a

GAO

United States General Accounting Office

Report to the Chairman, Subcommittee 

on Government Efficiency, Financial 

Management and Intergovernmental 

Relations, Committee on Government 

Reform, House of Representatives

March 2002 DEBT COLLECTION 

IMPROVEMENT ACT 

OF 1996 

Department of 

Agriculture’s Farm 

Service Agency Has 

Not Yet Fully 

Implemented Certain 

Key Provisions

GAO-02-463
Page i GAO-02-463 FSA Implementation of DCIA

Contents

Letter 1

Results in Brief 2

Background 4

Objectives, Scope, and Methodology 4

FSA Referred a Significant Amount of Direct Farm Loan Program 

Loan Debt to Treasury for TOP, but Not for Cross-Servicing 6

Several Obstacles Have Impeded FSA’s Implementation of DCIA 

Referral Requirements 7

FSA Did Not Appropriately Use Exclusions from Referral 

Requirements 11

Conclusions 13

Recommendations for Executive Action 13

Agency Comments and Our Evaluation 14

Appendixes

Appendix I: Sampling Method and Results 16

Appendix II: Comments from the Farm Service Agency 18

Appendix III: GAO Contact and Staff Acknowledgments 20

Tables Table 1: Direct FSA Farm Loan Program Loans Delinquent as of 

September 30, 2000 7

Table 2: Summary of Sample Results for FSA’s Excluded Farm Loan 

Program Debt 16

Table 3: Two-Stage Probability Proportionate to Size Cluster 

Sample Results 17

Abbreviations

CNC currently not collectible

DCIA Debt Collection Improvement Act of 1996

DOJ Department of Justice

FSA Farm Service Agency

FMS Financial Management Service

TOP Treasury Offset Program

TROR Treasury Report on Receivables Due from the Public
Page ii GAO-02-463 FSA Implementation of DCIA
Page 1 GAO-02-463 FSA Implementation of DCIA

United States General Accounting Office

Washington, D.C. 20548

A

March 29, 2002 Letr

The Honorable Stephen Horn

Chairman, Subcommittee on Government Efficiency,

Financial Management and Intergovernmental Relations

Committee on Government Reform

House of Representatives

Dear Mr. Chairman:

On October 10, 2001, we testified before your subcommittee on selected 

federal agencies’ implementation of certain key provisions of the Debt 

Collection Improvement Act (DCIA) of 1996.1

 That testimony addressed 

requirements to refer older delinquent debts to the Department of the 

Treasury for offset against amounts the government might owe the debtors 

and for additional collection action at Treasury’s central debt collection 

facility, operated by the Financial Management Service (FMS). Our more 

recent testimony, on December 5, 2001, focused on progress in this area by 

two Department of Agriculture agencies—the Rural Housing Service and 

the Farm Service Agency (FSA).2

One of the major purposes of DCIA is to maximize collection of billions of 

dollars of nontax delinquent debt owed to the federal government. Toward 

this end, DCIA requires that agencies refer eligible debts delinquent more 

than 180 days that they have been unable to collect to Treasury for payment 

offset and to Treasury or a Treasury-designated debt collection center for 

cross-servicing. Treasury performs payment offset through its Treasury 

Offset Program (TOP), which includes the offset of certain benefit 

payments, vendor payments, and tax refunds. Cross-servicing involves 

such actions as locating debtors, issuing demand letters, and referring 

debts to private collection agencies.

1

U.S. General Accounting Office, Debt Collection Improvement Act of 1996: Agencies Face 

Challenges Implementing Certain Key Provisions, GAO-02-61T (Washington, D.C.: Oct. 10, 

2001).

2

U.S. General Accounting Office, Debt Collection Improvement Act of 1996: Department of 

Agriculture Faces Challenges Implementing Certain Key Provisions, GAO-02-277T 

(Washington, D.C.: Dec. 5, 2001).
Page 2 GAO-02-463 FSA Implementation of DCIA

The purpose of this report is to expand on the information provided in our 

December 2001 testimony regarding FSA’s progress and to offer our 

recommendations for improving the agency’s implementation of the debtreferral provisions of DCIA. As you know, our prior reports have shown 

that agencies have been slow to implement the referral requirements of 

DCIA.3

 Our testimonies referred to above offered an overview of agencies’

progress during fiscal years 2000 and 2001 to the extent that data were 

available and addressed your request for information. For this report, we 

looked at whether (1) FSA was promptly referring eligible farm loan 

program loans to Treasury’s FMS for collection action, (2) any obstacles 

were hampering FSA from referring eligible farm loan program loans to 

FMS, and (3) FSA was appropriately using exclusions from referral 

requirements.

