bits of language

on there to make it broader if we are leaving out various agencies?

Mr. GREGG. I don’t think so. I keep worrying about DCIA expanding. We have a lot of flexibility to do what we need to do

under the current legislation. There are a few things that we may

be proposing to expand, but they are fairly limited. I think one of

the areas we feel we could maybe expand a bit would be expanding

what debts might be eligible for collection for child support. We

have collected a lot of money over the years in delinquent child

support debt. There is a category or two we think it might make

sense to expand the DCIA to include that but they are pretty limited and specific things. I think generally it is broad enough for us

to cover what we need to cover.

Mr. HORN. When we first had that signed by the President, the

Commissioner of Revenue in Massachusetts called me the morning

that happened and said, you have just made my day. This was in

relationship to the individuals that had run from one State to the

other not paying their alimony. Is there much usage of that?

Mr. GREGG. In the last 2 years, we have collected $1.3 billion

each year in delinquent child support payments. Actually, it was

greater than that this past year because of the tax rebate. I forget

exactly how much that was, probably a couple hundred million adVerDate 11-MAY-2000 09:27 Sep 19, 2002 Jkt 000000 PO 00000 Frm 00049 Fmt 6633 Sfmt 6633 C:\DOCS\81653.TXT HGOVREF1 PsN: HGOVREF1
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ditional from the tax rebate. Our working relationship with HHS

is a very good one. I think the people who work in the debt area

in FMS are committed to collecting all the debt but when you see

them going back for that program, I think it is a special point of

pride.

With your permission, Mr. Chairman, I have to leave. I appreciate your willingness to allow me.

Mr. HORN. Thank you for staying. Just remember I did say you

were released a half hour ago. Thank you and thank your staff for

the good work they do.

I want to thank all of the witnesses here today. It appears the

Department still has a long way to go to bring debt collection performance up to par but I have every hope that under the Deputy

Secretary’s leadership and the administration’s commitment toward improving financial management practices in the executive

branch, we will see in the next few months a great improvement

and in the ensuing year.

We thank you very much for coming. I would like to read into

the record for both the majority and the minority the members that

put together this particular hearing: J. Russell George, the staff director, chief counsel, who is out busy; Henry Wray on my left, senior counsel; Bonnie Heald, deputy staff director and director of

communications against the wall there; Mark Johnson, clerk, who

has a tough job because he has to make sure all transcripts are

right and everything else—and we didn’t put these microphones in

but we are sort of in the early part of the 20th century with the

system; Jim Holmes, intern; David McMillan, professional staff

member for the Democrats and Jean Gosa, minority clerk and our

court reporters, always a tough job to do with the microphones and

all the rest. Arthur Emmerson, we thank you.

We are now in adjournment.

[Whereupon, at 11:41 a.m., the subcommittee was adjourned, to

reconvene at the call of the Chair.]

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