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FEDERAL DEBT COLLECTION: IS THE

GOVERNMENT MAKING PROGRESS?

HEARING

BEFORE THE

SUBCOMMITTEE ON GOVERNMENT EFFICIENCY,

FINANCIAL MANAGEMENT AND

INTERGOVERNMENTAL RELATIONS

OF THE

COMMITTEE ON

GOVERNMENT REFORM

HOUSE OF REPRESENTATIVES

ONE HUNDRED SEVENTH CONGRESS

SECOND SESSION

NOVEMBER 13, 2002

Serial No. 107–239

Printed for the use of the Committee on Government Reform

(

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

http://www.house.gov/reform

(II)

COMMITTEE ON GOVERNMENT REFORM

DAN BURTON, Indiana, Chairman

BENJAMIN A. GILMAN, New York

CONSTANCE A. MORELLA, Maryland

CHRISTOPHER SHAYS, Connecticut

ILEANA ROS-LEHTINEN, Florida

JOHN M. MCHUGH, New York

STEPHEN HORN, California

JOHN L. MICA, Florida

THOMAS M. DAVIS, Virginia

MARK E. SOUDER, Indiana

STEVEN C. LATOURETTE, Ohio

BOB BARR, Georgia

DAN MILLER, Florida

DOUG OSE, California

RON LEWIS, Kentucky

JO ANN DAVIS, Virginia

TODD RUSSELL PLATTS, Pennsylvania

DAVE WELDON, Florida

CHRIS CANNON, Utah

ADAM H. PUTNAM, Florida

C.L. ‘‘BUTCH’’ OTTER, Idaho

EDWARD L. SCHROCK, Virginia

JOHN J. DUNCAN, JR., Tennessee

JOHN SULLIVAN, Oklahoma

HENRY A. WAXMAN, California

TOM LANTOS, California

MAJOR R. OWENS, New York

EDOLPHUS TOWNS, New York

PAUL E. KANJORSKI, Pennsylvania

CAROLYN B. MALONEY, New York

ELEANOR HOLMES NORTON, Washington,

DC

ELIJAH E. CUMMINGS, Maryland

DENNIS J. KUCINICH, Ohio

ROD R. BLAGOJEVICH, Illinois

DANNY K. DAVIS, Illinois

JOHN F. TIERNEY, Massachusetts

JIM TURNER, Texas

THOMAS H. ALLEN, Maine

JANICE D. SCHAKOWSKY, Illinois

WM. LACY CLAY, Missouri

DIANE E. WATSON, California

STEPHEN F. LYNCH, Massachusetts

——— ———

———

BERNARD SANDERS, Vermont

(Independent)

KEVIN BINGER, Staff Director

DANIEL R. MOLL, Deputy Staff Director

JAMES C. WILSON, Chief Counsel

ROBERT A. BRIGGS, Chief Clerk

PHIL SCHILIRO, Minority Staff Director

SUBCOMMITTEE ON GOVERNMENT EFFICIENCY, FINANCIAL MANAGEMENT AND

INTERGOVERNMENTAL RELATIONS

STEPHEN HORN, California, Chairman

RON LEWIS, Kentucky

DOUG OSE, California

ADAM H. PUTNAM, Florida

JOHN SULLIVAN, Oklahoma

JANICE D. SCHAKOWSKY, Illinois

MAJOR R. OWENS, New York

PAUL E. KANJORSKI, Pennsylvania

CAROLYN B. MALONEY, New York

EX OFFICIO

DAN BURTON, Indiana HENRY A. WAXMAN, California

BONNIE HEALD, Staff Director

DAN COSTELLO, Professional Staff Member

CHRIS BARKLEY, Clerk

MARK STEPHENSON, Minority Professional Staff Member

(III)

C O N T E N T S

Page

Hearing held on November 13, 2002 ...................................................................... 1

Statement of:

Moseley, James R., Deputy Secretary, Department of Agriculture, accompanied by Thomas C. Dorr, Under Secretary for Rural Development,

U.S. Department of Agriculture, and Carolyn Cooksie, Deputy Administrator, Farm Loan Programs, Farm Service Agency, U.S. Department

of Agriculture; Gary T. Engel, Director, Financial Management and

Assurance, U.S. General Accounting Office; and Richard L. Gregg,

Commissioner, Financial Management Service, Department of the

Treasury ......................................................................................................... 5

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

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

General Accounting Office, prepared statement of .................................... 16

Gregg, Richard L., Commissioner, Financial Management Service, Department of the Treasury, prepared statement of ...................................... 39

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

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

Moseley, James R., Deputy Secretary, Department of Agriculture, prepared statement of ........................................................................................ 9

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

State of Illinois, prepared statement of ...................................................... 52

(1)

FEDERAL DEBT COLLECTION: IS THE

GOVERNMENT MAKING PROGRESS?

WEDNESDAY, NOVEMBER 13, 2002

HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON GOVERNMENT EFFICIENCY, FINANCIAL

MANAGEMENT AND INTERGOVERNMENTAL RELATIONS, COMMITTEE ON GOVERNMENT REFORM, Washington, DC.

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

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

Present: Representatives Horn, Schakowsky and Owens.

Staff present: Bonnie Heald, staff director; Henry Wray, senior

counsel; Dan Daly, counsel; Dan Costello, professional staff member; Chris Barkley, clerk; Ursula Wojciechowski, staff assistant; Juliana French, intern; Dave McMillen, minority professional staff

member; and Jean Gosa, minority assistant clerk.

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

Relations will come to order.

Our hearing today concerns a subject that has been one of the

subcommittee’s highest priorities over the years: improving debt

collection in the Federal Government. The subcommittee developed

legislation that was enacted as the Debt Collection Improvement

Act of 1996. Since then, the subcommittee has held numerous hearings on how well the act has been implemented.

Today’s hearing will focus on what the Department of Agriculture has done to improve its debt collection performance since

we last heard from the agency in December 2001. The Department’s performance is particularly important because more than

one-third of all non-tax debt that is owed to the Federal Government is owed to the Department of Agriculture. Our hearing will

also look at governmentwide progress in implementing the Debt

Collection Improvement Act.

I’m pleased to note that the Agriculture Department has done

much to improve its debt collection over the last year. Our witnesses will testify that the Department is giving much higher priority to debt collection than it had in the past and this heightened

attention is paying off. However, the Department must sustain its

attention to debt collection because many challenges remain.

Implementation of the act is also improving governmentwide.

Federal agencies are now referring most of their eligible debts to

the Treasury Department, as required by the act. And the Treasury

Department’s collection results are improving each year. For examVerDate 11-MAY-2000 11:15 Sep 15, 2003 Jkt 000000 PO 00000 Frm 00005 Fmt 6633 Sfmt 6633 D:\DOCS\89164.TXT HGOVREF1 PsN: HGOVREF1
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ple, Treasury has collected about $15 billion in delinquent debt

through its offset program. The Treasury Department also has collected over $100 million through its contracts with private collection agencies. During fiscal year 2002 alone, collections by private

contractors amounted to $43 million. This represents more than a

60 percent increase over fiscal year 2001.

At the same time, we still have a long way to go before the Debt

Collection Improvement Act will realize its full potential. Agencies

should be referring all eligible debts to the Treasury Department,

not just most of them. Agencies should greatly improve the timeliness of their referrals in order to meet the act’s requirement that

debts be referred once they have become more than 180 days delinquent. Finally, agencies should make much greater use of the full

range of collection tools that the act provides.

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

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Mr. HORN. Our witnesses today are quite familiar to this subcommittee. I want to welcome each of you and commend you for

your efforts.

We’ll start with the Honorable James R. Moseley, Deputy Secretary, Department of Agriculture. He is accompanied by the Honorable Thomas C. Dorr, Under Secretary for Rural Development,

U.S. Department of Agriculture; and Carolyn Cooksie, Deputy Administrator, Farm Loan Programs, Farm Service Agency, U.S. Department of Agriculture.

