Audit Report

OIG-08-044

PRIVATE COLLECTION AGENCIES: Linebarger, Goggan, Blair & 

Sampson, LLP, Needs to Improve Compliance with FMS’s Debt 

Compromise Requirements 

September 26, 2008 

Office of 

Inspector General 

Department of the Treasury 

Contents

Linebarger Needs to Improve Compliance with FMS’s 

 Debt Compromise Requirements (OIG-08-044) Page i

Audit Report..................................................................................................... 1 

Background ................................................................................................. 2 

Finding and Recommendations....................................................................... 3 

FMS Should Ensure Linebarger’s Enhanced Compliance With PCA Contract 

Requirements and Policy for Debt Compromise............................................ 3 

Recommendations.................................................................................... 6 

Appendices,

 Appendix 1: Objective, Scope, and Methodology.......................................... 7 

 Appendix 2: Results of Review—Individual Cases ......................................... 9 

 Appendix 3: Federal Debt Collection Laws, Regulations, and Guidance.......... 11 

 Appendix 4: Management Response ......................................................... 12 

 Appendix 5: Major Contributors to This Report........................................... 14 

 Appendix 6: Report Distribution.................................................................15 

Abbreviations

 DMS Debt Management Services 

 FMS Financial Management Service 

 Linebarger Linebarger, Goggan, Blair & Sampson, LLP (of Houston, TX) 

 OIG Office of Inspector General 

 PCA private collection agency 

 TOP Treasury Offset Program 

 Treasury Department of the Treasury 
This Page Intentionally Left Blank. 
OIG Audit

Report

The Department of the Treasury 

Office of Inspector General 

Linebarger Needs to Improve Compliance with FMS’s 

Debt Compromise Requirements (OIG-08-044) Page 1

Judith R. Tillman 

Commissioner

Financial Management Service 

We audited compliance by Linebarger, Goggan, Blair & Sampson,

LLP (Linebarger),1

 a private collection agency (PCA) under contract 

with the Financial Management Service (FMS), with requirements 

for debt compromise.2

 Our objective was to determine, for 

compromises on delinquent federal nontax debt, whether 

Linebarger is 

1. following PCA contract requirements, including (a) attempting 

to collect the full amount due before considering a compromise 

and (b) compromising at authorized levels; and 

2. documenting each compromise adequately, providing proper 

justification, and retaining evidence for the required period. 

Our audit of Linebarger is part of a series of planned audits of PCAs 

and FMS’s oversight of debt compromise. Appendix 1 contains a 

description of our objective, scope, and methodology. 

In brief, we found that Linebarger was not following some PCA 

contract requirements and FMS policy, including documentation 

provisions for debt compromise. We are making two 

recommendations to address these matters. In the management 

response, provided as Appendix 4, FMS concurred with these 

recommendations.

1

 This firm was formerly Linebarger, Heard, Goggan, Blair, Graham & Sampson, LLP. 

2

 A compromise plan is a payment agreement that allows the debtor to satisfy a debt by paying an 

amount less than the total balance due, typically in a single payment. 
 Linebarger Needs to Improve Compliance with FMS’s 

Debt Compromise Requirements (OIG-08-044) Page 2

Background

As the federal government’s financial manager, FMS implements 

the government’s delinquent debt program, collecting an annual 

average of more than $3 billion in delinquent debt over the last 

4 fiscal years through two main components, the Treasury Offset 

Program (TOP) and the Cross-Servicing Program. 

TOP, a centralized offset program, enables the matching of 

delinquent debtor records referred by federal program agencies and 

states against files for federal payments, such as income tax 

refunds, federal employment salary payments, and Social Security 

benefit payments. When a match occurs, the payment is 

intercepted and offset up to the amount of the debt. 

Cross-servicing is the centralized debt collection process for 

managing delinquent debts referred from federal program agencies 

through a variety of debt collection mechanisms, such as issuing 

demand letters, executing repayment agreements, referring 

accounts to TOP for administrative offset, referring debts to the 

PCAs, and reporting debts to credit bureaus. 

