Criminal Debt: Oversight and Actions Needed to Address Deficiencies in Collection Processes
Published: 2001-07-16T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: The collection of outstanding criminal debt has been a long-standing problem for the federal government. Since October 1985, as reported in the U.S. Attorney's statistical reports, the balance of outstanding criminal debt has grown from $260 million to more than $13 billion. Currently, the receipting of collections and recordkeeping for criminal debt is primarily the responsibility of the U.S. Courts, while the Department of Justice is responsible for collecting criminal debt. This report reviews (1) the key reasons for the growth in reported uncollected criminal debt; (2) whether adequate processes exist to collect criminal debt; and (3) what role, if any, the Office of Management and Budget (OMB) and the Department of the Treasury play in monitoring the government's collection of criminal debt.
section_title: What GAO Found
paragraphs: GAO found that four key factors have contributed to the significant growth of uncollected criminal debt. These factors are (1) the nature of the debt, in that it involves criminals who may be incarcerated or deported or who have minimal earning capacity; (2) the assessment of mandatory restitution regardless of the criminal's ability to pay, as required by the Mandatory Victims Restitution Act of 1996; (3) interpretation by the Financial Litigation Units of payment schedules set by judges which limit collection activities; and (4) state laws that may limit the type of property that can be seized and the amount of wages that can be garnished. Financial Litigation Units do not always follow their policies and procedures to ensure that collection actions are prompt and adequate. The present management practices and processes do not ensure that offenders are deprived of their ill-gotten gains and that innocent victims are compensated for their losses to the fullest extent possible. Collection responsibilities continue to be divided between Justice and the courts, with neither having a central management oversight role. Neither OMB nor Treasury has identified the need to take an active oversight role in the collection of the growing balance of outstanding criminal debt.

section_title: Letter
paragraphs: This report responds to your request that we review the federal  government’s collection of criminal debt, primarily fines and restitution.  The collection and management of such criminal debt has been a long- standing problem for the federal government. This report discusses the  following factors that have an impact on the effectiveness of the criminal  debt collection process:  the nature of criminal debt, the assessment of mandatory restitution,  interpretation of payment schedules set by judges, and limitations due  to state laws;  inadequate policies and procedures, and inadequate adherence to  established procedures by the Department of Justice and the U.S.  courts, and in the districts visited, a lack of coordination in assessing  and collecting criminal debt; and  the current oversight environment, which does not leverage the central  agency roles of the Department of the Treasury and the Office of  Management and Budget in the government’s collection of criminal debt.
We make recommendations related to these issues that, if successfully  implemented, should improve the collection of criminal debt.
As arranged with your office, unless you publicly announce its contents  earlier, we plan no further distribution of this report until 30 days after the  date of this report. At that time we will send copies to the Chairman of your  subcommittee as well as the Chairman and Ranking Minority Member of  the Committee on Governmental Affairs. We will also provide copies to the  Attorney General, the Secretary of the Treasury, the Director, Office of  Management and Budget, and the Director, Administrative Office of the  United States Courts. Copies will also be made available to others upon  request.
If you have any questions about this report, please contact me at (202) 512- 3406 or J. Lawrence Malenich, Assistant Director, at (202) 512-9399. GAO  staff acknowledgments are listed in appendix VI.
subsections: section_title: Introduction
paragraphs: The collection of outstanding criminal debt has been a long-standing  problem, with many of the issues that we have been reporting on since  October 1985 still remaining. Since that time, as reported in the U.S.  Attorneys’ statistical reports, the balance of outstanding criminal debt has  grown from $260 million to over $13 billion (see figure 1). The Congress  attempted to address some of these problems through the Criminal Fines  Improvement Act of 1987 when it transferred the responsibility for  accounting for and processing criminal debt from Justice to the courts and  gave them the responsibility for establishing a centralized accounting  system (see appendix II, “History of Criminal Debt Collection Legislation”).  In 1990, the Administrative Office of the United States Courts (AOUSC)  began developing a centralized entity, called the National Fine Center  (NFC) to record, track, and report on federal criminal debt. The NFC was  expected to automate and centralize criminal debt processing for the 94  federal judicial districts and provide a management information system to  replace the existing fragmented approach for receiving payments and  alleviate long-standing weaknesses in accounting for, collecting, and  reporting on criminal monetary penalties imposed on federal criminals.
However, after several years of developing a National Fine Center that was  criticized by GAO and the Congress, the AOUSC engaged an independent  consulting firm in February 1996 to perform a full review of the project.  The consulting firm concluded that the task of developing a National Fine  Center, involving several agencies in two branches of government, proved  to be more complex than expected and that the needs of the districts could  not be met through a centralized approach. Thus, with the consent of the  Congress, the NFC was terminated. As such, the criminal debt collection  process continues to be fragmented, involving both judicial and executive  branch entities in 94 districts across the country.
Also, around the time of the consultant’s report, the Mandatory Victims  Restitution Act of 1996 (MVRA) was enacted, requiring that restitution be  assessed at the full amount regardless of an offender’s ability to pay. Since  that time the balance of reported uncollected criminal debt has increased  dramatically. Reported uncollected criminal debt has more than doubled  from about $5.6 billion as of September 30, 1995, to approximately  $13 billion as of September 30, 1999, with about 66 percent of that amount  attributed to restitution owed to nonfederal parties. The collectibility rate  however has not increased proportionally.
subsections: section_title: Background
paragraphs: Criminal debt arises when a court orders an offender to pay fines and/or  restitution as part of the punishment for violating a federal criminal law.  Unless the offender immediately pays the debt, Justice is responsible for  enforcing its collection. Justice has delegated this responsibility to its  Financial Litigation Units (FLU) in the United States Attorneys’ Offices  (USAO) across the country. As of September 30, 1999, the Executive Office  for United States Attorneys (EOUSA) database reflected approximately  $13.1 billion in reported outstanding criminal debt, of which about $5.6  billion (or 43 percent) was accounted for by the four districts we visited  (see figures 2 and 3 for a breakout of the major types of criminal debt  involved).
Each of the 94 districts has a USAO, an executive branch agency, and a  U.S. district court that includes district judges, a clerk’s office, and a  probation office within the judicial branch of government. The districts  operate independently from one another with guidance provided by the  offices indicated in table 1.
In addition to general guidance provided by Justice, the Judicial  Conference, and the U.S. Sentencing Commission (USSC), each district  office develops supplemental guidance for criminal debt collection  procedures. Within each district, the USAO, probation office, and the  clerk’s office enter into a memorandum of understanding (MOU) that  documents how criminal debt collection activities will be accomplished.  Each of the USAOs also has a Financial Litigation Plan that details district  guidance on collecting criminal debt. The following sections provide  additional detail on (1) assessing criminal fines and restitution and  (2) accounting for and collecting criminal debt in this currently  decentralized and fragmented environment.
subsections: section_title: Assessing Criminal Fines and Restitution
paragraphs: Agencies such as Justice’s Federal Bureau of Investigation and the Drug  Enforcement Administration investigate violations of federal law and refer  the results of their investigations to a local USAO (see figure 4 for a general  overview of the criminal debt assessment process). The country is divided  into 94 federal judicial districts, with a federal district court in each district.  Each of the 94 districts is located in one of 12 regional circuits, and each  circuit has a Court of Appeals.
After the USAO obtains the conviction of an offender, the court issues a  Judgment in a Criminal Case (JCC), which details terms of the sentence  and orders the payment of a fine and/or restitution, if applicable. To assist  judges in determining the fine and/or restitution amount, a probation  officer prepares and provides to the court a pre-sentence report that  includes financial information related to an offender’s ability to pay a fine  and information related to victims’ losses. In preparing the pre-sentence  report, probation officers are to use financial information obtained from  the investigating agency, the trial, and the offender. In deciding whether to  assess a fine and, if so, the amount to assess, courts are to consider an  offender’s income, earning capacity, and financial resources; the potential  burden placed on an offender’s family; and any restitution or other  obligations that the offender is required to make. For example, if large  amounts of restitution are ordered, the assessment of fines is typically  waived based on the offender’s inability to pay a fine.
USSC guidelines provide guidance on the minimum and maximum fine  amounts for the U.S. courts to impose based on the offense. The statute  requires the court to order the payment of a fine immediately unless, in the  interest of justice, the court provides for payment on a date certain or in  installments. According to the guidelines and the statute, judges may  consider whether paying the fine in a lump-sum would have an unduly  severe impact on the offender or any dependents, and if so, should  establish an installment schedule for paying the fine. The installments  should be in equal monthly payments over the period established by the  court, unless the court establishes another schedule. The length of time  over which scheduled payments should be made is the shortest time in  which full payment can reasonably be made, generally not to exceed 12  months. In addition, judges may waive fines if they believe that offenders  will be unable to pay and are unlikely to become able to pay (e.g., if they  are sentenced to life in prison or cannot afford to hire private counsel).
Judges may also order restitution to be paid to the victims of a crime. In  accordance with statute, before MVRA was enacted in April 1996, the court  typically waived or reduced the restitution amount based on the offender’s  ability to pay. However, under MVRA, the court typically must order  restitution to each victim in the full amount of each victim’s loss, without  regard to an offender’s economic situation. If the court believes that an  offender cannot immediately or fully pay the restitution amount in the  foreseeable future, the court can order the offender to make nominal  installment payments.
In some districts, judges must set the payment schedules and document  them in the JCC, and in other districts, judges can delegate to probation  officers the authority to set payment schedules. However, within the last  few years, more judges have been required to establish payment schedules  as a result of several circuit court decisions that have affected policies in  this area. For example, some circuit courts have held that courts are  prohibited from ordering a defendant to pay criminal fines or restitution in  accordance with a payment schedule set by a probation officer or a prison  official because the setting of a payment schedule is an inherently judicial  function that may not be delegated to others. In addition, some circuit  courts have prohibited the imposition of an immediate payment order of  the entire amount unless the defendant can pay the entire amount  immediately. Finally, some circuit courts have interpreted the MVRA to require the court to set the payment schedule in all cases at sentencing.
section_title: Criminal Debt Collection Process
paragraphs: After the assessment process, the criminal debt collection process varies  depending on the other sentencing terms imposed on the offender. Figure 5  shows the typical post-MVRA criminal debt collection process.
The FLUs within the USAOs’ Civil Divisions have been delegated the  responsibility for collecting criminal debt. After receiving a JCC, the FLU  enters information from the JCC into the FLUs’ case tracking system and  performs certain collection actions depending on such factors as the  amount of the debt. The FLUs’ collection efforts include filing liens (based  on debtor’s address or county of known residence), identifying debtor  assets, garnishing debtor wages, and serving notice of late payments. To  facilitate collection and reduce duplication of effort, the entities involved  with assessing and/or collecting criminal debt (investigative agencies,  prosecuting attorneys, and the courts) should share the financial  information they have obtained about the offender with the FLUs.