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

U.S. General Accounting Office, and the person that has really put

everything moving because of the secretaries of the Treasury and

behind him.

And Richard L. Gregg has done a tremendous job. Commissioner,

Financial Management Service, Department of the Treasury.

[Witnesses sworn.]

Mr. HORN. So let us start now with Mr. Moseley.

STATEMENTS OF JAMES R. MOSELEY, DEPUTY SECRETARY,

DEPARTMENT OF AGRICULTURE, ACCOMPANIED BY THOMAS C. DORR, UNDER SECRETARY FOR RURAL DEVELOPMENT, U.S. DEPARTMENT OF AGRICULTURE, AND CAROLYN

COOKSIE, DEPUTY ADMINISTRATOR, FARM LOAN PROGRAMS, FARM SERVICE AGENCY, U.S. DEPARTMENT OF AGRICULTURE; GARY T. ENGEL, DIRECTOR, FINANCIAL MANAGEMENT AND ASSURANCE, U.S. GENERAL ACCOUNTING OFFICE; AND RICHARD L. GREGG, COMMISSIONER, FINANCIAL

MANAGEMENT SERVICE, DEPARTMENT OF THE TREASURY

Mr. MOSELEY. Thank you, Mr. Chairman, and good morning.

We want to thank you for the opportunity to be here this morning. We’re just pleased to be here, considering the circumstances

that occurred at the Department this morning, having to clear a

couple of buildings because of a bomb difficulty that we had. But

it is a pleasure to be here.

We want to discuss the results of the Department’s improvement

in relation to implementing the Debt Collection Improvement Act

since I testified before this subcommittee last December.

As was indicated, I have Tom Dorr with me here today who is

our Under Secretary for Rural Development, a very important part

of this; and I wanted to let you know that Tom has an intense interest in this issue, as I do.

I’d hoped to have Hunt Shipman, who is our Under Secretary for

FFAS, but we had to change the hearing date and Hunt had to

travel, so I have the very capable help of Carolyn Cooksie who has

worked on these issues and understands the provisions in detail.

I also want to take just a second to recognize another person that

I know that you’re familiar with and that’s Ted McPherson. Ted is

our Department CFO; and, frankly, Ted is one who has made some

significant steps forward within the Department in terms of the

reconciling of the Department’s accounting principles. Now I recognize that this hearing today isn’t about the Department’s accounting, but Ted has helped in a significant way to lead us to an understanding of the magnitude of our outstanding loan balances, and

he’s helped move the Department forward in terms of managing

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our cash and the loan portion of the USDA portfolio. I’ll tell you

that it’s been a very helpful inclusion of intellectual capital, and

Ted is helping move this Department forward.

While we are making progress in debt collection from delinquent

borrowers, we fully respect, and we’re trying to honor, the principles and the actions delineated in the debt collection act. The primary principle, I believe, based on the testimony that I gave you

last year, is coming from the agricultural farmer and watching the

circumstances in the 1980’s out there when there were some borrowers that walked away from their obligations. My belief as a result of that is that a loan is an obligation by the Federal Government to assist or to help an individual borrower. But with that

commitment comes the expectation that the commitment that is

made on behalf of the Federal Government will be paid back by the

recipient.

Of course, it’s that repayment that is in question in this hearing

and for which we as a government entity have a responsibility to

insure that borrowers meet their responsibility to the taxpayer.

That is the important obligation that we at USDA are continuing

to make, commitments to ensure borrower compliance.

I first want to give the subcommittee just kind of a brief profile

of the components that make up our credit program, and then what

I really want to do is focus on the actions that we continue to take

to improve our performance in this area.

As you well know, Mr. Chairman, every day USDA’s programs

serve the Nation’s farmers, ranchers, our rural communities and

those needing food assistance. If you look at it, we finance a broad

array of programs: water and waste management systems and

housing, electric and telephone utilities, rural businesses, farm

ownership and operations, and emergency disaster assistance and

relief.

This is an extensive list. It’s an extensive list of lending programs that makes USDA the Federal Government’s single largest

provider of direct credit. As of June 30, 2002, our $103 billion in

debt obligations represented 35 percent of the $297 billion in nontax debt owed to the Federal Government.

Our current outstanding delinquent obligation at USDA is $6.1

billion, which does represent a decrease of about 30 percent from

the $8.8 billion that we reported in delinquencies in 1996. Of this

$6.1 billion, $4.7 billion is precluded from these tools due to statutory or administrative requirements. In other words, these debts

may involve bankruptcies or litigation, or a substantial portion is

owed by foreign or sovereign entities from which collection is difficult and really requires other departments’ assistance for us to recover loan losses. This leaves us then with about $1.4 billion that

we can legitimately collect via the prescribed mechanisms in DCIA.

In December 2001 I committed to this committee to making sure

that USDA implemented the provisions of the Debt Collection Improvement Act and, more importantly, that we do it correctly. I

pledged that we would be able to accomplish most of the then existing GAO recommendations by December 31, 2002. I also committed

60 percent of eligible USDA debt would be referred to the Treasury

cross-servicing program by the end of fiscal year 2002. I also promVerDate 11-MAY-2000 11:15 Sep 15, 2003 Jkt 000000 PO 00000 Frm 00010 Fmt 6633 Sfmt 6633 D:\DOCS\89164.TXT HGOVREF1 PsN: HGOVREF1
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ised to monitor this progress and report back to you, and it’s those

commitments that I want to reflect on here today.

So that raises the question: Where are we currently? Well, first

of all, we’ve made some realistic improvements, just as I committed

on behalf of the Department to do so almost a year ago. I am

pleased to report that USDA has made substantial progress in developing new processes and procedures to implement most of the

GAO recommendations found lacking in their report to you in the

year 2001 and again in March 2002.

For example, and perhaps most important, because it’s a real

measurable outcome, USDA’s referral rate to the Treasury crossservicing program was 58 percent through June 30, 2002, versus

14 percent in fiscal year 2001. We fully expect the referral rate will

be over the commitment of 60 percent when we receive the final

September 2000—September 30, 2002, year end report. This was

something that I was expecting and hoped at that time would happen. But I have to confess I was trusting that the agencies would

deliver it when I stated it.

As I will say, both FSA and Rural Development have made substantial progress since our hearing last December. I’m not going to

go through each accomplishment in detail because it’s in the written testimony, but I would like to take just a second and highlight

a few key areas.

Both agencies have made commitments and then met them by

implementing several changes as recommended by GAO. Let me

give you a quick summary.

FSA began quarterly referral of all eligible judgment loans to the

Treasury cost-servicing program. They identified co-debtors for all

loan payments. I remember this was a serious issue a year ago and

frankly it was one that I questioned why we weren’t doing it.

FSA also revised their oversight procedures to guide field offices

in timely routine updates to the program loan accounting system.

This helped our field staff know more quickly when to get a problem loan moving, thus limiting the timeframe from delinquency to

referral. They revised loan application forms for establishing all the

guaranteed loan losses as Federal debt rather than just the percent

of obligation heretofore loaned by the Federal partner at closing.

The Rural Housing Service discussed with Treasury the issue of

report accelerated balances of delinquent single family housing direct loans, and they’re going to comply with Treasury’s decision to

report the accelerated unpaid balance.

More broadly, across USDA we established an administrative

wage garnishment work group; and we’re moving forward in developing a department-wide implementation plan.

In short, I think substantial results have been achieved since last

December, results that I hope indicate the interest of the Department to address these issues. But, as always, there’s still more to

accomplish. There’s some remaining actions that require more detailed development and regulatory time lines.

