U.S. GOVERNMENT PRINTING OFFICE

WASHINGTON : 

For sale by the Superintendent of Documents, U.S. Government Printing Office

Internet: bookstore.gpo.gov Phone: toll free (866) 512–1800; DC area (202) 512–1800

Fax: (202) 512–2250 Mail: Stop SSOP, Washington, DC 20402–0001

44–176 CC 1997

IMPLEMENTATION OF THE DEBT COLLECTION

IMPROVEMENT ACT OF 1996

HEARING

BEFORE THE

SUBCOMMITTEE ON GOVERNMENT MANAGEMENT, 

INFORMATION, AND TECHNOLOGY

OF THE

COMMITTEE ON 

GOVERNMENT REFORM 

AND OVERSIGHT 

HOUSE OF REPRESENTATIVES

ONE HUNDRED FIFTH CONGRESS

FIRST SESSION

APRIL 18, 1997

Serial No. 105–45

Printed for the use of the Committee on Government Reform and Oversight

(

(II)

COMMITTEE ON GOVERNMENT REFORM AND OVERSIGHT 

DAN BURTON, Indiana, Chairman 

BENJAMIN A. GILMAN, New York 

J. DENNIS HASTERT, Illinois 

CONSTANCE A. MORELLA, Maryland 

CHRISTOPHER SHAYS, Connecticut 

STEVEN SCHIFF, New Mexico 

CHRISTOPHER COX, California 

ILEANA ROS-LEHTINEN, Florida 

JOHN M. MCHUGH, New York 

STEPHEN HORN, California 

JOHN L. MICA, Florida 

THOMAS M. DAVIS, Virginia 

DAVID M. MCINTOSH, Indiana 

MARK E. SOUDER, Indiana 

JOE SCARBOROUGH, Florida 

JOHN B. SHADEGG, Arizona 

STEVEN C. LATOURETTE, Ohio 

MARSHALL ‘‘MARK’’ SANFORD, South 

Carolina 

JOHN E. SUNUNU, New Hampshire 

PETE SESSIONS, Texas 

MICHAEL PAPPAS, New Jersey 

VINCE SNOWBARGER, Kansas 

BOB BARR, Georgia 

ROB PORTMAN, Ohio 

HENRY A. WAXMAN, California 

TOM LANTOS, California 

ROBERT E. WISE, JR., West Virginia 

MAJOR R. OWENS, New York 

EDOLPHUS TOWNS, New York 

PAUL E. KANJORSKI, Pennsylvania 

GARY A. CONDIT, California 

CAROLYN B. MALONEY, New York 

THOMAS M. BARRETT, Wisconsin 

ELEANOR HOLMES NORTON, Washington, 

DC 

CHAKA FATTAH, Pennsylvania 

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 

HAROLD E. FORD, JR., Tennessee 

———

BERNARD SANDERS, Vermont 

(Independent) 

KEVIN BINGER, Staff Director 

DANIEL R. MOLL, Deputy Staff Director 

JUDITH MCCOY, Chief Clerk 

PHIL SCHILIRO, Minority Staff Director 

SUBCOMMITTEE ON GOVERNMENT MANAGEMENT, INFORMATION, AND TECHNOLOGY

STEPHEN HORN, California, Chairman 

PETE SESSIONS, Texas 

THOMAS M. DAVIS, Virginia 

JOE SCARBOROUGH, Florida 

MARSHALL ‘‘MARK’’ SANFORD, South 

Carolina 

JOHN E. SUNUNU, New Hampshire 

ROB PORTMAN, Ohio 

CAROLYN B. MALONEY, New York 

PAUL E. KANJORSKI, Pennsylvania 

MAJOR R. OWENS, New York 

ROD R. BLAGOJEVICH, Illinois 

DANNY K. DAVIS, Illinois 

EX OFFICIO

DAN BURTON, Indiana HENRY A. WAXMAN, California 

J. RUSSELL GEORGE, Staff Director and Chief Counsel 

MARK BRASHER, Professional Staff Member 

JOHN HYNES, Professional Staff Member 

ANDREA MILLER, Clerk 

DAVID MCMILLEN, Minority Professional Staff Member 

MARK STEPHENSON, Minority Professional Staff Member 

(III)

C O N T E N T S 

Page 

Hearing held on April 18, 1997 .............................................................................. 1

Statement of: 

Adams, Mitchell, commissioner, Massachusetts Department of Revenue ... 34

Catlett, D. Mark, Assistant Secretary for Management and Chief Financial Officer, Department of Veterans Affairs .............................................. 134

David, Ted, Chief Financial Officer, Department of Agriculture ................. 98

Donovan, Anne, Office of Child Support Enforcement, Department of 

Health and Human Services ........................................................................ 146

Hawke, John D., Jr., Under Secretary, Department of Treasury ................. 59

Koskinen, John, Deputy Director, Office of Management and Budget ........ 47 

McNamara, Steven, Assistant Inspector General for Audit, Department 

of Education ................................................................................................... 111

Murphy, Gerald, Assistant Fiscal Secretary, Department of Treasury ....... 65

Summers, Lawrence, Deputy Secretary, Department of Treasury .............. 10

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

Adams, Mitchell, commissioner, Massachusetts Department of Revenue, 

prepared statement of ................................................................................... 37

Catlett, D. Mark, Assistant Secretary for Management and Chief Financial Officer, Department of Veterans Affairs: 

Information concerning balance sheets ................................................... 159

Information concerning collection agencies ......................................... 161, 162

Information concerning referring debt .................................................... 162

Prepared statement of ............................................................................... 136

David, Ted, Chief Financial Officer, Department of Agriculture, prepared 

statement of ................................................................................................... 101

Donovan, Anne, Office of Child Support Enforcement, Department of 

Health and Human Services, prepared statement of ................................. 149

Hawke, John D., Jr., Under Secretary, Department of Treasury, prepared 

statement of ................................................................................................... 62

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

California: 

Letter dated April 14, 1997, from Mr. Rubin .......................................... 79

Letter dated May 27, 1997, from Mr. Murphy ........................................ 93

Prepared statement of ............................................................................... 3

Wall Street Journal article of March 11, 1997 ....................................... 113

Koskinen, John, Deputy Director, Office of Management and Budget, 

prepared statement of ................................................................................... 50

Maloney, Hon. Carolyn B., a Representative in Congress from the State 

of New York: 

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

September 21, 1996, New York Times op-ed .......................................... 6

McNamara, Steven, Assistant Inspector General for Audit, Department 

of Education, prepared statement of ........................................................... 117

Murphy, Gerald, Assistant Fiscal Secretary, Department of Treasury, 

prepared statement of ................................................................................... 68

Summers, Lawrence, Deputy Secretary, Department of Treasury, prepared statement of ........................................................................................ 14

(1)

IMPLEMENTATION OF THE DEBT 

COLLECTION IMPROVEMENT ACT OF 1996

FRIDAY, APRIL 18, 1997 

HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON GOVERNMENT MANAGEMENT, INFORMATION, AND TECHNOLOGY, COMMITTEE ON GOVERNMENT REFORM AND OVERSIGHT, Washington, DC. 

The subcommittee met, pursuant to notice, at 9:30 a.m., in room 

2154, Rayburn House Office Building, Hon. Stephen Horn (chairman of the subcommittee) presiding. 

Present: Representatives Horn, Sessions and Maloney. 

Staff present: J. Russell George, staff director and chief counsel; 

Mark Brasher and John Hynes, professional staff members; Andrea 

Miller, clerk; and David McMillan and Mark Stephenson, minority 

professional staff members. 

Mr. HORN. The Subcommittee on Government Management will 

come to order. 

Nearly 1 year ago, Congress passed and the President signed 

into law the Debt Collection Improvement Act of 1996. This important law was sponsored by myself and Mrs. Maloney, the ranking 

Democrat on the subcommittee. It changed the rules of the game 

for debt collection. By providing agencies with new tools and incentives to increase collections, Congress hoped to improve the Federal 

Government’s dismal debt collection performance. 

What are the results so far? Currently, the total of delinquent non-tax debts is $51 billion. The Treasury Department’s Financial 

Management Service has spent $20 million implementing the Debt 

Collection Improvement Act, coordinating with Federal agencies, 

conducting awareness campaigns, drafting contracting documents 

and regulations, and working with agencies to refer their debts to 

Treasury. Unfortunately, the Financial Management Service has 

only collected about $300,000 from these efforts. 

I realize that implementation does not happen overnight, but I 

feel this committee has a responsibility to ensure that the record 

improves quickly. How could we have spent $20 million to collect 

$300,000? I have two principal concerns about the implementation 

of the Debt Collection Improvement Act. First, the initial year of 

implementation has given us reason to fear that the Financial 

Management Service debt collection function does not have the political support it needs, either in the Department of the Treasury 

or the Office of Management and Budget. Second, agencies appear 

to be balking at implementing the Debt Collection Improvement 

Act. Let me elaborate on each of these concerns. 

2

Political support is critical. Success stories resulting from the 

Debt Collection Improvement Act of 1996 illustrate this point. The 

child support enforcement provisions are working well. The Financial Management Service is working with the Office of Child Support Enforcement at the Department of Health and Human Services to successfully implement the child support enforcement provisions along with the responsibilities added by the President’s Executive Order 13019, last September 28, 1996. Of course, that Executive order was issued 5 weeks before the Presidential election. 

We are delighted that the direct deposit provisions are spurring 

improvements in electronic payments at a number of agencies and 

that the Treasury Department is on track to meet its timetable. 

Each of those programs involves administrative complexities equal 

to or exceeding those in the debt collection program. They involve 

working with 50 different State governments and 100 million payees. Why are these programs succeeding where the debt collection 

operation is failing? The answer is simple: a lack of political support. 

The President made his child support enforcement announcement in a weekly radio address. He clearly demonstrated his commitment to achieving the aggressive goals his advisors have laid 

out for him. Similarly, the Treasury Department has aggressively 

moved forward to implement the electronic payment legislation, 

with strong backing from the President’s Office of Management and 

Budget as well as agencies with large beneficiary groups such as 

the Social Security Administration. 

In order for the Debt Collection Improvement Act to be a success, 

it will need the strong backing of the President and the Office of 

Management and Budget, as well as the best efforts of those in the 

creditor agencies. Talking about reinventing government is frankly 

not enough. It is time for some follow-through. 

Second, agencies appear to be balking at some aspects of the 

Debt Collection Improvement Act. According to a draft report of the 

General Accounting Office, ‘‘some agencies have expressed reluctance’’ about transferring delinquent debt to the Financial Management Service. Congress worked long and hard on this new law, and 

we will work just as long and just as hard to see that it is properly 

implemented. The massive sum of uncollected non-tax debt makes 

it clear that agencies cannot continue to operate as they have in 

the past. 

The task of implementing the Debt Collection Improvement Act 

is complex. It requires cross-agency coordination. Everyone has a 

role: The Office of Management and Budget, the Treasury Department, and every Federal agency. Today, I hope we can hear how 

we are going to proceed with collecting debts, not with blaming 

each other. By my estimation, we have all failed to achieve our preliminary goals. We now look forward to the hearing and to future 

hearings on the Debt Collection Improvement Act, which I will 

state at this point will be scheduled every 6 months for the next 

several years. 

We have a quorum present, and I would like to call on Mrs. 

Maloney, the ranking Democrat, who was very helpful in the enactment of this legislation, for her opening statement. 

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

3


g:\graphics\44176.001
4


g:\graphics\44176.002
5

Mrs. MALONEY. Thank you very much, Mr. Chairman. I am 

pleased that you are holding this anniversary hearing on our Debt 

Collection Improvement Act of 1996. As you know, I was very honored to play a major role in passing this bipartisan legislation last 

year, and I want to commend you, Mr. Chairman, on your leadership and your staff for all their hard work, and mine too for that 

matter. I would also like to thank the administration for their help 

and diligence which was instrumental in developing a comprehensive and effective new law. Since Mr. Summers is here from Treasury, I would like to note that Treasury was particularly helpful in 

their leadership on this legislation. 

Two years ago, I became extremely concerned that Congress was 

cutting vital programs that benefit millions of Americans, like 

Medicare, Medicaid and school lunches. I wanted to offer something 

positive to the American people. 

That’s why I conducted a survey of 100 Federal Government 

agencies regarding their delinquent debt. These agencies responded 

that businesses and individuals owed more than $50 billion in nontax delinquent debt to the Federal Government and to the American taxpayers and that a mismatched hodgepodge of collection 

methods and procedures hindered the Government’s ability to collect debt. 

As a result, we designed the Debt Collection Improvement Act to 

fix these problems. Our bill will force the cheaters to pay up 

through common sense debt collection tools like administrative, salary and tax refund offsets, governmentwide cross-servicing, TIN access and gain sharing. I am very proud of what we developed, and 

I am hopeful that this new law will help collect up to $10 billion 

in additional revenue over 5 years; that’s a lot of school lunches 

and that’s a lot of police officers. To ensure that we reach our goals, 

I want to continue to monitor the administration’s implementation 

of the new law. That’s the purpose of our hearing today. 

But we must do more. 

Today, I would like to announce that I am drafting legislation 

that would collect even more delinquent debt, and I hope our distinguished chairman will join me so that we will have yet another 

successful piece of legislation out of this committee. My bill would 

improve communication between the Federal Government and 

State governments through a joint Federal-State partnership for 

the purposes of collecting delinquent debt from deadbeats. The legislation would prevent debtors from eluding the Government by allowing Federal agencies to match delinquent debtors with State 

employment information. Debtors would still have the same due 

process and hardship protections under current law. 

The need for this legislation was most eloquently described in a 

New York Times op-ed by the Massachusetts Commissioner of Revenue, Mitchell Adams, who is present here today and will be testifying later. Mr. Chairman, I would like to submit for the record the 

op-ed which he authored. Is that all right? 

[The article referred to follows:]

6


g:\graphics\44176.003
7

Mrs. MALONEY. Let me give you an example of the problem the 

bill addresses. Under current law, if a person living in New York 

defaults on a Federal student loan from New York, the State and 

Federal Government can garnish the wages of that person to resolve the debt. However, if that person moves to work and live in 

another State, New York and the Federal Government can no 

longer garnish the student’s wages or the employee’s wages. That 

is because Federal law prevents it. My legislation would help the 

Government find that debtor. 

Mr. Chairman, I invite you to cosponsor this as the lead Republican and hope that we will be working together. We have been 

talking to you and your staff about it. 

This is an issue that I worked on for many years when I was a 

member of the city council. Every year I would do my survey of the 

debt that was owed the city of New York, and in fact authored a 

collections bill for the city of New York, and that bill never passed. 

So I don’t know if that says it is easier to pass a bill in the U.S. 

Congress than in the city of New York. 

But in any event I think it is a fine example of the administration and the Republican and the Democratic party working together to really make government work better, to help bring moneys into the Treasury and to help us on our other major goal this 

year, that of balancing the budget, of bringing these revenues in. 

Any amount will help us reach that goal. 

I thank the chairman for his leadership in so many things and 

for this followup hearing today. Thank you. 

[The prepared statement of Hon. Carolyn B. Maloney follows:]

8


g:\graphics\44176.004
9


g:\graphics\44176.005
10

Mr. HORN. Thank you very much. Now I am delighted to yield 

to the gentleman from Texas, Mr. Sessions. 

Mr. SESSIONS. Good morning, Mr. Chairman. Mrs. Maloney, it is 

good to see you. I am delighted to be here. 

I have somewhat of a background in debt collection. I was in 

charge of debt collection for Southwestern Bell Telephone Co., a 5-

State region, for several years at the corporate headquarters level, 

and so I have some understanding, though some people would 

argue no expertise, in this area. But I am extremely interested and 

I am delighted to be here this morning, Mr. Chairman. Thank you. 

Mr. HORN. I want to say that understanding is a lot better than 

expertise. 

We are delighted to have you with us, Mr. Secretary. We have 

a tradition on this subcommittee and the full committee that all 

witnesses take the oath. So if you don’t mind standing and raise 

your right hand. 

[Witness sworn.] 

Mr. HORN. The clerk will note the witness has affirmed and you 

may proceed in your own way. Obviously, we just saw your statement. We didn’t have it before, so we are going to be looking at it 

very carefully as you speak. But feel free to take the time you need. 

STATEMENT OF LAWRENCE SUMMERS, DEPUTY SECRETARY, 

DEPARTMENT OF TREASURY 

Mr. SUMMERS. Thank you very much, Mr. Chairman, Congresswoman Maloney, distinguished members of this subcommittee. I 

am pleased to be here to talk with you about Treasury’s plan to implement lasting solutions to difficulties the IRS has encountered. 

Later this morning, it is my understanding that Under Secretary 

Hawke and Assistant Secretary Murphy from the Treasury Department will testify along with Deputy Director Koskinen on the Department of the Treasury’s actions to implement the Debt Collection Improvement Act of 1996. But let me say for my part that we 

in the Department regard this—the Debt Collection Act as a crucial 

initiative and one that we’re working as hard as we can to be as 

constructive as possible in implementing. And I think that it is absolutely clear with the kind of cutbacks that Government is 

forced—Government in today’s world—as we move to a balanced 

budget, to do everything that we possibly can to collect what is 

owed to us. 

That is a point that has resonance in the debt collection area. 

Frankly, it has resonance with respect to the IRS because I believe 

improving the IRS is important not just to serve taxpayers better, 

but also because we have a large tax gap which represents money 

that could otherwise be available to the Government to support 

lower tax rates, to support more effective public services. 

I would like to thank the chairman, the ranking minority member and other members of the committee for their leap in recognizing issues of information technology at the IRS and in particular, governmentwide, for highlighting, Mr. Chairman, the salience of the Y2K problem, which is something very critical that we 

are going to have to get through. 

Let me be very clear, the difficulties with information technology 

management primarily manifested by the troubled tax system modVerDate 0ct 09 2002 12:56 Oct 21, 2002 Jkt 080892 PO 00000 Frm 00014 Fmt 6633 Sfmt 6633 W:\DISC\44176 44176
11

ernization program are not fully behind us. Other serious problems 

have come to light, such as recent incidents of IRS employees 

browsing through tax records outside their assigned work. These 

kinds of problems deserve the utmost seriousness because the 

American people deserve an IRS that is responsive, efficient, and 

totally respects privacy. As Commissioner Richardson has said, the 

IRS may not earn people’s affection, but it should deserve their respect. 