Offenders are encouraged to participate in the Bureau of Prisons (BOP)  Inmate Financial Responsibility Program (IFRP). This program provides a  means of collecting voluntary periodic deductions from inmates’ wages  earned from a prison occupation. The amounts are generally small and are  deducted periodically (e.g., monthly, quarterly, or semiannually). When  released from prison or as ordered by the judge at sentencing, the offender  is assigned to a probation officer. If the criminal debt has not been paid, the  probation officer or the court, depending on the district, should establish  an installment schedule for payment. Probation officers may restrict  offenders from performing certain activities, such as traveling outside the  district, if they are not making their required payments. Probation officers  may also request that the court revoke supervision (i.e., send an offender  to prison) if the offender is willfully refusing to make payments.
Since, as noted above, the NFC effort did not succeed, the FLUs in each  district maintain their own databases to meet their enforcement  responsibilities. Restitution payments from offenders in most districts are  submitted to the clerk’s office. The clerk’s office records these payments  and provides a copy of the payment information to the FLUs so that they  can update their databases. Most criminal fines are paid to the clerk’s office  and deposited into Justice’s Crime Victims Fund, which provides grants for  victim assistance programs and compensation to victims.
Payments for restitution assessed after MVRA are paid to and disbursed by  the clerk’s office; however, the handling of payments and disbursements for  pre-MVRA restitution vary by district. In 18 districts, the clerk’s office  accepts only post-MVRA restitution payments; therefore, the FLUs in these  districts maintain an additional system to receive pre-MVRA restitution  payments from offenders and to disburse payments received to applicable  victims. Restitution is often owed to many victims, and disbursements must  be prorated based on the amounts owed to each victim. The clerk’s office  disburses checks to victims, whereas the FLU uses an independent  financial institution to receive payments and disburse checks to victims.  AOUSC officials have indicated that they are working with the staff in the  remaining districts to assist them in assuming the receipting of collections  responsibilities for pre-MVRA payments.
section_title: Objectives, Scope, and Methodology
paragraphs: Our objectives, as agreed to by the subcommittee staff, were to determine  (1) the key reasons for the growth in reported uncollected criminal debt,  (2) whether adequate processes exist to collect criminal debt, and (3) what  role, if any, the Office of Management and Budget (OMB) or the  Department of the Treasury (Treasury) plays in overseeing and monitoring  the government’s collection of criminal debt.
To determine the key reasons for the growth in reported uncollected  criminal debt and whether adequate processes exist to collect criminal  debt, we (1) interviewed officials from the Executive Office for United  States Attorneys (EOUSA), the Administrative Office of the United States  Courts (AOUSC), and five selected district offices, (2) reviewed applicable  policies and procedures for collecting criminal debt, (3) obtained a  database from EOUSA of all outstanding criminal debt as of September 30,  1999, and (4) reviewed all criminal debt cases greater than or equal to $14  million at the four districts with the largest amount of outstanding criminal  debt as of September 30, 1999. These four districts—the Central District of  California, the Eastern and Southern Districts of New York, and the  Southern District of Florida—accounted for $5.6 billion (or 43 percent) of  the over $13 billion of outstanding criminal debt as of this date. At these  four districts, we reviewed all 44 cases greater than or equal to $14 million,  which accounted for $3.7 billion (or 66 percent) of the $5.6 billion. We also  selected and reviewed 35 random criminal debt cases with a dollar value of  $5,000 or greater but less than $14 million at each of the four districts (for a  total of 140 random cases); thus, we had a total of 184 cases selected for  our review. We did not independently verify the completeness or accuracy  of these data or test information security controls over the system used to  compile these data because that verification was not necessary to meet the  objectives of this report.
To determine what role, if any, OMB and Treasury play in overseeing and  monitoring the government’s collection of criminal debt, we interviewed  officials from these entities and reviewed applicable laws and regulations.
We performed our work from April 2000 through April 2001 in accordance  with U.S. generally accepted government auditing standards. We requested  comments on a draft of this report from the respective agencies. These  comments are discussed in the “Agency Comments and Our Evaluation”  section of the report and are reprinted in appendix III through appendix V.
See appendix I for a more detailed discussion of our scope and  methodology.
section_title: Factors Contributing to the Growth in Uncollected Criminal Debt
paragraphs: According to statistics from the EOUSA, the amount of criminal debt has  grown significantly since fiscal year 1995 (see figure 6). Several factors  contributing to the growth in reported uncollected criminal debt, some of  which are not within the FLUs’ or probation offices’ control, include (1) the  nature of the debt, including the government’s limited ability to write off  certain debt deemed to be uncollectible, (2) the assessment of mandatory  restitution, (3) interpretation of payment schedules set by judges, and  (4) limitations due to state laws.
subsections: section_title: Nature of the Debt
paragraphs: The nature of criminal debt, including how and why it is levied, can make  the debt more difficult to collect. Criminals may not be willing to comply  with the law, and forcing compliance is difficult because criminals are  already convicted felons who may be serving time in prison or may have  been deported. Moreover, offenders in prison have limited earning capacity,  and so potential collections are limited. In 57 percent of the high-dollar  cases we reviewed and in an estimated 20 percent of our sampled  population, the offender was still in prison. Further, significant time may  pass between an offender’s arrest and sentencing, giving offenders time to  hide fraudulently obtained assets, such as funds in offshore accounts, shell  corporations, or family members’ names and accounts.
Even though the courts are required to consider an offender’s ability to pay  when assessing fines, collection cannot always be assured. Fines are  sometimes assessed to make a statement about the nature of the crime and  its impact on society. Restitution, as discussed below, is typically assessed  without regard to an offender’s ability to pay; therefore, collection may be  unrealistic.
Asset seizure and forfeiture are important components of law enforcement  efforts to deprive criminals of the proceeds and instruments of their  crimes. Several years may pass between an offender’s arrest and  sentencing. Federal laws authorize agencies to seize assets before a  criminal conviction, thereby potentially overcoming one difficulty in  collecting fines and restitution—defendants diverting their assets before  conviction. However, the FLUs are not permitted to pursue liquidation of  assets for debt collection until after an offender is convicted and  sentenced.
Proceeds from forfeiture are typically used to make owners (e.g., a  mortgager) whole and to fund law enforcement activities, and are not  necessarily used to fulfill restitution orders. Therefore, the use of  forfeiture, as we reported in June 1994, could decrease amounts that might  otherwise be available for paying restitution to crime victims and reducing  outstanding criminal debt. According to Justice statistics, of the estimated  $536 million of forfeited cash and property recovered during fiscal year  1999, approximately $39 million (or 7 percent) was applied to restitution in  victim-related offenses. The remaining amounts were either converted to  cash and used for law enforcement purposes or retained for official law enforcement use. In our case reviews, only 2 of the 44 high-dollar cases  provided that the proceeds from the sale of assets be used to pay  restitution. None of the JCCs for the random cases stated such terms. In the  2 high-dollar cases, the JCCs specifically stated that the proceeds of the  sale of seized and forfeited assets should be used to pay victims.
Finally, according to 18 U.S.C. 3613, most criminal debts must remain “on  the books” for 20 years plus the period of incarceration and cannot be  “written off” until the statute of limitations expires, the debtor is deceased,  or the court approves a petition of remission filed by the USAO. Therefore,  even if Justice determines that certain debts are not collectible, these debts  must remain “on the books,” and the FLUs must periodically reassess their  collectibility in accordance with USAO policies (see chapter 3) regardless  of the status of the offender or previous actions to collect these debts. For  example, in accordance with USAO policies, a $30,000 debt must be  reassessed annually even if the FLU was unsuccessful in previous attempts  to identify assets and the offender is serving a sentence of life in prison.
The U.S. Attorneys’ Manual states that if the FLU determines that a fine will  likely never be collected, it can seek a petition for remission of all or part  of a fine from the judge. According to the Manual, seeking remission is  preferable to placing it “in suspense” and continuing to pursue collection.  However, we found no evidence that the FLU had requested a petition for  remission in the cases we reviewed, even though some cases appear to  have met the criteria for remission. According to FLU officials, obtaining a  court order to write off delinquent debt is a time-consuming process and is  not considered a priority among the many other tasks (e.g., working on  open cases) the FLUs must perform.
section_title: Assessment of Mandatory Restitution
paragraphs: Before the Mandatory Victims Restitution Act of 1996 (MVRA), the  assessment of restitution, like the assessment of fines, was typically based  on an offender’s ability to pay. However, MVRA requires that assessment of  restitution be based on actual loss and not on the offender’s ability to pay.  Assessments of restitution have significantly increased since the passage of  the act. As of September 30, 1995, approximately $3.4 billion (102,158  cases) in criminal debts was owed to the federal government in fines and  federal restitution and about $2.2 billion (15,126 cases) was owed in  nonfederal restitution. Although federal and nonfederal criminal debt  amounts have increased from September 30, 1995, to September 30, 1999,  the increase for nonfederal debt (i.e., restitution) is far greater (see figure  7).
When assessed amounts are not based on an offender’s ability to pay, the  likelihood of collecting the full amount may be unrealistic. For example, in  addition to each offender receiving a 240-year prison sentence, the four  offenders convicted of bombing the World Trade Center were each ordered  to pay $250 million in restitution plus fines ranging from $250,000 to  $4.5 million. These four cases alone increased the criminal debt balance by  over $1 billion. All four offenders refused to provide financial information  and, as of May 2000, these offenders had collectively only paid  approximately $3,000. Under these circumstances, it is unlikely that a  significant portion of the restitution owed by these offenders will be  collected. In another example, an offender was convicted in March 1997 of  conspiracy, mail fraud, and tax evasion; sentenced to 20 years  imprisonment and 3 years of supervised release; and ordered to pay a fine  of $1 million and restitution of over $475 million. FLU records show that as  of September 30, 1999, the offender had paid only $25. FLU records also  show the offender refused to participate in the Inmate Financial  Responsibility Program. Before sentencing, the offender also refused to  provide the probation officer with a personal financial statement that  would identify income, expenses, assets, and liabilities. Other work by the  probation officer, including obtaining a credit report, doing an online  property search, and reviewing tax return information, did not disclose  assets available to pay down the debt.
section_title: Payment Schedules Set by Judges
paragraphs: In some districts, the judges may delegate the authority to set payment  terms to probation officers. In those districts where it has been held that  the courts may not delegate the authority to set payment schedules  (including two of the districts we visited), judges must include them in the  JCC. We found that the payment schedules set by judges can significantly  influence collection efforts. EOUSA and FLU officials we interviewed  indicated they believe that when a judge orders specific payment schedules  in the JCC, they are precluded from making any collection efforts (other  than filing a lien), such as pursuing liquidation of assets, until an offender is  released from probation. However, the view of AOUSC officials and the  Chief Judge in one of these districts is that the inclusion of payment  schedules in the JCC does not preclude the FLU from identifying and  pursuing assets but merely sets a minimum amount that must be paid while  an offender is under supervision. The EOUSA and FLU interpretation  inhibits the FLUs from taking prompt collection efforts, and the  government may lose opportunities to collect criminal debt.
In 16 of the 44 high-dollar and 41 of the 140 random cases we reviewed,  judges stipulated terms in the JCCs regarding how or when fines or  restitution should be paid; in the remaining cases, the fine or restitution  was due immediately (see table 2 for terms stipulated in our selected  cases). In the cases where judges stipulated payment terms, we found that  the FLUs typically wait until after the offender is released from prison and  probation before performing collection actions (e.g., searching for and  liquidating assets). As a result of such delays, opportunities to maximize  collections may be missed.