In my discussions with USDA staff, I’ve learned that we need to

finalize a rule on guaranteed loans for single family housing so we

can proceed to refer that area of unpaid debt to Treasury. My understanding is that we’re going to get that done in mid-2003. That

reflects in part my desire to have Under Secretary Dorr here with

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me today who has the lead for Rural Development. Just as Ted

McPherson helped us as a result of his interest here last year, we

have now have Tom appointed and he’s one more member of the

team who can help oversee this law and, most importantly, can get

it done.

We also need to keep focused on monitoring about what we’re

doing, just keeping an eye on the progress. Questions arise about

how are we doing on tracking delinquencies, are we current and,

more important, are we accurate? Are the referrals to Treasury

what they should be and are they on time?

It’s a simple management concept, but I want to keep ourselves

informed via our own monitoring about our improvement before we

read about it in a GAO report. The bottom line is, though, that the

Department has made a commitment to meeting the provisions of

DCIA and moving to honoring that commitment in the past year.

It seems we’ve improved, and it’s been done with some important

measurable outcomes. Yet, as I listen to others in the Department,

I know that we have a few things that remain to be accomplished,

and it’s only logical that we need to stay focused and stay focused

at the program level to get it done. We have the absolute commitment of the leadership. Now we need to make sure we turn that

to the program level and accomplish it.

Again, we thank you for the opportunity to report good progress,

and we continue to pledge to you as a part of the overall management improvement asked for by the President that this issue commands the priority and therefore the attention of the Department.

That concludes my remarks, Mr. Chairman; and we thank you

for the opportunity.

Mr. HORN. Well, thank you, because you have had wonderful

progress. We now will use your people for the questioning.

[The prepared statement of Mr. Moseley follows:]

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Mr. HORN. We’ll now move to the General Accounting Office,

Gary Engel, Director of Financial Management and Assurance. Mr.

Engel.

Mr. ENGEL. Mr. Chairman, good morning. It’s my pleasure to be

here today to discuss progress that the Department of Agriculture

has made addressing key challenges in its implementation of the

Debt Collection Improvement Act of 1996. I will also describe the

status of the Department of Treasury’s use of a special financial incentive provision of the act to encourage agencies to improve their

delinquent debt collection efforts.

Almost a year ago I testified before this subcommittee that the

Department of Agriculture, primarily the Rural Housing Service

and the Farm Service Agency, faced challenges in implementing

key provisions of DCIA. I stressed that agency implementation

would have to improve vastly if the debt collection benefits of the

act were to be more fully realized.

Also during that hearing, Agriculture pledged to place a higher

priority on delinquent debt collection and to implement the acts

fully. After the hearing, GAO made recommendations to Agriculture to help the Department to implement the corrections that

we had identified. My testimony today will provide an update on

actions that Agriculture has taken to address these problems.

Agriculture’s full implementation of the key provisions of DCIA

is critical to overall Federal non-tax debt collection. As a major

Federal lending agency, the Department continues to hold a substantial amount of delinquent Federal non-tax debt. As of September 30, 2001, Agriculture reported holding about $6.2 billion of nontax debt over 180 days delinquent, which is the very type of debt

that the DCIA provides tools to collect. I am pleased to report

today that recent actions taken by Agriculture demonstrate that,

overall, the Department is placing a higher priority on DCIA implementation.

The Rural Housing Service has worked to address systems limitations that hampered it from referring eligible debts to Treasury

for cross-servicing in the past and is now promptly referring all

such debts. In addition, the Rural Housing Service will begin reporting the entire unpaid principal balances on accelerated debt as

delinquent. The agency is also working on making regulatory

changes needed for it to refer losses on guaranteed loans to Treasury’s Offset Program. However, these changes are not expected to

occur until August 2003.

The Farm Service Agency has developed an action plan to improve its process and controls for identifying and referring eligible

debts to Treasury. Our review of documents related to the plan indicates that the agency has made progress toward implementing

the improvements, but work will need to continue well into fiscal

year 2002.

By December 2002, the Farm Service Agency also plans to begin

reporting co-debtor information when referring delinquent debts for

collection action, but a significant effort will be needed to refer all

eligible co-debtors. Also by the end of this calendar year the Farm

Service Agency expects to begin referring debts to Treasury’s Offset

Program on a quarterly rather than annual basis and to be able

to refer eligible losses on guaranteed loans when such losses occur.

15

Experts have previously testified before this subcommittee that

the administrative wage garnishment can potentially be an extremely powerful debt collection tool. We found that Agriculture

has taken steps toward agency-wide implementation of administrative wage garnishment, including completing its written implementation plan. The Department, however, still needs to carry out various elements of the plan, including specifying the types of debts

that will be subject to administrative wage garnishment and finalizing an agreement with the Department of Veterans Affairs to

conduct related hearings on Agriculture’s behalf. Agriculture has

also drafted regulations necessary for implementing administrative

wage garnishment which may not be published until May 2003.

Regarding the DCIA provision to refer agencies’ financial incentives for collecting delinquent debt, Treasury established a debt collection improvement account and has twice requested appropriations authorizing expenditures from the account. Thus far, however, no expenditures have been authorized.

While we support in principle the DCIA incentives for effective

debt collection, the overall success of DCIA has not depended nor

should it upon the availability or use of a financial incentive. Debt

collection is a fundamental aspect of administering credit programs

and DCIA contains specific requirements for Federal agencies that

were designed to improve the collection of delinquent non-tax debt.

As you know, debt collection has historically not been a high priority at some credit agencies. However, largely due to this subcommittee’s effective oversight of agencies’ DCIA implementation

under your leadership, Mr. Chairman, the envisioned benefit of

these requirements has begun to materialize.

In summary, through Congress—in summary—excuse me—

through DCIA, Congress with key leadership from this subcommittee has provided agencies, including Agriculture, with a full array

of tools to collect delinquent non-tax debt. It pleases me to testify

today that Agriculture, an agency critical to collection of Federal

non-tax debt, has recently taken and plans to continue to take

steps that demonstrate a significantly increased commitment to implementation of DCIA. I must, however, emphasize that it will take

a sustained commitment and priority by top management to fully

address the remaining problems that we had identified.

Mr. Chairman, this concludes my summary remarks. I would be

pleased to answer any questions that you or other members of the

subcommittee may have.

Mr. HORN. I thank you on that presentation. I notice quite a few

things here.

[The prepared statement of Mr. Engel follows:]

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Mr. HORN. Let’s go to Commissioner Gregg, and then we’ll go to

questions.

Mr. GREGG. Thank you, Mr. Chairman, members of the subcommittee. With your permission I’ll submit my entire statement

for the record and summarize it.

Thank you for inviting me to testify this morning to provide an

update on the Financial Management Service’s implementation of

the Debt Collection Improvement Act of 1996. As always, the subcommittee’s and your strong personal support has helped Treasury

Department in implementing a remarkably successful governmentwide debt collection program. It is a program that provides exceptional leadership across government, has significantly increased the

collection of delinquent debts, and has greatly improved the government’s ability to accurately report outstanding delinquent debt.

Mr. Chairman, I understand that you’re retiring at the end of

this Congress; and I would like to take this opportunity to state

that it has truly been a pleasure to work with you and your staff.

I believe that you leave behind an important legacy in greatly improving the Government’s debt collection, and I’d like to wish you

all the best in the coming years.

Mr. HORN. Well, thank you. And I hope you can get the tax

crowd to do what you have done with the non-tax. They’re in Treasury, and I gather they think we have a law. I don’t know why. Just

keep going. And I was very impressed by the private collection. Go

ahead.

Mr. GREGG. It is now apparent that Treasury’s debt collection

program is a fully mature one, and it’s developed into an integral

component of Federal financial management. You may be interested to know that the Treasury program has become a benchmark

model. The United Kingdom and an Australian state government

are both studying our policies and procedures as they develop their

centralized debt collection programs.