Today, I want to talk about some of the progress that the IRS 

has made under Treasury’s oversight and in turn talk a bit about 

the administration’s plan to provide the IRS with the framework 

for effective management. But before I do that, let me just highlight that this week we completed one of the rituals of our democracy, the annual filing season. The vast, vast majority of American 

citizens paid what they owed, and paid it in full. That voluntary 

compliance is a precious national asset for this country and one we 

must not squander. 

I want to thank the 100,000 dedicated and local IRS employees 

who have helped to make this filing season a successful one for the 

American taxpayers. Seventy-six million returns have already been 

processed; electronically filed returns are up by 25 percent; 36 percent more taxpayers—not enough, let me be clear, but 36 percent 

more taxpayers have been served by IRS employees over the telephone and tax law questions are being answered with 93 percent 

accuracy, up from 90 percent last year. The IRS web site has received over 95 million hits in this fiscal year, and I guess it is appropriate to quote a poll. The Associated Press in a recent poll 

found that 7 out of 10 taxpayers—that is 3 too few—gave the IRS 

a positive rating on its ability to handle returns and inquiries. This 

is progress. But we need to build much more on this progress. 

Last year, Secretary Rubin and I recognized in testimony before 

this committee and others that the modernization program was, as 

we put it at the time, off track. We called for a sharp turn and 

made clear our determination to energize Treasury’s oversight to 

bring about change in the way IRS uses information technology 

and provides customer service. And there has been change. Specifically, we have appointed a new Associate Commissioner for Modernization and Chief Information Officer, Mr. Arthur Gross. Following his review of technology projects, we canceled or consolidated 26 programs into 9. Mr. Gross is sitting here beside me, and 

I want to acknowledge an exemplary job that he has done in getting hold of something that has been very—was very out of control 

for a very long time. 

We will be submitting a draft Request for Proposal for Tax Systems Modernization prime contractor to the Congress and to industry on May 15th, 10 weeks ahead of the required due date. On May 

15th of this year, we will submit to the Congress an architectural 

blueprint which will clearly describe what modernization would 

and would not include and how the pieces will fit coherently together. We are exploring in other areas the possibility of 

outsourcing. 

Steps such as these are only the beginning. It will take time. Everyone involved in this process recognizes that problems at the IRS 

have developed over decades and will not be solved overnight or 

12

even over a couple of filing seasons. But as we chart our course, 

we see our job at Treasury as ensuring that there is effective and 

vigilant oversight so as to make sure that the IRS performs as effectively as it possibly can. 

Our approach to provide a framework for effective management 

at the IRS encompasses five critical areas. Let me say a word about 

each of them. 

First, oversight. We will consolidate the success to date of the 

Modernization Management Board, which has supported Mr. Gross 

in his cancellation of projects that were not as effective as they 

needed to be, by making it permanent and extending its mandate 

to cover the broad range of strategic issues confronting the IRS. 

This will continue to operate like the board of a troubled company 

with an outside chairman located in the Treasury Department and 

senior officials from other parts of Government. This is a crucial 

executive branch responsibility, and we plan to carry it out. We 

will also establish a Blue Ribbon Advisory Committee to bring private sector expertise to bear on the management of the IRS. 

Second, we look forward to working with the National Commission on IRS Restructuring, ably chaired by Senator Kerrey and 

Congressman Portman, as well as the Congress and the National 

Treasury Employees Union, to enhance and strengthen the IRS’s 

ability to manage its operations, working in particular to improve 

management flexibility in personnel and procurement. No commissioner, no matter how capable, can do this job by him or herself. 

They need the flexibility necessary to make changes that can make 

the IRS a more effective organization. In return, we will hold senior management of the IRS, as in any well-managed business, accountable for results. 

Third, we will work with Congress to help the IRS get the stable 

and predictable funding it needs to operate more effectively. Frankly, Mr. Chairman, we operate now in a low-trust, short-tether environment in which—in response to very real problems that there 

have been—Congress holds the IRS on a very short tether, changing the budget frequently in response to conditions. It is easy to 

understand that choice. But short-tether budgeting for capital 

projects combined with the inability to amortize expenses over time 

makes rational planning almost impossible. It is very difficult to 

operate in a budgetary environment where increased resources are 

treated as a cost but none of the cash-flows that come back as a 

consequence of increased customer service or increased enforcement 

come back as benefits. 

Fourth, we will work to simplify the Tax Code that is now 9,451 

pages long. Earlier this week, Secretary Rubin announced some 60 

simplification measures that will save individuals and businesses 

millions of hours now spent filling out tax forms. No longer if you 

were a paper boy with a $100 bank account will you be required 

to file a tax return. Ninty-five percent of corporations will be entirely separate from the alternative minimum tax. 

Finally, fifth, Mr. Chairman, leadership is crucial to performance. Commissioner Richardson has guided the IRS through some 

difficult times. As we move forward, though we are committed to 

appointing a new commissioner with a different type of experience 

than has been typical for IRS commissioners, a commissioner 

13

whose experience in either the public or the private sector equips 

them to address the problems of organizational change, customer 

service improvement and information technology management, as 

well as change in the business culture that are the preeminent 

problems at IRS right now. 

Mr. Chairman, I don’t believe that for any of us involved in Government there is a more important challenge than making our national tax collection agency function effectively. Justice Holmes 

said that taxes are what we pay for civilization. Whatever our precise view of Government, whatever our politics are, we all, I think, 

agree that taxes need to be collected as efficiently, as nonintrusively, as fairly, and as fully as they possibility can. 

Thank you very much. 

[The prepared statement of Mr. Summers follows:]

14


g:\graphics\44176.006
15


g:\graphics\44176.007
16


g:\graphics\44176.008
17


g:\graphics\44176.009
18


g:\graphics\44176.010
19


g:\graphics\44176.011
20


g:\graphics\44176.012
21


g:\graphics\44176.013
22


g:\graphics\44176.014
23


g:\graphics\44176.015
24


g:\graphics\44176.016
25

Mr. HORN. We thank you, Mr. Secretary. We are going to have 

questioning 10 minutes per person, and I know you have to be out 

of here by about 10:30. Let me start in. How long have you been 

Deputy Secretary? 

Mr. SUMMERS. I was sworn in as Deputy Secretary in August 

1995. 

Mr. HORN. Since August 1995, how many hours a week do you 

give to IRS management problems? 

Mr. SUMMERS. I would say that in the early part of the time that 

I was deputy, that I was Deputy Secretary, I had not come to a full 

appreciation of the seriousness of these problems. But following a 

fairly close effort to understand the situation, I have appreciated 

its gravity, and I would say that in the last few months there has 

probably been no single issue—no single other issue in the Department—that has occupied more of my time than questions relating 

to management and governance of the IRS. 

Mr. HORN. Well, since August 1995, are we saying 2 hours a 

week you have spent on it; 3 hours, 4? 

Mr. SUMMERS. More. I would hesitate to give you an estimate, to 

give you a precise estimate, but I think as I say, in the last period, 

there hasn’t been any other issue that I have spent more time on. 

Mr. HORN. In the 103d Congress, which was my first Congress, 

I happened to serve on Mr. Spratt’s Financial Institutions Subcommittee of this Oversight Committee. We had the IRS before it 

and, on a bipartisan basis, we were concerned in 1993 that they 

were a basket case then, well-known to most people in town. And 

I guess the classic remark was made by Mr. Cox, who had hoped 

to be here this morning, the vice chairman of the full committee, 

when he said if a corporation turned in financials to IRS such as 

you just turned into us, you would have gone and probably turned 

over the case to the U.S. Attorney. 

Now, one of my concerns is your Assistant Secretary for Management that also ought to be involved in some of this—Mr. Mun ̃ oz is 

also the Chief Financial Officer of the Treasury. I think that a role 

of Chief Financial Officer ought to be a full-time job, especially 

when you probably have the Government’s prize basket case, and 

the only exclusion from that would be the civilian sector of the Pentagon, which borders a prize basket case and which will probably 

not be able to submit to Congress, as the law requires, this September a balance sheet. There are two agencies, IRS and the Pentagon, that will not be able to meet the requirements of law that 

was put out years ago on a bipartisan basis. 

So, are we going to get a chief financial officer that can pay attention to this or are we going to sort of put it off until the heat 

rises? We get a blue ribbon committee, they come into town. They 

are prestigious. They do a report, and the report gathers dust. We 

are down to crunch time. Are we going to straighten out that agency or not? 

Recently I wrote the President and said let’s quit getting bright 

CPAs and bright tax attorneys—and I didn’t say the following, but 

the following is obvious, that they all get a nice living after they 

go to Gucci Gulch and become lobbyists and all the rest—when do 

we get a commissioner that knows something about managing a 

large complex organization? 

26

I understand Secretary Rubin is concerned about that and that 

he has asked various leaders in the private sector to help advise 

him on a new commissioner. I think that is progress, and I hope 

we don’t go the route of the tax attorney-CPA, no matter how much 

they like the job. You can get a million of those on the staff. What 

are we going to do about this focus of the Chief Financial Officer 

and the focus of being serious about management? 

Mr. SUMMERS. Mr. Chairman, I have just submitted to you in my 

testimony that it is our determination to hire an IRS commissioner 

whose background equips them to take on the fundamental management challenges that are involved in work at the IRS, precisely 

because we share exactly your recognition about the kind of person 

that is appropriate to lead the IRS forward. We are deeply troubled 

by the difficulty in producing a financial report, and as we move 

forward here in the President’s second term, in Treasury’s own 

management area, we are strengthening in a variety of ways our 

capacity to provide oversight to the IRS and to ensure that it works 

to meet the appropriate deadlines. 

We share exactly the concerns that you are expressing, Mr. 

Chairman. That is why in my first testimony before the Congress 

after taking this responsibility, I recognized that the modernization 

program was way off track and indicated our intention to bring 

about change. I think the record of canceled projects, the record of 

meeting congressional mandates, the record of improved, though 

still flawed, service this year, bears out the fact that we are making progress on the sharp turn that we promised, though not as 

rapidly as any of us would like. 

Mr. HORN. Given the problems the Treasury faces in terms of 

management of the national debt, major budget problems, one of 

the key advisors to the President of the United States, so forth, 

should we simply have an independent agency? Get them out of 

Treasury, get a first-rate commissioner in there, get them independent of any even perception of political influence, which occurred as you know in violation under the Nixon administration 

and probably has occurred given Filegates under this administration. 

My query is, how much is the Treasury thinking about saying 

let’s get this operation and start anew? Let’s cut the corporate culture and the attitude there. Some are wonderful employees and, 

unfortunately, they aren’t given a chance to be fully productive employees because of the lack of management and the lack of organization. Yet, there is also an attitude in that agency that maybe the 

customers are supposed to serve them instead of them serving the 

customers, and that bothers me. 

I found a lot of fine people in IRS. I think you have a superb congressional relations staff at Laguna Niguel that my district office 

deals with and a lot of good people, but we are not doing the right 

thing by them having such a fouled up management operation. 

Now should it be independent? What does the Treasury think 

about that? Are you even exploring it? 

Mr. SUMMERS. Mr. Chairman, this is something that Secretary 

Rubin and I have spent a great deal of time talking about. It would 

be very easy for us to shirk this challenge by suggesting that the 

IRS should be independent. It would be much easier. But I believe, 

27

as I think Secretary Rubin does, that it would be a grave error for 

three reasons. First, the problem the IRS has had has been too little oversight, not too much. The IRS hasn’t been held accountable. 

The IRS commissioner hasn’t been called on to the carpet when 

there have been problems. 

The task of the executive branch should have been pursued, and 

it has had to fall to Congress, which is not well-positioned to monitor management on a week-by-week basis. That is why we believe 

the answer lies in strengthened executive branch accountability, 

not weakened executive branch accountability. That is also why we 

have taken concrete steps to strengthen our own oversight of the 

IRS through the creation of a board modeled on the kind of board 

of directors that a troubled company has, with an outsider from the 

IRS—somebody who is in the administration but not a part of the 

IRS—as the chairman that has to approve major IRS strategic decisions. We believe taking on that accountability and assigning that 

accountability to some of the President’s most senior appointments 

is the way to increase accountability. To isolate the IRS and make 

it independent would be to substantially undermine accountability 

and to make more serious the kinds of problems that we have. I 

believe it would be a grave error. 

The second reason why it would be a grave error, in my view, 

is that tax policy and tax administration are consistently intertwined. Tax policy has to be informed by a judgment about what 

is administratively feasible. Tax administration has to reflect policy 

concerns. Tax administration, for example, now has a substantial 

voice in policy deliberations as we work through things like the administration’s tax credit proposal. If the IRS were independent 

from the Treasury Department, you would not have that kind of 

voice as tax policy was designed. It is only a matter of the senior 

most levels. The officials at the legal level in the IRS work closely 

with the Department’s tax policy staff, and there are close links 

also between the IRS and the Department’s financial management 

officials. 

Third, I believe that to invite a debate about IRS independence 

now would make it much more difficult to carry on the kind of 

progress that we are making. I believe that our oversight process 

has gained traction and is starting to bring about change. If we 

were to move to a discussion of what broad governance arrangements should be in the future, I believe that a period of limbo 

would inevitably result—the progress that we have made would be 

lost. 

Mr. HORN. Let me ask one last question here in my time, and 

that is why couldn’t the modernization problems in that computing 

operation be caught at the $4 million level or the $40 million level 

and not have to wait to what I gather from press reports is a $4 

billion level? 

Now having gone through this with the FAA, I wonder if there 

is a learning curve in the executive branch of the Federal Government? I mean, we went through this. We had the same problems 

with FAA. Everybody wanted their bells and Christmas tree ornaments and all of that on there when we ought to be trying to get 

a lot of this off, what corporations already do. And I can’t believe 

the problems of IRS are that much more complicated than some of 

28

the complicated American corporations. I just can’t understand why 

we can’t say get that equipment and get it going, even if it is—and 

we know all computer software and hardware is—out of date the 

day you buy it, but to constantly think we can solve this problem 

on our own I think boggles the mind. 

I went through this as a university president. I determined one 

bright precedent: Do not be the alpha site. Be the beta site or buy 

down the road after people have taken the messes out of it. 

Mr. SUMMERS. Mr. Chairman, we share your concerns. That is 

why we brought in Art Gross as Chief Information Officer, because 

he was from the outside and because he had a proven record of 

working with the private sector to accomplish outsourcing in his 

work in New York State. That’s why we canceled or consolidated 

26 projects that in many cases represented leaps that were beyond 

what we thought we were technologically capable of. 

That is why we suspended major project development, so a clear 

architecture laying out our plans can be presented. That is why it 

has been made very clear to everyone who is involved with the 

TSM project that henceforth we will be proceeding in a modular 

way to measure progress step by step and see what is working and 

what is not working. We are not going to wait for people to spend 

billions of dollars and then see whether we have the Taj Mahal or 

not. You are absolutely right in your concerns, and those concerns 

have informed the management approach we have taken for the 

last year and a half. 

Mr. HORN. I yield 10 minutes to Mrs. Maloney. 

Mrs. MALONEY. I understand that Under Secretary Hawke and 

Assistant Secretary Murphy will testify for the Department today 

on the implementation of the Debt Collection Improvement Act. I 

will hold my questions until they are here. I just would like to convey to you my deep appreciation to the Treasury Department for 

how professionally and diligently you have worked to implement 

this act. They have truly worked hard. They have met every single 

timetable. They have come up with new ideas. Their paperwork is 

terrific, and you have a very strong group of professionals, and I 

have had the honor to work with them closely on this bill. I just 

want to publicly thank you. You may also know that the Secretary 

is from the great city of New York, I extend my regards. I will save 

my questioning for later witnesses. 

Mr. HORN. We thank the gentlewoman. The gentleman from 

Texas, Mr. Sessions, 10 minutes. 

Mr. SESSIONS. Thank you, Mr. Chairman. Mr. Summers, I am 

glad you are here and I am sure you did not anticipate this morning that you were going to get to come up here this morning and 

be beat up, but that is all right. So thank you for staying with us 

on these issues. 

I would like to, if I could, go back to some of your comments 

about how much time you’re spending in oversight. Can you take 

a few minutes with me and tell me what the management tools are 

in place that you have found within the IRS that allow you the 

ability to then judge their progress or their weekly reports, monthly reports, in the debt collection? The older a debt is, the colder it 

gets, the harder it is to get it. How are you focusing your attention 

29

on the tools and the management tools and the report tools to 

where you then know in which direction to place your resources? 

Mr. SUMMERS. Congressman, you have asked a very, very 

thoughtful question and I wish I had a better answer. Let me answer as honestly as I can. My role as Deputy Secretary is really 

to be the chairman of the board; as a kind of outside chairman of 

the board. In that capacity, at our monthly management board 

meetings, I do receive reports on progress the IRS is making in 

overall tax administration, the kinds of statistics that I had an opportunity to review briefly in my testimony; on the way in which 

the phones were being considered accuracy rates, extent of increases in electronic filing, progress with refunds and so forth. 

Also, I have an opportunity to review progress reports on the key 

projects in the TSM area, the development of the architecture moving to a prime contractor and so forth. 

Reporting to me is the Assistant Secretary for Management and 

Chief Financial Officer of the Department, who receives periodic reports on the IRS’s progress in debt collection and also receives periodic reports on the financial statement problem at the IRS’ keeping 

posted on the progress in those areas. But I’m not, myself, directly 

involved in evaluating the status of different debts or retargeting 

resources. 

I think the Department has been constructive in its oversight 

role with respect to that, although I think ultimately the responsibility in that area has to rest with the IRS Commissioner and the 

people the IRS Commissioner designates. I think the most effective 

approach we will have is getting a management-oriented commissioner, and then creating a kind of flexibility that will let that commissioner appoint the people on their team and then having them 

report to us periodically. But frankly, I don’t think the responsibility of reallocating resources with respect to debt collection is one 

that we can sensibly undertake in the Department. 

I have, working with Secretary Rubin as we have, thought about 

staffing the whole management area at Treasury for the President’s second term. A number of the appointments that we intend 

to make and the approach we intend to take to hiring is really directed at being able to bring, frankly, a greater degree of sophistication and relevant experience in other parts of the public sector 

or in the private sector to bear on overseeing the functions of the 

IRS. 

Mr. SESSIONS. Do you think that those people in the IRS are 

aware that you were today going to be up here talking about debt 

collection? 