The FMS Debt Management Services (DMS) provides federal 

agencies with debt collection and management services. DMS 

leads the development and implementation of governmentwide 

debt management policies. It accomplishes its mission of improving 

the quality of the federal government's financial management in 

part by increasing the collection of delinquent debt owed to the 

federal government and by providing debt management services to 

all federal agencies. 

Once DMS determines that debtors cannot be located or are 

unwilling to resolve debts in an acceptable manner, the debts may 

be sent to the PCAs, which are private sector companies that 

specialize in collecting delinquent debt. The PCAs will attempt to 

find and contact debtors by searching various databases, making 

telephone calls, and sending collection letters. Once debtors are 

located and contacted, the PCAs will encourage them to satisfy 

their debts. 
 Linebarger Needs to Improve Compliance with FMS’s 

Debt Compromise Requirements (OIG-08-044) Page 3

On March 12, 2007, DMS awarded a Treasury debt collection 

contract to Linebarger, to increase the recovery of, and to resolve, 

nontax federal debts.3

 The contract is a renewable 1-year contract 

with four 1-year options available. Linebarger also provided debt 

collection services under a prior contract with FMS. 

For the 1-year period ending January 31, 2008, FMS referred 

$696 million to Linebarger, which collected $16.7 million and 

administratively resolved $106 million. The total amount forgiven 

for the 132 compromise agreements for which the forgiven amount 

was in excess of $2,000 processed by Linebarger during the 1-year 

period ending January 31, 2008, was $4.8 million.

Debt collection efforts are governed by various federal and state 

laws, including the Debt Collection Improvement Act of 1996 and 

the Federal Claims Collection Standards. Appendix 3 contains a 

brief summary of federal debt collection laws, regulations, and 

guidance. DMS’s Private Collection Division monitors PCA 

activities.

Finding and Recommendations

 FMS Should Ensure Linebarger’s Enhanced Compliance 

With PCA Contract Requirements and Policy for Debt 

Compromise 

Linebarger was not following some PCA contract requirements and 

FMS policy, including documentation provisions for debt 

compromise, as discussed below. We provided a copy of portions 

of our discussion draft to Linebarger, which responded that it has 

taken steps to address the findings. 

Appendix 2 provides a summary of our results on a case-by-case 

basis for the 17 cases in our sample, randomly selected from a 

3 A debt may be administratively resolved for a variety of reasons. For example, collection efforts may 

be discontinued because of a debtor’s death, disability, or bankruptcy or because a debtor entity has 

gone out of business. A debt may also be resolved if the debtor pays or otherwise satisfies the 

delinquent debt in full, pays the amount of a compromise reached, or enters into a repayment 

agreement under terms acceptable to the creditor agency.
 Linebarger Needs to Improve Compliance with FMS’s 

Debt Compromise Requirements (OIG-08-044) Page 4

universe of the 132 compromise agreements that had an active 

status during the audit period and had amounts forgiven greater 

than $2,000. It should be noted that, for the reason stated in 

note e of appendix 2, we considered 16 cases in reporting our 

results below regarding inadequate documentation. 

 Inadequate Documentation of Steps in Collection Process 

Before compromising a debt, the contract requires a PCA to take 

the following steps, in order: (1) attempt to collect the full amount 

in one payment, (2) attempt to collect the full amount in multiple 

payments, and (3) attempt to collect a partial payment amount in 

one or multiple payments.4

 The PCA is also required to include in 

its system a separate justification for being unable to collect in 

accordance with each applicable step. If the PCA is unsuccessful in 

these efforts, it may then attempt to negotiate a compromise 

payment amount with the debtor. 

None of the 16 cases in our sample had documentation for step 3 

(attempt to collect a partial payment). Without documentary 

evidence of its efforts to establish partial payment agreements 

instead of compromise agreements, Linebarger has not ensured 

FMS that $333,000 in compromised debt should have been 

forgiven.5

 In addition, documentation was not adequate for step 2 

(attempt to collect the full amount in multiple payments) 

in 11 cases. 

Linebarger officials stated that the collectors were not clearly 

documenting the steps because the collectors were summarizing 

their discussions at the end of the negotiation process, instead of 

documenting them during the process. Without proper 

documentation by a PCA, a reviewer would not be able to 

determine whether the PCA adhered to the requirements of the 

contract and acted in the best interests of the government. 