Results in Brief FSA has ongoing initiatives to enhance its capacity to timely refer all 

eligible delinquent debt. However, the agency’s failure to make DCIA a 

priority since its enactment in 1996 has hindered implementation of key 

provisions of the act and severely reduced opportunities for collection as 

contemplated by DCIA. As of September 30, 2000, FSA reported that it had 

referred about $934 million of delinquent direct farm loan program loans to 

TOP for offset and that it had excluded approximately $732 million of 

delinquent direct farm loan program loans from referral to TOP. However, 

FSA reported that it had referred only $38 million of the approximately 

$114 million of debt it reported as eligible for referral to FMS for crossservicing.

FSA lacks effective procedures and controls to identify and promptly refer 

eligible delinquent debts to Treasury for collection action. We identified 

the following obstacles to FSA’s establishment and implementation of an 

effective and complete debt-referral process:

• The agency’s automated system lacked the capacity to distinguish 

deficiency judgment debts, which are eligible for referral to TOP, from 

types of judgment debts that are not eligible for referral. The agency 

therefore excluded all judgment debts from referral and missed 

3

U.S. General Accounting Office, Debt Collection: Treasury Faces Challenges in 

Implementing Its Cross-Servicing Initiative, GAO/AIMD-00-234 (Washington, D.C.: Aug. 4, 

2000), and Medicare: HCFA Could Do More to Identify and Collect Overpayments, 

GAO/HEHS/AIMD-00-304 (Washington, D.C.: Sept. 7, 2000).
Page 3 GAO-02-463 FSA Implementation of DCIA

opportunities to collect delinquent deficiency judgment debts through 

TOP.

• Although the vast majority of farm loan program loans have codebtors, 

FSA’s automated system could not accommodate information on 

codebtors. Because of this limitation, which the agency has recognized 

since 1986, FSA did not pursue collection from codebtors or report their 

names and taxpayer identification numbers to FMS for collection action 

and consequently missed opportunities to collect eligible delinquent 

debts through TOP.

• Staff in FSA field offices did not routinely update the eligibility status of 

delinquent debts in the agency’s loan-accounting system. As a result, the 

system could not accurately identify loans eligible for referral, and FSA 

could not provide accurate debt information to Treasury, which not only 

distorts the Treasury Report on Receivables Due from the Public 

(TROR) for debt management and credit purposes, but also distorts key 

financial indicators such as receivables, total delinquencies, and loan 

loss data. In addition, failure to process closed-out debts delays the 

agency’s reporting of those amounts to the Internal Revenue Service as 

income to the debtor.

• FSA temporarily suspended referral of delinquent debts to FMS for 

cross-servicing while developing guidelines to implement a new agency 

policy that limited cross-servicing referrals to debts delinquent less than 

6 years.

• Even though loans became delinquent relatively evenly throughout the 

year, FSA referred delinquent debts to FMS for TOP only once annually, 

which delayed some referrals and may have reduced FMS’s ability to 

collect on delinquent farm loan program debts.

• FSA did not have policies and procedures in place to recognize its losses 

on guaranteed farm loan program loans as federal debt and therefore 

did not apply DCIA debt collection remedies to those losses.

Regarding the appropriateness of FSA’s use of exclusions from referral 

requirements, we reviewed the exclusions from referral to TOP because of 

bankruptcy, forbearance/appeals, foreclosure, and Department of Justice 

(DOJ) litigation made by a sample of field offices in the four states with the 

highest dollar amounts of debt excluded from referral to TOP. Based on 

our review, we estimated that approximately half of the exclusions in these 

four states were inconsistent with established criteria for excluding debts 

in bankruptcy, forbearance/appeals, foreclosure, and DOJ litigation.

We are recommending that FSA take several actions to enhance the scope 

and improve the timeliness of referrals of delinquent debt under DCIA.
Page 4 GAO-02-463 FSA Implementation of DCIA

The administrator of FSA stated in comments on this report that FSA 

generally agreed with our findings and recommendations but took issue 

with our portrayal of FSA’s efforts to collect delinquent debts and our 

estimate of the percentage of loans that FSA inappropriately excluded from 

referral requirements. We continue to maintain that FSA did not make 

compliance with DCIA a priority and therefore missed collection 

opportunities. We also affirm the validity of the estimated error rate for 

exclusions from referral requirements included in our report. FSA stated 

that it has developed an action plan to implement the remaining DCIA 

provisions referred to in our report by December 31, 2002. Additional 

details on FSA’s comments and our evaluation are included in the Agency 

Comments and Our Evaluation section of this report.