Mr. SUMMERS. In fairness, Mr. Chairman—Congressman, in fairness to them, while I’m aware that your overall hearing is on the 

subject of debt collection, the invitation that I received from the 

chairman was really to address some of the topics that I think you 

had also discussed on Monday, having to do with the overall IRS 

approach, so I was not asked to come to talk about debt collection. 

Mr. SESSIONS. That was my fault then. I would like to direct my 

questions to a comment that you made about having proper resources available, and that would have come under the third point 

that you made. 

30

Beginning in or about 1988, there was money that was allocated 

to the TSM project. I don’t know if that’s what it was called then, 

but the Congress has attempted to allocate resources, maybe some 

$4 billion. Can you talk with me in the limited scope that you have, 

because I know that you have only been there several years, about 

the realization of that problem, when you realized internally you 

were in trouble and how you were going to go about the TSM 

project? 

From my perspective, I would say that that is throwing resources 

at an organization that they just did not effectively use, and I am 

very reticent—it is a regular discussion up on the Hill about giving 

people more money when they don’t properly utilize it. In this case, 

let’s face it. We know we are dealing with the Tax Code, which 

Congress created, so we are giving someone else our problem. But 

can you briefly discuss that allocation of resources as it relates to 

TSM? Give us an update when you knew you had internal problems. 

Mr. SUMMERS. Congressman, let me first say that in speaking 

about the question of the budgetary environment, I was careful to 

say that we operated in a low-trust, short-tethered environment because the IRS hadn’t earned trust. When I spoke about more resources and I spoke about resources for a longer term, I was speaking about the need for us to earn the trust that would make that 

kind of provision of resources possible. Because I share your concern and that of most people up here, that until there is demonstration that resources can be spent well, they shouldn’t be appropriated and allocated and they will not be sought. That is also 

reflected in the fact that the administration cut the budget for TSM 

by more than 75 percent. It cut our request for this year precisely 

because, given all the problems, we weren’t sure the money could 

be used well. So we do not want resources for the sake of having 

resources. 

On the other hand, I think you can appreciate that even the best 

managers in the world, with their appropriation completed partway 

through the fiscal year, would have difficulty managing rationally. 

I think there has been an awareness for a long time in this town 

that there were problems with the TSM project and there were constantly statements that—well, there are problems but we are getting them fixed and that was this and now it’s now and we have 

got to go into the future, and so forth. 

Frankly, when I inherited this situation as Deputy Secretary, my 

predecessor told me that it was something that was going to require attention because there were problems. I don’t think I fully 

appreciated for a few months the gravity of the problems, but when 

I came to appreciate the gravity, working with Secretary Rubin, we 

did what I think were the right things. 

First, we testified that the thing was way off track; second, we 

indicated that we were determined to bring in outside help; third, 

we indicated that there was a need for a change in the strategic 

concept toward much more use of the private sector; and, fourth, 

we made clear that we wanted to plan before we build instead of 

building before we planned, and therefore, that it was crucial that 

an architecture be developed along the lines of GAO recommendations; and fifth, we indicated that the steps going forward had to 

31

be modular in nature because we couldn’t take the risk of sitting 

back and waiting for several years to see whether something 

worked or not, given how much money had been spent. 

We also tried to account as accurately as we could for the money 

that had been spent. And I will say to you, Congressman, that I 

don’t think I’ve minimized the problems here today, but I think 

that some of the reports that suggest that somehow $4 billion was 

wasted really do represent substantial exaggerations. We didn’t get 

everything we wanted out of those expenditures and there were $4- 

or $500 million, which is $4- or $500 million too much, that went 

for projects that have been discontinued. However, it is also true 

that a lot of equipment was modernized, many capacities were obtained, and the fact is that 4.5 million Americans were able to file 

their tax returns without ever coming in contact with pencil and 

paper simply by pushing buttons on a telephone, was a factor of 

the TSM project. We are increasing the use of electronic filing by 

35 percent. That too is a reflection of the TSM project. Phone inquiries are being handled in a better way. That too is a reflection 

of the TSM project. 

So it is off track. It was not managed the way it should have 

been. There were a lot of mistakes made, but I think to call it a 

$4 billion waste is to exaggerate a problem that is serious enough 

that it doesn’t have to be exaggerated to get people’s attention. 

Mr. SESSIONS. Well, let me just say this, that you are the first 

person that I have ever heard not characterize that as a $4 billion 

mistake, and I am using what is often well described as a $4 billion 

mistake. So this is not my characterization, and I’m interested that 

you disagree with that. 

One last question: The Y2K project as chairman of the board, do 

you think your organization has a handle on that? 

Mr. SUMMERS. I think we are—I couldn’t tell you that we’ve got 

a total handle on it. What I can tell you is that we’ve recognized 

it. We are moving on it. We have dimensioned the problem in our 

core business and have put in place strategies for addressing it, 

and we are dimensioning the other parts of the problem outside of 

our core systems and making decisions. In some cases it may be 

better to abandon systems than to try to update them for the Y2K 

project outside of our core business systems. That’s the judgment 

that is being made. But what I can assure you of is that this is 

recognized as a stay-in-business issue, and that the IRS is one 

business that has to stay in business. 

So it’s seriousness is fully appreciated and I am sure we look forward to, and I’m sure in any event we will be asked to, report periodically to Congress on the progress that we are making and on the 

extent to which this problem has been dimensioned. I will say to 

you that I think experience in the private sector and in the public 

sector is that the more you know about it, the more you know there 

is a problem here. And then I think I have made it very clear to 

the people who are involved, following Secretary Rubin’s lead, that 

we need to be very, very careful about underestimating the magnitude of this problem and we need to be able to face up to it in 

full. There is a situation like when you are at the airport and the 

planes aren’t flying and they change it from 8:30 to 9:30 and what 

32

that really means is that for sure it won’t go before 9:30 and maybe 

at 9:30 it will become 10:30 and at 10:30 it will become noon. 

I think there are dangers of the Y2K problem taking on that 

kind of character, so we need to be very careful to qualify the estimates that we give, to recognize that other things will be discovered, and to recognize that, you know, there are a lot of deadlines 

that can slip in this town but January 1st is not one of them. 

Mr. SESSIONS. But as chairman of the board of this organization, 

you feel like you have put your attention to it? 

Mr. SUMMERS. Yes. Yes, absolutely. 

Mr. SESSIONS. Thank you so much, Mr. Chairman. 

Mr. HORN. I thank the gentleman from Texas for his fine questions. I have just two and then you will be free. In your thinking 

through of what a new IRS ought to be, to what extent have you 

thought about using private debt collectors to collect IRS debt? 

Now, the background on this, what started me in this whole endeavor 2 years ago, was when I looked at what there were of financials and saw that over $100 billion had been written off since 

1990, started under the Bush administration, but greatly accelerated in 1993. And then I saw there was another $64 billion they 

thought was collectable. 

When I talked to Commissioner Richardson in my office, I said 

what operation do you have to collect the 64, let alone the 100, 

which I think is a national scandal, and there was great reluctance 

to even think about private debt collectors. In our bill we have a 

role for private debt collectors. I heard a lot of nonsense about confidentiality, and so forth. It is nonsense. Give them the number and 

give them the address and tell them to go out and find it and work 

out something, and that is better than having $100 billion written 

off. 

So what is the thinking of the leadership of the Treasury as to 

what should be done in either a joint partnership where IRS might 

have the first 30 days, but they simply aren’t getting in the money, 

and the private collectors’s role? 

Mr. SUMMERS. Following the legislation, we have moved to create 

a private debt collection pilot project to evaluate this. It’s being 

done at the IRS Service Center for the Western Region. It involves 

five contractors who were chosen last June. The IRS provides selected cases to the contractors for collection activity. Those are 

cases where the IRS has been unable to locate or contact taxpayers 

or where the IRS has been unable to secure payment through written notices and phone calls. To respect obvious sensitivities, the 

IRS has suspended cases where there has been taxpayer hardship, 

those were not given over to the collection agents. 

The private collection agencies are paid a fixed price for each 

successful contact when they locate somebody and also performance 

fees when they are able to fully close or establish an installment 

agreement. The pilot project as I say, has been underway since 

June, and it was a 1-year pilot and we will, after a year, evaluate 

the results, make a judgment about what the consequences have 

been and be prepared to report to Congress. 

Mr. HORN. Maybe I am misinformed, but someone told me that 

in that pilot project was a lot of 5-year-old debt to be collected; is 

that true? 

33

Mr. SUMMERS. I don’t know. 

Mr. HORN. Well, 5-year-old debt, they have long since forgotten 

about it is my point. It seems to me that we should have a better 

balance of that. 

Mr. SUMMERS. We certainly would be wrong to only refer to this 

project debt of a kind that was particularly difficult to collect and 

then compare performance with overall debt collection. That would 

certainly be wrong. 

Mr. HORN. You get the point. 

Mr. SUMMERS. The instructions—— Mr. HORN. It is made to fail. 

Mr. SUMMERS. Clearly there were concerns about this project, 

but we have given a very strong instruction to the IRS and I will 

ask for a report that this pilot project be carried out in good faith 

and we all attempt to evaluate the results from it. And I would be 

very concerned if anything was being done that was undermining 

the objective of doing an honest pilot. 

Mr. HORN. Last question. How much concern does the Secretary 

or the Deputy Secretary have about the fraud GAO has found in 

the earned income tax credit? Are you worried about that? This is 

one of the greater fraudulent programs of America. People are adding dependents that don’t exist and all the rest of it. What are the 

plans of the Treasury to do something about it? 

Mr. SUMMERS. This is a very serious problem. It is, I think, important to understand that it is a problem that parallels the broader problem we have of tax noncompliance, people claiming false deductions, people claiming losses that they didn’t have, and it occurs 

also in the EITC area. I don’t think the EITC area stands out 

uniquely. We are continually working and I expect—I am not able 

to do it this morning, but we will be in a position to describe measures we are taking to increase penalties and to increase detection 

of these incidents because clearly this is something that is very, 

very important for us to do everything we can to discourage. 

I would highlight that the ratio of administrative costs to benefits delivered in the EITC is extremely low compared to that of 

many, many other Government programs, and it may well be necessary to take further steps to address this problem because I 

think it is a serious one. 

Mr. HORN. Well, I appreciate that, and if you might work it out 

with our staff and your staff, maybe we can get a little elaboration 

in the record at this point. 

Mr. Secretary, I appreciate you taking the time to come up here. 

I know you have a busy schedule. 

Mr. SUMMERS. Thank you very much for the opportunity, Congressman. 

Mr. HORN. You have done a fine job testifying and we wish you 

well. 

Mr. SUMMERS. Thank you very much for the opportunity, Congressman. 

Mr. HORN. Thank you. 

We now have panel two, Commissioner Mitchell Adams of the 

Massachusetts Department of Revenue. Mr. Adams. 

I don’t know if you were in the room, Mr. Adams. The tradition 

is to swear in all witnesses, so if you would raise your right hand. 

34

[Witness sworn.] 

Mr. HORN. The clerk will note the witness has affirmed the oath. 

It is a great pleasure to have you here. You were kind enough 

to call me, I think, when this act took effect and say I had made 

your day, so I am anxious to hear how I have made your year in 

the process, and I know you are doing a lot to collect, as I remember, for the dead beat dad department. You were on that issue long 

before the President or anybody else had talked about it, so we look 

toward to hearing your testimony and what progress has been 

made by you as a State that has set a real model in this area. 

STATEMENT OF MITCHELL ADAMS, COMMISSIONER, 

MASSACHUSETTS DEPARTMENT OF REVENUE 

Mr. ADAMS. Thank you, Chairman Horn and members of the subcommittee. It is a pleasure for me to be here this morning. I would 

like to talk a little bit about how we collect debts in Massachusetts 

and the experience in the Department of Revenue, and also make 

some comments about studies in work we have done in the area of 

defaulted student loans. 

Massachusetts Department of Revenue has fully downsized 30 

percent in the last 5 years. We have reduced the size of the institution from 2,100 people down to 1,500 people. While we have done 

this substantial downsizing, all of the performance measures at the 

Department of Revenue are up substantially, that is, collection of 

delinquent taxes is up significantly, assessments are up, refund 

turnaround time has been improved significantly, and the waiting 

time to reach a human being on our telephones, even at peak tax 

time, is now zero. 

There are primarily two factors which contribute to this. First we 

have used information technology aggressively across the board essentially to convert the Department of Revenue from the paper factory that it has been into a center of digital technology to the point 

now where I am happy to tell you we have the reputation of being 

one of the most advanced tax agencies in the country, possibly in 

the world, in terms of information technology. The other factor is 

access to information. The Department of Revenue is the agency 

appointed under Federal law to collect quarterly employment data 

from all employers in the Commonwealth and so we are able to 

keep a data base, which is up to date and current, that has information with regard to all individuals who are on any payroll in the 

State. 

Second, we have a program that we call ‘‘bank match,’’ and I 

think it is maybe unique in the United States, whereby every financial institution and money market mutual fund has to report to 

the Department of Revenue quarterly with regard to all accounts 

that may relate to individuals who owe a tax obligation or child 

support debts. 

Let me just make a comment—listening to Under Secretary Summers this morning, if I could, as a tax person, make the comment—

that they are on the right track here. I think for the first time in 

a while we are seeing some progress here. They have a real CIO 

in Arthur Gross, whom I have met with. They have been to Massachusetts to see our imaging systems. They are on the right track 

in terms of outsourcing. 

35

The only way for governments really to do a good job in obtaining 

computers is to get the private sector to put them in place. They 

have a blueprint for planning, and they have determined for the 

first time in a long, long time what they need to run the place is 

a manager. 

Back to my point, just for a moment. 

Let me give you an example of the standard way that collection 

has occurred in tax agencies in the past and child support enforcement operations. It is the standard one by one method of collecting 

a tax or a child support obligation where you have a collector who 

is after one individual, and that person, the collector, may determine that the person has—works at Acme Rug Co., or whatever it 

is down the road, they type up a wage attachment, put it in the 

U.S. mail and attach the person’s wage in that fashion. We don’t 

do it that way anymore. 

We take a magnetic tape that has 100,000 child support obligors 

on it and we match it against our data base, which has 3 million 

listings of all the people employed in the Commonwealth, and 

wherever the computer finds a match, zap, it makes a wage attachment. It is automatic and it is done without human intervention, 

essentially. 

To the point now—two-thirds of the $270 million a year we collect in child support comes from automated wage attachment, fully, 

two-thirds. 

Let me turn now for a moment to a related but different subject, 

and that is the matter of defaulted student loans. I am referring 

to the Federal Government programs, the guaranteed student loan 

programs. 

In Massachusetts, we did a study about a year ago in which we 

took the listing of defaulted student borrowers in the State, it was 

a listing of about 30,000, and we did this automatically. Of course, 

we had a magnetic tape and we matched it against a wage reporting data base in Massachusetts, that is the data base with 3 million employed individuals, and what we found was that 53 percent 

of them had paying jobs in Massachusetts. Further, our analysis 

indicated that if an automated wage attachment were undertaken 

with regard to those defaulted student borrowers, that would increase the annual amount of money collected from defaulted student loan borrowers by about 25 percent. 

The study further looked at what else is going on in the United 

States, and we found that two States, and to my knowledge only 

two States, are doing this. Illinois and Pennsylvania have similar 

programs where they can do automated wage attachment programs, and 25 percent of their defaulted student—income from defaulted student loans comes from the automated program. 

Nationally, our study indicated, and this is what the conclusion 

of the op-ed piece that Congresswoman Maloney was referring to, 

if this program were instituted nationally, it would increase collections from defaulted student borrowers to the extent of about $650 

million a year. That would provide additional tuitions for about 

100,000 students. 

What is necessary to make this happen is the guarantee agencies 

in all of the States, and the Department of Education, must have 

access to the employment data that I referred to that is available 

36

in Massachusetts, and what we need to do is create a Federal statute that will make that information available as quickly as it can 

be, because the sooner that is done, the sooner the system will 

have access to about $650 million of new money for student education. 

Thank you very much, Mr. Chairman. I am happy to address any 

questions you may have. 

Mr. HORN. Well, we thank you very much. You have had a splendid record before this law was passed, and I am glad to see you 

have used some of the things in the law and your record is still upward. 

[The prepared statement of Mr. Adams follows:]

37


g:\graphics\44176.017
38


g:\graphics\44176.018
39


g:\graphics\44176.019
40


g:\graphics\44176.020
41


g:\graphics\44176.021
42


g:\graphics\44176.022
43

Mr. HORN. Mrs. Maloney I know has some questions, and I yield 

10 minutes to her. 

Mrs. MALONEY. Thank you. 

Congratulations on your pioneering successful efforts. You are familiar with our proposed legislation. If it becomes law, how will it 

help out the individual States? 

Mr. ADAMS. With regard to defaulted student loans, I think it is 

very important that it happen, and it will mean that substantial 

funds will be generated by the Department of Education and the 

guarantee agencies that can be used to support educational programs. 

Mrs. MALONEY. How do delinquent debtors hurt the Federal student loan program? 

Mr. ADAMS. I think in a lot of ways. No. 1, substantial resources 

that could be made available are not made available. No. 2, it really does damage, I think, to the overall program because there is a 

perception—I mean, all of us know of people who default on their 

student loans, and it doesn’t make taxpayers feel good when they 

know that others scoff laws and fail to meet their responsibilities. 

I think it dampens the enthusiasm of Congress to support the programs. 

Mrs. MALONEY. You have estimated in your testimony that correcting the problem the bill we are working on addresses, would 

bring in $625 million annually in additional payments, enough for 

tuition for 100,000 more students yearly. 

How did you come up with that calculation? 

Mr. ADAMS. The calculation was essentially based on the evidence which indicated that, if you do an automated wage garnishment program, you will increase the annual amount that comes 

from—collections from defaulted student borrowers by about 25 

percent. That is what the analysis showed in Massachusetts, and 

that is what the analysis showed in the State of Illinois and in the 

State of Pennsylvania as well. I believe they are the only States 

that have active programs going where they can have computerized 

wage garnishment. 

They have access to the data we have talked about, and the reason they have access to it is a little bit of an anomaly. They have 

access because their State legislatures have passed laws saying 

that the State agency that collects the employment data may share 

it with the guarantee agency in that State, but only that guarantee 

agency; it is not available to other States. 

Mrs. MALONEY. Did your study take into account the benefit of 

being able to track debtors across State lines? 

Mr. ADAMS. No, it really didn’t, and to that extent, I think the 

$625 million is conservative. I think there is more money there for 

that reason. 

