Debt Collection Improvement Act of 1996: Status of Selected Agencies' Implementation of Administrative Wage Garnishment
Published: 2002-02-28T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: To improve federal debt collection, the Debt Collection Improvement Act of 1996 established a framework of debt collection tools, including administrative wage garnishment (AWG). This report discusses the extent to which nine agencies use or plan to use AWG to collect delinquent nontax federal debt and provides GAO's perspective on ways to make AWG more widespread and effective.
section_title: What GAO Found
paragraphs: GAO found that none of the nine agencies had yet implemented AWG. Although AWG is not mandatory, by failing to use this tool--more than five years after the act's enactment and more than three years after the Department of the Treasury issued implementing regulations--agencies have missed an opportunity to maximize collection of delinquent debt. Agencies identified various reasons for not yet implementing AWG or for deciding not to do so, including the need to focus their resources on implementing the act's mandatory provisions. Although some agencies or programs may have valid reasons for not implementing wage garnishment, all of the larger programs that deal with individuals and that have a demonstrated risk of financial loss resulting from unpaid debt should have AWG as a viable debt collection option. Reliance on the Financial Management Service (FMS) to perform AWG as part of cross-servicing might be prudent for some agencies, provided the collection tool is used as early as practicable to maximize its collection potential. However, the act does not require that agencies refer debts for cross-servicing until they are more than 180 days delinquent, and FMS, which views wage garnishment as a tool of last resort, does not contemplate initiating AWG in most cases until the debt has been with FMS for at least 90 days. As a result, FMS's use of AWG could be significantly limited and delayed.

section_title: Letter
paragraphs: On October 10, 2001, we testified before your subcommittee on selected  federal agencies’ implementation of the Debt Collection Improvement Act  (DCIA) of 1996. That law established a framework for improved federal  debt collection governmentwide using various debt collection tools.  One  of these tools is administrative wage garnishment (AWG), which DCIA  authorizes, but does not require, agencies to use.  This report provides  more detailed information on the extent to which nine large Chief Financial  Officers (CFO) Act agencies use or plan to use AWG to collect delinquent  nontax federal debt and our perspective on additional efforts that are  needed to make AWG a more effectively and commonly used debt  collection tool.
In 1995, prior to the enactment of DCIA, debt collection experts testified  before your subcommittee that AWG can be an extremely powerful debt  collection tool, as the mere threat of its use is often enough to motivate  people to pay their delinquent debts.  This is significant given the large size  of the U.S. labor force and the reported $58 billion of delinquent debt held  by federal agencies as of September 30, 2000, the date for which the  most recent agency-certified data were available at the completion of our  fieldwork.
AWG as authorized by DCIA, unlike court-ordered wage garnishment, does  not require that agencies obtain a court judgment to initiate garnishment.  Instead, AWG is an administrative process that requires that debtors be  notified of the government’s intent to have their employer withhold  specified amounts from their wages, requires that debtors be given an  opportunity to either pay their debt in full or enter into a repayment  agreement under terms acceptable to the agency that holds the debt, and  gives debtors the right to request a hearing.  If the delinquent debtor does  not either pay the debt in full, enter into a repayment agreement, or request  a hearing, the agency may proceed to issue an order requiring the debtor’s  employer to withhold up to 15 percent of the debtor’s disposable pay and  transmit those moneys to the agency.
subsections: section_title: Background
paragraphs: Over the past several years, the federal government has reported an  outstanding balance of delinquent debt in the range of $50 billion to  $60 billion.  DCIA reflected the Congress’ recognition that timely and  effective agency debt collection efforts were needed to maximize  collections of delinquent debts owed to the federal government.  A central  theme of the legislation is that before discharging any delinquent debt  owed to any executive, judicial, or legislative agency, agencies should take  all appropriate steps to collect the debt.  Among the collection tools the act  authorized were administrative offset (withholding some or all of a federal  payment scheduled to be issued to the debtor), federal salary offset,  referral to PCA contractors, referral to agencies operating a debt collection  center, reporting delinquencies to credit reporting bureaus, and  administratively garnishing the wages of delinquent debtors.