Background FSA was established in 1994 during the reorganization of the Department of 

Agriculture and operates through a network of field offices located across 

the United States. The agency provides a variety of services, including 

providing financial assistance to new or disadvantaged farmers and 

ranchers who are unable to obtain commercial credit at reasonable rates 

and terms.

FSA loans available to farmers and ranchers include direct or guaranteed 

ownership loans and direct or guaranteed operating loans. Direct 

ownership loans are for buying farm real estate and making capital 

improvements. Direct operating loans, which are made to beginning 

farmers and ranchers who are unable to qualify for guaranteed operating 

loans, are for the purchase of items to help daily farm operations. 

Guaranteed farm loan program loans are for the same purposes as direct 

farm loan program loans, but they are made by private third-party lenders 

and are guaranteed by FSA for up to 95 percent of the principal loan 

amount.

Objectives, Scope, and 

Methodology

Our objectives were to determine whether (1) FSA was promptly referring 

eligible farm loan program loans to FMS for collection action, (2) any 

obstacles were hampering FSA from referring farm loan program loans to 

FMS, and (3) FSA was appropriately using exclusions from referral 

requirements.
Page 5 GAO-02-463 FSA Implementation of DCIA

To address these objectives, we interviewed officials from FSA to obtain an 

understanding of the FSA referral process and any obstacles that were 

hampering the referral of eligible debts. We reviewed FSA’s policies and 

procedures on debt referrals and examined the agency’s current and 

planned efforts to refer eligible delinquent debts. We obtained and 

analyzed the TROR for the fourth quarter of fiscal year 2000, which was the 

most recent year-end report available at the completion of our fieldwork,4

and other financial reports prepared by FSA, and held discussions with 

FSA officials to determine whether the agency was appropriately using 

exclusions from referral requirements. In addition, we reviewed responses 

to questions about FSA’s debt collection practices that you submitted to the 

deputy secretary of agriculture in October 2001 and used information from 

the responses to clarify or augment our report, where appropriate.

To determine whether FSA’s use of exclusions from referral requirements 

was appropriate, we used statistical sampling techniques to select 15 FSA 

field offices from the four states with the highest dollar amounts of 

reported debt excluded from TOP as of September 30, 2000. Using 

electronic and hard-copy files obtained from Agriculture, we reviewed all 

263 loans from the 15 selected offices that were more than 180 days 

delinquent and had been reported as excluded from referral to FMS as of 

September 30, 2000, for bankruptcy, forbearance/appeals, foreclosure, and 

DOJ litigation. (Appendix I contains additional information on the 

sampling method and the results.) Based on the results of our review, we 

estimated the percentage of loans inappropriately excluded as of 

September 30, 2000, in the four states from which the sample offices were 

drawn. Because we found numerous errors in the exclusion categories we 

tested, we did not test other reported exclusions from referral to FMS for 

cross-servicing, such as internal offset.5

We did not review FSA’s process for identifying and referring debts to 

Treasury for cross-servicing because the agency had suspended all such 

referrals in April 2000 pending development of guidelines to implement a 

4

The most recent year-end TROR should contain the most reliable information available 

because Treasury requires that agency chief financial officers (or their designees) certify 

year-end data as accurate.

5

Loans eligible for referral to FMS for TOP may not be eligible for referral to FMS for crossservicing. Additional exclusion categories apply to referrals for cross-servicing. Loans 

being offset internally and certain loans with collateral, for example, are eligible for referral 

to TOP but not for cross-servicing.
Page 6 GAO-02-463 FSA Implementation of DCIA

new referral policy. FSA issued the new guidelines in July 2001 and, 

according to an Agriculture official, the first referral to FMS under this new 

policy was made in September 2001. We did not review implementation of 

FSA’s new guidelines, since the procedures were implemented near the 

completion of our fieldwork.

We conducted our review from November 2000 through October 2001 in 

accordance with U.S. generally accepted government auditing standards. 

We did not independently verify the reliability of certain information that 

FSA provided to us, such as debts more than 180 days delinquent and debts 

classified as currently not collectible (CNC)6

 and information in FSA’s loanaccounting and loan-servicing systems.

We requested written comments on a draft of this report from the secretary 

of agriculture or her designated representative. The written response from 

the administrator of FSA is reprinted in appendix II.