Today, Mr. Chairman, I will discuss our near-term and future

program plans as well as update you on the overall progress. Before I discuss these two issues, I’d like to give you a brief report

on the USDA’s participation in the program, as well as share my

views on the initiative commonly referred to as ‘‘gainsharing.’’ And,

Mr. Chairman, I’d also like to submit for the record a report on the

progress FMS made during fiscal 2002 in the debt collection program.

I am pleased to report a substantial increase in the number of

delinquent debt referrals from the USDA; and, specifically, I would

single out the Rural Housing Service, from which we received approximately $231 million in cross-servicing referrals in fiscal 2002.

Through 2001, we had received only $8.5 million. The Farm Service

Agency has also taken some recent positive steps in transferring

debts to FMS. This fiscal year we received $130 million and last

year we had only received $10 million—this fiscal year being 2002

compared to 2001.

The Food and Nutrition Service, I would add, continues to excel

in their participation; and you may be assured that Treasury remains committed to working with USDA to eliminate any barriers

to program participation.

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As you know, Mr. Chairman, DCIA also includes a provision designed to provide an incentive known as gainsharing for agencies

to increase collections of delinquent debt by reimbursing them for

certain expenses related to collection. Although no funds have actually been appropriated for gainsharing accounts for reimbursement

purposes, Treasury has developed procedures that would enable us

to activate the program if and when funds do become available.

As you pointed out, since enactment of the DCIA, FMS has collected about $15 billion in delinquent debts; and since FMS was

given responsibility for centralized collection of debt we have

sharply increased collections through program changes, adding numerous payment streams and categories of debt and have actively

worked with agencies to overcome obstacles. In fiscal 2002 alone,

Treasury collected $2.8 billion in delinquent debt, including $1.47

billion in past-due child support, $1.2 billion in Federal non-tax

debt, and almost $180 million in State and Federal tax debt.

Treasury has also worked hard to have agencies refer eligible

debt in a timely manner. Last fall, at your suggestion, Secretary

O’Neill wrote to the heads of all departments and agencies on the

importance of debt referral. In the last year, FMS made improvements to the Treasury Report on Receivables which enables us to

more actively monitor and evaluate agency referral and collection

performance by generating computerized 5-year trend analysis reports. Also in the last year, more than 1,100 agency participants

attended various FMS sessions on debt collection throughout the

country.

These actions have produced outstanding results. For both the

Treasury Offset Program and cross-servicing, currently 93 percent

of debt identified as eligible has been referred. To put this in perspective, at the end of fiscal 99, agencies had referred to Treasury

only 43 percent of their eligible delinquent cross-servicing debt.

Mr. Chairman, I’d like at this time to give the subcommittee a

progress report on some of Treasury’s collection initiatives.

With the cooperation of the Social Security Administration, the

offset of benefit payments, which is an extraordinarily complex undertaking, continues to go smoothly. In fact, for fiscal 2002, FMS

collected approximately $55 million in Federal non-tax debt

through this program.

As you know, Mr. Chairman, the House version of the welfare reform legislation includes a provision to authorize offsets of Federal

payments including SSA payments to improve the collection of delinquent child support debt. FMS and HHS are working with the

Senate in an effort to include a similar provision in the Senate version of the bill. An estimated $50 to $100 million annually in lost

child support collections are at stake. This provision would enable

us to aggressively target the collection of these funds.

With the good support of the IRS, implementation of the continuous Federal tax levy initiative continues to go smoothly. Of all the

payments being levied, Social Security benefit payments account

for most of the levies. For fiscal 2002, approximately $60 million

was collected.

FMS implemented the program to collect delinquent State tax

debt in 2000; and for fiscal 2002, $119 million was collected. CurVerDate 11-MAY-2000 11:15 Sep 15, 2003 Jkt 000000 PO 00000 Frm 00041 Fmt 6633 Sfmt 6633 D:\DOCS\89164.TXT HGOVREF1 PsN: HGOVREF1
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rently, 25 of the 41 States that collect State income tax and the

District of Columbia are participating.

Further, FMS has issued regulations to enable Federal program

agencies to garnish private sector wages. FMS views administrative wage garnishment as a powerful collection tool with enormous

potential. So that agencies can take full advantage of FMS’s centralized processes and established safeguards, we strongly encourage them to use administrative wage garnishment through Treasury’s cross-servicing program.

As you’re aware, Mr. Chairman, the present contract with private collection agencies went into effect October 1, 2001. We reduced the number of collectors from eleven to five and have seen

solid improvement in performance and service. Since the inception

of this program in early 1998, the PCAs have collected $109 million; and for fiscal 2002, PCAs collected $43 million, which is up

from $27 million in fiscal 2001.

In 2001, FMS began phasing in Federal salary payment offsets.

Of the five major salary paying agencies, the USDA’s, National Finance Center and the Department of Interior, both of which process payroll for numerous Federal agencies, now participate. The

U.S. Postal Service and Department of Defense have committed to

participate by the end of this calendar year. In addition to collecting Federal non-tax debt, we have also begun to collect tax debt by

levying Federal salaries. We collected $1.9 million for fiscal 2002.

I am pleased to tell you of yet another element of our debt collection program that is close to fruition. FMS has completed system

testing of the new offset of non-Treasury disbursed payments, and

we’re currently working with the Department of Defense and the

U.S. Postal Service to test the transfer of data files between our respective systems. Debts in the FMS data base will be compared to

DOD and Postal Service vendor payments, and when there is a

match, DOD and the Postal Service will offset the payment. This

will also be done for debts under continuous tax levy. We believe

this initiative holds great promise and will significantly enhance

debt collection, and we plan to implement the program next month.

Barring delinquent debtors from obtaining Federal loans and

loan guarantees is a high priority for FMS and for those Federal

agencies with loan authority. FMS has been developing a system

we call ‘‘Debt Check’’ that will allow lending agencies to access information from the FMS delinquent debtor data base so that government loans are not made to previously identified delinquent

debtors. Debt Check is scheduled to be implemented as a Webbased initiative with agencies being phased in gradually.

Mr. Chairman, in summary, Treasury’s debt program is one that

is both robust and effective and one that has consistently met or

exceeded its performance measures.

This concludes my remarks. I’ll be happy to answer any questions that you or the subcommittee may have.

Mr. HORN. Sure. Thank you.

[The prepared statement of Mr. Gregg follows:]

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Mr. HORN. I’m now going to yield time for Mrs. Schakowsky, the

ranking person for this subcommittee; and I’d like her to start—

she hasn’t had a chance to get some overlook of her own, and we’d

then like her to have at least 5 minutes, and then we’ll go back

and forth between us.

Ms. SCHAKOWSKY. Thank you. I thank you, Mr. Chairman. The

work that you’ve done, along with my good friend Congresswoman

Carolyn Maloney, on debt collection since the 104th Congress is

really showing results; and I congratulate you and all of us on that.

The testimony from Treasury indicates that 93 percent of the

debt that should be referred for collection is being referred, a dramatic increase from the 43 percent referral in 1999. In fiscal year

2002, Treasury collected over $2.8 billion in delinquent debt; and

a total of $15 billion has been collected since the law was passed.

That is a significant accomplishment.

Today we also heard that the situation at the Department of Agriculture has improved dramatically. The programs that last year

were identified as troubled today are complying with the law. Both

the Rural Housing Service and the Farm Service Agency have

made major strides toward compliance. Both agencies still have significant room for improvement that will require, as noted by the

GAO, ‘‘sustained commitment by top management.’’

The results of this legislation are even more important today

than when it was passed. The Bush administration is running the

government by spending more than is coming in. Congress has not

passed the appropriations bills necessary to fund the Government

in part because the Bush tax cut has left us with no way to fund

those bills without running up the deficit.