Mrs. MALONEY. And you note that 53 percent of defaulters had 

jobs in Massachusetts. If the law were changed, wouldn’t you be 

able to find the other 47 percent, no matter where they lived? 

Mr. ADAMS. A big portion, you are absolutely correct. Those people are working, many of them, in neighboring States. 

Mrs. MALONEY. Now, Massachusetts is able to garnish the wages 

of everyone employed in the State through automated computer 

processing. How much does the State generally garnish and what 

44

are the legal limits, and how long did it take you to develop the 

necessary technology to be able to support this process? 

Mr. ADAMS. The technology at this point in time is not rocket 

science, it is not leading edge, it is pretty easy to do, and it is, as 

far as information technology, and as far as administrative burden, 

it is close to de minimis. It is pretty easy to do. 

Mrs. MALONEY. Then why aren’t other States doing it if it is so 

easy? 

Mr. ADAMS. We have been kind of bold in Massachusetts in sort 

of going for it, and as near as I can tell, and I believe this is true 

in child support enforcement, we began to do this aggressively in 

1993, and the limits you were asking about are prescribed by law, 

basically. 

What you can do is garnish, I am forgetting how the rules work, 

but it is up to a certain percentage of the paycheck. 

Mrs. MALONEY. And how much did it cost you to put into effect 

this program, and have you estimated how much collection costs 

could possibly drop or increase with this program? 

Mr. ADAMS. I don’t have numbers with me right now, and I certainly could get back to you with some analysis, but I don’t have 

them right now. 

But I would like to say that really what you are talking about 

here is so highly automated right now and we are so far beyond 

the point where computer systems don’t talk to one another, that 

the administrative costs are not significant. 

Essentially, what you are talking about is a tape match, and if 

you do a tape match and you find that in one data base there are 

matches with another data base, and then all you have to do is perform the software, create the software necessary to get the computer to dispatch the appropriate letters and due process and so 

forth, or wage attachment or whatever it is, it is not complicated 

nor is it expensive. 

Mrs. MALONEY. Are you familiar with the Debt Collection Improvement Act, which the chairman and I worked on together and 

enacted into law with the administration last year? 

Mr. ADAMS. I am generally familiar with it. However, it goes far 

beyond the area of my focus. I should know more about it. 

Mrs. MALONEY. If you have any suggestions for improvement, we 

would be delighted to look at them. 

And I just want to say, I want to congratulate you, Mr. Adams, 

on your pioneering effort and the significant progress Massachusetts is making in the area of debt collection. You are leading the 

Nation in your efforts and your expertise, and I applaud you. 

I yield back the balance of my time. 

Mr. HORN. I thank the gentlewoman. 

Remember in our chat when this law was signed by the President, you were planning to match the tapes, I thought, outside the 

State of Massachusetts. Now do we not have the authority for you 

to do that in terms of matching the employment tapes or does that 

authority exist somewhere in the Federal Government? 

Mr. ADAMS. No, that is the problem, it doesn’t exist. 

Mr. HORN. It doesn’t exist. 

Mr. ADAMS. We have the legal right to do that in Massachusetts. 

45

Mr. HORN. Right. OK. When you did the garnishment, did you 

need additional authority from your own legislature or did you already have that as a basic existing authority in the Department of 

Revenue? 

Mr. ADAMS. With regard to child support, it exists by virtue of 

Federal law. With regard to tax obligations, it exists by virtue of 

State law. In defaulted student loans, I believe, and I think people 

in the room here who might know better than I, that any guarantee agency, by virtue of Federal law since 1991, has the legal 

right to administratively garnish wages, that is, without the action 

of a court. 

Mr. HORN. Are there any suggestions that you would make to the 

Secretary or the Deputy Secretary of the Treasury, and the IRS, as 

to management of the agency? Have you ever looked at their structure versus the Department of Revenue and Massachusetts, or 

other State tax agencies? What are the things that strike you between the two? I realize you have to get along with everybody here, 

so I know you have to be diplomatic, but I would like to know just 

what are your feelings as a professional as to how such an agency 

should be organized. 

Mr. ADAMS. I was really taken with Deputy Secretary Summers’ comments. Most of the initiatives that he is talking about taking 

and that they have taken are really a significant new start and 

they are on the right track. 

Arthur Gross comes from the State of New York, as I think you 

may know, and is a first rate professional, and that really, I think, 

is the first time they have had someone at that level from outside 

of the agency to take a good look at how it really ought to be done, 

and he has not been shy in being very clear and public about where 

it has fouled up and how it has to be changed. 

Their conclusion that they have to put significantly greater emphasis and outsourcing for information technology expertise is absolutely right on the point. They are doing a planning effort and 

blueprint, I understand. I guess it hasn’t been released yet, but the 

understanding that you have to do the planning before you do the 

implementation is pretty basic. And then the leadership question 

of someone from a management background instead of a CPA or a 

tax lawyer is absolutely vital, and it is not a tax matter, it is a 

management matter. 

Mr. HORN. All right. Well, thank you. I yield 10 minutes now to 

the gentleman from Texas, Mr. Sessions. 

Mr. SESSIONS. Thank you, Mr. Chairman. 

Mr. Adams, thank you for being here today. I have just a few 

questions. I found that your annual report is quite interesting and 

I would like to direct some of my comments to that annual report, 

if I could. 

On page 18, you talk about offers in financial settlement. Can 

you please discuss with me, because it became—if you were here 

before when the discussion about how old these debts are that the 

Federal Government is working on, I note that you collected what 

would be about two-thirds of the money from these settlements 

that are listed here. 

Can you discuss with me how old these are, what that process 

is? 

46

Mr. ADAMS. Sure. Some of those are quite old. I don’t have exact 

information. The process is one in which there is an agreement 

with the taxpayer to settle the obligation for less than the full 

amount, and it is a process which, No. 1, the attorney general of 

the Commonwealth has the right to void the proposed agreement 

within a 21-day period of time, and, No. 2, it has to be made public 

in that report. It is a low volume part of our operation. In other 

words, it is not a significant amount. The settlements are made because we conclude that it really is not feasible to get the full 

amount, and so it is an agreement for something else. 

Mr. SESSIONS. How early in the process do your managers of the 

business make that evaluation? I guess what I am trying to get at 

is there anything I can learn from you—a two-thirds collection rate 

is probably pretty good and I know we are only talking about a 

handful of accounts, but do you make an evaluation into this process early on, a case manager, a financial manager, in order to get 

the money? I mean, the—— Mr. ADAMS. These settlements are really ad hoc and they are all 

kind of a one-on-one kind of situation, and the taxpayer comes to 

us and makes an offer, mainly. 

Mr. SESSIONS. So these probably are old accounts. 

Mr. ADAMS. They are old accounts, yes. 

Mr. SESSIONS. All right. Sir, I sit on the Banking and Financial 

Services Committee, and several weeks ago, I had an opportunity 

to talk with Chairman Greenspan about bankruptcy matters in 

this country, and I am seeing a trend, not only in the amount of 

money in bankruptcy, but trying to make an evaluation of the process, in other words, when a person takes bankruptcy, Chapter 7, 

Chapter 11, Chapter 13. 

Can you give me any feedback from your managerial experience 

in Massachusetts, is the Federal law and that bankruptcy process 

having an impact on you? And do you see a—I would like your 

overall evaluation of that because I think that at some point you 

are having to look at that with the money you collect. 

Mr. ADAMS. I am really not able to be helpful right now. It is not 

a significant issue for us right now and I wish I could make a helpful comment, but, honestly, I can’t. 

Mr. SESSIONS. I applaud you for your efforts. 

Mr. Chairman, that is the extent of my comments. And, sir, I 

apologize, but I have another appointment and I will be leaving. 

Mr. HORN. OK. Thank you very much for your helpful questions. 

Commissioner, let me just ask, do you report directly to the Governor? 

Mr. ADAMS. I have a joint appointment between the Governor 

and the Secretary of Administration and Finance. 

Mr. HORN. I see, because you heard my question, probably, 

should the IRS be an independent agency? Do you have any feelings as you look across the country at State commissioners of revenue, as to how is an effective way to set up such a revenue with 

collection and administration entity? 

Mr. ADAMS. My belief is that all of them—none of them is a separate entity. I think I am right in that. 

Mr. HORN. So they are all somewhere related to either the Governor, directly, as a separate entity, would also be related to the 

47

President, just as the National Science Foundation, the National 

Aeronautics Space Administration. These are all independent agencies. They can’t just do anything they want. They have to go to 

OMB for policy direction, management, so forth, budget examination. 

But I am just wondering what the practices were, if we can pursue it at the staff level, and what your thoughts were on that. 

Mr. ADAMS. Well, with regard to the States, I believe that all of 

them are simply a part of the executive. 

Mr. HORN. Right, reporting to the Governor. 

Mr. ADAMS. Yes, absolutely. That is my understanding. 

Mr. HORN. In some States, they obviously could have a super 

cabinet Secretary. 

Mr. ADAMS. Right. 

Mr. HORN. Do you have any other advice for us as you listen to 

this discussion this morning? 

Mr. ADAMS. I really don’t. 

Mr. HORN. Well, I will tell you, Commissioner, yours is the best 

report I have seen in any Government agency anywhere, State, 

local, national, in terms of easy readability, and I would like it to 

be in the record at this point, if we can reproduce these things, 

which is dubious in the Federal Government, but that is a marvelous report. 

Did you win any awards from any State society? You should 

have. 

Mr. ADAMS. Thank you. 

[Note.—The Massachusetts Department of Revenue Annual Report may be found in subcommittee files.] 

Mr. HORN. Well, we thank you very much for coming. Your testimony and your administration of the law, as it applies to the State, 

has been most helpful. We do hope the Ways and Means Committee will get a matching legislation, they say they want to, that 

relates to our bill. That is the one piece missing and it is the piece 

that got me going in this thing. Anyhow, we thank you for coming. 

Mr. ADAMS. Thank you very much. 

Mr. HORN. We now have panel three, and panel three, Mr. 

Koskinen, Mr. Hawke and Mr. Murphy. 

As you know, gentlemen, maybe you want to move down. If you 

will raise your right hands, gentlemen. 

Mr. HORN. Mr. Koskinen, I take it you affirmed that, too. 

Mr. KOSKINEN. Yes. 

[Witnesses sworn.] 

Mr. HORN. The clerk will note all three witnesses have affirmed. 

We will start with Mr. Koskinen, Deputy Director, Office of Management and Budget. 

STATEMENT OF JOHN KOSKINEN, DEPUTY DIRECTOR, OFFICE 

OF MANAGEMENT AND BUDGET 

Mr. KOSKINEN. Thank you, Mr. Chairman, and distinguished 

members of the Subcommittee on Government Management, Information, and Technology. I am pleased to appear before you today 

with the Treasury Department, which is responsible for implementing many of the core provisions of the Debt Collection Improvement Act. 

48

With your permission, I will summarize my prepared statement 

and submit my complete testimony for the record. 

Mr. HORN. All of the statements are put in automatically. 

Mr. KOSKINEN. Thank you. 

I must apologize in advance, as I explained to your staff last 

night when we established this hearing, we scheduled my testimony at 9:30 and I must leave for another engagement at 11:45. 

Mr. HORN. Don’t worry, we will have plenty of time. 

Mr. KOSKINEN. I have been here before and I know how long we 

go sometimes. 

Mr. HORN. Right. I have to catch a plane at 3, so that is fine. 

Mr. KOSKINEN. I am sure the next panel feels much better. 

The Debt Collection Improvement Act was signed into law almost 

1 year ago. It was a result of a bipartisan effort in Congress to reform the management of Federal nontax receivables. The administration appreciates the leadership and efforts of the chairman and 

the ranking member of this subcommittee in obtaining passage of 

this act. Your sponsorship was instrumental in giving agencies 

modern management tools for their credit programs and other 

nontax receivables. 

The management of Federal credit programs is basically the responsibility of each agency. However, a major tenet of the act is 

that when agencies work together to prevent and collect delinquent 

debts, loan recipients and taxpayers will benefit, and public confidence in the Federal Government’s management of cash and loan 

assets will increase. Since enactment, the Chief Financial Officers’ Council and the Federal Credit Policy Working Group have been 

monitoring the implementation of the act. As chairman of these 

interagency groups, which were instrumental in developing the act, 

I think it is clear that the Treasury Department and the major 

debt collection agencies are making real progress in implementing 

the act. 

The rate of implementation varies by agency, due to differences 

in program requirements and operational issues. However, there is 

no question agencies are committed to working together in using 

the authorities in the act. 

Our experience—not unlike the private sector or the State of 

Massachusetts, from which you just heard—is that a debt that is 

delinquent for more than 1 year is uncollectible without the use of 

special collection tools such as offsets, referral to private collection 

agencies and litigation. In 1996, more than $3 billion was collected 

through offsets, private collection agencies, and litigation. 

The act significantly improves the ability of the Departments of 

Treasury and Justice, along with loan making agencies, to maximize collection of delinquent debts by ensuring quick action, such 

as sharing payment and collection information between agencies 

when an account is over 180 days overdue. Also, agencies have a 

range of new tools for improving credit collection and performance. 

In the President’s 1998 budget, several of these tools were highlighted as administration management priorities. 

First, we need to obtain higher recoveries on delinquencies within enhanced payment offset. Next, we are focused on lowering the 

cost of program administration. The act encourages agencies to use 

the private sector to contact delinquent debtors as well as private 

49

attorneys to support Justice Department litigation enforcement of 

past due claims. A new governmentwide contract to acquire private 

sector debt collection services is nearing completion by the Treasury Department. 

We also need to take advantage of the authority for gainsharing 

for increased collections. The act allows agencies to keep up to 5 

percent of any increase in their collections and to use the funds on 

improved credit management and debt collection. The Small Business Administration, the Environmental Protection Agency, the Department of Health and Human Services, and the Federal Emergency Management Agency are piloting this authority, and their requests are included in the President’s 1998 budget. 

Finally, we are focused on the need for coordinated and expedited 

asset sales. The act encourages agencies to sell loan assets when 

the Federal Government will benefit financially. Both performing 

and nonperforming loan assets have been sold successfully by Federal agencies. The Federal Credit Policy Working Group has formed 

a subcommittee to identify successful loan sales practices and to assist agencies that are considering asset sales. 

The challenges to speedy implementation of the act include organizing and training personnel, revising procedures, issuing new 

regulations, notifying debtors, upgrading systems, and modifying 

reporting requirements. The need to upgrade and enhance systems 

is proving to be the most challenging obstacle, especially for interagency debt collection system requirements that must be synchronized to track and report on referred accounts. 

Most agency systems will require some modification to identify 

debt to be referred to Treasury for offset. During the next year, the 

Office of Management and Budget, working closely with the Chief 

Financial Officers Council and the Federal Credit Policy Working 

Group, will continue to support interagency efforts to improve receivables management information systems. 

In a time of fiscal constraint and tightly budgeted staff resources, 

Treasury and the major receivables management agencies face 

many operational and systems challenges. The development of the 

governmentwide approach to receivables management is a formidable task. We look forward to continuing to work with you and the 

Congress in meeting these challenges and implementing this significant legislation. 

Mr. Chairman, that concludes my summary. 

[The prepared statement of Mr. Koskinen follows:]

50


g:\graphics\44176.023
51


g:\graphics\44176.024
52


g:\graphics\44176.025
53


g:\graphics\44176.026
54

Mr. HORN. I think I am going to, given your time situation, start 

in on the questioning with you and then we will hear the Treasury 

officials after that. 

As I looked at the testimony, and I read a lot of it last night—

I did not have your statement at the time—I am reminded of my 

favorite television show, which is ‘‘Yes, Minister and, Yes, Prime 

Minister,’’ which hasn’t been broadcast in this country much lately, 

but it stops the House of Commons whenever it is broadcast in 

England, and the leading civil servant in that great show is Humphrey Urbane, sophisticated and running circles around the political appointee. May I say, and I am sort of reminded here that everybody is saying we have done a wonderful job but we haven’t collected very much, and Humphrey would say, Mr. Minister, we 

agree with this in principle, but nothing is happening. 

Now, that is what worries me here. Let me read you a quote. It 

is passed anonymously to the committee:

As the Financial Management Service provided technical assistance to agencies, 

the Office of Management and Budget took the lead to ensure implementation of 

the Debt Collection Act of 1982 in the follow-on measures, and we are of course one 

of the follow-on measures. OMB has little role in the Debt Collection Improvement 

Act and the Financial Management Service lacks implementation muscle due to its 

lack of budgetary authority. 

Federal agencies do not have an incentive for compliance with the Debt Collection 

Improvement Act. Most agencies will resist sending accounts to Treasury and the 

loss of the debt collection function, thus, defending their turf. 

OMB supports the Debt Collection Improvement Act but the program examiners 

who exercise the muscle in OMB are not involved. This neutralizes OMB in the face 

of strong agency resistance and sets Treasury up to squabble with agencies and get 

little accomplished.

What is your reaction to that? 

Mr. KOSKINEN. Perhaps as Humphrey might say, I think your 

anonymous source is all wet. OMB is noted in that source as 

strongly supportive of this act. The agencies are strongly supportive of it. This is not an act imposed on the executive branch 

by the Congress. 

As you will recall, this is an act that was generated by the agencies themselves working together as the Federal Credit Policy 

Working Group, and the CFO Council, along with the Inspectors 

General who had done studies beforehand. This was an act that the 

agencies were seeking to give them more authority to allow them 

to more effectively collect on their debt. So this act was received 

enthusiastically by the agencies when it was passed. 

Mr. HORN. Well, it was received by the people who were concerned in finance and in budget, but has it soaked down through 

the system to the actual working program officer that, one, signed 

off on the loan and maybe doesn’t want to really do much about 

collection? I think of the Department of Agriculture, and this is 

true of most agencies, true of many congressional authorized committees, that people in the Department of Agriculture—their mission is to help farmers, I understand that, I grew up on a farm, 

and tears come to my eyes when foreclosures occur on farms—so 

as this percolates down through the system, how are the program 

people implementing it? Do they really much care about collection 

that is hurting some of the friends, in some cases, in the same communities that they live? 

55

Mr. KOSKINEN. First of all, the Federal Credit Policy Working 

Group is program officials of the departments, as well as their finance people. And they worked with this jointly from the start of 

this matter. Second, with regard to incentives, the Federal Credit 

Reform Act requires that subsidy rates take into account the actual 

performance of the credit program. So there is, built into the Credit 

Reform Act and the calculation of the subsidy rate, an incentive for 

agencies to collect on their loans and not have losses any greater 

than necessary. 