4

 In a partial payment agreement, the government suspends active collection while the debtor makes 

payments toward the balance due. Unlike a debt compromise, a partial payment agreement does not 

release the debtor's obligation to pay the full balance of the debt; the debt will remain in TOP so that 

the debtor's federal payments may be offset and applied to the debt balance. 5

 See appendix 2 for an explanation of this amount. 
 Linebarger Needs to Improve Compliance with FMS’s 

Debt Compromise Requirements (OIG-08-044) Page 5

In responding to this finding, Linebarger indicated that it has 

initiated and installed additional processes for setting up 

and documenting payment plans, including compromises, in 

its collection system. The specific notes that are written to the 

collection system are reflected in updated system documentation. 

Missing 30-Day Notice on Compromise Agreement Letters 

According to the contract, the PCA is to include in all accepted 

payment agreements the provisional notice that failure by the 

debtor to bring the account current within 30 calendar days from 

the payment due date will result in (1) the agreement becoming null 

and void and (2) the original amount of the debt being reinstated 

and due immediately, minus any payments and plus any accruals. 

None of the 17 compromise agreement letters contained in the files 

of our sample cases included the required 30-day notice. When 

asked about this, Linebarger officials stated that DMS approved its 

compromise letters. Linebarger also said that the compromise 

agreement letters state that the payment is delinquent and the 

compromise offer is withdrawn if payment is not made by the due 

date. As a result, the 30-day grace period is not offered. DMS told 

us that it had determined that Linebarger had the required language 

in its compromise agreement letters for payment in installments, 

but not for 1-time payments. This was an oversight on the part of 

DMS, which it has asked Linebarger to address as soon as 

possible.

We found that letters under both the prior and the current contract 

did not include the required language. Failure to provide debtors 

with a 30-day notice is inconsistent with PCA contract 

requirements and could cause confusion and unfairness. 

In responding to this finding, Linebarger noted that it has added 

the 30-day notice provision to the compromise agreement letter 

and submitted it to the Contracting Officer's Technical 

Representative for approval. 
 Linebarger Needs to Improve Compliance with FMS’s 

Debt Compromise Requirements (OIG-08-044) Page 6

Recommendations

We recommend that FMS take action to ensure that Linebarger 

1. conducts additional training or takes other corrective action to 

ensure that its employees properly document the steps taken 

prior to compromise, and 

2. includes the 30-day provision in all compromise agreement 

letters.

Management Response

FMS concurred with our recommendations. The DMS Private 

Collection Division held a Debt Collection Forum for representatives 

of each of the five PCAs under the current contract, including 

Linebarger. Payment agreement standards and documentation 

requirements were a major focus. DMS plans to verify that each 

PCA has conducted additional training and may travel to PCA sites 

to train collection staff. In addition, Linebarger is now using a 

revised compromise agreement letter with the required 30-day 

provision.

OIG Comment

We believe that the actions taken or planned by FMS address the 

intent of the recommendations. 

* * * * * * * 

We appreciate the courtesies and cooperation provided to our staff. 

If you wish to discuss this report, you may contact me at 

(202) 927-6512 or Maria V. Carmona, Audit Manager, 

at (202) 927-6345.

Michael J. Maloney 

Director, Fiscal Service Audits 
Appendix 1 

Objective, Scope, and Methodology 

 Linebarger Needs to Improve Compliance with FMS’s 

Debt Compromise Requirements (OIG-08-044) Page 7

Our audit objective was to determine if, for compromises on 

delinquent federal nontax debt, the private collection agencies 

(PCA) were 

1. following PCA contract requirements, including (a) attempting 

to collect the full amount due before considering a compromise 

and (b) compromising at authorized levels; and 

2. documenting each compromise adequately, providing proper 

justification, and retaining evidence for the required period 

This report provides the results of our review for Linebarger, 

Goggan, Blair & Sampson, LLP (Linebarger), one of the PCAs with 

which FMS has contracted for debt collection services. We plan 

to issue additional reports to address the results of our reviews of 

the other PCAs. 