As we reported in 1999, the payment schedules set by judges vary by  district. For example, in 1 of the high-dollar cases and in 17 random cases,  including 13 random cases selected from the Eastern District of New York,  the judges stipulated that the amount was not due until the offender was  released from prison. In these instances, the FLUs typically do not perform  any collection actions other than filing a lien. In 2 high-dollar and 10  random cases, 9 of which were from the Southern District of New York,  judges established a payment schedule based on a percentage of gross  income to be paid on a periodic basis (e.g., 10 percent of gross monthly  income to be paid monthly). In 8 high-dollar and 3 random cases from the  Central District of California, the judge established a minimum amount that  must be paid on a periodic basis (e.g., at least $300 to be paid each month).  We found that probation officers typically did not recommend an increase  in payment amounts, and the FLUs typically did not attempt to increase  them or pursue liquidation of assets, even if financial circumstances  improved. The following examples show the effects of terms being  stipulated in the JCCs.
In one case, in February 1998, an offender was convicted of bank fraud  and ordered to pay $113 million in restitution jointly and severally with  coparticipants through quarterly payments of at least $2,400. Since the  payment schedule was specified in the order and the offender was  making the minimum payments, neither the FLU nor the probation  officer recommended or attempted to pursue the net proceeds of  $80,000 from the sale of her house and $19,200 from the sale of two cars.  While on probation, the offender was permitted to move to another  country with court approval. As of February 2001, clerk records show  that this offender had paid $28,800 and all coparticipants combined had  paid less than $100,000.
Another offender was convicted of wire fraud, sentenced in November  1997 to 6 months of home detention to be served concurrently with 3  years of probation and ordered to pay over $74 million in restitution  jointly and severally with coparticipants. The judge ordered the  defendant to make quarterly payments of at least $750 after she  completed home detention. Based on financial statements the offender  provided, her pre-sentence report showed that she had over $40,000 in  unencumbered assets and $5,000 of unsecured debt, resulting in a net  worth of over $35,000. The probation office had not recommended the  pursuit of liquidation, nor had the FLU attempted liquidation of any  assets owned by the offender. According to the FLU, because the judge  included the payment schedule in the judgment, the FLU will not pursue  collection until after the offender is released from supervision. As of  April 2000, the offender had paid $6,000.
In April 1998, another offender in our selection was convicted of  conspiracy to commit mail fraud and ordered to pay a $20,000 fine in  quarterly installments over a 3-year probation period even though just  before his sentencing, the offender reported $5,000 in cash, $12,400 in  his checking account, and over $100,000 of equity in his home. In this  example, it appears that the offender may have had the ability to pay his  whole fine or a significant portion of it immediately; however, since the  judge set a payment schedule in the JCC, neither the FLU nor the  probation office reassessed the offender’s ability to pay or pursued a  lump-sum payment. According to clerk records, the offender had paid  $14,400 as of June 2000.
section_title: State Laws
paragraphs: According to EOUSA officials, state law can also restrict the FLU’s ability  to perform certain collection efforts and therefore contribute to the growth  in outstanding criminal debt. State law may limit the type of property that  can be seized and the amount of wages that can be garnished. For example,  certain states, such as Florida, have unlimited homestead exemptions,  prohibiting the seizure of a primary residence regardless of the amount of  equity in the home and thus prohibiting the FLU from requiring an offender  to borrow against a primary residence.
During our case-file reviews, we found several instances in which real  property and personal property were registered in the offender’s spouse’s  name (or other family member). These assets may be difficult to liquidate  unless the state is a “community property” state, such as California, in  which each spouse is entitled to one-half interest in property owned or  income earned by the other spouse.
section_title: Inadequate Criminal Debt Collection Processes and Lack of Coordination Contribute to Low Collection Rate
paragraphs: Because of the many agencies and districts involved in the collection  process, improving the rate of criminal debt collection, which has averaged  about 7 percent for fiscal years ending September 30, 1995 through 1999,  hinges in part on the ability of these entities to work together and to  implement effective processes (see figure 8). The four FLUs we visited did  not have effective policies and procedures or did not always follow their  policies and procedures to ensure that collection actions were prompt and  adequate for increasing the potential for collecting the maximum amount  of criminal debt. In addition, the four probation offices we visited did not  always follow their procedures that could have allowed for increased  collections from offenders under supervision. Further, because the entities  involved in the criminal debt collection process did not adequately  coordinate their efforts or share financial information about offenders,  they weakened the government’s ability to increase collections. Of the  $3.76 billion of debt assessed in our high-dollar cases, approximately $148  million (or about 4 percent) was collected through September 30, 1999. In  addition, we estimate that 4 percent of the judgment amounts for our  sampled population had been collected through September 30, 1999.
subsections: section_title: Financial Litigation Units
paragraphs: As stated in Standards for Internal Control in the Federal Government,  transactions should be promptly and accurately recorded to maintain their  relevance and value to management in controlling operations and making  decisions. Also, collection actions must be promptly performed, because,  as industry statistics have shown, the likelihood of recovering amounts  owed decreases dramatically with the age of delinquency. Many of the  outstanding debts as of September 30, 1999, were over 3 years old (see  figure 9).
In reviewing our selected cases at the four FLUs we visited, we found that  the FLUs did not always follow their established procedures or lacked  procedures for performing the following actions in a timely manner:  entering cases into their tracking systems;  filing liens;  performing asset discovery work, such as researching asset databases;  using other enforcement techniques, such as wage garnishment;  monitoring and reassessing cases;  sending demand, delinquent, or default letters; and  assessing interest and penalties.
We also found that the lack of asset investigators, as well as the limited  number of collection staff, a historical problem for the FLUs, weakens their  ability to aggressively follow up on and enforce collections. In addition, we  found that the FLUs’ tracking systems do not capture certain data, such as  court-ordered terms or status of offender, that are needed to effectively  assist in managing the debt portfolio.
subsections: section_title: Entering Cases into the FLUs’ Tracking Systems
paragraphs: The EOUSA Resource Manual, along with local guidance for the four FLUs  we visited, outlines the procedures that should be followed once the FLU  receives a JCC. According to this guidance, the FLUs are to enter criminal  debts into their collection tracking systems in a “timely fashion,” but no  later than 14 days after receiving the JCC. Although procedures exist for  entering the data, we noted during our reviews that no policies or  procedures existed to ensure that a copy of the JCC is promptly sent to the  FLUs. 18 U.S.C. Sec. 3612(b)(2) requires the clerk’s office to transmit a certified  copy of the JCC to the Attorney General (i.e., USAO) within 10 days after  the judgment or order. However, according to FLU officials, this copy is  typically sent to the prosecuting attorney within the USAO’s Criminal  Division and not to the FLU within the USAO’s Civil Division. The  prosecuting attorney is to then forward a copy to the FLU. Since the FLUs  we visited were not required to, and did not typically, stamp the date they  received a copy of the JCC, we were unable to determine when they  received the copy and how long they had the copy before entering the  criminal debt information into their systems.
The average length of time for entering the 44 high-dollar cases was 288  days; for the sampled population, we estimate that the length of time was  289 days. For most cases, FLU officials could not provide us with  explanations as to why these cases were not entered into their tracking  systems within 30 days of the JCC date. Unless the FLUs promptly receive  a copy of the JCC and promptly enter the data into the tracking systems,  time-sensitive collection actions, such as filing liens and performing asset  discovery work, are delayed and opportunities to maximize collections  may be missed.
section_title: Filing Liens
paragraphs: FLUs are required to file notices of liens on offenders’ properties, pursuant  to 18 U.S.C. Sec. 3613, to establish the government’s claims on these assets  and to prevent the sale or transfer of such property. The first liens filed by  the FLU are typically filed according to the offender’s home address;  additional liens should be filed if the FLU identifies assets in other  locations. The U.S. Attorneys’ Manual specifies that liens are required to be  filed in all cases over $650 but does not establish a specific time frame for  filing. Only one of the FLUs in the four districts we visited—the Southern  District of Florida—had established a time frame for filing a lien; this  district requires liens to be filed within 45 days of the judgment date.  Instead of specifying a time frame, the other three districts require that  liens be filed to “guarantee enforcement to the fullest extent of the law.”  However, during our reviews we found that liens often were not filed or not  filed promptly.
Specifically, we found that required liens had not been filed in 10 percent of  the high-dollar cases and in an estimated 30 percent of the sampled  population. In another 27 high-dollar cases and 68 random cases, we found  that over 60 days elapsed between the judgment date and when the lien  was filed. The filing of liens is further delayed if judgments are not  promptly received and entered into the collection tracking system. For the  38 high-dollar and 96 random cases in which liens had been filed, the  average number of days from the date the case was entered into the system  until a lien was filed were 142 and 356 days, respectively; and from the  judgment date to filing were 410 and 639 days, respectively.
In most cases, the FLUs were not able to determine why a lien was not filed  or not promptly filed. Not promptly filing liens or not filing them at all  significantly increases the potential for offenders to liquidate their assets  and avoid repaying debts owed to the government. For example, an  offender in our selection was fined $25,000 in 1989. During 1991, the  offender reported receiving net proceeds of $180,000 from selling a home  and $18,000 from selling a boat (the offender did not specify whether the  proceeds from the sale of the boat were gross or net). The offender’s last  payment was received in 1995. As of May 2000, no lien had been filed, and  the offender owed over $15,000 plus over $13,000 of interest. According to  FLU officials, the file does not indicate why the lien was not filed. Had the  FLUs promptly filed a lien, the proceeds from these sales might have been  applied towards payment of the fine.
section_title: Performing Asset Discovery Work
paragraphs: The U.S. Attorneys’ Manual specifies that the USAO should “execute on”  (i.e., seize) an offender’s property as soon as possible after sentencing.  According to this manual, in order to identify property owned by the  offender, the USAO should “promptly and vigorously” perform asset  discovery work, which includes procedures such as reviewing the pre- sentence report, requesting financial statements and tax returns from the  debtor, obtaining credit reports, and researching on-line property locator  services. However, we found that the four FLUs we visited performed very  limited asset discovery work and that established procedures did not  specifically identify when these procedures were required to be performed.  For example, in 48 percent of the high-dollar cases and in an estimated  66 percent of the sampled population we found no evidence that the FLU  attempted to identify the debtor’s assets. According to USAO officials, asset  discovery work is performed only if the FLU believes, based on its  judgment, that the offender may have assets. Moreover, there is no  requirement to document these judgments or whether they were made.
Not promptly identifying whether an offender has assets increases the risk  that the offender may have time to hide or liquidate assets that could have  been available to pay toward the debt. For example, an offender was  convicted of tax fraud, sentenced in 1994, released from supervision in  1995, and ordered to pay about $344,000 in restitution. As of May 2000, the  offender had paid only $750. Our review of the FLU file showed that the  FLU did not perform asset discovery work before May 2000. Since this  offender had been selected for our review, the FLU performed an asset  search to identify assets that could possibly be liquidated and also  scheduled a deposition with the offender to determine whether there were  assets that could be liquidated. However, over 6 years has passed since the  offender was sentenced; therefore, the offender could have previously  liquidated or hidden his assets.