Also, as noted, and you, Mr. Chairman, were a strong supporter 

of it, the agencies are provided incentives in the sense that they 

are allowed to keep up to 5 percent of increased collections to improve their collection efforts. Again, a provision that was strongly 

sought by the agencies and received with enthusiasm. 

With regard to the OMB program examiners, we have a working 

group within OMB of program examiners, working on these matters. The meetings of the Federal Credit Policy Working Group are 

attended by the relevant programming examiners. The President’s 

budget, as I noted, has improvement in debt—in collection and 

credit program management as its highest level. One of the directors, Director Frank Manes—management objectives for this year 

is to improve credit program management and debt collection. So 

I think there is no shortage of enthusiasm, but I will also say this 

is not an easy issue to implement overnight. 

As noted, and you will hear from other agencies, a major obstacle 

is making sure the systems are able to provide data effectively, but 

as you will note in the Agriculture Department testimony, for instance, with reference to your note, they in fact already are referring debt to the Treasury Department. They have previously used 

many of the authorities available under the act, under special provisions, and no one has been more enthusiastic in working with us 

on this act than the Agriculture Department. 

Mr. HORN. Well, that is good to hear. 

By the way, Secretary Hawke, if you want to get in on this sometime. 

Mr. KOSKINEN. That’s right, you guys can chime in any time you 

like. 

Mr. HORN. I am just trying to help John get out of here to his 

next commitment. 

Mr. HAWKE. I think the Minister is doing fine. 

Mr. HORN. I suspect you are correct on that. 

In your capacity, Mr. Koskinen, chairman of the President’s 

Council on Integrity and Efficiency, could you commit to making 

auditing for implementation of the Debt Collection Improvement 

Act a part of the next annual audit plan for agencies which have 

substantial delinquent debt? 

Mr. KOSKINEN. You will be happy to know I cannot speak on behalf of the Inspectors General in terms of how they do their work. 

I do chair the committee and work closely with them, but each Inspector General has to set its own work plan. They are independent 

in that respect. 

On the other hand, as I noted, this is an area that they have previously expressed interest. Their report on our debt collection activities in the agencies was a major resource for the Federal Credit 

56

Policy Working Group, and I would expect in the major credit program agencies that these would continue to be monitored. 

I would also note we have been working for the last 2 years, even 

before passage of the act, with the Federal Credit Policy Working 

Group on the development of performance measures for credit programs. The Government Performance and Results Act requires 

agencies generally, and departments, to have strategic plans which 

state not only their goals and objectives, but their performance 

measures. Again, in terms of incentives, I think as we get greater 

visibility about what is happening with these programs, we will 

have program managers and political officials, as well as ministers, 

interested in ensuring that the programs run effectively and efficiently. 

Mr. HORN. Have any agencies referred to the Treasury, are there 

any debts for cross servicing since enactment of the Debt Collection 

Improvement Act? 

Mr. KOSKINEN. I will let the detailed answer be provided by Mr. 

Murphy. 

My understanding is a number of agencies have already begun 

to transfer debt to the Treasury, but I think Mr. Murphy can give 

you more details. 

Mr. MURPHY. Yes, there are 12 agencies that have referred some 

cases to us already. The numbers are not staggering, but the system is just getting up and running and it is starting to happen. We 

have two agreements with other agencies, as to they are starting 

to refer debts to us, and we are still working with others as they 

try to overcome some of their system problems to get ready to do 

so. 

Mr. HORN. That leads to my next question. Currently, as I understand the figures and correct me if this is in error, Federal 

agencies have transferred a mere $28.6 million, that is million with 

an ‘‘M,’’ to the Financial Management Service for collection action 

out of the total of delinquent nontax debt of $51.3 billion, that is 

billion with a ‘‘B,’’ or slightly better than $1 out of every $1,800 of 

delinquent debt owed the Federal Government. 

My query to the Deputy Director for Management is does OMB 

intend to do anything to increase referrals of delinquent debts to 

the Financial Management Service? 

Mr. KOSKINEN. As Mr. Murphy, Mr. Hawke, and I noted in our 

testimony, we think the process is beginning. It is complicated. We 

do not detect any reluctance by the agencies to make the transfers. 

And we are working and continuing to oversee this. We are measuring the progress they are making. We fully expect that when the 

Treasury’s offset program is up and running full scale in January, 

by that time, there will be several billion dollars referred to either 

the Treasury or other debt collection centers. 

Mr. HORN. I might add that the General Accounting Office informs us that the agencies are very reluctant so they are getting 

one word and you are getting the words because people like to 

please you, and the question is, what are we going to do about it? 

And my next question has to do with the role of the budget examiners, are the budget examiners making this a major item in the 

things they ask when budgets come before them. 

57

We also have a Government Performance and Results Act. Will 

this be the collection of debt, one of the things that the government 

across the board, with OMB direction? Is this a result to measure 

what kind of agency you are? 

Mr. KOSKINEN. The short answer is yes, we are working across 

all those frontiers. We expect, that, in the major credit agencies, 

the performance of their credit programs will be a significant part 

of their strategic plans. The testimony you have or will receive 

from the Department of Education, IG’s office, shows that the Education Department has put debt collection as part of its strategic 

plan. We expect that the Federal Credit Policy Working Group and 

CFO Council will continue to report on performance on debt collection as we go forward. 

As I noted, this is a high priority in the President’s budget. It 

is a management priority of the director, and the program examiners are participating actively with the agencies directly through 

the Federal Credit Policy Working Group. 

Mr. HORN. OK. So the program director, I assume, is the budget 

examiner, in the old days? 

Mr. KOSKINEN. In the old days; they are now program examiners. 

Mr. HORN. Fine. But they are going to make this part of their 

review of all agency budgets? 

Mr. KOSKINEN. Yes. 

Mr. HORN. OK. In the agency’s response to the subcommittee’s 

inquiry to the largest Federal agencies, there was scant interest 

among the agencies in conducting an asset sales program. As the 

successful experience that HUD indicated, this can be an effective 

way to deal with agency receivables. Is there a way to build an incentive for agencies to manage their receivables in this manner? 

Mr. KOSKINEN. Yes, it is an important initiative. In my more detailed statement, I reference the fact that we have had two substantial presentations at the Federal Credit Policy Working Group 

on this. There is now a support group working with the Small 

Business Administration which is for the first time going to be engaging in significant asset sales. They are going to draw upon the 

expertise, not only of HUD, but of the FDIC and other agencies, 

that have had asset sales. What we hope to do is develop a more 

effective and aggressive program over time. 

There has been a pilot program called the government-owned 

real estate sales program run by GSA and the Treasury Department, which again has been a way of trying to pool asset sale expertise. We expect that this will improve and there will be significantly more sales over the next 12 to 24 months. 

Mr. HORN. My understanding is that the agencies are also not 

very excited about selling delinquent debts, even after the agency 

has given up collection action, which they are required to do. 

Do you have any thoughts on agency reluctance in this regard? 

What can OMB do about it? 

Mr. KOSKINEN. The act provides after 180 days, unless the debtor 

actually meets some specific statutory exemptions, it has to be referred to a debt collection agency or the Treasury Department for 

active collection. 

We expect there will be, as I noted, more loan sales. Ultimately, 

the incentive for the agencies is if a loan sale is financially more 

58

beneficial to the Government than holding, which is often the case, 

that will result in a lower subsidy rate and more funds available 

for that program. So if we can get people to understand that connection, I think they will be increasingly supportive of the importance to the Government of maximizing a return from these assets. 

Mr. HORN. One or two last questions and you are a free man this 

morning. 

According to Mr. McNamara’s testimony, which we will have 

later, a match was performed between the IRS income records and 

students’ Pell Grant applications, over $100 million in grants went 

to individuals who had lied and understated their income. This, to 

me, is rather remarkable. If this is a problem in one program area, 

can we expect similar deceptions are incurring in the programs of 

other agencies? What are OMB’s ideas to solve the problem? 

Mr. KOSKINEN. We have been focused on this issue for some 

time. As you know, income verification is at the height of a wide 

range of Government programs, not just credit programs, but grant 

programs, and other issues as well. It is important for us to ensure 

that the limited Government resources are actually being applied 

and made available to people who qualify for them. 

There are, on the other hand, obviously substantial interests and 

concerns about individual privacy in terms of what information is 

available. But in terms of my touting here, the Federal Credit Policy Working Group, at our recent meeting, there was a discussion 

by different agencies of what they do for income verification, and 

it was noted that you can, in fact, ask applicants to waive privacy 

of their Internal Revenue Service records. So that, in fact, it’s possible for grant recipients and loan recipients to voluntarily waive, 

if they want to apply for a program, any access to IRS records, 

which would allow you to make that match. I also think it is an 

important initiative to ensure, as we go forward, that we are making loans to, in fact, qualified people. 

Mr. HORN. Do we really need an amendment to the law to say 

that would automatically be done when you are up for a Federal 

loan? I assume this is the Buckley Act or what are we thinking of 

on the Privacy Act. 

Mr. KOSKINEN. There is a privacy act issue there. At this point, 

I am not aware of the need for legislation. As I say, we are pursuing the level of—the need for this. We think it is an important 

initiative and if there is a need for legislation, we will certainly advise you of that. 

Mr. HORN. Well, I just suggested to staff that we need to get this 

on the list of things to do because it is silly to sit in a student aid 

office and say, well, student, will you give me access to your income 

filing. 

The Government is giving out taxpayers’ money to people to get 

an education. If they are lying, we shouldn’t have to find out 5 

years down the line or something; we should find out right then 

and there who is conning whom and deal with it, I don’t know why 

we have to have a lot of paper on people signing some Privacy Act, 

to, in essence, commit a crime, and that is what we are perpetuating right now. So I would think we need legislation on it, rather 

than go down the Privacy Act route, just do it. 

59

Now are you prepared to have OMB say it or is there some great 

myth here that all students are honest? 

Mr. KOSKINEN. And I don’t think our experience is that. At this 

point, as I say, we are looking into it. We are not prepared at this 

time to state whether or not legislation is needed. 

Mr. HORN. When will you be done looking into it? 

Mr. KOSKINEN. We don’t have a time line. 

Mr. HORN. Yes, that does sound like Humphrey. Let’s keep on it. 

We will expect a conclusion to be raised on this and we will raise 

the issue with you in a letter and exchange. Let’s get an answer 

on it, because we ought to change that. This is crazy, to pour 

money down drains when we can check an income tax record. 

Maybe they are lying there, too, at which point we have other problems, and we will hope in the reorganization of IRS, it provides for 

that type of investigation. 

OK. We have met your need to go somewhere else. We are glad 

to have you come, and we appreciate your support of this act. I 

hope in the 6-month hearing we will hold 6 months from now there 

will be substantial transfers of delinquent debt to one of my favorite agencies, which is the Financial Management Service. They 

seem to get things done in a very efficient, orderly way, but they 

can’t do it if they don’t have the agencies send them the base material with which to operate. 

Mr. KOSKINEN. I appreciate your cooperation here this morning, 

Mr. Chairman. Let me conclude by saying that we have been extremely pleased with the efforts of the Treasury Department and 

the Financial Management Service in implementing this act. As 

Mr. Murphy’s testimony notes, they have held training sessions, 

and they have worked very closely with the agencies on trying to 

improve the systems and facilitate the progress. I think that at this 

point we are confident that the program will work effectively under 

their leadership. 

Mr. HORN. Well, we thank you very much. 

And now Secretary Hawke, please. I am sorry for the delay in 

your testimony. 

STATEMENT OF JOHN D. HAWKE, JR., UNDER SECRETARY, 

DEPARTMENT OF TREASURY 

Mr. HAWKE. Thank you, Mr. Chairman. 

Mr. HORN. I want to accommodate people when I can. 

Mr. HAWKE. Thank you, Mr. Chairman. I am delighted to be here 

today and to have this opportunity to discuss the Department’s actions to implement the Debt Collection Improvement Act. 

First, I would like to thank you, Mr. Chairman, and the ranking 

minority member, Mrs. Maloney, for your strong support of this 

legislation and the work that you have put in to get it passed. 

The DCIA, through the establishment of new and improved debt 

collection tools, has redefined how Federal agencies should collect 

their delinquent debts. The provisions of this act will make Government debt collection more efficient and effective, resulting in improved fiscal integrity of the United States while preserving the 

due process rights of our citizens and treating debtors fairly. 

This legislation had strong support in Congress and the executive branch because improving Government processes, making govVerDate 0ct 09 2002 12:56 Oct 21, 2002 Jkt 080892 PO 00000 Frm 00063 Fmt 6602 Sfmt 6602 W:\DISC\44176 44176
60

ernment more efficient, and saving taxpayers money, make good 

sense. The development of the legislative language contained in the 

act, the enactment of law, and the implementation of its provisions 

represent Government at its best. 

Above all, this legislation represents a Government commitment 

to those millions of citizens who pay debts to the government in a 

timely and responsible way. The message that we send to them is 

that we will respect their integrity and conscientiousness by making every reasonable effort to assure that others who owe money 

to the Government discharge their obligations as well. We owe it 

to all of our citizens to make clear that the Government will act 

prudently in assuring that it recovers amounts that are due to it. 

To do less would be to send a very unfortunate message to those 

that have financial obligations to the Government. 

Mr. Chairman, we at the Treasury have supported this legislative initiative from its onset and we are committed to its success. 

We are hoping our testimony today will assure you of our commitment. 

When the legislation was initially being considered by the Congress, more than $51 billion of the $245 billion of nontaxable receivables owed to various program agencies was delinquent. Most 

of this debt was related to direct loans, defaulted loan guarantees, 

and various other forms of accounts receivable from Government 

operations. 

At the end of 1966, the nontax receivables owed to the Federal 

Government had increased to $252 billion, with $51.3 billion of 

that amount, that is 20 percent, or $1 in $5 owed to the Government being delinquent. I think it is interesting to note, Mr. Chairman, that this amount is almost half of last year’s budget deficit 

of $107 billion. 

Mr. HORN. Right. 

Mr. HAWKE. Delinquent receivables over 1 year old constitute 83 

percent of the total, indicating that $4 in every $5 of delinquent 

debt is old and may be difficult to collect. Debts of this age are 

typically collected at the rate of only 25 cents on the dollar in the 

private sector. 

Without strong commitment and cooperation across Government, 

from the Federal agencies, the Office of Management and Budget, 

Treasury, and every congressional committee that has a hand in, 

in the process of authorizing funding and providing oversight of 

programs that create debt, the volume of delinquent debt is likely 

to grow. If we are to get the delinquencies to a level that is considered tolerable, we must fully implement the provisions of the act 

and we must use them in each and every program. 

We are heavily invested in showing Treasury can make a difference in this process. After all, every dollar that is not collected 

is a dollar that we will be responsible for borrowing to finance the 

Federal Government. 

Between April 1996 and September 1997, a 17-month period 

since the passage of the act, we will have invested a substantial 

amount of resources into the DCIA and laying the foundation for 

its future operations. This was made possible through close cooperation between OMB, Treasury, our congressional appropriVerDate 0ct 09 2002 12:56 Oct 21, 2002 Jkt 080892 PO 00000 Frm 00064 Fmt 6602 Sfmt 6602 W:\DISC\44176 44176
61

ators, and through the ability of the Financial Management Service 

to find funds and resources in budgets that are already very tight. 

In this short time, we have built a governmentwide delinquent 

debtor data base, and we have already begun offsetting payments, 

albeit not in great magnitude, as the chairman has pointed out. We 

also built a basic debt management work-flow system to cross-service and collect delinquent debt that is over 180 days old through 

collection at FMS or through private debt collectors. 

Since the passage of the act last April, our efforts have been intense and they will continue unabated. Next year we will be able 

to report to you that all the Government’s eligible payments are 

subject to being offset; that all accounts over 180 days delinquent 

are being properly serviced; that all agencies are using the debt collection contracts in situations where Treasury and the agencies 

agree that they should; and that all of the needed regulations are 

in place. 

Mr. Chairman, that concludes my remarks. Jerry Murphy, our 

Fiscal Assistant Secretary, who is far better able than I am to discuss the details of the program will now discuss the FMS implementation of the active agreement. 

Mr. HORN. Well, thank you very much. 

[The prepared statement of Mr. Hawke follows:]

62


g:\graphics\44176.027
63


g:\graphics\44176.028
64


g:\graphics\44176.029
65

Mr. HORN. Secretary Murphy. 

STATEMENT OF GERALD MURPHY, ASSISTANT FISCAL 

SECRETARY, DEPARTMENT OF TREASURY 

Mr. MURPHY. Thank you, Mr. Chairman. I also have a longer 

statement for the record but I will just briefly summarize the accomplishments. I appreciate this opportunity to discuss our role in 

the implementation of the Debt Collection Improvement Act. 

Within the Department of Treasury, the Fiscal Service, and, specifically, the Financial Management Service that you mentioned a 

while ago has the responsibility of the debt collection provisions of 

the act, and we embrace those responsibilities with enthusiasm because we are uniquely qualified to accomplish that mission, and we 

strongly believe in the purpose and the goals of the legislation. 

I’ll skip to some key results because I think there has been a lot 

that has been accomplished that is sometimes being overlooked by 

some of the numbers. 

We are actually conducting disbursing official offsets right now. 

We have an interim system to do that, and it was built quite quickly. The act, of course, provides the disbursing officials of the United 

States, with the authority to conduct administrative offsets to collect delinquent debts that are over 180 days old. We have developed the operational computerized system to effectuate those offsets. It was operational back in September 1996, and we began offsetting payments at that time. 

While the numbers on cross-servicing aren’t too high, we have 

about 2 million cases referred to us for offset, and they represent 

close to $9 billion worth. We are also merging the two offset programs, the Internal Revenue Service tax refund offset program is 

going to be merged into the FMS offset program effective January 

1, 1998. And while that may not sound like a big deal, it’s a lot 

of work, believe me. 

We are also going to be merging the salary offset program, which 

has existed for a number of years, into the Treasury offset system. 

Even though some of these things haven’t happened yet, it doesn’t 

mean that people aren’t out there collecting debts because that salary offset system is out there and they are using it—collectors that 

they are using and tax refund that they are using. So money is 

coming in. 

We are also, as I mentioned earlier, doing some cross-servicing 

of debt. Agencies that have debts of more than 180 days old are 

supposed to be taking appropriate action to collect those claims or 

to refer them to Treasury for appropriate action. 