FSA Referred a 

Significant Amount of 

Direct Farm Loan 

Program Loan Debt to 

Treasury for TOP, but 

Not for Cross-Servicing

As of September 30, 2000, FSA reported having about $8.7 billion in direct 

farm loan program loans. As shown in table 1, the agency reported about 

$1.7 billion of direct farm loan program loans more than 180 days 

delinquent, including debts classified as CNC, as of September 30, 2000. Of 

this amount, FSA reported referring about $934 million to TOP and 

excluding about $732 million from referral to TOP. FSA reported that it had 

referred only $38 million of loans to FMS for cross-servicing as of 

September 30, 2000. It is FSA’s policy to refer delinquent loans for crossservicing only if collateral has been liquidated and a deficiency remains. In 

addition, as discussed in more detail later in this report, FSA suspended 

cross-servicing referrals from April 2000 until September 2001 while it 

developed and implemented a new cross-servicing referral policy.

6

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

discharged. Collection action can still be taken on such debts.
Page 7 GAO-02-463 FSA Implementation of DCIA

Table 1: Direct FSA Farm Loan Program Loans Delinquent as of September 30, 2000

a

The vast majority of the reported exclusions, $694 million, were for bankruptcy, forbearance/appeals, 

foreclosure, and DOJ litigation.

b

In addition to loans excluded from referral to TOP, FSA reported other exclusions from referral to FMS 

for cross-servicing, including loans eligible for internal offset, as of September 30, 2000.

Source: Treasury Report on Receivables Due from the Public for fourth quarter 2000 (September 30, 

2000).

Several Obstacles Have 

Impeded FSA’s 

Implementation of 

DCIA Referral 

Requirements

Since DCIA’s enactment, several obstacles have impeded FSA’s 

implementation of the act’s referral requirements. Loan system limitations 

have resulted in the automatic exclusion of certain types of debts without 

any review for eligibility and the inability to pursue collection from 

codebtors through TOP. FSA’s failure to ensure that field offices routinely 

updated the status of delinquent loans has led to inappropriate exclusions 

from referral and inaccurate reporting of delinquent and eligible debt 

amounts to Treasury. A change in referral policy led to a suspension of all 

delinquent loan referrals to FMS for cross-servicing. FSA’s policy of 

referring delinquent debt to FMS only once a year resulted in delayed 

referrals and may have reduced collections. Finally, FSA did not take 

action until recently to recognize losses on guaranteed farm loan program 

loans as nontax federal debt. According to FSA, until certain steps, such as 

software implementation, are completed, FSA cannot use the collection 

tools provided under DCIA to pursue collection directly from debtors on 

guaranteed farm loan program loans.

Loan amounts

(in millions of dollars)

Loans more than 180 days delinquent, including loans 

classified as CNC

$1,666

Less: exclusions allowed by DCIAa 732

Loans eligible for TOPb 934

Loans referred to FMS for TOP 934

Loans referred to FMS for cross-servicing 38
Page 8 GAO-02-463 FSA Implementation of DCIA

FSA Excluded Deficiency 

Judgment Debts from 

Referral Because of System 

Limitations

Of the $694 million of debt reported by FSA as excluded from referral for 

bankruptcy, forbearance/appeals, foreclosure, and DOJ litigation, about 

$295 million consists of judgment debts, including deficiency judgments, 

which are court judgments requiring payment of a sum certain to the 

United States.7

 According to FSA officials, deficiency judgments—unlike 

some other types of judgment debts—are eligible for TOP and should be 

referred to FMS. However, FSA’s Finance Office in St. Louis automatically 

excluded all judgment debts for direct farm loan program loans from 

referral to FMS because of automated system limitations. Although the 

system does contain information indicating which debts are judgment 

debts, it cannot currently accommodate information on subcategories of 

judgment debts. Therefore, FSA staff cannot use the agency’s automated 

system to identify deficiency judgments for referral. On account of our 

inquiries, FSA officials initiated a special project in May 2001 to manually 

identify all deficiency judgment debts for direct farm loan program loans so 

that such debts could be referred to FMS.

FSA Cannot Report 

Codebtor Information to 

FMS Because of System 

Limitations 

Even though FSA reported having referred $934 million of direct farm loan 

program loans to FMS for TOP as of September 30, 2000, the agency has 

lost and continues to lose opportunities to maximize collections on these 

loans because it does not report information on codebtors to FMS. 

According to FSA officials, the vast majority of direct farm loan program 

loans have codebtors, who are also liable for loan repayment, but FSA’s 

automated loan system cannot record more than one taxpayer 

identification number for each loan. Because taxpayer identification 

numbers are required for referrals to FMS for TOP, FSA cannot refer 

codebtors on farm loan program loans to FMS. An FSA official said that 

the agency first recognized the need to have codebtor information in the 

system in 1986 to facilitate debt collection but that higher-priority systems 

projects have precluded FSA from completing the necessary enhancements 

to allow the system to accept more than one taxpayer identification 

number per debt. FSA was planning to incorporate this modification in the 

new Farm Loan Program Information System scheduled for 

implementation in fiscal year 2005, but during the December 5, 2001, 

testimony before your subcommittee, the agency committed to make the 

change by December 2002.