Some DCIA-authorized debt collection tools are mandatory, while others  are discretionary.  AWG, one of the discretionary tools, is a process  whereby an employer withholds amounts from an employee’s wages and  pays those amounts to the employee’s creditor in satisfaction of a  withholding order. Prior to the enactment of DCIA, agencies generally  were required to obtain a court order before garnishing the wages of  nonfederal employees. DCIA authorizes agencies to administratively  garnish up to 15 percent of a debtor’s disposable pay to satisfy delinquent  nontax debt owed to the United States.  Under a separate statute,  Education has had authority since 1993 to garnish up to 10 percent of the  disposable pay of debtors who have defaulted on student loans.
Treasury’s FMS is responsible for promulgating regulations to implement  AWG and other debt collection tools authorized by DCIA.  In May 1998, 2  years after the act was passed, Treasury issued final regulations that  provide agencies with an overall framework for implementing AWG.  The  regulations authorize agencies to begin the AWG process as debt becomes  delinquent, but they do not stipulate when in the collection cycle this tool  may be used.  According to the regulations, any federal agency that  administers a program that might result in a delinquent nontax debt owed  to the federal government and any agency that pursues recovery of such  debt may administer AWG. Therefore, agencies holding delinquent debt  may administer AWG in-house; they may authorize a debt collection  agency, such as FMS, to administer AWG on their behalf as part of cross- servicing operations; or they may do both.  To assist agencies in  implementing AWG, Treasury issued AWG Form 329, known as the AWG  package, in November 1998.  The package includes a Letter to Employer &  Important Notice to Employer, Wage Garnishment Order, Wage  Garnishment Worksheet, and Employer Certification.  In February 1999,  FMS issued “Instructions to Federal Agencies for Preparing AWG Forms.”
As is the case with other debt collection tools, Treasury’s regulations  dealing with AWG provide for due process for debtors.  The regulations  require that at least 30 days before initiating wage garnishment  proceedings, agencies notify delinquent debtors in writing of the nature  and amount of the debt and of the agency’s intention to collect through  deductions from pay.  The notification must also include an explanation of  the debtor’s rights regarding the proposed action.  These rights include the  opportunity to inspect and copy agency records related to the debt, to enter  into a written repayment agreement with the agency, and to request a  hearing concerning the existence or amount of the debt or the terms of the  proposed repayment schedule under the garnishment order.
An agency must provide a debtor with a hearing before it issues a  garnishment order if the agency receives the debtor’s written request for a  hearing on or before the 15th business day following the mailing of the  notice.  If a debtor does not make a timely request for a hearing, the agency  is to send a withholding order to the debtor's employer within 30 days after  the debtor fails to make a timely request for a hearing.  If the agency  receives a debtor’s written request for a hearing after the 15th business day  following the mailing of the notice, the agency must still provide a hearing  to the debtor.  In such a case, however, the agency is not to delay issuing a  withholding order unless it determines that the delay in filing the hearing  request resulted from factors over which the debtor had no control or  receives information that it believes justifies delaying or canceling the  withholding order.
Following receipt of a withholding order, employers are required to certify  to the agency certain information about the debtor, such as the debtor’s  employment status and disposable pay available for withholding.  The  employer must deduct from all disposable pay paid to the debtor during  each pay period the amount of the garnishment, which is the lesser of  (1) the amount indicated on the garnishment order, up to 15 percent of the  debtor’s disposable pay, or (2) the amount by which the debtor’s disposable  pay exceeds an amount equivalent to 30 times the minimum wage. If  multiple garnishments from various sources are applied to one debtor’s  wages, the total garnishments may not exceed 25 percent of the individual’s  disposable pay.
Once the agency has fully recovered the amounts owed by the debtor, the  agency is to send the debtor’s employer notification to discontinue wage  withholding.  Agencies are to review their debtors’ accounts at least  annually to ensure that garnishment has been terminated for accounts that  have been paid in full.
section_title: Objective, Scope, and Methodology
paragraphs: The objective of our review was to determine the extent to which certain  CFO Act agencies use or plan to use AWG as authorized by DCIA to collect  delinquent nontax federal debts.
As previously noted, we surveyed nine federal agencies:  USDA, Education,  DOE, HHS, HUD, VA, EPA, SBA, and SSA.  Together, these agencies held  about $40 billion of delinquent nontax federal debt as of September 30,  2000, which represented more than 90 percent of all CFO Act agencies’  reported delinquent nontax debt as of that date.