You mentioned the $51 billion in delinquent receivables. That’s 

true. There are a number of exceptions in the law, as you know. 

If they’re currently being referred to Justice for litigation or to a 

private collector they can be offset internally within 3 years, et 

cetera. There are a number of those $51 billion that will never be 

referred to Treasury or the debt collection center necessarily. 

We have set up a debt collection center within the Financial 

Management Service in our Birmingham office, and we are open 

for business and we are working with agencies to get that business 

in. We understand that the agencies do have a number of things 

that have to be done before they can participate. We believe that 

66

they are working on those so that schedules can be agreed to when 

debts will actually be transferred. 

We have also done a lot to inform people, provide guidance, and 

train our employees. We held 17 conferences between August and 

December of last year around the country to get to as many people 

as we could, not only just in Washington but in the field offices 

around the country, where a lot of the real work is done. 

We’ve visited virtually every agency individually to work with 

staff and provide them the information that they need. We established a home page on the Internet. We have a lot of debt collection 

information on there, and we are getting anywhere from 500 to 

3,000 hits on the home page every month. People are interested in 

this. They want information. They’re trying to get the job done. 

We’ve also worked on drafting a host of regulations. Those regulations cover a wide range of provisions in the act, and the majority 

of those will be published for comment in May or June. We have 

a couple of others that will come along in July or August for comment. So we have a lot of regulations in the mill. We’ve had to 

work jointly with a number of agencies on those. We’ve worked 

with Justice Department, for example, and the Department of Education on the wage garnishment draft regs. We worked with Justice 

on the Federal claims collection standards. We’ve consulted with 

other agencies on the various regs as well. 

We’ve also worked on the new governmentwide debt collection 

contract, and that’s in the procurement process. The request for 

proposal went out in March, and we expect to get bids on that beginning the first of May. 

We are developing a public awareness campaign to inform the 

public, at first in a general way, about the need to repay their 

debts, and later in a more specific way. But the first public service 

advertisements on that will start appearing on radio and TV sometime in June. 

Finally, I would just briefly mention our efforts to improve the 

collection of delinquent child support. You will be hearing more on 

that later from HHS, who we have worked along with the States 

to implement the President’s Executive Order 13019. And there, 

again, a cooperative effort between Treasury, HHS, and the various 

States in partnership have been working to resolve a host of due 

process issues, systems issues, regulatory issues and other operational issues. 

Working together, we have succeeded in resolving many of those. 

We are still working on some. But we have four States and the District of Columbia who have already issued notices, and we will be 

offsetting beginning in May for those States. Other States have 

systems problems they will be coming on a little later. We would 

expect to have them all participating by January 1998. 

And internally, I’ll just close by mentioning that we’ve taken a 

number of steps organizationally to make sure that DCIA receives 

high priority. And these include reorganizing within the Financial 

Management Service, setting up a brand-new assistant commissioner area for debt management services. We established the debt 

collection center in our Birmingham office. We’ve increased staff 

from 17 to 65 and are still adding some, and we are committing 

67

to providing the resources necessary to implement all provisions of 

the act. This past year, we made significant investments in DCIA. You mentioned the $20 million. That is our upfront investment 

in systems. I believe it also is our estimate as to what we will 

spend between now and the end of September, so we haven’t spent 

all of that quite yet. You also mentioned that we had only collected 

some $300,000. That’s true. That’s the offset amount we received 

the first 3 months we had the system up, reflecting the $2.8 million 

from all of our tools. 

Those investments that we incurred this year, however, I really 

expect are going to be paying dividends in the coming year. In the 

coming year we’re going to be adding more debts and more payments into the offset system. We will be providing training and 

guidance for agencies so that there’s a seamless transition from the 

tax offset program to the Treasury offset program. We are going to 

continue to enhance our computerized debt collection management 

system. We expect to award the competitive debt collection contract 

this summer. And we’ll have increased use, I think, of the collection contract and improved collection rates from that. 

There are a number of regulations, as I mentioned, and those 

will also be published in the coming months, as well as a rollout 

of our public awareness campaign. 

This is a big partnership arrangement, working with all the Federal agencies and working with the 50 States. But I think we are 

going to be showing some measurable results in the following year. 

Mr. Chairman, that concludes my remarks, and I’d be pleased to 

address any questions that you might have. 

[The prepared statement of Mr. Murphy follows:]

68


g:\graphics\44176.030
69


g:\graphics\44176.031
70


g:\graphics\44176.032
71


g:\graphics\44176.033
72


g:\graphics\44176.034
73


g:\graphics\44176.035
74


g:\graphics\44176.036
75


g:\graphics\44176.037
76


g:\graphics\44176.038
77


g:\graphics\44176.039
78

Mr. HORN. Well, thank you both for that very thorough testimony, I appreciate it. I did have a chance to read both of your 

statements last night. 

Let me just note at this point I’d like to put in the record the 

letter from Secretary Rubin addressed to me dated April 14th, it 

is the summary of the major efforts made by Treasury to improve 

Federal debt collection and implement the Debts Collection Improvement Act. So this will be, without objection, part of the 

record. 

[The letter referred to follows:]

79


g:\graphics\44176.040
80


g:\graphics\44176.041
81


g:\graphics\44176.042
82


g:\graphics\44176.043
83


g:\graphics\44176.044
84


g:\graphics\44176.045
85


g:\graphics\44176.046
86


g:\graphics\44176.047
87


g:\graphics\44176.048
88

Mr. HORN. Simply one question comes from that, and that is, 

what steps has the Treasury not taken which will prevent the referral of debts for administrative offset or cross-servicing? Are 

there a few key things in this letter, and since I assume you prepared it and he signed it. Brooks Hayes, the great Congressman 

and raconteur, said that there are two types of people in this town, 

one who prepares letters that other people sign and one who signs 

letters that other people prepare. I am curious in those categories, 

administrative offset or cross servicing, what is missing? Anything? 

Mr. MURPHY. Basically, I think we had a lot of provisions in the 

act to try and deal with, and we’ve been trying to deal with them 

all simultaneously, but we have set some priorities and our priorities were in the offset program, the cross-servicing and the debt 

collection contract. At this point, I don’t think there are any things 

that we have done that have substantially hindered the process. In 

the offset area, we started a very small operation where we had 

just a few agencies and a few payment streams we were matching 

up. We are in the process now of adding vendors to the offset program, and we hope to have 15 million of them in that matching 

process by August. 

The next step is to fold the salary offset program into the Treasury offset, but we’ll keep the existing one going so it’s available and 

being used until we get the new one up and incorporated. One area 

that you might characterize as something we haven’t accomplished 

yet is we don’t have the regulations out as yet to offset benefit payments. So benefit payments will not begin offseting for some time 

yet. 

Mr. HORN. Could you give us an idea; 6 months; 3 months? 

Mr. MURPHY. The benefit payment regulation is scheduled to be 

published for comment in July, and our target for getting a final 

regulation on the street would be October 1997. That would cover 

the offset of Social Security, railroad retirement and black lung, for 

example. And as you know, there are some limitations on those, 

where you don’t conduct an offset unless the recipient is receiving 

at least $9,000 a year in benefits and then you only offset a reasonable amount from any excess. So those are going to be a little more 

complicated, but that’s our general timeframe. 

Mr. HORN. Very good. 

Let me just ask you about the relationship with GSA. General 

Services Administration’s purchase requisitions and travel cards 

will be accepted by millions of vendors, and we just sent through 

the House legislation to really require the travel card for most Federal employees unless certain exceptions are made by the administrator. 

Would it be possible to incorporate an administrative offset feature if the Financial Management Service and the General Services 

Administration worked together on this area? Do you see any room 

there for that relationship? 

Mr. MURPHY. Yes, sir, we are discussing that right now, as a 

matter of fact. We do want to move to the use of credit cards extensively in Government. We think it’s going to be very cost beneficial. 

We have expressed some concerns about the ability to build in 

some kind of process whereby we could at least periodically determine whether vendors are escaping offset because they are acceptVerDate 0ct 09 2002 12:56 Oct 21, 2002 Jkt 080892 PO 00000 Frm 00092 Fmt 6602 Sfmt 6602 W:\DISC\44176 44176
89

ing credit cards which doesn’t seem to be fair and proper. We are 

also working with the GSA to see what kind of solutions we might 

come up with that are reasonable and cost-effective. 

Mr. HORN. Did you happen to hear Commissioner Adams’ description of his automatic wage garnish system? 

Mr. MURPHY. Yes, sir, I did. 

Mr. HORN. Is Treasury planning to build a similar system? 

Mr. MURPHY. I’m not sure whether it will be a similar system 

but basically in the wage garnishment area, the act gives the agencies the authority to use wage garnishment and I think they’re 

very excited about the prospects of that being a very effective tool. 

Treasury is required to issue regulations, and our schedule for that 

is to try to get regulations out for comment in June. We have been 

working with the Department of Justice and the Department of 

Education on those. We are in favor of almost anything that collects more money, because we are the collectors. 

Mr. HORN. Good attitude. Good attitude. 

Mr. MURPHY. I will mention, though, that my understanding, and 

I think Mr. Adams’ point, was that, in order to collect something 

by wage garnishment, you have to know who the employer is so 

that you can garnish. 

Mr. HORN. Right. 

Mr. MURPHY. And there are a number of data bases available 

that from a collector’s point of view. It would be very nice if we 

could tap into that information so we can do matches. 

Mr. HORN. Now, is there a problem in the law that you can’t access Social Security tapes or Labor tapes, given various things, because if it is—— Mr. MURPHY. It’s my understanding that there are a host of both 

Federal and State laws that restrict the availability of information, 

the Privacy Act. Certainly, IRS has its limitations. It is not allowed 

to disseminate that information for purposes other than tax collection. Social Security has some very explicit exceptions in their law 

as to who they can give out information to. 

I believe that some of these employment records that are available out in the States are probably the States’ tax records, and I 

believe Mr. Adams said that he thought those would be subject to 

State law. Obviously, some States are willing to disseminate information for certain purposes. 

Mr. HORN. Well, as I remember in the Debt Collection Improvement Act, both Labor records and Health and Human Service’s parent locator service were specifically authorized. 

Mr. MURPHY. That’s correct, sir. 

Mr. HORN. So what’s missing? 

Mr. MURPHY. I believe the sources of information that Mr. 

Adams was referring to—I haven’t been able to verify this, but my 

assumption has been that he’s talking about State tax records. He’s 

the State revenue collector. He has those records available to him 

in his State, and I believe he has indicated that a couple of the 

States have made them available. 

Mr. HORN. Do we need a law that permits Treasury to access the 

State records in terms of employment? Because you get certain 

things on the State revenue and Federal revenue. We need to 

know—maybe you want to think that through and let us know, beVerDate 0ct 09 2002 12:56 Oct 21, 2002 Jkt 080892 PO 00000 Frm 00093 Fmt 6602 Sfmt 6602 W:\DISC\44176 44176
90

cause the Ways and Means missing piece here hopefully will come 

in the next few months and we can work it into that bill. 

Mr. MURPHY. We would be happy to do that. We are certainly interested in using the tools. I think what you’d have to weigh are 

some of the privacy rights as well. 

Mr. HORN. Yes, and I think that ought to be in order when you 

owe money so the rest of us taxpayers do not pay more for the 

deadbeats. The Federal Government writes off between $8 billion 

and $18 billion in non-tax debts each and every year—and you 

have heard me on that subject a number of times—much of which 

has not been subjected to collection action. And I notice with interest, Secretary Hawke, you noted the role for private collectors 

there. 

Does the Department of the Treasury believe these debts ought 

to be included in the administrative offset, and other collection activities? Are agencies referring such debts? 

Mr. HAWKE. It seems to me, Mr. Chairman, that any debt that 

is collectable ought to be included in the offset program. I think the 

difficulty is determining at what point and under what standards 

you decide that the debt is no longer collectable and should be 

abandoned. But the fact that a debt is delinquent for a long period 

of time does not automatically mean that it shouldn’t be included 

in the offset program. 

Mr. MURPHY. Just to add to that, Mr. Chairman, in the cases 

where an agency writes off a debt and they actually close it out, 

they report it to IRS as income on a 1099—at that point we cease 

all collection efforts, offset, private collector, et cetera. But if it 

hasn’t been closed out, it is still possible that, if it hasn’t gone to 

a private collector before, we could send it to one. 

Mr. HORN. I’m glad you mentioned the 1099. I noticed in the testimony it’s labeled 1099C. Does that simply mean the third version 

of that form, or what is the ‘‘C’’ aspect? 

Mr. HAWKE. I think the letters that are attached to 1099 indicate 

in general terms the source of the funds that are being repaid. ‘‘C’’

probably refers to cancellation of debt. 

Mr. HORN. That certainly becomes income on which they pay 

taxes. And do we have any studies by GAO or the various Inspectors General of how effective that is once it’s put on your tax bill? 

Well, staff tells me that after it goes over to IRS, it is a 20 percent 

collect—that’s 2-year old data, but we need to get in the record at 

this point just how that system works. Is it effective or is it boats 

passing in the night? Because I think that certainly is one way to 

wake a few people up as to their obligations. 

Anything else you want to say on that? 

Mr. HAWKE. I might just add on that last point I had occasion 

recently to pay a visit not only to the FMS processing center in 

Philadelphia but the enormous IRS processing center, and they 

gave me a demonstration of exactly how the 1099s are cross-referenced in taxpayers’ records, so that when returns are reviewed, 

if a 1099 is not reflected in the return, it should set off some lights. 

Mr. HORN. Interesting. Where was that? In the Philadelphia center? 

Mr. HAWKE. In the Philadelphia center. 

Mr. HORN. Is that true in all centers? 

91

Mr. HAWKE. I think that is part of the normal process. 

Mr. HORN. I see. OK. Now, how will Treasury ensure systems 

compatibility when it is receiving debts from a number of Federal 

agencies? Is this going to be a problem? The compatibility in terms 

of systems, you’re having other agency plug into your system, I assume, and it is like the year 2,000 bit that we are worried about 

when these connections are made, are they really submitting debt 

or submitting viruses? I’m not sure which, but does it work through 

the system and how are we working that out? 

Mr. MURPHY. Basically, we have a debt collection computerized 

system, which we have the core of that system now, and so we still 

have some manual processes as well as automated, but we will be 

enhancing that as we buildup volume. And there are linkages that 

we envision giving agencies some options. Some can get on-line if 

they wish, while others might want to deliver data to us by magnetic tape. We will try to provide some options, but it will take a 

while to develop all of those linkages. But they are important, and 

that is what takes time in building systems. 

Mr. HORN. For the record, when are you beginning the new enforcement programs in the areas of debt collection and child support enforcement, and what sort of public education campaign do 

you envision to get the word out? 

Mr. MURPHY. As I mentioned, Mr. Chairman, we are working 

with the individual States to work when they’re ready to be able 

to come in and via the offset system. We are hoping to do a public 

awareness campaign there, and we are looking under every stone 

for a few dollars to help finance that. We do want to get the word 

out to the public, and we will be implementing with individual 

States between now and probably January 1998. 

Mr. HORN. Very good. Does that take extra authorization to wage 

a public campaign in this area or do you have that authority basically? 

Mr. MURPHY. Well, I believe HHS has done some public awareness things and has had money appropriated to them for some of 

those purposes. We just want to get the word out. We can use public service announcements, free press, anything we can. 

Mr. HORN. Have the States been fairly receptive to this? 

Mr. MURPHY. The States have been quite interested. We’ve had 

a number of conference calls with all the States. And for each one 

of them, we have listed the concerns they have over systems and 

operational matters. But a number of them are anxious to get 

started as soon as possible. The basic factor is how their system 

works and whether they can provide frequent updates of the information. 

Mr. HORN. Very good. Last night we received a letter from David 

J. Kerwin of Arthur Andersen’s Chicago office, and we furnished 

that to your congressional liaison. It might be something that you 

want to put in the record. But what it boiled down to, as I understand it, is that they service a $6 billion student loan portfolio and 

Mr. Kerwin raised the concern with respect to the contracts with 

the collection firms that are under consideration by the Financial 

Management Service allowing private contractors to retain accounts in repayment unless they are terminated for cause. And as 

92

I say, I have shared that with your staff. And ensure that the potential situation he described is avoided. Can we assure that? 

The subcommittee staff apparently spoke with Financial Management Service staff and it appears to be the intent of the FMS, 

but some aren’t too convinced. And the Treasury and the subcommittee staff work out if this is a baseless concern or is it a legitimate concern? So we are going to put it in the record without 

objection at this point, and what we would like is the Treasury answer to this? 

Mr. MURPHY. Fine. 

[The letter referred to follows:]

93


g:\graphics\44176.049
94


g:\graphics\44176.050
95


g:\graphics\44176.051
96


g:\graphics\44176.052
97

Mr. HORN. Moving right along, we are all set. And let me just 

look up a few more things in my annotated notes from midnight. 

Well, I’ve asked the question, but let me ask you, Secretary Hawke, 

I have been concerned about the IRS putting 5-year-old debt in the 

test pilot that private collectors are trying to get. And I guess my 

question is, isn’t that uncollectable? 

Mr. HAWKE. I would hesitate to generalize about the collectability of 5-year-old debt, Mr. Chairman. I think it depends very 

much on the circumstances. Certainly, if rigorous collection efforts 

have been pursued and debt remains delinquent after 5 years, that 

gives you a pretty dim view of collectability. 

Mr. HORN. I noticed in your sort of penultimate paragraph on 

page 2, you note that you are going to collect delinquent debt that 

is over 180 days old through collection and Treasury’s Financial 

Management Service or through private debt collectors. I am also 

curious what the policy is with regard to private debt collectors; 

what the thinking is, even if it isn’t a policy yet. Do you see a role 

there for that vast apparatus around the country, be it tax attorneys or private debt collectors, in helping us get the debt? 

Mr. HAWKE. Oh, very much so, Mr. Chairman. I think they are 

very much a part of the process. 

Mr. HORN. OK. Now, Mr. Murphy, I think I scrawled a few 

things on several of your pages. Let me flip by. I would hate to 

have you leave the room and say why didn’t I ask that question. 

Yes, on page 5 of your statement, in the second bullet at the top 

it says, Treasury is working with the Office of Management and 

Budget and the large credit granting agencies to establish debt 

sales programs for appropriate debt portfolios. I’d just like to know 

sort of where are we now on those? 