7

A deficiency is the remaining indebtedness after foreclosure and after all collateral has 

been sold.
Page 9 GAO-02-463 FSA Implementation of DCIA

FSA Did Not Routinely 

Update Referral Eligibility 

Status of Direct Farm Loan 

Program Loans

FSA field offices across the country make determinations as to whether 

direct farm loan program loans are in bankruptcy, forbearance/appeals, or 

foreclosure and therefore should be excluded from referral to FMS. The 

status of these loans changes over time, and information on the loans must 

be updated as changes occur if exclusion determinations are to be 

continuously accurate. Our review of selected excluded loans indicated 

that personnel in the FSA field offices we visited did not routinely update 

the eligibility status of farm loan program loans in FSA’s Program Loan 

Accounting System. Without up-to-date information on loan status, the 

system cannot accurately identify which loans are eligible for referral.

One of the most frequently identified inappropriate exclusions pertained to 

amounts that had been discharged in bankruptcy, which should not have 

been included in delinquent debt. Farm loan managers in some of the FSA 

field offices we visited said they had not closed out many direct farm loan 

program loans discharged in bankruptcy because making new loans has 

been a higher-priority use of their resources. In addition, FSA did not 

provide sufficient oversight to help ensure that field office personnel 

adequately tracked the status of discharged bankruptcies and updated the 

loan files and debt records in the Program Loan Accounting System.

Delays in promptly closing out discharged bankruptcy debts not only 

distort the TROR for debt management and credit policy purposes, but also 

distort key financial indicators such as receivables, total delinquencies, and 

loan loss data. The information is therefore misleading for budget and 

management decisions and oversight. Aside from erroneously inflating 

reported loans receivable and delinquent loan amounts, failure to process 

closed-out debts delays the agency’s reporting of those amounts to the 

Internal Revenue Service as income to the debtor.8

FSA Temporarily Suspended 

Cross-Servicing Referrals

FSA suspended cross-servicing referrals in April 2000 pending development 

of guidelines implementing a new policy to refer only debts less than 6 

years delinquent to FMS for cross-servicing. According to agency officials, 

FSA adopted the new policy in response to discussions they had with 

Agriculture’s Office of the General Counsel that addressed a conflict 

8

The Federal Claims Collection Standards, which were last updated in November 2000, and 

Office of Management and Budget Circular A-129 both require agencies, in most cases, to 

report closed-out debt amounts to the Internal Revenue Service as income to the debtor.
Page 10 GAO-02-463 FSA Implementation of DCIA

between Farm Loan Program regulations and FMS policy. These officials 

stated that the Office of the General Counsel decided that FSA must adhere 

to Farm Loan Program regulations, which specify a 6-year delinquency 

limit for cross-servicing referrals, despite the fact that, according to FMS 

officials, FMS accepts debts for cross-servicing that are more than 6 years 

delinquent.

In July 2001, FSA issued revised guidelines to implement the new policy 

and is now reviewing loans at more than a thousand FSA field offices to 

determine the loans’ eligibility for referral under the new policy. According 

to an Agriculture official, FSA made the first referral under the new policy 

in September 2001. Agency officials told us they eventually plan to make 

cross-servicing referrals quarterly but will refer delinquent loans more 

frequently until the backlog resulting from the referral suspension is 

cleared.

Some Delinquent Loans 

Were Not Referred Promptly 

Because FSA Refers Debts 

to TOP Only Once a Year

According to data provided by FSA officials, about $400 million of new 

delinquent debt became eligible for TOP during calendar year 2000. FSA 

officials stated that the debts became eligible relatively evenly throughout 

the year, but the agency refers debts eligible for TOP only once annually, 

during December. Consequently, a large portion of the $400 million of debt 

likely was not promptly referred when it became eligible. As we have 

previously testified, industry statistics have shown that the likelihood of 

recovering amounts owed on delinquent debt decreases dramatically as the 

age of the debt increases.9

 Thus, the old adage that “time is money” is very 

relevant for referrals of debts to FMS for collection action. FSA officials 

told us that the agency agrees that quarterly referrals could enhance 

collection of delinquent debts and is working on automated system 

modifications to refer debts quarterly to TOP. FSA plans to have a 

quarterly referral process ready for implementation in August 2002.