We began our fieldwork for the overall audit in February 2008 and 

completed it in June 2008. Our work was performed at the 

Financial Management Service (FMS) offices in Washington, DC. 

This included reviewing Linebarger records that were sent to FMS. 

To accomplish our objective, we reviewed applicable laws and 

regulations. We also considered policy guidance given to the PCAs 

by FMS. This included both current and prior versions of PCA 

contract documents and FMS policy issuances, such as the Private 

Collection Agency Policy & Procedures Manual and technical 

bulletins.

We considered how FMS monitors PCA activity, reviewing 

the compliance checklists completed by FMS and supporting 

documentation obtained by FMS as it oversees the PCAs. We 

also reviewed the most recent compliance report for each of the 

PCAs under the prior contract.6

We interviewed FMS staff in the Debt Management Services 

Private Collection Division, including the contracting officer’s 

technical representative for the PCAs.

6

 FMS compliance reviews under the current contract began in May 2008. The final compliance review 

under the prior contract was completed in 2006, with no reviews done in 2007.
Appendix 1 

Objective, Scope, and Methodology 

 Linebarger Needs to Improve Compliance with FMS’s 

Debt Compromise Requirements (OIG-08-044) Page 8

We also evaluated computer-generated data files on debt 

compromises from the FedDebt system, which is the current crossservicing system. FedDebt is a Web-based application used to 

create and update debt and debtor information and monitor 

financial transactions.

In addition, we audited a statistical sample of debt compromises 

under both the prior and current FMS contracts with Linebarger. 

The sample of 17 debt compromises was randomly generated 

from a universe of 132 compromise agreements negotiated by 

Linebarger. The 132 agreements all had an active status during the 

audit period and had amounts forgiven greater than $2,000.7

 It 

should be noted that, for the reasons explained in note d of 

appendix 2, we considered 16 cases in reporting our results 

regarding inadequate documentation. 

These agreements were posted to the FedDebt system from 

February 2007 through January 2008, the most recent 1-year 

period available at the time that we requested the automated data.

The following parameters were used to determine the size of the 

sample: 95 percent confidence level, 3.5 percent expected error 

rate, and ±3.5 percent sample precision.

We examined documentation for these debts to ensure that proper 

justification was in place to support each compromise agreement. 

We conducted this performance audit in accordance with generally 

accepted government auditing standards. Those standards require 

that we plan and perform the audit to obtain sufficient, appropriate 

evidence to provide a reasonable basis for our findings and 

conclusions based on our audit objectives. We believe that the 

evidence obtained provides a reasonable basis for our finding and 

conclusions based on our audit objectives.

7 The amount forgiven included the outstanding principal, interest, administrative charges and penalties 

at the time each agreement became active, and potential PCA and DMS fees, as well as potential 

PCA bonus charges, less the amount to be paid by the debtor. Amounts forgiven less than or equal 

to $2,000 were considered immaterial for this audit. 
Appendix 2 

Results of Review—Individual Cases 

 Linebarger Needs to Improve Compliance with FMS’s 

Debt Compromise Requirements (OIG-08-044) Page 9

 A B

Inadequate

documentation 

Ref. a

Outstanding 

balance at 

date of 

compromise

Compromise

amount 

Amount 

forgiven 

Step

1 b

Step

 2 

Step

3

Comp.

letter 

missing

30-day

notice 

A 17,103 10,200 6,903 X X X 

B 23,159 7,000 16,159 X X X 

C 91,827 53,322 38,505 X X X 

D 19,162 9,538 9,624 X X X 

E 23,583 15,000 8,583 X X X 

F 85,262 38,383 46,879 X X 

G 23,765 17,314 6,451 X X X 

H 90,342 7,058 83,284 X X X 

I

c 52,064 25,077 26,987 X X 

J 6,690 3,983 2,707 X X X 

K 8,527 6,463 2,064 X X X 

L 23,170 18,102 5,068 X X 

M 11,055 6,000 5,055 X X 

Nd 7,713 5,500 2,213 X 

O 88,444 36,000 52,444 X X X 

P 31,027 20,784 10,243 X X 

Q 66,779 27,389 39,390 X X X 

 Total $669,672 $307,113 $362,559 11 16 17

Less I, N - 29,200 

Amt. Usede $333,359

Notes:

a. Cases A- L were under the prior contract; cases M- Q under the current contract. 

b. Before compromising a debt, the contract requires a PCA to take the following 

three steps, in order: 

Step 1. Attempt to collect the full amount in one payment. 