Mr. MURPHY. The Federal Credit Policy Working Group has been 

looking at that, and they have an interagency team which is looking at best practices and what’s been successful in the past. And 

they have come up with recommendations as to the strategy that 

ought to be used. 

OMB has the lead role in that area and would be consulting with 

Treasury on sales, and there are some agencies that are actively 

considering asset sales. 

Mr. HORN. Very good. On the advertisements which I’d mentioned earlier? If you could give us a few examples. We’d like to 

look at them and put them in the record if we can. We are never 

sure what GPO can print and not print, but we will test them, and 

if we can’t get it in we at least would like to look at it. And we 

thank you both for coming. It has been excellent, solid, professional 

testimony, and I deeply appreciate it. Thank you very much. 

Mr. HAWKE. Thank you, Mr. Chairman. 

Mr. MURPHY. Thank you, Mr. Chairman. 

Mr. HORN. All right, we are making progress slowly. And that is 

my fault. And we are on panel 4. 

Mr. Strader is not here? 

[Witnesses sworn.] 

Mr. HORN. All five witnesses have sworn. We will go down the 

line in the order in which you are seated. Ted David is the Chief 

Financial Officer of the Department of Agriculture. Welcome. We 

will begin with you. 

98

STATEMENT OF TED DAVID, CHIEF FINANCIAL OFFICER, 

DEPARTMENT OF AGRICULTURE 

Mr. DAVID. Thank you, Mr. Chairman. As you mentioned, I am 

Irwin Ted David, the acting Chief Financial Officer of the Department of Agriculture, and I very much appreciate the opportunity to 

share with you the progress that USDA has made in implementing 

the Debt Collection Improvement Act of 1996. 

With me is Mr. Richard Guyer, director of our Fiscal Policy Division in the office of the Chief Financial Officer. He is responsible 

for overall debt management policy in USDA. 

As I know you are very well aware, USDA programs touch every 

American every day. If it is not in the clothes we wear, then it is 

in the food we eat, the water we drink, the houses we live in, the 

lunches our children eat in the schools, or the recreation that we 

enjoy in our national forests. One of the major USDA strategic 

goals is to expand economic and trade opportunities for farmers 

and other rural residents. Fulfilling this goal will provide stable agricultural earnings and a productive rural economy, which will improve the quality of life for rural America and for all Americans. 

USDA fulfills its responsibilities to farmers and other rural residents through a number of programs, guided by statutory requirements, legislative mandates, and administration initiatives. Meeting the needs of rural families and communities is accomplished in 

part through a number of farm and rural credit programs which 

provide financing for water and wastewater systems, financing for 

decent affordable housing, financing for electric and telephone utilities and rural businesses, and financing of farm ownership and operations, and emergency disaster assistance and relief. 

These loan programs are designed to support our strategic goal 

to improve the life in rural America. Thus, several of the programs 

are targeted to low income individuals so that USDA is often the 

lender of last resort. USDA also holds a large number of noncredit, 

noncollateralized domestic debt. This debt arises from food stamp 

overissuances, timber operations and crop insurance overpayments, 

among others. 

In this category we have a large number of debtors and a relatively small debt load. On an overall basis as of September 30, 

1996, USDA was owed a total of approximately $108 billion in 4.4 

million accounts. This is down from $115 billion in 1992. 

Of this total, approximately $104 billion resulted from a variety 

of our loan programs. USDA as of September 30, 1996 had 3.3 million delinquent accounts, which total approximately $8.8 billion, 

which is 8 percent of outstanding balances, which is down from the 

11 percent that existed in 1992. Of these outstanding loan accounts 

nearly 3 million are due to food stamp overpayments. During fiscal 1996, USDA wrote off approximately $1.8 billion of 

delinquent loans, which is also down from 1992. USDA programs, 

as you know, are among the biggest direct lenders of Federal credit, with 53 percent of loans and 33 percent of total debt owed to 

the Federal Government. In addition, we guarantee loans valued at 

approximately $18 billion. 

In fulfilling our responsibilities, we believe that each and every 

debt should be repaid in accordance with the requirements and regulations under which the loan was made or the debt incurred, inVerDate 0ct 09 2002 12:56 Oct 21, 2002 Jkt 080892 PO 00000 Frm 00102 Fmt 6602 Sfmt 6602 W:\DISC\44176 44176
99

cluding the proper exercise of repayment and servicing provisions 

specified by the enabling legislation that created the programs. 

The Debt Collection Improvement Act of 1996 provides new and 

expanded tools to assist us in pursuing the collection processes. In 

fact, USDA had implemented several of the techniques incorporated in DCIA as early as 1985. We have made significant 

progress in implementing or expanding the provisions of the act, 

including establishing processes and procedures for implementing 

Treasury’s administrative offset program; implementing the provisions of collecting taxpayer identification numbers; reporting writeoffs to IRS; revising USDA’s process for routinely adjusting civil 

monetary penalties; reporting current and delinquent debt to credit 

bureaus, and referring delinquent debt to collection agencies for 

collection. 

We believe that Treasury’s administrative offset program promises to be an excellent collection tool, which when fully implemented will increase opportunities for collection. However, we at 

USDA have experienced two barriers in implementing this provision. First, we have to make changes in our computer systems to 

enable us to transmit timely and accurate information to Treasury. 

We also have to publish new regulations or modify existing regulations of agencies’ systems of records to meet the requirements of 

the Privacy Act. 

We do plan to start referring debts to Treasury for administrative offset by July 1997, and we estimate that we may be able to 

refer as much as $7 billion by the end of the year. Until we are 

able to implement Treasury’s administrative offset program, we 

will continue to collect delinquent debt through income tax refund 

and salary offset programs. During fiscal 1996, we collected $43 

million through the income refund offset program and our collections are even better in fiscal 1997. Since 1986, we have collected 

over $267 million through this program. 

USDA also collects taxpayer identification numbers from our 

vendors, our borrowers, our clients, and our debtors. In February 

1997, we issued a new departmental regulation requiring USDA 

agencies to provide TIN numbers on all requests for payments and 

discharges of indebtedness. One issue we have encountered is in 

the verification of those TIN numbers. USDA agencies have been 

reporting write-offs to the Internal Revenue Service for inclusion in 

the debtor’s taxable income since 1990. Our agency has reported 

over $714 million in 1995 write-offs to IRS using the IRS form 

1099C. USDA has also developed a final rule to adjust civil monetary penalties imposed by USDA agencies to incorporate inflation 

adjustments. This final rule should be published in the Federal 

Register within the next 2 months. 

USDA also plans to use Treasury’s debt collection center and private collection contracts and will continue to refer delinquent debts 

to Justice for litigation where appropriate. In addition, three USDA 

agencies have expressed interest in becoming debt collection centers. They are in various stages of making their proposals to Treasury to become such centers. 

Mr. HORN. Would you mind putting them in the record at this 

point? What are the three areas? 

100

Mr. DAVID. I believe they are our office, the Office of the Chief 

Financial Officer; the Farm Service Agency; and the Rural Development Agency. 

Mr. HORN. Fine. Go ahead. We are running short of time here. 

Mr. DAVID. Since 1985, USDA has routinely referred delinquent 

consumer and commercial accounts to credit bureaus. The total referred to date is $60 billion. In addition, as Mr. Koskinen referred 

to before, all USDA credit granting agencies plan to incorporate 

debt collection performance measures into agency strategic and 

performance plans under the Government Performance and Result 

Act. 

Such measures are in addition to the program-related performance measures. I cited in my formal statement some of the measures; I won’t go through those right now. 

In conclusion, USDA provides many programs, including credit 

programs to assist the agricultural community and rural America 

in improving the quality of life, improving their economy, and 

maintaining a stable farm economy. We believe that each and 

every debt should be repaid in accordance with the conditions 

under which the loan was established, and the program guidelines 

under which the debt was incurred. 

USDA intends to use all the tools available to us to reduce the 

number and amount of delinquent debt. The Debt Collection Improvement Act provides a number of new tools which will assist us 

in pursuing the collection processes. 

We look forward to working with the Office of Management and 

Budget, Treasury, and the other Federal departments and agencies 

through the Federal Credit Policy Working Group along with the 

Chief Financial Officers Council, to develop the mechanisms to collect delinquent debt owed to the Federal Government. 

That concludes my prepared remarks, Mr. Chairman. I am 

pleased to answer your questions at the appropriate time. 

[The prepared statement of Mr. David follows:]

101


g:\graphics\44176.053
102


g:\graphics\44176.054
103


g:\graphics\44176.055
104


g:\graphics\44176.056
105


g:\graphics\44176.057
106


g:\graphics\44176.058
107


g:\graphics\44176.059
108


g:\graphics\44176.060
109


g:\graphics\44176.061
110


g:\graphics\44176.062
111

Mr. HORN. Steven McNamara is the Assistant Inspector General 

for Audit, U.S. Department of Education. 

STATEMENT OF STEVEN McNAMARA, ASSISTANT INSPECTOR 

GENERAL FOR AUDIT, DEPARTMENT OF EDUCATION 

Mr. MCNAMARA. Thank you, Mr. Chairman, for this opportunity 

to testify on the implementation of the Debt Collection Improvement Act. Like everyone else, I’ll try to be brief and submit my 

comments for the record. 

I’m in a somewhat unique position, being the only member of the 

IG community on this panel, so my perspective may be a little bit 

different from some of the others that you have heard today. Although we have not audited the Department’s response to your 

subcommittee and to the ranking member, we have conducted a 

fair amount of work in the general area of debt collection, and our 

review of the Department’s response and our knowledge based on 

the work that we have performed leads us to conclude that the Department of Education is making pretty good progress in implementing the Debt Collection Improvement Act. In fact, Education 

was employing a number of the mechanisms now under the act 

under previous statutory authority, such as tax refund offsets, 

wage garnishment and a number of matching agreements with 

other Federal agencies. 

It occurs to me that, to take it to the next level, it is going to 

call for the guidance and direction from the Department of the 

Treasury, whom you heard from earlier, particularly in the area of 

developing systems so that a lot of information can be shared between and among the various agencies in a cost-effective and efficient manner. 

Mr. Chairman, I’d like to mention one specific audit we’ve done. 

There are others listed in my testimony and you spoke of them earlier. It was the match that we did with the IRS, where we compared the income reported by students on their applications for student aid with what they reported to the IRS. As you mentioned, we 

found that over $100 million was overawarded to individuals who 

were applying for Pell Grants, and I might add that our approach 

was very conservative. We didn’t consider parents’ income and we 

didn’t take into consideration a number of other sources. So the 

amount may be far higher than the $100 million. 

In some of these instances we had over 300 of these individuals 

who reported making zero income when they applied for student 

aid, when they made over $100,000 according to what they reported to the IRS. One individual reported to the IRS they made 

$1.3 million, but claimed zero income when they applied for student aid. 

These are areas, I think, Mr. Chairman, where we have recommended that there is going to have to be legislation to enable 

a match to be conducted. The IRS so far in dealing with the Department is not willing to set up a match short of having this legislation, and it needs to be on the front end where as a prerequisite 

for receiving financial aid from the Federal Government you would 

agree to allow us to match your income so that we can verify what 

you say. 

112

Mr. HORN. Well, you are absolutely correct, and we will followup. 

Staff will sit down with Ways and Means staff and see if we can’t 

get it in their bill if it is moving. If it isn’t moving, we will do it 

ourselves. 

Mr. MCNAMARA. We appreciate your support and if there is anything we can do or any briefings, we would be happy to provide 

that. 

Mr. HORN. Since you raised the subject, let me put in the record 

at this point the Wall Street Journal article of March 11, 1997, 

pages A–1 and A–15, entitled ‘‘Cheat Sheets: Student applications 

for financial aid give lots of false answers. Tax returns often conflict, but colleges don’t try very hard to stop fraud. Pell grants for 

the well off.’’ [The information referred to follows:]

113


g:\graphics\44176.063
114


g:\graphics\44176.064
115


g:\graphics\44176.065
116

Mr. HORN. Having been a college administrator that took a great 

deal of pride in a very efficient financial aid office, I’m obviously 

unhappy when 10 years later I see that sort of a headline. We need 

to do something about it. You have got the suggestions, and I commend the Department of Education for what it’s done over the last 

few years. It’s really quite significant. You are tracking down the 

delinquent debt. 

Mr. MCNAMARA. In closing, Mr. Chairman, I’d just like to point 

out that any assessment of Ed’s progress in implementing the act 

has to take into account the nature of student loans. They’re inherently risky. There is no requirement for collateral or creditworthiness. Students move around a lot. It can make it difficult to locate 

them and collect. So Education has to balance the social goals of 

providing access to education and encouraging higher education 

with those of the more strict business-like approach of the Debt 

Collection Act. That concludes my summary statement. 

[The prepared statement of Mr. McNamara follows:]

117


g:\graphics\44176.066
118


g:\graphics\44176.067
119


g:\graphics\44176.068
120


g:\graphics\44176.069
121


g:\graphics\44176.070
122


g:\graphics\44176.071
123


g:\graphics\44176.072
124


g:\graphics\44176.073
125


g:\graphics\44176.074
126


g:\graphics\44176.075
127


g:\graphics\44176.076
128


g:\graphics\44176.077
129


g:\graphics\44176.078
130


g:\graphics\44176.079
131


g:\graphics\44176.080
132


g:\graphics\44176.081
133


g:\graphics\44176.082
134

Mr. HORN. We thank you for that fine statement and now we 

have D. Mark Catlett, Assistant Secretary for Management and 

Chief Financial Officer, Department of Veterans Affairs. 

STATEMENT OF D. MARK CATLETT, ASSISTANT SECRETARY 

FOR MANAGEMENT AND CHIEF FINANCIAL OFFICER, DEPARTMENT OF VETERANS AFFAIRS 

Mr. CATLETT. Good morning, Mr. Chairman. It is my pleasure to 

testify on behalf of the Department of Veterans Affairs on our implementation of the Debt Collection Improvement Act, DCIA. As 

VA Chief Financial Officer, I am working closely with the Veterans 

Benefits Administration and the Veterans Health Administration, 

within the Department, to take the steps necessary to ensure our 

compliance with the requirements of DCIA. 

I believe the VA has long been a leader in the Federal debt management community. Since 1991, the Veterans Benefits Administration has operated a debt management center in Saint Paul, MN, 

which controls and maintains an automated collections system that 

has been in existence since 1975. The debt management center utilizes every collection tool available to Federal agencies in an operation that emphasizes both the prevention and collection of debt. 

Over the past year we have been moving closer to our goal of 

consolidating all significant VA debt programs into one centralized 

automated collection system. We have now made significant 

progress toward automating the billing and payment process of the 

first party medical receivables at centralized sites, and we have 

laid the groundwork for consolidating the management of these 

debts under the debt management center. 

Enactment of DCIA provides Federal collection officials with 

some new collection tools, and it also imposes on these officials 

some new requirements. Let me expand briefly on some of our responses to the earlier written inquiry by this subcommittee. 

Concerning administrative offsets and cross-servicing, VA is preparing an initial referral from our debt management center to 

Treasury of certain debts delinquent more than 180 days. We have 

released notification to the referral candidates in March, and we 

will make the actual referrals to the Treasury during this month 

of April. About 39,000 notices were released, representing debts 

valued at $201 million. 

Our debt management center is working with OMB and Treasury 

to explore the possibility of becoming a cross-server of government 

debt under the DCIA. In regards to this objective, our debt management center will be submitting a debt collection business plan 

to OMB, and on April 8, last week, we submitted a cross-servicing 

application to the Department of Treasury. These documents will 

serve as the basis for our upcoming discussions with OMB and 

Treasury. 

The debt management center has been successful in collecting its 

own delinquent claims, using all appropriate collection tools, such 

as Federal salary offset, tax refund offset, and the use of credit reporting agencies and private collection agencies. 

The debt management center also has an extensive management 

reporting system, all of which indicates, in my belief, the debt management center’s ability to collect the debts of other agencies and 

135

to provide incremental servicing of any collection function as necessary. 

On debt sales, VA has a highly efficient process for selling loans 

and generally executes three loan sales a year. In the three sales 

for fiscal year 1996 plus the first sale in this fiscal year, VA sold 

a total of 24,248 loans with a balance of almost $1.7 billion. 

On the tax identification number, in January 1997, the VA notified commercial vendors who did not have TIN information on file 

with us that they must supply such information in order to receive 

payment. Of the more than 260,000 vendors with which we conduct 

business, there were 46,000 for which we did not have TIN information in January. Today, we have reduced that number to less 

than 5,000. 

VA currently maintains Social Security information for the vast 

majority of our benefit payment recipients. In addition, new applicants for VA benefits are now requested to provide their Social Security numbers. 

Again, in closing, I would like to thank you for the opportunity 

to present our progress in the implementation of the DCIA. 

[The prepared statement of Mr. Catlett follows:]

136


g:\graphics\44176.083
137


g:\graphics\44176.084
138


g:\graphics\44176.085
139


g:\graphics\44176.086
140


g:\graphics\44176.087
141


g:\graphics\44176.088
142


g:\graphics\44176.089
143


g:\graphics\44176.090
144


g:\graphics\44176.091
145


g:\graphics\44176.092
146

Mr. HORN. Well, I appreciate that testimony. We will have a 

number of things to discuss later on all of these. Thank you for 

summarizing. 

Anne Donovan is from the Office of Child Support Enforcement, 

Department of Health and Human Services, and I believe you were 

going to be accompanied by Mr. Strader. I don’t know if he’s here 

or not; is that correct? 

Ms. DONOVAN. I was unaware I was being accompanied by him 

until I saw your list, so I don’t know. I am sorry. 

Mr. HORN. Is he here at all? 

Ms. DONOVAN. He’s not here. 

Mr. HORN. Go ahead. 

STATEMENT OF ANNE DONOVAN, OFFICE OF CHILD SUPPORT 

ENFORCEMENT, DEPARTMENT OF HEALTH AND HUMAN 

SERVICES 

Ms. DONOVAN. Thank you. Good morning Mr. Chairman and 

members of the subcommittee who are here. I am pleased to appear 

before you today to testify on implementation of the Debt Collection 

Improvement Act of 1996. My testimony will focus on the use of the 

act to collect child support owed on behalf of millions of our Nation’s children. 

The goal of the child support enforcement program is to ensure 

that children are financially supported by both their parents. 

Today, when high divorce rates translate into a host of social problems, it is more important than ever to reaffirm that both parents 

have a responsibility to support their children. 