This challenge will be even greater in the next Congress. It’s

clear that the recession that began shortly after President Bush

took office still has the economy in its grips. Most experts predict

that the last quarter of 2002 will show little if any growth in the

economy. Public confidence in the economy is at a 9 year low. Consumer spending that has kept the economy from slipping into a

double dip recession appears to be slowing. Car sales, despite all

the zero interest loans, dropped dramatically in October to the lowest level since April 1998.

To make matters worse, jobs are disappearing left and right. Net

private sector jobs fell by 29,000 in October, 17,000 in September.

Layoffs rose from 70,000 in September to 176,000 in October. The

length of unemployment is increasing, and the average number of

hours worked is falling. Economists tell us that the most optimistic

prediction is that we will repeat the jobless recovery of 1991 and

1992. Others are predicting another recession. In short, it’s likely

to be a difficult winter for many Americans.

Debt collection is one tool to fill the Government coffers, though

it’s no substitute for sound economic policy. Debt collection which

shrinks a family’s income into poverty or which puts a firm out of

business is counterproductive. Debt collection that unrelentingly

pursues those who can’t pay is wasteful and misguided.

I appreciate the testimony that we’ve heard, and I want to thank

the witnesses for taking the time to appear before us.

[The prepared statement of Hon. Janice D. Schakowsky follows:]

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Ms. SCHAKOWSKY. I do have one question regarding the issue of

child support. Would you explain—in Illinois, where I served in the

State legislature, I saw child support as the collection—as the business of State government. I know Illinois ranks near the bottom,

unfortunately. Hopefully, we’ll—with the new Governor we’re going

to see some changes, but it’s been a persistent problem.

I understand how it would benefit the Federal Treasury if we do

a better job of collecting child support. But what role does the Federal Government play in child support—in collecting child support?

Mr. GREGG. We really work very closely with HHS and the

States to collect child support to offset payments that we make. For

example, for tax refunds, when we get referrals in from the States

through HHS for delinquent child support we may—in fact, do—reduce the amount of the tax refunds that otherwise would have been

made. So we’re not the only source, but we are an important

source. I think for fiscal 2002 we collected $1.4 billion in delinquent

child support, and that’s been pretty consistent for the last several

years. So it’s another tool that really helps the States in their role.

Ms. SCHAKOWSKY. And is that the—are we maximizing our opportunities there, or do you see room for growth there as well?

Mr. GREGG. Well, I think one thing that we would support would

be to also provide to allow us to offset child support payments

through the Social Security—for Social Security benefit payments,

because there are some fairly significant amounts that could be collected—which sounds a little strange on the surface, but it nonetheless is the case. We could actually collect somewhere between

$50 and $100 million additional if we had the authority to offset

the Social Security payments.

Ms. SCHAKOWSKY. And are you—in considering what the benefit

is to the Treasury, do you look at things like food stamps or WIC

or all of those that may not be needed to be paid out if the child

support is collected? Is that part of the calculation?

Mr. GREGG. Well, no. We basically rely on the referral from the

States through the HHS that there’s a delinquent child support

debt. And if we have a payment that matches that, we offset it.

Now if there’s an issue on, you know, someone claiming that they

can’t afford to pay that, we really refer that back to HHS and the

State.

Ms. SCHAKOWSKY. OK. Thank you. That’s all I have.

Mr. HORN. I might add the day that the debt collection bill became law, when the President put his signature on it, I got a call

from Commissioner Adams of Massachusetts. He said, you’ve made

my day. And that’s in line with Ms. Schakowsky, to make sure to

track the deadbeat dads. This has been a side thing, but it’s very

important.

Mr. GREGG. I might add, Mr. Chairman, that we have some of

our staff here from our debt management service, and you know

they’re all very dedicated. But the fact is that it’s one thing to collect Federal debt. It’s another thing for them to see what they’ve

done in the child support area. It really reinforces to them the importance of what they do.

Mr. HORN. Well, let’s go down the line a little. I’m sorry. Oh, Mr.

Owens. I didn’t see you. Yeah. Welcome.

Mr. OWENS. Thank you. Thank you, Mr. Chairman.

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Again, I want to salute you for your pursuit of this problem over

the years. For more than half of my career in Congress I have been

fascinated by this problem of debt collection, particularly within

the Agriculture Department. I really want to salute you as a profile

in courage, a profile in integrity, a profile of continuity. You’ve

stuck with it, as you have with many other knotty problems of this

kind. But I certainly am fascinated by the fact that such large

amounts of money can be outstanding. You can fund whole categories of people. The welfare mothers in most of the States could

be greatly helped if we just collect the debts from the Agriculture

Department.

The Agriculture Department does fascinate me because it seems

to be the most recalcitrant and stubborn in terms of moving. Now

there’s a movement.

I just want to clarify what I’m seeing here. When I first was in- troduced to the problem the outstanding debt was about $14 billion. The chart that appears at the end of your testimony, Secretary Moseley, do I read it correctly? We are now down from $14

billion to $6.1 billion. Is that—when you look at all these numbers,

is that correct?

Mr. MOSELEY. That is correct.

Mr. OWENS. What’s really outstanding now is $6.1 billion.

Mr. MOSELEY. That is correct.

Mr. OWENS. I think I was introduced to this problem about 10 years ago. So in 10 years we’ve gone from $14 billion down to $6.1

billion. How does this occur? I mean, do people get put in prison

after a certain period of time and they haven’t paid their debts?

Does any action other than trying to coerce them to pay the debt

take place? And how do some loans get written off? You wrote off

about $1 billion I see here, written off. What does ‘‘written off’’

mean? It just sat there so long you got tired of trying to collect it

and that person goes scot free? Or did they have to go bankrupt

before it was written off? What happened?

There’s two questions there.

Mr. MOSELEY. Well, we—first of all, I probably will have to turn

to, from a historical perspective, someone who’s been around the

Department for a long period of time. But I think it’s obvious what

we try to do is pursue the individual to make sure that the obligation is paid. If it’s in litigation, if it’s in bankruptcy, there’s a—then

we are prohibited under the guidance of this act to pursue during

that timeframe. But once that’s cleared up and it’s free to refer it

to Treasury, then it’s based upon their pursuit to collect those

funds. If there’s nothing to collect, then that money has to be written off.

Mr. OWENS. If there’s nothing to collect, the money is written off;

and the individual is scot free, though. There’s no penalty. Nobody

goes to prison for having defrauded the government.

Mr. MOSELEY. I’m going to turn this over.

Ms. COOKSIE. I don’t know that anybody goes to prison for being

delinquent on a debt or not paying it, but there certainly are things

that happen. There are even at—first of all, we don’t write down

and write off debt until we know for sure there are no assets left

to collect it. And that’s a long process. At that point, if we write

down the debt, if there is any future availability for that borrower

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to have any income or anything else, then we do do things like we

set judgments against them and we do collection efforts that are

ongoing. And DCIA has certainly made that easier for us to do

that.

But, you know, there is—the fact of life is that the law that governs farm loan programs is under the Con act. There’s a statutory

provision for write-off for farmers in certain conditions. So we have

to follow those laws for write-off. So there are certainly some farmers whose loans are written off at the end of the day when we determine there are no assets left to collect it.

Mr. OWENS. What’s always fascinated me is the large amounts

of money we’re talking about. You’re not talking about chicken feed

here. We’re talking about millions of dollars, $1 billion written off.

And in many cases when I was first introduced to this there were

some farmers who had loans outstanding which were in the millions of dollars. So to hear that if they just hang out there long

enough the whole thing is just written off is very disturbing.

But the question is, the practices that led to this were often very

strange, too. There were committees, committees made up of people

who had the power to recommend these loans, credit committees or

farm loans, I forget the exact name. And on some of these same

committees some of the people who had the biggest debts were sitting there on the committees long after the debt had been sitting

there for a while.