9

U.S. General Accounting Office, Debt Collection: Treasury Faces Challenges in 

Implementing Its Cross-Servicing Initiative, GAO/T-AIMD-00-213 (Washington, D.C.: June 

8, 2000).
Page 11 GAO-02-463 FSA Implementation of DCIA

FSA Did Not Refer Losses 

on Guaranteed Farm Loan 

Program Loans to Treasury 

for Collection Action

Guaranteed farm loan program loans—as well as related losses—have been 

significant since the enactment of DCIA in 1996. The outstanding principal 

due on guaranteed farm loan program loans was about $8 billion as of 

September 30, 2000; as of that date, FSA had paid out about $293 million in 

losses on guaranteed farm loan program loans since fiscal year 1996.

Since DCIA’s enactment, FSA has referred none of its losses on guaranteed 

farm loan program loans to FMS for collection action. According to FSA 

officials, the agency could not pursue recovery from guaranteed farm loan 

program debtors or use DCIA debt collection tools because under the 

guaranteed farm loan program, no contract existed between these debtors 

and FSA. As a result, the agency did not recognize the losses that it paid to 

guaranteed lenders as federal debt and did not apply DCIA debt collection 

remedies to them. 

In June 2000, Agriculture’s Office of Inspector General reported that FSA 

was not referring its losses on guaranteed farm loan program loans to FMS 

for collection and identified the need for FSA to recognize the losses as 

federal debts and begin referring them to FMS for collection action. 

However, as of September 30, 2000, FSA still had no policies and 

procedures to recognize losses on guaranteed farm loan program loans as 

federal debts and to refer such debts to FMS for TOP and cross-servicing. 

As a result, FSA has missed opportunities to collect millions of dollars that 

the agency has paid to lenders to cover guaranteed losses.

FSA officials told us that the agency has revised the loan application forms 

applicable to guaranteed loans made after July 20, 2001, to include a 

section specifying that amounts FSA pays to a lender as a result of a loss on 

a guaranteed loan constitute a federal debt. FSA expects that software 

needed to implement the revisions to the Guaranteed Loan Accounting 

System should be completed around mid-2002 and in place before any loss 

claims are paid on guaranteed loans made after July 20, 2001.

FSA Did Not 

Appropriately Use 

Exclusions from 

Referral Requirements

As of September 30, 2000, FSA had excluded $732 million of delinquent 

loans from referral to FMS for TOP. FSA cited bankruptcy, 

forbearance/appeals, foreclosure, and DOJ litigation as the reasons for 

about $694 million, or 95 percent, of these exclusions. About $295 million 

of the exclusions were judgment debts. As we noted earlier, FSA excluded 

all judgment debts from referral because of automated system limitations, 

despite the fact that deficiency judgment debts are eligible for referral. We 
Page 12 GAO-02-463 FSA Implementation of DCIA

also noted that we found exclusion errors caused by FSA’s failure to ensure 

that loan status was routinely updated. As a result of inappropriate 

exclusions and exclusion errors, FSA failed to maximize its collection of 

delinquent loans and provided inaccurate TROR data to federal agencies 

that rely on such information for policy and oversight purposes.

Using statistical sampling, we selected 15 FSA field offices in California, 

Louisiana, Oklahoma, and Texas—the four states with the highest dollar 

amounts of debt excluded from TOP. We reviewed supporting documents 

for all 263 loans from these offices that were more than 180 days delinquent 

and had been excluded from referral to FMS as of September 30, 2000, to 

determine the extent to which exclusions in the four states were consistent 

with established criteria for excluding loans in bankruptcy, 

forbearance/appeals, foreclosure, and DOJ litigation.10 Based on the 

results of our review, we estimate that as of September 30, 2000, FSA had 

inappropriately placed about 575 loans, or approximately half the excluded 

loans in the four selected states, in exclusion categories.11 As part of our 

sample, we reviewed supporting documents for 52 bankruptcies that had 

been discharged before September 30, 2000. In fact, many had been 

discharged several years before that date. For example, one loan with a 

balance due of about $325,000 was reported as more than 180 days 

delinquent and had been excluded from referral because of bankruptcy. 

Our review of the loan file at the FSA field office showed that a bankruptcy 

court had discharged the debt in 1986. Therefore, the debt should not have 

been included in either the delinquent debt amount or exclusion amount 

reported to Treasury as of September 30, 2000.

Because of the large number of errors we found in the bankruptcy, 

forbearance/appeals, foreclosure, and DOJ litigation exclusion categories, 

we did not test other reported exclusions from referral to FMS for crossservicing, such as loans being internally offset.