As you have noted, Mr. Chairman, President Clinton has made 

improving child support enforcement and increasing child support 

collections a top priority. The Debt Collection Improvement Act 

contains provisions that will significantly assist States’ efforts to 

that end and will complement the enforcement tools included in the 

new welfare reform law, and we thank you and Congresswoman 

Maloney and this committee for that. 

To ensure that the full force and effect of the Debt Collection Improvement Act are brought to bear on parents that refuse to support their children, the President issued Executive Order 13019 on 

September 28, 1996, mandating Executive agencies to take specific 

actions to implement the law. The order requires all Federal departments and agencies to take necessary and legal steps to deny 

Government loans, such as small business loans, farm loans and 

home loans, to nonsupporting parents. The order also calls for collection of past due support through an administrative offset program which can identify people who receive Federal payments and 

who owe child support. This would allow support debts to be deducted, for example, from fees paid to Government consultants and 

vendors; funds that could otherwise be paid to families. 

Since tax refunds and Federal salary payments have been available for attachment to pay child support debts for many years, we 

anticipate that the category of ‘‘vendor miscellaneous payments,’’

where an individual payee can be identified, will result in the bulk 

of child support offsets under this program. An estimated 

16,152,000 annual vendor miscellaneous payments are scheduled to 

be in the system, and Treasury estimates a significant amount of 

147

these payments have potential for administrative offset for child 

support enforcement purposes. 

The Office of Child Support Enforcement has been working closely with the Department of Treasury and has convened a joint work 

group to identify and resolve potential implementation problems. 

We have taken the initiative to ensure that all State CSE agencies 

are fully apprised of the potential for administrative offset, and we 

have worked hard to promote the new program for all States which 

have the current systems capability to utilize it. 

We contacted all child support enforcement programs to discuss 

implementation capability, a critical issue given States’ focus now 

on their new responsibilities under welfare reform. States fell into 

categories: those which could begin implementation immediately or 

within a few months, and those which require significant systems 

modifications or needed enabling legislation, signaling the need for 

a phased-in approach. 

However, we anticipate that all States would be able to participate in the Treasury offset program by January 1998, when the tax 

refund offset program will be merged with Treasury’s offset program at Treasury’s Financial Management Services. Federal tax 

refunds will then become one of the many Federal payments offset 

in the Treasury offset program. 

As a result of our activities, we have already begun to identify 

cases which are eligible for administrative offset. During the week 

of April 7th, as you heard, we issued pre-offset notices for three 

States, Arizona, Kansas and South Dakota, and offsets are scheduled to begin on May 12th. 

This week pre-offset notices were sent out for Connecticut and 

the District of Columbia, and offsets on behalf of those cases should 

begin also in mid-May. Today, we received notice from California 

that they were certifying half a million cases, almost triple what 

we had received so far. Notices for them will go out next week and 

offsets will begin in mid-May. A number of other States will join 

the administrative offset this year. 

We will continue to work closely with the remaining States to resolve the issues impeding their participation. The Office of Child 

Support Enforcement was the first agency to participate in the tax 

refund offset program for past due child support collections, and to 

date we have collected over $7.4 billion. Last year the States submitted over 5.3 million cases through the Office of Child Support 

Enforcement to the Internal Revenue Service for offset, resulting in 

record breaking collections totaling over $1.02 billion. 

Given this experience, we are very excited about participating 

with Treasury in this new program, and we want to ensure that 

it’s carefully planned and implemented with maximum participation by the State child support agencies. We believe that this collaborative partnership is essential to guarantee that the program 

succeeds. 

In conclusion, Mr. Chairman, this administration is fully committed to utilizing the resources provided by the Debt Collection 

Improvement Act for the enforcement of child support. The Office 

of Child Support Enforcement will continue to work closely with 

the Department of Treasury and our State partners to ensure the 

full implementation of Executive Order 13019, which will certainly 

148

result in enhancing the collection of desperately needed child support for the children of America. 

Thank you again, and to your subcommittee, for the opportunity 

to testify, and I would be happy to answer any questions. 

[The prepared statement of Ms. Donovan follows:]

149


g:\graphics\44176.093
150


g:\graphics\44176.094
151


g:\graphics\44176.095
152


g:\graphics\44176.096
153


g:\graphics\44176.097
154


g:\graphics\44176.098
155


g:\graphics\44176.099
156

Mr. HORN. Well, we thank you very much for coming. I am going 

to pursue a few questions with each of you, and then in the interest 

of time we will submit the rest to you and, if you don’t mind, file 

the answers for the record. We will put them in at this point. 

Let’s start with you, Mr. McNamara, on education. Many of the 

delinquencies in education are as a result of fly by-night trade 

schools or fly by-night correspondence schools. Can the Department 

implement performance measurements for trade schools and correspondence schools which measure their success in graduating 

and employing students and use that information as a basis for 

cutting off schools that are abusing the process? 

Mr. MCNAMARA. Mr. Chairman, we think that would be an excellent approach that would prevent many of these defaults and would 

also prevent many of these students from becoming victimized by 

the types of trade schools that you just mentioned. We think that 

it is absolutely imperative. Our Inspector General Tom Bloom always says what you measure you get. If the Department, I think, 

started measuring performance by these trade schools, you would 

see a significant increase. This is going to take a change right now, 

and I think it is something we are pushing for in reauthorization. 

We have not yet seen what the Department’s approach is going to 

be. 

Mr. HORN. As I remember, you have got an 85/15 formula in this 

area, don’t you? 

Mr. MCNAMARA. Yes, sir. 

Mr. HORN. Has that been of any help? 

Mr. MCNAMARA. We are looking into that right now. I think GAO 

is doing some work. It is a little bit too early to tell. I don’t think 

we have seen much result from what we know now of schools being 

kicked out as a result of failing the 85/15. I don’t know how effective it is working. 

Mr. HORN. I didn’t even know about it. As a university president, 

I didn’t know anything about it. I was walking across the floor one 

day and Maxine Waters was on the floor taking on the Education 

Committee, and what she said made sense to me. So I joined her 

in taking on the Education Committee. Mr. Ford was then the 

chairman and we forced a vote in the 103d—the Democratic Congress—and we lost. Guess why? I mean there is a lot of PAC money 

floating around somewhere from trade schools and others, and it is 

pretty disgusting. 

So we will try to deal with that, and hopefully you will get the 

authorization committee to deal with it and we will take a look at 

it. That needs its own investigation, I think. 

Mr. MCNAMARA. During reauthorization, Mr. Chairman, there 

are other areas that I have mentioned in my testimony in which 

we think changes would also be of benefit to the Debt Collection 

Improvement Act, the plus loan limits and some of the others. The 

ICR contingent repayment has some possibility of being costly as 

well, so these might all be issues that should be looked into. 

Mr. HORN. That’s a good point. One other item that I was interested in—apparently your office’s audit work indicates that the 

Government is losing $800,000 per day by giving out loans to individuals who have defaulted on prior loans. Is that correct? 

157

Mr. MCNAMARA. That is correct, Mr. Chairman, but we had done 

an audit several years ago and we found that the lack of an edit 

allowed that much money to be hemorrhaging. And it was about 

$300 million a year, our estimate, and that turned out to be conservative. The Department took prompt action to put the edit in, 

and it started kicking out a lot of these individuals. 

What we found in recent work is that the student aid report, the 

document that goes to the college for the financial aid administrator to make the award, is flagged, saying this person has a previous default. What we are finding is that there is a disturbing 

number of cases where these financial aid administrators are 

awarding over top of this flag and people who have previous defaults that haven’t been taken care of are receiving additional aid. 

Mr. HORN. What do you suggest is the solution to that problem? 

Can the Department under its administrative authority just start 

cutting off aid or lowering it based on incompetence among some 

financial aid administrators? 

Mr. MCNAMARA. We think the easiest way to fix it would be if 

it hit the default match that a valid SAR not be issued, and just 

come and say that Joe is default and no aid can be issued——

Mr. HORN. When you say a SAR, translate that. What is it? 

Mr. MCNAMARA. A student aid report. This is the document that 

comes to the college that shows how much student aid the student 

is eligible for. And what we believe is there should not be a valid 

student aid report issued if you’re in default. You should have to 

clear it up. There is some concern that this would be an inconvenience to the student borrower, but our position is that if you are 

in default you probably should bear a little inconvenience. 

Mr. HORN. Good attitude. Thank you very much for your comments on that, and the rest we will just file with you, if you would 

be good enough to answer them for the record. 

Mr. Catlett, on the Veterans Administration, I have one question 

which I always ask a person in your position. You are not only the 

Chief Financial Officer, you are the Assistant Secretary for Management. How much time do you spend being Chief Financial Officer? 

Mr. CATLETT. Being Chief Financial Officer? 

Mr. HORN. Yes, how much time in the 8-hour day do you spend 

on Chief Financial Officer duties? 

Mr. CATLETT. Well, as you know, I’m CIO as well as the CFO, 

and all of my time is spent on those two responsibilities. I’d have 

trouble—I can do it for the record if you would like, splitting between the two. But I don’t know the distinction that you are trying 

to make between the Assistant Secretary for Management and the 

CFO. 

Mr. HORN. Well, you are Assistant Secretary for Management. 

Mr. CATLETT. Yes, sir. 

Mr. HORN. And you are Chief Financial Officer; is that right? 

Mr. CATLETT. Yes, sir. 

Mr. HORN. And you are Chief Information Officer? 

Mr. CATLETT. Yes, sir. 

Mr. HORN. How many hours do you spend on each function every 

day? 

158

Mr. CATLETT. I split those functions equally, as I look at it, between the financial office responsibilities and the information office 

responsibilities. 

Mr. HORN. So you are doing the work of three people? 

Mr. CATLETT. Well, I view my job as the Assistant Secretary for 

Management to be doing those two things, primarily. 

Mr. HORN. Well, the reason I ask the question, I haven’t had to 

really deal with VA much, although I am going to hold a joint hearing in the next few months, I might as well warn you, on your computer situation, because we had some discussions with the veterans’ committee on that. 

My frustration, and the same goes with the Treasury Assistant 

Secretary CFO, I don’t know if he is the CIO, too, is that we are 

not getting the job done. There is no way one person can do those 

three jobs and I don’t understand why cabinet officers permit that, 

and so you have got my bias right up front. 

Mr. CATLETT. Yes, sir. 

Mr. HORN. And the reason IRS is the basket case of the administration is because Treasury has never spent the time to focus in on 

their financial thing. They will not be able to submit this Congress, 

which, under the law, 5 years ago, said, by September 1997 you 

have to be able to get a balance sheet. They don’t have one. Guess 

why. Nobody is riding them on it. Will the VA have a balance sheet 

by September? 

Mr. CATLETT. Yes, sir. 

[The information referred to follows:]

159


g:\graphics\44176.100
160


g:\graphics\44176.101
161

Mr. HORN. OK. Well, great. We will take a look at it. Anyhow, 

that whole conflict there of three officers that the Congress has 

separately established just does not set well with me. To me, one 

of those jobs is 18 hours a day, and three of them, we don’t have 

that many hours to worry about. 

OK. The Veterans Health Administration, third party medical 

debts, were they ever referred in the General Services Administration contract for private collection agencies? 

Mr. CATLETT. No, sir, I don’t believe so. And, again, as you understand, we have an interesting situation. They are not delinquent debt, even though we have a definition question there. It is 

a receivable, and it is a contractual relationship we have with that 

third party. We obviously have the complication at the VA of having to bill our per diem rate and receiving a payment less than that 

rate because of the adjustments they make for Medicare adjustments and other things that we do not and cannot collect. So, we 

will use private collection agencies, but I don’t believe we use the 

GSA collection contract. 

Mr. HORN. Do you intend to refer them to the Treasury, Financial Management Service? 

Mr. CATLETT. The third party specifically we will not. All of our 

other debts were referred there. If we have a disagreement on the 

third party with our insurers, we will generally refer that to our 

district counsel, and if it is large enough, we refer it to the Department of Justice for action. 

Mr. HORN. We will followup on that with you. There are perhaps 

a few more questions we need to ask there. 

Is the Veterans Health Administration, VHA, reluctant to refer 

debts to private collection agencies? What is your understanding of 

the Veterans Health Administration policy, within the VA? 

Mr. CATLETT. Well, again, I think that would apply to what I call 

our first party debt, the debt of the veterans themselves, and in 

most cases, many of those are very, very small. Our average is just 

for the co-payment for prescriptions, which is in the range, sometimes, of less than $10. The average is less than $10. So, I don’t 

think would be very beneficial. For larger debts, yes, we will consider that, and I would provide you for the record our action there, 

but in large part, the debt of the individual veterans in our health 

care is very, very small. 

[The information referred to follows:]

The GSA contract under which VA refers debt to private collection agencies specifies that only debts of $100 or more may be referred. This threshold effectively 

eliminates most of VA’s first-party portfolio from consideration for referral to a private collection agency. Once VA has consolidated the management of first-party debt 

at our Debt Management Center, we can refer to private collection agencies that 

small percentage of debts that are over $100 and that VA is unable to collect in 

house. Since private collection agencies have historically been able to collect only 

about one and one half percent of VA benefit debts that VA could not collect in 

house, we do not expect that these referrals will generate a dramatic increase in 

collections.

Mr. HORN. What is the cutoff mark on when you decide to collect 

the debt and when you don’t? I mean, what level are we talking 

of debt that you would deal with in referring for collection? 

162

Mr. CATLETT. I will have to provide that for the record. In terms 

of a collection agency, we will pursue the debt no matter how small 

it is and we do that with the tools we have. 

[The information referred to follows:]

As stated above, the GSA contract under which VA refers debts to private collection agencies specifies that only debts totaling at least $100 may be referred.

Mr. HORN. Well, I guess our curiosity when the staff reviewed 

this is why has the Veterans Health Administration not referred 

the debts to their own agency’s debt management center before, 

and the question obviously arose, is it because the debt management center is in the Veterans Benefit Administration, rather than 

the Veterans Health Administration? Do we have a little turf problem there? 

Mr. CATLETT. We have been addressing that, Mr. Chairman. We 

began referring that debt this year. We have a pilot under way, 

and I will provide for the record the schedule for when we will refer 

all of our first party debt to the debt management center. 

That process has begun. I would not agree with your statement, 

but recognize your position that there has been an issue of folks 

pursuing their efforts and their activities, and our coordinating 

that, and the need to do that a little better. We have recognized 

that and have begun that process, and the referrals have begun. 

We have done a pilot in Pennsylvania and we will expand that 

throughout this next year, and we will provide for the record our 

schedule for referring all first party debt to our debt management 

center. 

Mr. HORN. Thank you. We will followup on that with various 

questions. 

[The information referred to follows:]

We are currently developing programming to refer first-party medical receivables 

that are at least 90 days old to our Debt Management Center. We are currently testing referrals from our medical center in Altoona, Pennsylvania. 

We are currently developing a model for a new debt collection database system 

in order to evaluate the feasibility of centralized management of all VA first-party 

debt. We plan to have the data model and process model for this system completed 

by October 1997. We will perform a cost benefit analysis to determine if we should 

proceed with developing this system. If the analysis is positive, we will then formulate a time table for Department-wide implementation.

163


g:\graphics\44176.102
164


g:\graphics\44176.103
165

Mr. HORN. Now we are going to talk a little bit about agriculture. 

The General Accounting Office, Mr. David, has reported that certain agencies, including the Farmers Home Administration and 

some State guarantee agencies in the student loan program are not 

counting as delinquent some accounts for which the Government 

has not received payment for years. These billions of dollars in delinquencies would make the dismal debt picture even worse. Are 

these delinquencies still unreported? Is the U.S. Department of Agriculture complying with OMB guidance on this issue? 

Mr. DAVID. To the best of my knowledge, we are complying with 

all OMB guidance, but I would like to get additional information 

on the specific referral and we will provide a more detailed response for the record. 

Mr. HORN. OK. 

Then we have, Ms. Donovan. Commissioner Adams noted his success in Massachusetts in collecting child support using wage garnishment. Over two-thirds of Massachusetts’ total child support collections are collected in this matter. Is this a tool we ought to have 

at the Federal level to collect child support? 

Ms. DONOVAN. We do have it, Mr. Chairman. We have mandatory wage withholding in all cases. 

Mr. HORN. I’m sorry, I didn’t hear that. 

Ms. DONOVAN. We have mandatory wage withholding now in all 

cases, all States. 

Mr. HORN. And you have no problem getting access to where 

these people are? 

Ms. DONOVAN. No, we don’t. 

Mr. HORN. So you would say in your case, you don’t need any additional law to use other agency records; is that right? 

Ms. DONOVAN. With this expanded Federal parent locator system 

that we are building, the national directory of new hire information 

will be in there as well as information from all of the State central 

registries of orders. We will have quarterly wage data in the system. We will have unemployment insurance information. So we will 

have plenty of information in that data base. It still, as you know, 

is very difficult to find people across State lines. Thirty percent of 

our case load are interstate cases but these tools will help us enormously. 

Mr. HORN. Well, we thank you very much. We might have a few 

other questions to send you and we will put them in the record at 

this point. 

With that, I wonder if Commissioner Morris—you have been sitting there quietly taking a few notes now and then. Would you like 

to add anything for the record? 

Mr. MORRIS. No, thank you, Mr. Chairman. I believe my boss, 

Mr. Murphy, has covered the subject pretty well. 

Mr. HORN. Such a wise decision. That is why I like your agency. 

I want to thank each of the witnesses for sharing with us your 

experience. I wish you well. We are going to hold another hearing 

just like this in 6 months and I hope we have a lot more delinquent 

debt that is moved over and various varieties of collection are being 

effectively run to get that in. 

I now want to thank the following people on the staff, both majority and the minority, for establishing this hearing. J. Russell 

166

George, the staff director of the Subcommittee on Government 

Management, Information, and Technology, does a tremendous job. 

The gentleman on my left, Mark Brasher, professional staff member, who is responsible for both the original measure in getting it 

through at a staff level, and also for the various hearings we have 

held. And John Hynes, professional staff member, who I don’t see 

here, but he has worked to get this hearing suitably publicized, and 

Andrea Miller, our hard working clerk over there in the corner. 

And on the minority side, we have David McMillian, professional 

staff member; Mark Stephenson, professional staff member; and we 

have our faithful court reporters, Joe Strickland and Katrina 

Wright. We thank you all. Thank you very much, ladies and gentlemen. 

We are adjourned. 

[Whereupon, at 12:37 p.m., the subcommittee was adjourned.]

Æ