Have steps been taken to end that kind of legal racketeering? Because it was not illegal for them to be there. The rules said that—

no rules said they couldn’t be there. So you had a person who is

able to seem to me log roll and in terms of other people—and while

his debts are there, you know, safely couched away. Are the rules

now clear so that a person who is delinquent is at least not kept

in a responsible, decisionmaking position in this program? I’d hope

that anyone in the Federal Government or in the private sector,

anybody with $1 million worth of debt not being paid would also

be tagged for what he is. But let’s just start with the Department

of Agriculture.

Ms. COOKSIE. In FSA and farm loan programs we do—well, in

FSA in General we do have county committees that you’re aware—

they’re elected committees in each county. There is this notion that

is wrong, that county committees do feasibility and eligibility determinations for farm loans. That is not true. They do for some of the

CCC programs on the program side of the house. But for farm loan

programs county committees don’t have any authority or say-so in

eligibility or determinations for our farmers.

So even if you’re on the county committee you really—and with

the farm bill that just passed, all of the other things that the county committees did under farm loans is basically gone now. So the

relationship with farm loans and county committees is very little,

the way the laws are written now.

Mr. OWENS. They used to be called farmers home loan mortgages. Does that no longer exist? And that includes this statute

here?

Ms. COOKSIE. In 1995——

Mr. OWENS. Who’s sat on the mortgage committees? You

know——

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Ms. COOKSIE. Farmers Home Administration disappeared in

1995 with the reorganization bill.

Mr. OWENS. Yeah. I’ve been here since 1983, so——

Ms. COOKSIE. 1995.

Mr. OWENS. OK.

Ms. COOKSIE. The farm loan portion of it went to what is now

Farm Service Agency. The housing portion of it went to what is

now Rural Development.

Mr. OWENS. Under the old arrangement were the committees

from the farmers home loan mortgages different from the county

committees?

Ms. COOKSIE. Absolutely. They were not elected committees.

They were appointed. In Farmers Home Administration the county

committee system was quite different from the way it is established

in FSA. They were not elected committees, committee members.

They were appointed committee members, absolutely.

Mr. OWENS. They were appointed committee members and there

were no rules that said if you have big debts you can’t sit there,

right?

Ms. COOKSIE. There are no rules, and even in the farm bill law

that just passed it’s clear that Congress expected that county committee members would be able to get loans from the government.

We even now have extended it to Federal employees. So there is

no rule that says if you’re on a county committee you cannot participate in the program. But there is a division in farm loans because they don’t really have any say-so in the farm loan programs

now.

Mr. OWENS. Thank you.

The awesome power of the farm lobby in this country is more

than just fascinating. Less than 2 percent of the population, they

have the biggest bureaucracy second only to the Pentagon here in

Washington. And they walk away with—what’s the present authorization of—legislation is $600 billion in farm subsidies, the highest

amount. The cap that was put on is less than—is about $250,000

that can be received by one farmer, one unit, whatever they call it,

quota, whatever. It’s awesome how much the American people shell

out to the farm industry, and they continue really not to move at

a very fast pace in terms of dismantling some of what I call almost

legal racketeering practices that have existed there.

Thank you, Mr. Chairman.

Mr. HORN. Thank you.

Let me go back to Mr. Gregg a minute. You said that your office

remains committed to working with the Department of Agriculture

to eliminate any barriers to its participation in your debt collection

programs. What barriers do you see in this regard and how will

you help eliminate them?

Mr. GREGG. I think given the commitment that we heard last December and still today, assuming that continues, I really don’t see

many barriers. And I think that’s true across Government. If we

had the kind of top-level commitment that we’ve had in Agriculture

last year, many of the issues would go away. Because when it gets

right down to it you have some funding issues and priorities and

computer systems, but unless you have the commitment, the rest

really doesn’t matter very much.

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Beyond that, I think we stand ready and I think we’ve done some

consulting with them on the administrative wage garnishment regulations. We have not only program people but attorneys that are

very knowledgeable about the program, and I think they have

helped other agencies in Agriculture. If issues come up and questions of whether or not a debt should be referred to us or not, then

we look at it, you know, as really a cooperative effort to try to figure that out; and that’s the kind of thing that we stand ready to

do.

Mr. HORN. What do you see as the remaining barriers to ensuring that all agencies make maximum use of the Debt Collection Improvement Act and how will you help agencies overcome them?

Mr. GREGG. Well, I think when you launched this program, and

not surprisingly so, agencies saw or thought that they saw that

they were losing something, and they were concerned about their

programs and their constituents. I think over time that most of

that has gone away and they’re taking a broader perspective that

what they’re trying to do is still administer their programs but also

collect these debts.

Again, I think that the kind of commitment we’ve seen from Agriculture is really what’s needed, and probably a periodic hearing

on agencies that are still not quite there would probably be a good

idea going forward.

Mr. HORN. I notice you grew up in South Dakota so you know

what a farm looks like. I must say I get a tear when I see the sheriff on TV and he goes to shout, just knock off the barn and everything else. I don’t know how that’s equity that has changed, and

I don’t know if you just have a feeling on that—because I wouldn’t

want somebody—I’d make sure that before they face them with

putting them out and not being able to plow their land or get it

to farm and market and so forth.

Moving on here, how concerned are you that the act’s

gainsharing provision has yet to be used and what can be done to

encourage its use?

Mr. GREGG. I think that gainsharing could have been quite useful in 1997 and probably 1998. I think where we are today, I’m actually not very concerned that it hasn’t been used. I think the

agencies, over time, have shifted priorities and have made it work

so the progress that we’ve made in the last couple of years, I would

say that I’m not very concerned that gainsharing hasn’t been authorized through appropriations.

Mr. HORN. How would you rate the effectiveness and responsibility of the private collection agencies that you’ve worked with at the

Treasury Department?

Mr. GREGG. They’ve been a very important tool for us, and I

think it’s even gotten better in the last couple of years as we’ve reduced the number of PCAs from eleven to five and have worked

very effectively with them. Like anything else, it kind of depends

on the nature of the debt and where they fit into the process. But

they’ve been very effective.

Like anything else, you need to manage it. It’s not that we just

have a contract with them and turn them loose. They’re managed.

We monitor the complaints we might get in from debtors on whethVerDate 11-MAY-2000 11:15 Sep 15, 2003 Jkt 000000 PO 00000 Frm 00062 Fmt 6633 Sfmt 6633 D:\DOCS\89164.TXT HGOVREF1 PsN: HGOVREF1
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er or not they were treated appropriately. Overall, it’s been extremely effective for us.

Mr. HORN. In your role as Commissioner to the Treasury’s Financial Management Service, if the IRS is finally getting its act together in terms of the pots they’ve had over the years, that—starting with back when we got for doing something about it, and that

was $60 billion sitting around and then $100 billion, would that

come into your agency and manage it for IRS?

Mr. GREGG. Well, we wouldn’t manage it, but we have been

working with IRS for the last, I don’t know, I guess it’s been a year

and a half. They refer to us now tax debt and that’s going quite

well. There’s still more potential there, but we’ve collected a fair

amount in the last couple of years, and I think that will continue

to grow. The working relationship between us and IRS is very good,

and that’s an important element of the program, even though it’s

not specifically under DCIA.

Mr. HORN. The private collectors, how much of that is used on

IRS liabilities? What can you say about that? Because in the past

they wouldn’t do it. About, oh, 8 years ago they gave us a phony

presentation of when this would be moved, and it was already 5-

year old debt, and that didn’t hit anybody. This is before Commissioner Rossotti, but it was in that—going between commissioners.

Do we have any problem like that right now?

Mr. GREGG. The tax debt that we collect is all collected through

levies. It is not subject to the cross-servicing program. I know that

IRS and the Department of the Treasury are looking at the issue

of whether or not to have IRS use PCAs, and I don’t know how

they are going to come out on that. But they are considering that.