10Field offices in these four states serviced about $272 million, or about 39 percent, of the 

total debts excluded by FSA from referral to FMS as of September 30, 2000, for bankruptcy, 

forbearance/appeals, foreclosure, or DOJ litigation.

11We estimate that 48.5 percent + 15.7 percent of the population were inappropriately 

reported as exclusions from referral to TOP. Projecting the errors in the sample to the 

population of 1,187 loans, we are 95 percent confident that the errors in the population are 

from 389 to 761 loans.
Page 13 GAO-02-463 FSA Implementation of DCIA

Conclusions Although DCIA was enacted in 1996, FSA continues to face major obstacles 

to complying fully with the act. FSA lacks sufficient processes and 

controls to adequately identify and promptly refer all direct farm loan 

program loans eligible for referral to FMS. Automated system limitations, 

which have existed for years and have delayed FSA’s compliance with the 

act, have still not been corrected, even though they have prevented referral 

and potential collection of substantial amounts of eligible delinquent debt. 

The failure of FSA field offices to routinely update delinquent loan 

information has led to erroneous exclusions from referral and inaccurate 

reporting of debt to Treasury. FSA’s policy of referring debts to TOP only 

once a year has allowed debts to age unnecessarily and has likely reduced 

their collectibility. FSA has only recently taken action to establish 

procedures to refer losses on guaranteed loans to FMS; therefore, 

opportunities to collect on losses of about $300 million since DCIA was 

enacted may have already been lost. If FSA is to make significant progress 

in collecting on millions of dollars of delinquent farm loan program loans, 

the agency must give higher priority to fully complying with the debt 

collection provisions of DCIA.

Recommendations for 

Executive Action

To improve FSA’s compliance with DCIA, we recommend that the secretary 

of agriculture direct the administrator of FSA to take the following actions:

• Develop and implement automated system enhancements to make the 

Program Loan Accounting System capable of identifying all judgment 

debts eligible for referral to FMS for collection action. In the interim, 

continue with the manual project to identify judgment debts eligible for 

referral to FMS.

• Monitor planned system enhancements to the Program Loan Accounting 

System to ensure that capacity to record and use codebtor information 

is available and implemented by December 2002.

• Develop and implement oversight procedures to ensure that FSA field 

offices timely and routinely update the Program Loan Accounting 

System to accurately reflect the status of delinquent debts. Aside from 

requirements for database integrity, this is critical to determining 

allowable collection action, including whether debts are eligible for 

referral to FMS for collection action.

• Develop and implement oversight procedures to ensure that all debts 

discharged through bankruptcy are promptly closed out and reported to 

the Internal Revenue Service as income to the debtor in accordance 
Page 14 GAO-02-463 FSA Implementation of DCIA

with the Federal Claims Collection Standards and Office of Management 

and Budget Circular A-129.

• Monitor effective completion of the planned automated system 

modifications to refer eligible debt to TOP on a quarterly, rather than 

annual, basis by August 2002.

• Monitor planned system enhancements to the Guaranteed Loan 

Accounting System to ensure that the software is completed that is 

needed to implement the revisions to the loan application forms to 

establish guaranteed loan losses as federal debt.

• Once guaranteed loan losses are established as federal debt and are 

deemed eligible for referral to FMS, timely refer such debt to FMS for 

collection action in accordance with DCIA.

Agency Comments and 

Our Evaluation

In written comments on a draft of this report, the administrator of FSA 

generally agreed with our findings and recommendations. The 

administrator stated that FSA has developed an aggressive action plan to 

implement the remaining DCIA provisions mentioned in our report by 

December 31, 2002. FSA’s letter is reprinted in appendix II.

While FSA agreed with our finding that it had inappropriately placed 

several loans in various exclusion categories allowed by DCIA, it disagreed 

with our estimated error rate of about 50 percent in the sample population 

of 1,187 loans. FSA stated that its own internal review of 967 loans in the 

four states that were included in our review resulted in an error rate of

35.7 percent.

Our sample was statistically selected and resulted in a valid projected error 

rate of about 50 percent for the states covered by our test work. To 

substantiate our work for each error identified during our testing, we asked 

FSA farm loan managers to sign a statement as to whether they agreed with 

the GAO sample results and conclusion that the exclusion was 

inappropriate. In all but 3 of the 113 errors we identified, the managers 

agreed with our conclusions and, as a result, said they planned to take 

action to correct the errors.