We also found that district guidance at the four FLUs we visited specifies  that asset discovery work should be performed, but the guidance does not  (1) establish time frames for performing the work or (2) prioritize debt  cases based on factors that indicate increased potential for collections.  Lack of time frames and prioritization increases the risk of delays in  performing asset discovery work and thereby the potential for missing  opportunities to maximize collections. In addition, asset discovery work is  further delayed if the judgment is not promptly received and the  information is not promptly entered into the case tracking system. Factors  that could help prioritize collection efforts include the type of crime or the  type of victim. For example, collection rates tend to be higher for offenses  related to white-collar crimes than for those related to violent crimes. Or  cases involving hundreds of nonfederal victims may take higher priority  over those with a relatively insignificant fine amount owed to the federal  government.
section_title: Using Other Enforcement Techniques
paragraphs: The U.S. Attorneys’ Manual states that USAOs are to “litigate vigorously” to  enforce the collection of debts “to the fullest extent of the law” and that the  “government should execute on an offender’s property as soon as  practicable after sentencing.” FLUs are authorized by law to perform a  wide range of enforcement techniques, such as wage garnishment and  asset seizure, to collect criminal debt. If offenders willfully do not pay their  criminal debt, FLUs can summon them to appear in court. In court,  offenders can be ordered to answer questions under oath or in writing  about their financial status or explain why they have not complied with the  court’s order for paying a debt. FLUs can also obtain a court order, called a  writ of execution, that permits the U.S. Marshals Service to seize an  offender’s property as complete or partial payment of a fine or restitution.  Writs of execution can also be applied against an offender’s income or bank  account in a process called garnishment.
In October 1985, we reported that the FLUs we visited rarely used the  techniques we have just discussed due to several factors, including limited  resources. Based on our reviews at the four districts we visited, the FLUs  are still rarely using any of these enforcement techniques, and the guidance  does not specify when and how frequently these techniques should be  used. For example, we found only one case in which the FLU garnished  wages. According to FLU officials, enforcement techniques are not pursued  until the FLU determines that an offender has assets or sufficient earnings  and is willfully not paying amounts owed. However, as noted above, the  FLU is performing limited asset discovery work to determine whether  assets do exist that could be pursued, as indicated in the example where  the FLU performed an asset search in May 2000, 5 years after the offender’s  release from supervision, and only after the case had been selected for our  review. Based on that search, the FLU scheduled a deposition with the  offender to determine whether there were assets that could be liquidated.  In another example, an offender was convicted of embezzlement, false  imprisonment, and tax evasion and was sentenced in 1998 to 20 months of  imprisonment and 3 years of probation. The offender was also ordered to  pay approximately $67,000 in restitution in monthly installments of at least  10 percent of gross monthly income. After sentencing, but before  surrendering for incarceration, the offender sold property and realized a  profit of about $13,000. According to FLU officials, the FLU could have  forfeited the property, but they could not explain why this option was not  pursued.
section_title: Monitoring and Reassessing Cases
paragraphs: The FLUs use event codes in their collection tracking systems to  document actions taken to pursue collection and the status of cases.  According to the U.S. Attorneys’ Manual, criminal debts that are placed in  suspense must be periodically reviewed to determine whether the  offender’s status has changed and to reassess the offender’s ability to pay  (see table 3). For example, the code “DDNL” is used to place an account in  suspense when a debtor cannot be located. This policy allows FLUs to keep  criminal debts “open” as legally required while limiting the time and effort  to be spent on a case. According to the manual, debts placed in suspense  must be periodically reviewed to reassess an offender’s ability to pay.
In September 1993, Justice’s Office of the Inspector General (OIG) reported  that the FLUs were not adhering to the prescribed policies for reviewing  debts in suspense. During our reviews, we also found that the FLUs we  visited were still not consistently using the event codes, including suspense  codes, and they were not following their prescribed procedures for  reassessing an offender’s ability to pay. Specifically, we found that the  event code as of September 30, 1999, was inconsistent with the information  in the case file for 14 percent of the high-dollar cases and for an estimated  20 percent of the sampled population. For example, an offender was fined  $100,000 in October 1989. The offender reported over $420,000 in net worth  on a personal financial statement dated September 1989 and was making  payments towards the fine until September 1997, at which time the  offender still owed $82,000 plus interest and penalties. However, the FLU  had not reviewed the case from September 1997 through April 2000, well  over the 1-year frequency-of-review guidelines for debt over $25,000.
In addition, the FLUs did not promptly monitor cases and update their  records, resulting in an inaccurate principal balance in EOUSA records. In  40 percent of the high-dollar cases and for an estimated 65 percent of the  sampled population, the FLU had not revisited the case within established  time frames. For example, an offender in our selection was ordered to pay  restitution of $20 million in November 1991. The offender had paid over  $50,000 before his death in 1993. However, as of September 30, 1999 (over 6  years after the offender’s death), the FLU was showing that the offender  still owed a balance of over $19.9 million. Had the FLU revisited this case in  a timely manner, this amount would have been written off.
We found that the September 30, 1999, balance for GAO-selected cases was  overstated by more than $450 million. Five of the high-dollar cases we  reviewed involved one case with several defendants who were jointly and  severally liable for all or some parts of the total restitution owed. To avoid  double counting in joint-and-several cases, the FLUs are to open one record  for the lead defendant and track all other codefendants or coparticipants  under the lead defendant’s record. However, the FLU inappropriately  opened separate records for these defendants, thereby overstating the  amount owed as of September 30, 1999, by more than $430 million.
section_title: Sending Demand, Delinquent, and Default Letters
paragraphs: The EOUSA Manual requires the FLUs to send a demand letter to offenders  “as soon as” a case is entered into the criminal tracking system, notifying  offenders of their debt and the consequences of not paying the debt (i.e.,  interest and penalties would be assessed). While three of the four districts  in our review have incorporated this guidance into their local procedures,  local procedures for the fourth, the Central District of California, state that  the FLU should not send demand letters to an offender who is under the  supervision of a probation officer.
In October 1985, we reported that demand letters were sent in only 17  percent of the cases reviewed in five districts, and of those sent, the  average number of days the FLUs took to send the letters was 143. Not  sending or not promptly sending demand letters continues to be a problem  for the USAOs. The problem could be attributed, in part, to the lack of  specific guidance as to when demand letters should be sent. For example,  EOUSA guidance states that demand letters be sent “as soon as” a case is  entered into the criminal tracking system; however, it does not address  situations that may not be applicable to this guidance, such as debts  entered into the tracking system that are not yet due.
We found that the FLUs had not sent demand letters required by the  EOUSA Manual in 69 percent of the high-dollar cases and in an estimated  45 percent of the sampled population. Sending demand letters is further  delayed by the amount of time it takes the FLUs to receive the judgments  and enter information from them into their tracking systems. For the high- dollar and random cases for which demand letters were sent, the average  number of days the FLUs took to send the first letter from the date the  judgment was entered into the tracking system, was 163 and 433 days,  respectively. Also, for those same high-dollar and random cases, the average number of days the FLUs took, from the judgment date, to send the  first letter was 481 and 712 days, respectively.
In accordance with 18 U.S.C. 3612(d), delinquency notices should be sent  within 10 working days after a fine or restitution is determined to be  delinquent (i.e., a payment more than 30 days late). A payment that is not  made within 90 days after it is determined to be delinquent is in default, and  a default notice should be sent within 10 working days. However, we found  that neither delinquency nor default notices were sent in 21 of the 24 high- dollar cases and 58 of the 101 random cases in which the debt was  determined to be delinquent or in default. Failing to promptly inform an  offender of the penalties for not making payments diminishes the incentive  for the offender to make prompt payments.
section_title: Assessing Interest and Penalties
paragraphs: In accordance with 18 U.S.C. 3612(f), interest and penalties are required to  be assessed on unpaid fines or restitution over $2,500 unless the court  waives this requirement (i.e., if the judge specifically states in the JCC that  interest and/or penalties are waived). The law also permits the Attorney  General to waive interest and penalties if it is determined that efforts to  collect are not likely to be effective. However, according to the U.S.  Attorneys’ Manual, a determination of whether to waive interest and  penalties should be considered only after the principal has been paid.
In September 1993, the Justice OIG reported that 8 of the 10 offices they  visited did not pursue penalties and that 2 had waived both interest and  penalties for all delinquent debts. The OIG recommended that the EOUSA  emphasize the need for assessing interest and penalties. However, we  found that the four FLUs we visited still were not consistently assessing  interest and penalties. While in some instances, the FLUs assessed required  interest, in 4 out of 7 high-dollar and in 12 out of 49 random cases that  required interest and penalties to be assessed, the FLUs had not done so.  Moreover, the FLUs generally do not assess penalties. EOUSA officials believe that assessing interest and penalties is not productive because the  principal debt itself is often difficult to collect. As shown in table 4,  inconsistently applying interest and penalties leads to inconsistent data and  an understated balance.
According to the EOUSA database, as of September 30, 1999, the  outstanding debt balance included over $400 million of interest and  penalties assessed by the FLUs. However, because the FLUs do not  consistently assess interest and penalties, the reported amounts do not  accurately represent how much total principal, interest, and penalties are  due. In addition, failure to assess interest and penalties reduces the amount  that could be recovered and passed along to victims or the federal  government and eliminates a tool designed to provide debtors an incentive  for prompt payments.
section_title: Human Capital Issues
paragraphs: Effective and prompt collection actions are affected by the adequacy of  human resources. We recently designated human capital a governmentwide  high-risk area, emphasizing that an organization’s people—its human  capital—are its most critical asset in managing for results. Our high-risk  report explains that human capital problems lead to programmatic  problems and risks and that human capital shortfalls are eroding the ability  of many agencies to effectively, efficiently, and economically perform their  mission. In addition, according to the Comptroller General’s Standards for  Internal Control in the Federal Government, only when the right  personnel for the job are on board and are provided the right training,  tools, structure, incentives, and responsibilities is operational success  possible.
The lack of asset investigators and the limited number of collection staff  have presented a historical problem for the FLUs. In October 1985, we  reported that debt collection, especially criminal debt collection, receives  low priority and suffers from staffing problems. In that report, we stated  that personnel spent more time on accounting for criminal fines than on  enforcing collection. We also reported that the FLUs, who are responsible  for civil and criminal collections, were staffed with one attorney and from 1  to 10 collection clerks, depending on the size of the district (generally the  same staffing levels as in 1999). In July 1990, we reported that FLUs stated  that they have insufficient trained staff to aggressively follow up on and  enforce collections. In September 1993, the Justice OIG reported that as  data entry responsibilities increase, less time is spent on actual criminal  debt collection actions.
Staffing levels for the four FLUs we visited have only slightly increased  from an average of 8.7 individuals during 1995 to 9.3 individuals during  1999, even though the number of assessments and debts pending have  significantly increased. Specifically, the number of debts pending for the  four FLUs we visited increased from an average of 4,406 to 6,373 cases per  district, or about 45 percent, and the average dollar amount of outstanding  debts per staff increased by over 160 percent. Table 5 reflects the average  number of criminal cases compared with the average number of staff (i.e.,  workload) for fiscal years 1995 and 1999 for the four FLUs we visited. In  addition to the criminal case workload data presented in table 5, the FLUs  are also responsible for collecting civil debt that other federal agencies  refer to them. The number of outstanding civil debts for all FLUs increased  from 44,786 debts as of the end of fiscal year 1995 to 146,421 at the end of  fiscal year 1999.