Step 2. Attempt to collect the full amount in multiple payments. 

Step 3. Attempt to collect a partial payment amount in one or multiple 

payments. 

c. Case I, which initially was a part of our sample of compromise agreements, was 

manually terminated. A new agreement was reached for payment of the full 

balance. Because another type of payment agreement was reached, we are not 

considering this case in the computation of amount forgiven. 
Appendix 2 

Results of Review—Individual Cases 

 Linebarger Needs to Improve Compliance with FMS’s 

Debt Compromise Requirements (OIG-08-044) Page 10

d. Settlement on Case N was negotiated by the federal program agency. Linebarger 

was subsequently instructed by FMS on how to proceed in this matter and, 

consequently, was not afforded the opportunity to collect the full amount. For 

this reason, we are not considering this case with reference to the adequacy of 

documentation (column A in the table), or for the computation of amount 

forgiven. 

e. The amount used in our discussion in the body of the report of inadequate 

documentation does not include the forgiven amounts for Cases I and N, for the 

reasons discussed in notes c and d above. 
Appendix 3 

Federal Debt Collection Laws, Regulations, and Guidance 

 Linebarger Needs to Improve Compliance with FMS’s 

Debt Compromise Requirements (OIG-08-044) Page 11

The following are brief statements of the purpose of selected 

federal debt collection laws, regulations, and guidance: 

Debt Collection Improvement Act of 1996

To centralize the governmentwide collection of delinquent debt and 

give Treasury significant new responsibilities in this area and to 

require that agencies take prompt action to recover debts and 

transfer all nontax debts delinquent more than 180 days to 

Treasury for administrative offset and cross-servicing. 

Fair Debt Collection Practices Act

To eliminate abusive debt collection practices by debt collectors, to 

ensure that debt collectors who refrain from using abusive debt 

collection practices are not competitively disadvantaged, and to 

promote consistent state action to protect consumers against debt 

collection abuses.

Federal Claims Collection Act and Standards

To set administrative procedures with respect to collection of debts 

owed to the United States, including the criteria for accepting 

installment payments and compromise agreements.

Privacy Act

To restrict the disclosure of personal information about individuals 

and govern the handling of such information by the federal 

government and its contractors.

OMB Circular A-129–Policies for Federal Credit Programs and 

Nontax Receivables

To prescribe policies and procedures for justifying, designing, and 

managing federal credit programs and for collecting nontax 

receivables.
Appendix 4 

Management Response 

 Linebarger Needs to Improve Compliance with FMS’s 

Debt Compromise Requirements (OIG-08-044) Page 12
Appendix 4 

Management Response 

 Linebarger Needs to Improve Compliance with FMS’s 

Debt Compromise Requirements (OIG-08-044) Page 13
Appendix 5 

Major Contributors to This Report 

 Linebarger Needs to Improve Compliance with FMS’s 

Debt Compromise Requirements (OIG-08-044) Page 14

Michael J. Maloney, Director, Fiscal Service Audits

Maria V. Carmona, Audit Manager 

Kenneth G. Dion, Audit Manager 

Horace A. Bryan, Auditor 

Gerald H. Kelly, Auditor 

Myung G. Han, Management Analyst 

Jenny Hu, Referencer 

Gerald J. Steere, Referencer 
Appendix 6 

Report Distribution 

 Linebarger Needs to Improve Compliance with FMS’s 

Debt Compromise Requirements (OIG-08-044) Page 15

Department of the Treasury

Office of Strategic Planning and Performance Management 

Office of Accounting and Internal Control 

Financial Management Service

Assistant Commissioner, Debt Management Services 

Director, Finance and Internal Control Division 

Manager, Internal Control Branch (OIG Liaison) 

Office of Management and Budget

OIG Budget Examiner