Since the FSA review was performed subsequent to our tests, we cannot 

comment on the validity of FSA’s internal assessment of the reported 

results. In addition, since many of the loans in our sample had been 

inappropriately excluded for years, corrections made subsequent to our 

testing but prior to FSA’s review would likely have resulted in a lower error 

rate at the time of FSA’s work. In any case, it is important to note that the 
Page 15 GAO-02-463 FSA Implementation of DCIA

35.7 percent error rate cited by FSA from its internal assessment is still 

unacceptable, and we remain firm in our recommendation that FSA 

develop and implement oversight procedures to ensure that FSA field 

offices timely and routinely update the Program Loan Accounting System 

to accurately reflect the status of delinquent debts.

FSA also took issue with our report’s reference to possible missed 

collection opportunities. It stated we had not given FSA sufficient credit 

for collections totaling millions of dollars of delinquent debt using various 

collection tools. Our point is that FSA’s mentioned successes could have 

been much greater had it made DCIA a higher priority and thus 

implemented certain key provisions much sooner. Our position remains 

unchanged. The details in the body of our report demonstrate lack of 

adequate progress. Most important, 5 years after the passage of DCIA, FSA 

had not yet established an adequate framework or systems capacity to 

effectively carry out its responsibilities for collecting large sums of 

delinquent debt.

As agreed with your office, unless you announce its contents earlier, we 

plan no further distribution of this report until 30 days after its issuance 

date. At that time, we will send copies to the chairmen and ranking 

minority members of the Senate Committee on Governmental Affairs and 

the House Committee on Government Reform and to the ranking minority 

member of your subcommittee. We will also provide copies to the 

secretary of agriculture, the inspector general of the Department of 

Agriculture, the administrator of the Farm Service Agency, and the 

secretary of the treasury. We will then make copies available to others 

upon request.

If you have any questions about this report, please contact me at

(202) 512-3406 or Kenneth R. Rupar, assistant director, at (214) 777-5714. 

Key contributors to this report are listed in appendix III.

Sincerely yours,

Gary T. Engel

Director

Financial Management and Assurance
Page 16 GAO-02-463 FSA Implementation of DCIA

Appendix I

Sampling Method and Results ApApenednxidexiIs

We first identified the four states (Texas, California, Louisiana, and 

Oklahoma) with the highest dollar amounts of debt excluded from TOP. 

From the four states, we drew a multistage cluster sample of 15 field 

offices (population 123) using probability proportionate to size, a sampling 

method in which larger clusters (in this case, offices) have a higher 

probability of being selected than smaller clusters. Our debt population 

consisted of all FSA debt more than 180 days delinquent that had been 

excluded from referral to Treasury as of September 30, 2000. We reviewed 

all excluded debt (263) at the 15 sample offices.

Table 2 identifies the four states selected, the number of offices selected in 

each state, the number of excluded debts at the selected offices in each 

state, and the number of errors found at the selected offices in each state.

Table 2: Summary of Sample Results for FSA’s Excluded Farm Loan Program Debt

Based on our review, we estimate that 48.5 percent ± 15.7 percent of the 

population were inappropriately excluded from Treasury referral. When 

projecting these errors to the population of 1,187, we are 95 percent 

confident that the errors in the population are from 389 to 761 debts. 

Table 3 shows the two-stage probability proportionate to size cluster 

sample results.

State

Number of

offices selected

Number of

excluded debts

Number of exclusion

errors found

California 3 103 17

Texas 6 85 59

Oklahoma 3 34 16

Louisiana 3 41 21

Total 15 263 113
Appendix I

Sampling Method and Results

Page 17 GAO-02-463 FSA Implementation of DCIA

Table 3: Two-Stage Probability Proportionate to Size Cluster Sample Results

a

One hundred percent of the debtors in each office selected were reviewed.

Sample plan 

Stage 1

Total items in the population (for all field offices in the four states 

with the highest dollar amounts of debt excluded from TOP)

1,187

Total number of primary sample units (county/field offices with 

debtors in the four states)

123

Number of secondary sample units selected 15

Stage 2

Total number of items sampled in all clusters (county)a 263
Page 18 GAO-02-463 FSA Implementation of DCIA

Appendix II

Comments from the Farm Service Agency ApendxiI
Appendix II

Comments from the Farm Service Agency

Page 19 GAO-02-463 FSA Implementation of DCIA
Page 20 GAO-02-463 FSA Implementation of DCIA

Appendix III

GAO Contact and Staff Acknowledgments ApendxiI

GAO Contact Kenneth R. Rupar, (214) 777-5714

Acknowledgments Other key contributors to this report were Arthur W. Brouk, Sharon O. 

Byrd, Richard T. Cambosos, Michael D. Chambless, Michael S. LaForge, 

and Gladys E. Toro.

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