Further, none of the four FLUs we visited had full-time resources  dedicated to or specializing in performing searches to identify hidden  assets, and they had few resources available for enforcing collections.  When assets are not promptly identified, offenders have more time to hide  fraudulently obtained assets, such as funds in offshore accounts, shell  corporations, or family members’ names and accounts. Once assets are  identified, the FLUs should pursue collection through the use of  enforcement techniques (i.e., legal remedies); however, most of the  individuals assigned to the FLUs we visited were not attorneys or  paralegals, whose skills are needed to pursue such techniques.
EOUSA officials have historically recognized the need for additional  training and staff, but they indicate that budget constraints limit the FLUs’  ability to provide the additional training or hire additional staff that would  enable them to collect debt more effectively. In addition, an official from  the FLU in the Southern District of New York in Manhattan indicated that  this district often has difficulty in filling its lower-paying positions, such as  those for debt collection agents.
In conjunction with documenting our initial understanding of the debt  collection process, we visited the Northern District of California. During  this visit, we were briefed on a project that this district had initiated in 1999  to employ dedicated asset investigators. According to the EOUSA, the  project, which provided for one full-time and four part-time former  criminal investigators, has been very successful. The district reported that  over 1,000 cases were investigated and over $10 million has been or is in  the process of being recovered as a result of those investigations. As noted above, three of the four districts where we performed our testing did not  have dedicated asset investigators, and the collection staff was not  performing significant asset discovery work.
section_title: FLU Tracking Systems
paragraphs: The FLUs’ tracking systems do not capture key information needed for the  FLUs and EOUSA to effectively manage the debt portfolio. As we reported  in June 1994, the FLUs’ tracking systems do not indicate the terms of the  fine or restitution orders. This continues to be a problem for the FLUs we  visited. For example, although a JCC may state that an offender owes at  least a certain amount on a periodic basis, this information would not be  reflected in the systems. The tracking systems also do not capture an  offender’s expected release dates from prison and probation, information  that could assist the FLUs in determining time frames for reassessing an  offender’s ability to pay. In addition, the systems do not permit the FLUs to  allocate outstanding debts between amounts likely to be collected and  those not likely to be collected. For example, even if an offender is making  monthly installment payments, the FLU must either put the entire balance  in suspense or none of the balance in suspense.
section_title: Probation Offices
paragraphs: The four probation offices we visited did not consistently adhere to certain  policies and procedures for developing pre-sentence reports and collecting  criminal debt. The AOUSC provides guidance to probation officers for (1)  developing pre-sentence reports, (2) establishing installment schedules,  and (3) monitoring installment schedules. However, we found that the  probation offices we visited were not always following these procedures,  thereby decreasing the usefulness of financial information in pre-sentence  reports and the potential for maximizing criminal debt collections. In June  1998, we recommended that the AOUSC establish, as policy, specific  guidance on how probation officers should determine how offenders  should pay their fines and restitution, including criteria establishing what  types of assets should be considered for immediate lump-sum payments or  substantial payments, how installment schedules should be established,  and the type and amount or range of expenses that should ordinarily be  considered necessary when determining the amount of payments under  installment schedules. To address these recommendations, the AOUSC  issued revised guidance in September 2000 that, if properly implemented,  should help address the reported weaknesses. However, as the AOUSC and  we pointed out in that report, unless probation officers effectively  implement these guidelines, such weaknesses will continue to exist.
subsections: section_title: Developing Pre-Sentence Reports
paragraphs: Prior to sentencing, probation officers perform “financial investigations” of  offenders’ financial condition for inclusion in pre-sentence reports. This  includes collecting, verifying, and analyzing financial information regarding  the offender. Probation officers depend on offenders to provide certain  financial information; however, offenders are not always cooperative. In 10  of the 42 high-dollar and 18 of the 125 random cases we reviewed, the  offender did not provide this information, thus decreasing the usefulness of  the pre-sentence report for debt collection purposes.
Regardless of whether the offender provides this information, probation  officers are responsible for taking steps to determine an offender’s ability  to pay, such as obtaining pay stubs, reviewing tax returns, searching for  assets, and running credit reports. However, in 20 of the 42 high-dollar and  40 of the 125 random cases, we found that probation officers did not take  adequate steps to develop the financial condition section of the pre- sentence report. For example, one probation officer included information  provided by the offender and obtained a credit report to verify liabilities  but did not take the steps needed to identify assets or verify income. In  another case, the offender did not provide information, and there was no  evidence in the file that the probation officer attempted to obtain financial  information by other means. The probation officer for another case  obtained prior years’ income tax returns to verify income information  provided by the offender but did not take the steps needed to identify  assets. Since the offender most likely would not report income obtained  through criminal activities on his tax returns, other steps should have been  taken to assess the reasonableness of reported income versus the  offender’s lifestyle.
Probation officials indicated that they often have limited time frames for  preparing the pre-sentence reports and have to obtain the offender’s  consent and cooperation to obtain certain information and documents  (e.g., tax returns). Further, probation officials have indicated that their  investigations focus on analyzing information provided by the offender and  not necessarily on identifying unreported assets.
section_title: Establishing Installment Schedules
paragraphs: According to 18 USC 3572(d), offenders should pay their fines and  restitution “immediately, unless, in the interest of justice, the court  provides for payment on a certain date or in nominal installments.” As  noted earlier, depending on the district, installment schedules are  established by a judge and documented in the JCC or by probation officers  while an offender is under their supervision. Therefore, once a probation  officer is supervising an offender, the officer either (1) monitors the court- ordered installment schedule or (2) establishes and then monitors the  installment schedule. Probation officers were required to establish  installment schedules in 10 of the 42 high-dollar cases and in 72 of the 125  random cases. However, probation officers did not establish installment  schedules in 3 of the 10 high-dollar cases and 15 of the 72 random cases as  required. In the other cases, the probation officers were not required to  establish an installment schedule because the (1) offender was still in  prison or (2) the court stipulated an installment schedule. As discussed in  chapter 2, judges may stipulate payment terms in the JCC. These terms can  influence actions taken by probation officers and the FLUs to collect  criminal debt. See table 6 for the status of offenders in our selected cases  as of May 2000.
Unless a court has set a payment schedule, probation officers should  establish installment schedules (or reassess court-established schedules)  to collect outstanding criminal debt from offenders once they are released  to their supervision. Probation officers should recommend that offenders  make a full lump-sum or a significant one-time partial payment based on  their ability to pay and establish an installment schedule for the balance not  paid. The guidelines require probation officers to request that offenders  periodically report on their financial circumstances by preparing personal  financial statements listing their assets—such as bank accounts, securities,  and real estate—that could be used for lump-sum payments against their  fines and restitution. The FLU should be notified if lump-sum payments are  made, and identified assets should be reported to the FLU so it could  pursue collection. According to AOUSC guidelines, probation officers  should set an installment payment schedule based on the offender’s  monthly cash flow if full payment is not possible. The monthly cash flow is  determined by deducting necessary monthly expenses from monthly  income. Necessary expenses are broadly defined as those for the offender’s  continued employment and for the basic health and welfare of the  offender’s dependents, which could include home rent or mortgage,  utilities, groceries and supplies, insurance, transportation, medical  treatment, and clothing.
We found deficiencies in the establishment of installment schedules,  including inadequate recommendations for significant partial payments, in 3 of 7 high-dollar and 16 of 57 random cases in which installment  schedules were established. Specifically, we found that probation officers  did not consider an offender’s reported assets, such as bank accounts and  second homes that might have been available for full or partial payment of  a fine or restitution. Instead, probation officers typically established  installment schedules and did not recommend lump-sum payments or  liquidation of assets. For example, an offender was convicted of tax fraud  in September 1994, sentenced to 5 months in prison and 1 year probation,  and ordered to pay approximately $344,000 in federal restitution. Although  the offender reported having significant assets on his financial submission  for use in preparing the pre-sentence report, the probation officer did not  recommend a significant partial payment. Instead, the probation officer  established a $25-per-month installment schedule which the offender  stopped paying after he was released from probation. Even if the offender  had continued to make these payments, it would have taken over 1,000  years for the debt to be paid off.
We also found that probation officers used arbitrary methods, such as  negotiated amounts and good-faith payments, to establish the installment  payment schedules, instead of linking them to income, expenses, or other  financial criteria as required. For example, an offender who was ordered to  pay $5,900 in restitution entered into a payment agreement with the  probation office that called for $10 monthly payments, even though  financial submissions indicated that the offender had a positive monthly  cash flow (income minus necessary monthly expenses) of about $360. At a  rate of $10 a month, it would take the offender over 49 years to pay off the  debt.
section_title: Monitoring Installment Schedules
paragraphs: Offenders under supervision are to submit to their probation officers (1) monthly supervision reports listing income and necessary expenses and  (2) on a less frequent basis, updated personal financial statements.  Probation officers are required to scrutinize these reports, including the  type and amount of offender-reported “necessary expenses.” In addition,  probation officers may request that offenders increase or decrease  installment payment amounts if their ability to pay changes (with court  approval if the court set the payment schedule). However, we found that  probation officers did not follow their guidelines for reviewing an  offender’s financial circumstances. Following the guidelines could have  allowed for increased installment payments for 1 of the 13 high-dollar and  12 of the 77 random cases in which an installment schedule had been  established by either the probation officer or the judge. We also found that  in the cases in which the judge set a minimum amount that must be paid or  set other payment terms, probation officers typically did not recommend  increased payment amounts or liquidation of assets, even if an offenders’  financial circumstances improved (see examples and related discussion in  chapter 2).
For example, for the offender with the $25-per-month payment, the  probation officer did not attempt to increase the amount even though the  offender reported (1) significant assets on his financial submission for use  in preparing the pre-sentence report, (2) ownership of two vehicles (a 1990  Lexus and a 1991 Ford Bronco), (3) a net positive cash flow on his monthly  reports, and (4) bank accounts without listed balances. In another  example, an offender was convicted of mail fraud, sentenced in 1998 to 3  years of probation, and ordered to pay restitution in the amount of $12,000.  The judge ordered restitution to be paid in $100 quarterly payments (i.e.,  $33 per month) unless modified by the probation officer. For the July 1999  reporting period, 9 months after being sentenced, the offender reported a  positive monthly cash flow of over $1,500; however, the probation officer  did not recommend that the payment amount be increased. Not adequately  monitoring an offender’s financial circumstance results in missed  opportunities to seek an increase in an offender’s installment payments.
Probation officers have considerable leverage over an offender under  supervision and can take actions if offenders are not making agreed-upon  installment payments. For example, probation officers can withhold  consent for a debtor to travel outside the district, or they can seek to  revoke probation. Even though installment payments typically range from  $25 to $100 per month, offenders do not always make the agreed-upon  installment payments. In several cases, we found no evidence that  probation officers took action to enforce the installment schedules (i.e.,  sought to revoke probation and send the offender back to prison) when the  offender failed to make agreed-upon installment payments. Probation  officers indicated that they must prioritize their time in light of the number  of offenders they are supervising. They stated that their first priority is to  ensure that offenders do not engage in criminal activity or violate other  terms of probation (e.g., are not using drugs during the probation period).