Mr. HORN. That is good, because there must easily be $20 billion

somewhere with a decent operation. You have an excellent operation, and they ought to be able to get out and get that $20 billion

when everybody is saying, gee, look, we are doing this, we might

do something with Social Security—which we won’t, any more than

anyone else does—and to see if you can get that $20 billion would

be helpful. What do you think? Do you think it is at the $20 billion mark or the $50 billion mark on the IRS? Or is that not in—I don’t mean

to put the thing on the——

Mr. GREGG. I think you have seen that with Charles Rossotti and

his deputy, Bob Wenzel, have certainly had increased focus on this.

And I think through, their work, we were able to overcome some

fairly tricky things on getting the tax debt referred to us for offset. You know, this past year, fiscal year 2002, we collected $60 million. I realize that is a small piece relative to what is outstanding,

but I see that continuing to grow.

Mr. HORN. We have, I believe, a figure that it is $100 billion to

be collected if you really go after it. And now they all say, well, we

just can’t do it and so forth. With you already doing it, I don’t know

why we can’t push in that area; and that will be good for you.

So——

Mr. GREGG. Thank you.

Mr. HORN. Well, you are such a good administrator. My gosh,

here they are fiddling around over there and have been—when the

word private collector drives them nuts. But to—we ought to try

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with it. You have seen that you get results. So we shouldn’t—when

we have got a good situation going right under everybody’s noses,

why we ought to try and see if we can do something.

You say that four or five major Federal salary-paying agencies

are participating or have committed to participate in the salary offset. What is the fifth agency, and why is it not participating?

Mr. GREGG. The fifth one would be Veterans Affairs, and we

have been working with them. I am not sure I can really say why

it has taken that long, but I think one of the issues that they have

been struggling with a bit are systems issues.

But, as you may know, there is also a look, governmentwide, to

consolidate the number of organizations that do the salary work.

So I think maybe part of it is that they are kind of looking over

their shoulder to see what is going to happen with that.

Mr. HORN. Have you performed any reviews of the Treasury Department’s cross-servicing program in order to determine whether

it is cost-effective?

Mr. GREGG. I think the cross-servicing program, if you look at it

in the context of all of the work that we do in the debt collection

area, is a very important part.

Since we began cross-servicing, we have collected about $218 million. In addition to that, the amount of debt information that has

been improved has been considerable, because, through that process, in some cases we go back to agencies and say, the documentation isn’t there. You either have got to get the documentation or

you have got to recognize that this debt isn’t collectible.

That whole process has taken place through our cross-servicing

office. If you look longer term, that is going to continue to improve

the quality of the debt information that is being reported by us and

by the agencies. So I think it is an extremely important facet of our

overall program.

Mr. HORN. Let’s move to the General Accounting Office. Mr.

Engel, how responsive has the Department of Agriculture been to

your recommendations for improving its debt collection?

Mr. ENGEL. Mr. Chairman, all of the recommendations that we

made in our recent reports issued last year have been addressed

at some level. In some circumstances the recommendation has been

fully implemented and in others there is a ways to go. Overall, I

think we are pleased with the response that we received. But, as

I had said in my testimony, it will really require a sustained commitment and priority by management to follow through on those

remaining problems that still have actions to be done.

Mr. HORN. What do you see as the major remaining challenges

to fully implement the Debt Collection Improvement Act at Agriculture?

Mr. ENGEL. I would say there is still several major challenges.

A lot of the recommendations that I had just mentioned have not

been completed, need to be followed through. Some of the major

areas would be in the codebtor, referring the codebtor information

over on the direct farm loans. While progress is being made on

those and many of the loans have been identified as to who the codebtor is, there is still a significant dollar amount of debts that

have codebtors that would need to be identified and referred over.

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The Farm Service Agency, when we had performed our work last

year, we had found problems with their processes for identifying

the accuracy of information being reported over through their referrals. Efforts are under way in that area, but there are still several

things that need to be accomplished.

In the administrative wage garnishment area, as I had mentioned in my testimony, the agency has developed a written implementation plan. It has developed draft regulations, but there are

still other procedures, working out arrangements with Veterans Affairs and things that we will need to get completed.

But I really think that will be an effective tool. It is one that priorities should be put on to get those problems issued.

Mr. HORN. What is the situation with—is it the computing—

whatever—for VA? What is the problem there?

Mr. ENGEL. For VA? Veterans Affairs is going to assist them in

holding the hearings. Under administrative wage garnishment, the

debtor could ask for a hearing; and Veterans Affairs is someone

that the Department of Agriculture is looking to have perform

some of those hearings for them.

Mr. HORN. So it is a human situation in terms of—is there a particular percentage that one has in benefits and they are sort of

working away at that—because that sort or rings a lot of bells—

and would hear a lot of Members of Congress worried about that?

Mr. ENGEL. For administrative wage garnishment, the way it

would work is that the 15 percent of disposable pay can be taken

from the employer’s—or the employee’s pay until the full debt is

collected. Now, the disposable pay takes into account taxes and

some of the sensitive things, health insurance, would come out before you would come down to what disposable pay is.

Mr. HORN. Is there a problem that you see between benefits?

Some are under HHS? Some are the States? And so what is the

problem in trying to get into those things and see if it is overpayments or underpayments or what?

Mr. ENGEL. As far as the debts that are—what is causing the results?

Mr. HORN. Right.

Mr. ENGEL. In some cases, the debts may be overpayments that

were made as part of the program. That just—they went through

and made the payment, and it wouldn’t be until later that they discovered that those were errors in payments.

In some cases, I think you actually could have fraud involved in

some of the erroneous payments that are being made. There are efforts out at the agencies, at HHS, I know, that are taking place to

try to identify and gauge the magnitude of what those erroneous

payments are.

Mr. HORN. Is this with regard to large groups, HMOs, and so

forth, or is it the poor individual one?

Mr. ENGEL. Well, I do know some of the payments are in regards

to Medicare. You know, Medicare providers and payments such as

those. I am not that familiar with exactly what all the erroneous

payments are.

Mr. HORN. I think there has been a lot of misuse. Has GAO ever

looked at that?

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Mr. ENGEL. I have not myself. But, yes, GAO has done some

work in what is called the erroneous payments, improper payments

area. I believe we have issued a report in the last year on that subject.

Mr. HORN. Yes. We had a bill on the floor yesterday, and it

passed. It will go to the President. And, hopefully, the various

agencies will have to come in with what type of—the part of—

which I think was—we sought two different types, OMB, GAO, so

forth. And it sort of—we are trying to sort it out. But that will be

in the law, and hopefully GAO will be able to give us the best shot

going to that.

Mr. ENGEL. Yes, sir. We can do that.

Mr. HORN. OK. Do you have a program working on that in GAO?

Mr. ENGEL. I do know there have been individuals that have

worked in that area. I could get back to you on the specifics.

Mr. HORN. OK. Fine.

What do you think of Treasury’s progress in implementing the

cross-servicing program?

Mr. ENGEL. The cross-servicing program is one—has been one

that has had a lot of success. Back in 1999 Treasury was able to

merge their tax refund program along with their tax offset program; and that has resulted, along with some subsequent enhancement to the program, in significant increases in the amount of collections resulting from tax refund offsets.

In the offset area as well, there has been successful—as Mr.

Gregg has said, Social Security payments are now being offset, and

there has been a significant amount of collections resulting from

those.

The area in which I think Mr. Gregg had touched on that still

needs to be followed through on is in the Federal salary offsets.

There are still some agencies that we need to follow through and

get all of those Federal salary offsets. I believe I heard him say

today in the non-Treasury disbursing office payments, with the Department of Defense and the Postal Service, those are major payment streams that still need to come in and be incorporated into

the Treasury offset program, which I believe I heard within the

next month or so, which will be a positive sign.

Mr. HORN. Why do you think the act’s gain-sharing provision has

yet to be used, and what can be done to encourage its use as cedent

from the General Accounting Office?