However in a couple of instances, we found that when probation officers  recommended against an offender being released from probation based on  nonpayment of criminal debt in accordance with an established installment  schedule, the judges rejected the recommendations. For example, in April  1999, a judge for one of our sample cases granted an offender an early  release from probation even though the probation office had recommended  against the release stating that the offender, who had been convicted of  mail fraud in April 1997 and ordered to pay $175,000 in restitution, had not  made sufficient restitution payments. Before his release, the offender had  paid only $600. As of June 2000, the last payment from this offender was for  $50 received in May 1999.
section_title: Coordination Among the Entities Involved
paragraphs: In over half the cases we reviewed at the four districts visited, we found  little evidence of coordination among the entities involved in assessing and  collecting criminal debt and a lack of policies and procedures to ensure  that efforts are coordinated. For example, we found little evidence that  prosecutors and probation officers had shared financial information with  FLUs, thus potentially weakening the FLUs’ ability to assess an offender’s  ability to pay. In addition, we found that FLUs typically were not  monitoring the collection efforts of probation officers, as advised by the  U.S. Attorneys’ Manual, and that, contrary to district procedures, probation  officers were not informing FLUs of an offender’s upcoming release from  probation. Furthermore, at the four districts we visited, the FLUs and the  clerks’ offices maintained separate databases to track criminal debt  collections. This lack of coordination is a long-standing problem that has  not been adequately addressed. The failure to adequately address this  problem results in inefficient processes and duplication of efforts. Because  of the many agencies and districts involved in assessing and collecting  criminal debt—including two branches of the federal government and 94  districts—enhancing the effectiveness and efficiency of criminal debt  collection hinges on these entities working together.
subsections: section_title: Sharing Financial Information With FLUs
paragraphs: Investigating agencies and prosecuting attorneys typically obtain  substantial financial information concerning criminal debtors during the  investigation of a case and prosecution of offenders. However, no national  requirements exist for sharing financial information with the FLUs, and  only two of the four districts we visited have incorporated specific (but  different) procedures for sharing financial information in their MOUs.
The Justice OIG reported in September 1993 that (1) prosecuting attorneys  (who are on the criminal side of the USAOs) did not always provide the  FLUs (who are on the civil side of the USAOs) with available financial data  on a regular, systematic basis and (2) no formal requirement exists for  attorneys to provide this financial information to the FLUs. The OIG  recommended that a formal national requirement be established for  prosecuting attorneys to provide debtor financial information to the FLU  staff after an offender has been sentenced. However, based on our case file  reviews, we found that sharing financial information with the FLUs  continues to be a problem in the four districts we visited. Specifically, in  52 percent of the high-dollar cases and in an estimated 61 percent of the  sampled population, we found no evidence in the FLU files of  correspondence with the investigating case agents or prosecuting  attorneys. According to FLU officials, this type of correspondence may  have occurred but was not documented in the case file. As stated in the  Standards for Internal Control in the Federal Government, internal  control and all transactions and other significant events need to be clearly  documented and the documentation should be readily available for  examination.
After an offender is sentenced, district guidance requires the FLUs to  obtain a copy of the financial information contained in the pre-sentence  report from either the probation officers or the prosecuting attorney. In  October 1985, we reported that guidance did not exist for probation offices  to share information with the FLUs and that probation officers did not  routinely provide such information to the FLUs. In September 1993, the  Justice OIG reported that 154 of 185 FLU files they reviewed did not  contain a copy of the pre-sentence report. Recently issued guidance now  specifically requires probation officers to share financial information from  pre-sentence reports with the FLUs.
In most of the high dollar and random cases reviewed, we found no  evidence in the FLU files that the FLUs had reviewed a copy of the pre- sentence report. As a result of this lack of coordination, the FLUs do not  have valuable financial information needed to assess an offender’s ability to  pay, to enforce collections, and to reduce duplication of effort in identifying  assets. For example, an offender in our sample reported over $420,000 of  net worth in a personal financial statement dated September 1989 that was  used by the probation office to prepare the pre-sentence report. In another  example, prior to sentencing, an offender provided a bank statement  showing a balance of over $73,000; however, there was no evidence that  actions were taken to pursue these funds. In both examples, there was no  evidence in the FLU’s files that the FLU had obtained a copy of the pre- sentence report. If the information had been shared with the FLUs, they  could have used this report as a starting point for performing asset  discovery work.
section_title: Communication Between FLUs and Probation Offices
paragraphs: In October 1985, we reported that although the U.S. Attorneys’ Manual  advises the FLUs to monitor the collection efforts of probation offices,  there was little involvement by the FLUs in probation office collections.  The guidance requires the FLUs to maintain contact with probation offices  regarding the offender’s compliance or failure to pay criminal debt.  However, district guidance for the four districts we visited states that the  FLUs are to assist the probation offices, if requested. During our reviews,  we found that the FLUs typically did not monitor collection efforts of  probation officers and that probation officers rarely requested assistance  or notified the FLUs before an offender was released from probation. In  general, the FLUs did not pursue collection until they determined that an  offender had been released from probation.
In commenting on our June 1998 report related to establishing offender’s  payment schedules, the AOUSC stated that greater emphasis should be  placed on Justice’s role in collecting fines and restitution because Justice  has primary responsibility for collecting criminal debt. We believe that the  current district guidance, which states that FLUs should assist if requested,  adversely affects the FLUs’ ability to enforce debt collection and puts them  in a reactive instead of a proactive role.
For example, in March 1989, an offender was ordered to pay $26 million in  restitution to hundreds of investors who had invested in the offender’s  fraudulent company. In April 1995, the offender was released from prison  and in 1997 made several payments before moving to a different district. In April 1999, he agreed to make $500 monthly payments to one of the  financial institutions he owed money to plus 50 percent of the income from  future speaking engagements and 100 percent of the income from the  “movie rights” he sold pertaining to a published novel he wrote. As of June  2000, the FLU had not pursued collection because, according to the FLU,  the offender is “under the supervision of probation,” and the probation  office had not requested its assistance. There have been no recorded  payments since 1997. An Internet search that we performed revealed that  the offender is involved in many activities from which he is most likely  deriving additional income, including publications, a spot on a radio  program, and a full-time salary.
Several months before an offender is to be released from probation with an  outstanding debt, procedures at the four districts we visited require  probation officers to notify the applicable FLU. However, there was rarely  evidence of such notification in the FLU’s files. As we reported in chapter 3,  the FLU’s tracking system does not adequately track the status of an  offender; consequently, unless the probation officer notifies the FLU, the  FLU will not always know when an offender is scheduled to be released  from supervision. In 3 high-dollar and 7 random cases we reviewed, the  offenders stopped making installment payments when they were released  from supervision. In these instances, there was no indication in the file that  the probation officer notified the FLU of the offender’s release or the status  of the offender’s criminal debt obligations, including the terms of the  installment agreement. For example, an offender was sentenced in October  1989 to 2 years in prison and 5 years of probation for income tax evasion.  The offender was also ordered to pay a $100,000 fine. During supervision,  the offender made over $17,000 in payments, with the last payment  occurring in September 1997, 1 month before the offender’s release from  supervision. There was no evidence in the FLU file that it had been notified  of the release, and no collection actions were taken by the FLU for this  case until it was selected for our review in April 2000.
Lack of communication between the FLUs and the probation offices about  offenders’ installment schedules, assets, and release dates hinders timely  notification of the status of an offender’s compliance with payment  arrangements and related events, thus decreasing the potential for  collections.
section_title: Databases for Tracking Collections and Disbursements
paragraphs: In each of the four districts we visited, the clerk’s office and the FLU  maintain separate databases to account for criminal debt collections,  resulting in duplicative and inefficient data entry for both entities. Although  the courts are responsible for processing collections and disbursements for  most criminal debt, clerk’s office officials have stated that they do not have  the systems in place to calculate required interest. Instead, the clerk’s  offices rely on the FLUs’ tracking systems to calculate interest, if assessed.  Posting information to these databases typically requires the exchange of  hardcopy information between the clerk and the FLU so that both  databases can be updated to properly reflect collections and  disbursements. The National Fine Center (NFC) was supposed to eliminate  this duplication; however, since the NFC effort failed (as noted in chapter  1), both entities continue to maintain separate systems for tracking  collections and disbursements.
Highlighting this inefficiency is the fact that each month both entities must  post payments received from offenders participating in the Bureau of  Prisons (BOP) Inmate Financial Responsibility Program (IFRP), in which a  portion of prisoners’ earnings is used to pay their outstanding debt.  Hundreds of inmates typically participate in the program. Monthly or  quarterly payments received from each inmate are generally small dollar  amounts, but they are collectively large in volume. For example, a typical  monthly report from BOP for the Eastern District of New York contains  about 400 inmate debt payments. Since both the FLU and the clerk’s office  track payments, each entity must determine what debt balance (i.e., special  assessment, fine, or restitution) to apply these 400 payments to and then  post each payment. If the payment is for restitution, amounts collected  must be prorated to the victims (sometimes hundreds of victims) before  checks can be disbursed.
Maintaining these separate, nonintegrated systems also places greater  emphasis on the need for timely coordination and communication so that  data in these systems are accurate and the information is timely. For the  cases we reviewed in which payments had been collected, there was  typically a delay between the time that the clerk posted a payment and the  time that the FLU posted the same payment. We also found that the FLUs  typically did not inform the clerk of payments they received, resulting in several significant differences in the payment records. For example, an  offender was convicted of Racketeer Influenced and Corrupt Organizations  Act (RICO) violations, wire fraud, and bribery and was sentenced in 1996 to  60 months of incarceration and 3 years of supervised release. The offender  was ordered to make restitution in the amount of $412 million. According  to clerk’s office records, $3,050 had been paid as of September 30, 1999,  while FLU records showed that over $11.7 million had been paid as of the  same date. District guidance at the four districts we visited did not  specifically require the FLUs to notify the clerk’s offices of payments they  received or require the FLUs and the clerks to periodically reconcile  payment data recorded in the two systems. Without timely notification of  payments received or periodic reconciliations, differences between the two  systems will continue to exist.
We also identified inefficient practices involving the processing of  disbursements to victims. In 76 districts, the clerk’s offices are receiving all  types of criminal debt payments from offenders and disbursing checks to  restitution victims; however, in 18 of the 93 USAOs, the FLUs receive  restitution payments from offenders for offenses that occurred before the  MVRA and are disbursing checks for restitution only to pre-MVRA victims.  Having these two entities in 18 of the districts perform similar functions  results in wasted resources. According to AOUSC officials, they are  working with the remaining clerk’s offices to process pre-MVRA restitution.  In addition, the four clerk’s offices we visited generally set a low or no  threshold amount for disbursing a check to a victim. As a result, we found  instances in which the clerk’s office issued checks for less than $10 to  victims ranging from individuals to large financial institutions. In one  example, restitution was owed to several companies ranging from $500 to  $75,000. Once every month or so, checks were being disbursed to these  companies. In October 1998, 12 checks were issued ranging from 20 cents  to $62, and 4 of these checks were returned as undeliverable, including one  for 20 cents and another for 53 cents. Disbursing such small amounts is not  cost-effective unless these are the final checks to be issued (i.e., the  offender most likely will not be submitting additional payments).
section_title: Oversight Roles of OMB and Treasury
paragraphs: Historically, management oversight of the criminal debt collection process  has been divided between the executive and judicial branches with Justice  responsible for enforcing collections and the courts responsible for  receipting and disbursement of collections. This condition still exists today.  In 1984, there was recognition of the increased need for centralized  management of the collection process, and in 1987 efforts to establish the  National Fine Center (NFC) began. The NFC was an attempt to automate  and centralize the criminal debt collection process, which would have  increased management oversight. However, since that effort was  terminated in 1996, as noted in chapter 1, the collection responsibilities  continue to be fragmented between Justice and the courts, with neither  having a central management oversight role.
Moreover, neither OMB nor Treasury has identified the need to take an  active role in overseeing the federal government’s process for collecting the  billions of dollars of outstanding criminal debt. While the collection of such  debt has been a long-standing problem, the substantial growth in the  outstanding balance is a relatively recent development. Because serious  coordination and cooperation problems among the fragmented entities  involved continue to exist and because of the low collection rates, such  oversight is needed.
Effective oversight of the collection of criminal debt could be achieved by  leveraging OMB and Treasury’s current respective central agency roles. For  example, a primary function of OMB as a central agency is to evaluate the  performance of executive branch programs and serve as a catalyst for  improving interagency cooperation and coordination. In its central role,  OMB is also responsible for reviewing debt collection policies and  activities. For example, OMB provides guidance to agencies in the form of  circulars to assist them in meeting enacted legislation, such as the Debt  Collection Improvement Act of 1996 (DCIA). As such, OMB could work  with Justice and certain other executive branch agencies to ensure that  these entities report and/or disclose relevant criminal debt information in  their financial statements and subject such information to audit. In  implementing provisions of the DCIA, Treasury, through its Financial  Management Service, could assist Justice in identifying the types of  delinquent criminal debt that would be eligible for reporting and referral to  Treasury for collection actions. In turn, by better accounting for and  reporting its delinquent criminal debt, Justice would enhance its own  management oversight of this problem. Collectively, these efforts would  place greater emphasis on the management and collection of criminal debt.
Although Justice and the courts develop unaudited annual statistical data  for informational purposes, neither entity is accounting for any of these  debts as receivables, disclosing the debts in financial statements, or having  the receivable information subjected to audit. In addition, neither entity is  referring eligible criminal debt to Treasury for collection. Having Justice  and the courts properly account for, report, and manage criminal debts,  with assistance from OMB and Treasury, would heighten management  awareness and ultimately result in a more effective collection process.
subsections: section_title: Accounting For, Reporting, and Managing Criminal Debt
paragraphs: According to Statement of Federal Financial Accounting Standards  (SFFAS) No. 1, Accounting for Selected Assets and Liabilities, and SFFAS  No. 7, Accounting for Revenue and Other Financing Sources and  Concepts for Reconciling Budgetary and Financial Accounting, a  receivable should be recognized once amounts that are due to the federal  government are assessed, net of an allowance for uncollectible amounts.  Also, in accordance with this OMB Circular No. A-129, Policies for Federal  Credit Programs and Non-Tax Receivables, agencies are to (1) service and  collect debts in a manner that best protects the value of the federal  government’s assets and (2) provide accounting and management  information for effective stewardship, including resources entrusted to the  government (e.g., for nonfederal and federal restitution). Although both the  courts and Justice have tracking systems in place, neither entity performs  an analysis of criminal debts to estimate how much of the outstanding  amounts are uncollectible (i.e., neither entity establishes an allowance for  uncollectible accounts for amounts due to the federal government).  Justice’s tracking system allows for amounts to be recorded as “in  suspense”; however, these amounts do not necessarily represent amounts  that are uncollectible.
In EOUSA’s unaudited fiscal year 1999 annual statistical report, the FLUs  classified as “in suspense” about $9.9 billion of the approximately  $13.1 billion, or 75 percent of the reported uncollected criminal debt  balance as of September 30, 1999. However, since the collectibility of  outstanding criminal debt has not been assessed, the amount in suspense  does not represent an estimate of the amount that is expected to be  uncollected (see chapter 3). Unless FLUs or the courts assess the  collectibility of this debt, set expectations as to the amount of debt that can  be collected, and compare expectations against actual collections,  management cannot effectively monitor program performance in debt  collection.
OMB oversees implementation of the Chief Financial Officers Act, as  expanded by the Government Management Reform Act of 1994, which  requires audited financial statements for the U.S. government, as well as  the 24 major federal executive branch agencies and departments, including  Justice. Justice prepares audited financial statements, but is not recording  or disclosing receivables for relevant criminal debt in them, and the U.S.  courts are not required to prepare financial statements or to disclose this  information. Therefore, criminal debt is not being reported in the U.S.  government’s financial statements. Financial statement disclosure by  Justice would increase oversight of the process because reported amounts  would be subject to audit under these acts. Such audits would include  assessments of internal control and compliance with applicable laws and  regulations related to the criminal debt process. Disclosure by the U.S.  courts would also increase oversight, but the reported amounts would  currently not be subject to audit.
section_title: Referring Debt to Treasury
paragraphs: The DCIA requires executive, judicial, and executive branch agencies to  transfer eligible nontax debt or claims over 180 days delinquent to  Treasury for collection actions. Although referring delinquent criminal debt  could increase collections and oversight of such debt, neither Justice nor  the courts are currently referring delinquent criminal debts to Treasury.  During our reviews, we found that prior to DCIA, the FLUs referred certain  debts to the former Tax Refund Offset Program and were successful in  collecting payments. For example, an offender was ordered in December  1987 to pay a $10,000 fine and $24,700 in restitution. For tax years 1993  through 1995, the FLU referred this debt to the offset program. In March  1996, the offender’s 1995 tax refund of $1,756 was offset and applied toward  payment of the fine.
Justice officials believe that the courts should be responsible for referring  criminal debt to Treasury because the law specifies that the courts are  responsible for accounting for criminal debt collection activities. Court  officials indicated that they do not currently have the systems in place— and may not be aware of other collection actions or legal remedies being  pursued by the FLUs—that could prohibit referral. The courts’ tracking  systems are not complete because the courts (1) rely on the FLUs’ tracking  systems to calculate interest due, (2) do not track pre-MVRA restitution  cases in 18 of 94 districts, and (3) do not always record a debt (i.e.,  establish a receivable) until the first payment is received from an offender.
Treasury officials stated that they rely on the agencies to notify them of  delinquent debts that should be referred for collection. Justice has not been  reporting this debt on its Report on Receivables and is not accounting for  criminal debts as receivables or reporting them on its financial statements  or other financial submissions. Treasury officials have stated that Treasury  is willing to assist Justice and the courts in identifying types of criminal  debts that would be eligible for referral and having the debt referred to  Treasury for collection actions.
section_title: Conclusions, Recommendations, and Agency Comments
subsections: section_title: Conclusions
paragraphs: The collection of criminal debt has been a long-standing problem for the  federal government. Efforts over the past 15 years to centralize and  automate the process have not been successful. Outstanding amounts  continue to increase partly because many of the problems we reported on  as far back as 1985 still exist. However, a dramatic increase in the balance  of reported uncollected criminal debt is primarily attributable to the  Mandatory Victims Restitution Act of 1996 (MVRA), which requires that  restitution be assessed regardless of the ability of the offender to pay or the  potential for collection.
Major continuing problems are that the many entities involved in assessing  and collecting criminal debt (1) do not always use available enforcement  techniques or (2) do not coordinate efforts so that resources are used most  effectively. Without additional high-level oversight and cooperation  between the entities, criminal debt collection is likely to remain ineffective.  Further, the assessment of criminal fines and restitution as an effective  punitive tool may be in jeopardy.
section_title: Recommendations
paragraphs: Addressing the long-standing problems in the collection of outstanding  criminal debt—including fragmented processes and lack of coordination— will require a united strategy among the entities involved with the  collection process. Therefore, we recommend that  the Attorney General, the Director of the Administrative Office of the  U.S. Courts (AOUSC), the Director of the Office of Management and  Budget (OMB), and the Secretary of the Treasury work together in the  form of a joint task force to develop a strategic plan to improve the  criminal debt collection processes and establish an effective  coordination mechanism among all entities involved in these processes.  The strategy should address managing, accounting for, and reporting  criminal debt. This strategy includes determining an approach for  assessing the collectibility of outstanding amounts so that a meaningful  allowance can be reported and used for measuring debt collection  performance and having OMB work with Justice and certain other  executive branch agencies to ensure that these entities report and/or  disclose relevant criminal debt information in their financial statements  and subject such information to audit.
In the interim, while the task force is being established, we are making the  following specific recommendations to the entities involved in criminal  debt collection: To help improve collections and stem the growth in reported uncollected  criminal debt, we recommend that  the Secretary of the Treasury, through the Department of Treasury’s  (Treasury) Financial Management Service, assist the Department of  Justice and the courts in identifying the types of delinquent criminal  debt that would be eligible for referral to Treasury for collection actions;  the Attorney General and the Director of the AOUSC continue to work  together to (1) reduce duplication of data entry for collections and  disbursements, (2) require the Financial Litigation Units (FLUs) and the  courts to periodically reconcile payment data recorded in their separate  tracking systems, and (3) revise district guidance so that the FLUs can  take a more proactive role in monitoring collection efforts of probation  offices;  establish policies and procedures that require Justice investigating  case agents and prosecuting attorneys to share relevant financial  information with the FLUs within an established time frame after an  offender is sentenced,  require FLUs to document correspondence with case agents and  prosecuting attorneys in the FLU files, including whether and why  efforts were not coordinated,  require FLUs to use collectibility analyses to prioritize criminal debt  collection efforts on debt types deemed through historical  experience to be more collectible,  reinforce current policies and procedures for entering cases into  criminal debt tracking systems; filing liens; issuing demand letters,  delinquent notices, and default notices; performing asset discovery  work; using other enforcement techniques; and using event codes,  including suspense codes,  revise current policies for issuing demand letters, specifying when a  demand letter should be sent and within what time frames,  require FLUs to establish time frames for procedures related to  criminal debt collection activities that do not currently have  established time frames,  require FLUs to document in their files instances where asset  discovery work was not performed and why it was not performed,  establish a policy for the FLUs to date stamp when Judgments in a  Criminal Case are received,  revise interest and penalty policies so that interest and penalties are  consistently assessed and reported,  adequately measure criminal debt collection performance against   revise the FLU’s databases to (1) capture needed information such as  terms of fine and restitution order, status of offender (expected  release date from prison or probation) and (2) allow FLUs to allocate  outstanding amounts between amounts likely to be collected and  those that are not likely to be collected, and  perform an analysis to assess whether the FLU’s human capital  resources and training are adequate to effectively perform their  collection activities; and   the Director of the Administrative Office of the U.S. Courts  ensure and monitor effective implementation of guidance for  (1) developing pre-sentence reports, (2) establishing and monitoring  offenders’ compliance with installment schedules, (3) providing  financial information reported in the pre-sentence report to the FLUs  within an established time frame after sentencing, and (4) notifying  FLUs within an established time frame before an offender is released  from supervision,  revise guidance to encourage the clerk’s office to provide a copy of  the Judgment in a Criminal Case to both the FLU and the prosecuting  attorney within the established time frame,  continue to work with the clerk’s offices to process all pre-MVRA  restitution so that the same entity in all districts is responsible for  receiving and disbursing pre- and post-MVRA restitution,  revise the language in the Judgment in a Criminal Case forms to  clarify that payment terms established by judges are minimum  payments and should not prohibit or delay collection efforts, and  establish cost-effective thresholds for disbursements made by check  to victims for restitution payments.