Mr. ENGEL. It is unclear why the act has not been used. However, I believe there may be some reasons for that. One could be

that the knowledge out there of the agencies as to the provision

itself and how the account would work, I am not sure how much

is known out there. Also, the requirement for there to be appropriations through Treasury to fund the expenditure out of the account

has not helped. As we know, SBA has requested twice to get funding; and both times that authorization was not provided.

Another thing may be that other agencies have seen that SBA’s

attempts were unsuccessful and they have not made attempts

themselves.

I concur, I think, partially with Mr. Gregg. I don’t see the incentive as something that at this point is maybe quite as critical. We

do support the concept of an incentive, but I think the act itself has

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enough provisions that if the agencies would take a higher priority

and fully implement all of the provisions that we would probably

see more success.

But one thing that could be done to try to get a better feel in

the gain-sharing area is to have FMS or someone reach out to

these agencies and see why it is they have not used it. I don’t know

if that has been done yet. But that is one way to find out exactly.

Is it because they are not aware of it? Is it because of other reasons?

Mr. HORN. If I remember the law when it was put in, there was

an incentive for the agencies which would help them get new computing—new systems, whatever. How has that been going, and is

it a percent we had on there?

Mr. ENGEL. Yes, it is a percent.

The way it works—and again no one has used it yet, because the

two attempts have been unsuccessful. But the way it works is that

there is a baseline which is typically 5 percent of the collections in

the previous year or 5 percent of the collection the previous 4

years, whichever is greater, and then an agency’s collections for the

current year. Five percent of that is taken and subtracted from

that baseline. That would be the amount that they would be subject to requesting to have funding for.

The funding can be used for different types of expenditures—

some of which you mentioned, Mr. Chairman—to improve EDP systems, to be used for the debt collection. It can be used for asset

sales as part of debt collection, to train individuals on credit management and debt collection.

Mr. HORN. Yes. I think that is a very important point, that people work on these things, and it is a good idea to keep management

systems going of people to get at the top of this. And it seems to

me we ought to——

How do you feel, Commissioner, about this?

Mr. GREGG. I generally like the idea of incentives. As I said, I

think that maybe the—it is certainly not as important today as it

was a few years ago.

I think the issue, at least as I understand it, has been how the

dollars would be scored. And I think in the case of the SBA they

could have gotten some money, but it was going to come out of another one of their pockets, so they didn’t see the great value in

that.

So it really gets down to that there has to be a separate appropriation made; and, you know, whether that is new money or

whether that comes from within the agency’s overall cap has been

the underlying issue.

Mr. HORN. Let us go back to Mr. Moseley. I was very pleased

with your—what you have done with it, and I commend you and

the Department of Agriculture with improved debt collection.

What do you see as the most significant remaining challenges

facing the Department in this area, and how will you deal with

them?

Mr. MOSELEY. Well, as I indicated in my oral remarks, we know

that we have some work to do yet. We are partway there, we think

we are a significant way there, but we have still have some work

to do.

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As was pointed out by our colleagues here at the table, we still

have this area of rulemaking for guaranteed loan losses, for singlefamily dwellings. We are in the process of trying to get that completed. We can’t refer that debt until that is completed. As soon as

that is done, then there should be an additional, fairly sizable portion of debt that gets referred.

We also, as was pointed out, have to work on this issue of administrative wage garnishment. We have put together a working group

within USDA. We have consulted across departments, agencies,

and we are getting there. But we have to now push the ball over

the line and try to get that completed. We still continue to see that

as a fairly significant area that will help us in this whole thing.

I think the final thing that I would comment on is, it is kind of

broadly across the Department, but we have made some significant

commitments in the area of technology in the last year. And as—

it just appears to me, as we continue to move down this road, the

technology is going to ease our ability to track and monitor and to

accomplish this task. And so we have done a lot in terms of technology here. But if you start to visit with the CIO in the Department, he is pretty encouraging about some things that we can continue to do.

So those are areas that we are going to continue to work on here

in the next year; and, hopefully, a year from now, we will be able

to make even a more complete report.

Mr. HORN. The General Accounting Office notes that the Department of Agriculture needs to sustain its increased commitment to

debt collection. How will you ensure that this happens?

Mr. MOSELEY. Well, the first thing that you have to do is, quite

frankly, you have leadership that says this is important. And I

think we have demonstrated to you by the folks sitting here at the

table and what we have accomplished in the last year that is an

important value and that we are pursuing that.

You have to also establish accountability. Someone has got to

take responsibility for this.

And then, once responsibility is accepted, you have got to make

sure that the job gets done. So we have established some USDAwide performance measures in this area.

Then, once you get that done, you have got to turn those department-wide performance measures into program-level measures.

And actually it gets down to the point where individuals have to

be held accountable for what they are doing within the Department. So that becomes part of their performance evaluation.

So you start at the top and you work it all of the way down to

the individuals who are assigned this task.

Mr. HORN. We have a little vote on the floor. But we will get

there. You state that only $1.4 billion of the Department’s $6.1 billion in delinquent debt is eligible for referral to the Treasury Department. So what are you doing to verify that no eligible debt is

being excluded from referral to Treasury? How about it, Secretary?

Ms. COOKSIE. We have had to do a litany of things to make sure

that is happening. The No. 1 thing we have had to do is train our

field staffs in what DCI is and when to take off debts and when

they don’t.

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We have changed a whole litany of our directives in the regulations in our handbooks. And then we put some automation tools in

place. Because, as the Deputy says, ultimately, that is going to be

the best tool for us to track these accounts that need to be referred.

The other thing that we have done in farm loan programs is that

we have a bi-yearly review of every State and we have added the

Debt Collection Act to that program review. So when we go out

every other year to each State we see where they are physically,

not just through the automation. So I think we have put some good

measures in place to follow it through.

Mr. MOSELEY. If I can also followup on that for a second, we

have also asked the Office of Inspector General to monitor and to

help us in this regard, and they have made that commitment. So

not only are we at the program level trying to get it done, we also

have our Inspector General that is looking at it to make sure that

we are getting it done.

Mr. HORN. Thank you.

Well, I want to thank our witnesses today. When Deputy Secretary Moseley testified before us last December he made a commitment to turn things around at the Agriculture Department. By

all indications, he has lived up to that commitment. I congratulate

you for that, Mr. Moseley. We know that deputy secretaries run everything, so you have done a good job; and I hope that we can

count on you to sustain that commitment in the future.

Gary Engel and his colleagues at the General Accounting Office

have provided invaluable assistance to the subcommittee and to the

executive branch in terms of improving debt collection. I hope that

the General Accounting Office will continue its vigorous oversight

of Federal debt collection operations and its constructive recommendations for improvement.

Last but not least, Commissioner Richard Gregg and his staff at

the Financial Management Service has done an excellent job of implementing the Treasury Department’s centralized debt collection

responsibilities under the Debt Collection Improvement Act. I know

that you and your colleagues will continue working hard on this effort.

I might add that the Commissioner and I chatted about 2 weeks

ago that there would be an A-plus in some things, and he said I

will take a look at it. I now take a look at him, and you are an

A-plus. So, Commissioner, you have done a great job under that

law. All of you have. So thank you very much.

I want to note and thank the people that put this hearing together. Bonnie Heald is the staff director for the subcommittee, to

my left here and your right. Henry Wray is senior counsel. And

then a little further down the line, Dan Daly, counsel, and Dan

Costello of the professional staff.

Chris Barkley is our majority clerk, and Ursula Wojciechowski—

is she here? Yeah. She is working too hard—and Juliana French.

Then the minority staff is Dave McMillen, professional staff, and

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Jean Gosa. She is also an expert on communications and technicians.

Court reporters Tina Smith and Mark Stuart.

Thank you very much.

With that, we are adjourned.

[Whereupon, at 11:30 a.m., the subcommittee was adjourned.]

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