section_title: Agency Comments and Our Evaluation
paragraphs: A draft of this report was provided to Justice, AOUSC, OMB, and Treasury  for their review and comment. The following discussion highlights these  agencies’ most significant comments and our evaluation. Letters from  Justice, AOUSC, and Treasury are reprinted in the appendixes. OMB  provided oral comments, which are incorporated into this section. Justice  and the courts also provided us with technical comments that we  considered and addressed, where appropriate.
subsections: section_title: Establishment of a Task Force
paragraphs: Justice and OMB agreed with our recommendation that they work together  in a joint task force to develop a strategic plan to improve criminal debt  collection processes and establish an effective coordination mechanism  among all entities involved in the process. We recommended that this task  force also address managing, accounting for, and reporting criminal debt,  as well as developing an approach for assessing the collectibility of  outstanding amounts so that a meaningful allowance can be reported and  used for measuring debt collection performance. AOUSC and Treasury did  not state whether they agreed or disagreed with the establishment of and  their participation in this task force. We believe that the involvement in the  task force of AOUSC and Treasury—given Treasury’s central agency role of  preparing the federal government’s financial statements and implementing  DCIA—is critical to the success of the task force.
We recommended that one of the responsibilities of the task force be to  address issues in accounting for and reporting criminal debt. As we note in  the report, accounting standards require a receivable to be recognized once  amounts due to the federal government are assessed, net of an allowance  for uncollectible amounts. In addition, OMB guidance requires agencies to  provide accounting and management information for effective  stewardship, including resources entrusted to the government (e.g.,  nonfederal restitution). Treasury and OMB agreed that criminal debt  should be reported on either Justice’s or the court’s financial statements.  The courts did not specifically address accounting and reporting issues,  and Justice stated that it would not be proper to report criminal debt  receivables on Justice’s financial statements and that it believes  administration and possession of the receivables is the responsibility of the  courts. Justice’s comments related to this issue, plus the lack of a response  from AOUSC regarding their position on this issue, illustrate the need for  cooperation and coordination in the criminal debt collection area.
We also recommended that OMB work with Justice and other executive  branch agencies, while the task force is being established, to report and/or  disclose criminal debt information in the agencies’ financial statements and  to subject such information to audit. OMB disagreed with this  recommendation, stating that these reporting issues would be better  handled by the task force. In light of Justice’s and OMB’s responses, we  have deleted the recommendation for OMB to work with Justice and other  executive branch agencies, while the task force is being established, and  incorporated this recommendation into the task force recommendation.
section_title: Agency Specific Comments
paragraphs: Justice generally agreed with the premise of the report and recognized the  need for improvements in the criminal debt collection area. Justice also  agreed with 10 of our 12 recommendations specifically addressed to it and  partially agreed with the other 2. The AOUSC commented that most of our  recommendations directed to it had already been implemented and that it  is pursuing those related to working with Justice to refer eligible debt to  Treasury and reduce duplication of the recordkeeping function. Treasury  agreed with our recommendation specifically addressed to it regarding  assisting Justice and the courts in identifying eligible delinquent debt for  referral to Treasury.
Justice and the AOUSC also commented on the methodology used to  develop the report findings. In addition, the AOUSC commented on the  focus of the report and on the lack of recognition given to actions the  courts have taken to improve the criminal debt collection process.
subsections: section_title: Justice and AOUSC’s Comments on Our Methodology
paragraphs: Justice and AOUSC, in commenting on the methodology we used to select  and review cases, stated that closed cases (i.e., debts paid in full) should  have been reviewed and that many of the cases reviewed had already been  determined by Justice to be uncollectible debt and had been placed “in  suspense.” We disagree. To address the requestor’s objectives of  determining the key reasons for the growth in reported uncollected  criminal debt and whether adequate processes exist to collect criminal  debt, we selected cases that involved debt amounts outstanding as of  September 30, 1999. Since we used debts outstanding as of September 30,  1999, many of which were more than 3 years old, ample time for collection  activity had passed before we reviewed the cases, enabling us to assess the  level of collection efforts performed. Reviewing closed cases or focusing  on those cases that had not been placed in suspense by the FLUs would not  have addressed why debts have not been collected nor would it have  provided a sound basis for determining whether there are adequate  processes for collecting criminal debt at the four districts visited.
The amount of outstanding criminal debt continues to grow and has grown  substantially over the past several years. However, the collection rate for  fiscal years ending September 30, 1995 through 1999, has averaged about 7  percent. The report clearly points out that this is partly due to the  uncontrollable factors discussed in chapter 2, but also to the lack of  (1) adequate collection processes, (2) coordinated efforts to collect such  debt, and (3) management oversight. Thus, to determine why outstanding  amounts continue to increase, we selected and reviewed cases with the  largest outstanding debt balances as of September 30, 1999, at the four  districts with the largest amounts of outstanding debt including debts in  suspense as well as debts not in suspense. In addition, we reviewed a  stratified randomly selected sample of 35 cases in each of the four districts.  Selecting closed cases or cases that had not been placed in suspense would  have provided anecdotal information about successful collections, but  would not have addressed our objectives of determining the reasons for the  growth and determining whether adequate processes exist, especially given  the overall low collection rate.
We also found that debts recorded as “in suspense” do not necessarily  represent amounts that are uncollectible. For example, even if offenders  were making monthly installment payments, the FLU must put either the  entire debt balance in suspense or none of the balance in suspense. In  addition, to determine why amounts had not been collected, regardless of  whether they were in suspense, we assessed the collection efforts that had  been performed and found that adequate steps, such as performing asset  discovery work, were not always taken or documented prior to the FLU’s  placing such debts in suspense. Further, we found little evidence that  prosecutors and probation officers had shared financial information with  FLUs, thus potentially weakening the FLUs’ ability to assess an offender’s  ability to pay (i.e., determine collectibility).
Justice also commented that many of the cases we reviewed involved  incarcerated debtors and pre-date existing criminal debt policies. We point  out in chapter 2 that incarceration may limit an offender’s ability to pay  while in prison, however the high dollar cases we reviewed typically  involved debtors who had defrauded innocent victims of millions of  dollars, resulting in the large restitution amounts being owed. Although the  offender’s earning potential may be limited while incarcerated, other debt  collection techniques such as identifying and pursuing assets, should be  performed. Further, as we point out in the report, only about 20 percent of  the stratified randomly selected cases involved offenders who were  incarcerated at the time of our review.
In chapter 3 we point out that much of the outstanding criminal debt as of  September 30, 1999, involved cases that were over three years old.
However, many of the procedures that should be used are typical debt  collection tools (e.g., filing liens, issuing demand letters) that should be  applied to effectively collect criminal debt. We found that the FLUs were  not always performing these procedures. In addition, we found that the  FLUs we visited were not always following their prescribed procedures for  reassessing an offender’s ability to pay. Had these cases been revisited as  required, any new policies could have been applied to outstanding debts at  that time.
Finally, AOUSC also questioned why cases under $5,000 were not reviewed.  Our review focused on the largest–dollar cases ($14 million or greater) as  well as a stratified randomly selected sample of cases between $5,000 and  $14 million. We excluded those under $5,000, which, as shown in table 7 in  appendix I, comprised only $8.9 million of the $5.6 billion of outstanding  debt at the four districts visited, or less than 0.2 percent of the total dollar  amount of outstanding debt at such districts, an amount that we deemed  immaterial.
section_title: Justice
paragraphs: Justice agreed with 10 of the 12 recommendations specifically addressed to  it. In addition, Justice partially agreed with the other 2 recommendations,  which related to (1) requiring FLUs to use collectibility analyses to  prioritize criminal debt collection efforts on debt types deemed through  historical experience to be more collectible, and (2) adequately measuring  criminal debt collection performance against established goals. Justice  indicated that it is already performing the recommended functions,  however we believe that the intent of these 2 recommendations should be  further discussed so that additional improvements can be made in these  areas. As to performing a collectibility analysis, Justice stated that it is  already performing an analysis in accordance with its suspense policies.  However, we found that the FLUs’ suspense policies are not the same as  performing an effective collectibility analysis since debts may be placed in  suspense without performing an adequate assessment of collectibility.  Also, having historical collectibility analyses would allow the FLUs to  prioritize new debts based on factors that indicate increased potential for  collections.
Justice also stated that it is already measuring criminal debt collection  performance against established goals. However, it is our understanding  that these efforts focus on reporting collection activity and analyzing  collection practices, not on establishing goals and measuring performance  against such goals, as we recommend. In addition, we believe that  performing a collectibility analysis is an essential first step in adequately  setting goals and measuring performance.
section_title: Administrative Office of the U.S. Courts
paragraphs: In addition to commenting on our methodology, the AOUSC commented  that the effect of the Mandatory Victims Restitution Act of 1996 (MVRA)  should have received greater attention in the report and that the report  should give greater recognition to actions that the courts have already  taken to improve criminal debt collection. We believe that we have  provided sufficient balance in the report as evidenced by an entire chapter  devoted to uncontrollable factors, such as MVRA, that contribute to the  growth in outstanding criminal debt. This chapter precedes chapters  devoted to procedural and coordination issues so that the reader is made  aware of the significance of uncontrollable factors and the context in  which the adherence to required policies and procedures and coordination  of efforts take place. In addition, mandatory restitution is listed as a factor  in the transmittal letter at the beginning of this report and is discussed in  many places throughout the report.
The AOUSC also commented that more recognition should be given to  actions it has taken to improve criminal debt collection. One such action  includes a comprehensive policy and procedural manual issued in  September 2000, several months after our district visits, and not widely  distributed until December 2000. In our report we point out that if the  AOUSC effectively implements its revised guidance related to  (1) developing pre-sentence reports, (2) establishing and monitoring  offenders’ compliance with installment schedules, (3) providing financial  information reported in the pre-sentence report to the FLUs within an  established time frame after sentencing, and (4) notifying FLUs within an  established time frame before an offender is released from supervision,  then reported weaknesses in these areas are likely to be addressed. Since  the guidance was issued after our visits, we were not able to assess  whether these policies have been effectively implemented and have  therefore recommended that AOUSC ensure that such policies are  effectively implemented.
Finally, AOUSC stated that it had implemented most of our  recommendations; however, the letter did not specifically address each  recommendation. While we recognize that the revised guidance should  help improve collections, the policies must be effectively implemented  before our recommendation is satisfied. The policy and procedural manual  does not address our recommendations to (1) revise the language in the  Judgment in a Criminal Case forms to clarify that payment terms  established by judges are minimum payments and should not prohibit or  delay collection efforts and (2) establish cost-effective thresholds for  disbursements made by check to victims for restitution payments. In  addition, we were not provided with details of additional actions taken by  the courts to address such recommendations.