We developed a survey instrument to obtain agency responses to a uniform  set of questions (see appendix I) and received completed surveys from all  nine surveyed agencies.  We reviewed agency responses and followed up  with cognizant agency officials, where necessary, to obtain any needed  clarifications or additional information.  Although we discussed certain of  the survey responses with agency officials by telephone or electronic mail,  we did not independently verify the reliability of all the information that  agencies provided.  We also conducted interviews with FMS officials  responsible for regulations, guidance, and cross-servicing operations  related to AWG and reviewed pertinent documents, including FMS’s “AWG  Operations & Procedures Manual” and its “Performance Summary Report.”
We performed our work from March 2001 through September 2001 in  accordance with U.S. generally accepted government auditing standards.  We requested written comments on a draft of this report from the 10  agencies covered by the report.  All 10 agencies responded to our request  and provided either written or oral comments, which are discussed in the  “Agency Comments and Our Evaluation” section of this report and are  incorporated in the report as applicable.  Letters with comments from FMS,  Education, HHS, HUD, SBA, SSA, and VA are reprinted and discussed in  further detail, when applicable, in the appendixes.
section_title: Status of Surveyed Agencies’ Use of AWG
paragraphs: The nine large CFO Act agencies we surveyed had not used AWG as  authorized under DCIA, thus undoubtedly losing some collection opportunities.  Together, the surveyed agencies reported holding about  $23 billion in consumer delinquent debt as of September 30, 2000. This is  not to imply that AWG could be used to collect all such debt because  circumstances such as bankruptcy or appeals could limit the application of  this debt collection tool.  Eight of the nine surveyed agencies said that they  planned to adopt AWG as authorized by DCIA.  Four agencies expected to  implement AWG in-house and, to varying degrees, through FMS’s cross- servicing program.  One of these agencies, Education, has been using AWG  in-house under separate statutory authority since 1993.  The four remaining  agencies indicated that they would not perform AWG in-house but would  authorize FMS to apply AWG to debts they referred to FMS for cross- servicing.  However, we found in previous work that agencies have not  been promptly referring all eligible debts to FMS when they become 180  days delinquent, as required by DCIA.  Prompt referral of eligible debts is  especially important for agencies that contemplate relying primarily on  FMS to conduct AWG through cross-servicing because FMS intends to  apply AWG as a tool of last resort, to be used only after all other collection  efforts have been exhausted.
Use of AWG, whether in-house or at FMS, should likely yield a marked  increase in agency collections of consumer delinquent debt.  The increase  would result largely from AWG’s effectiveness as leverage to obtain  payment in full, to secure a repayment plan, or to obtain full payment on a  compromised amount.  According to testimony by debt collection experts,  the mere threat of AWG is often enough to motivate repayment. These  experts based their testimony on experience at Education, which indicated  that employees did not want their employers to find out that they had  defaulted on their student loans.  As a result, according to the debt  collection experts, about 50 percent of the debtors notified of Education’s  intent to use AWG made payment arrangements instead of allowing their  wages to be garnished.
subsections: section_title: Education’s Use of Wage Garnishment under Separate Authority Has Increased Debt Collections
paragraphs: According to Education officials and agency documents, collection of  defaulted student loans has increased dramatically since Education  implemented AWG in 1993 under the Higher Education Act, as amended.  Education indicated that it had collected more than $306 million in  principal and interest on defaulted student loans from fiscal year 1997  through March 2001 using 10 percent garnishment authority.  The primary  difference between AWG under DCIA and wage garnishment under the  Higher Education Act is that the Higher Education Act allows up to 10  percent of disposable pay to be garnished, while DCIA allows up to 15  percent of disposable pay to be garnished.
section_title: Most Surveyed Agencies Plan to Use AWG
paragraphs: Eight of the nine surveyed agencies said they plan to implement AWG  under DCIA authority.  EPA, the ninth agency, determined that use of AWG  would not be cost-effective because of its limited applicability to the  agency’s debts. According to agencies’ survey responses and other  agency correspondence, all eight agencies expect to implement AWG by the  end of fiscal year 2003, as shown in table 1.  Agencies gave various reasons  for the delay in implementing AWG, including their need to focus priorities  on the mandatory provisions of DCIA, to develop the required AWG  regulations, and to complete the systems changes necessary to implement  AWG.
As shown in table 1, four agencies we surveyed (USDA, DOE, HUD, and  VA) indicated that they plan to rely primarily on FMS to perform AWG as  part of cross-servicing.  DOE said that given due process requirements and  efficiencies of processing debts, the agency prefers that FMS perform  AWG.  HUD indicated that it uses FMS’s cross-servicing program as its main  “active” collection tool.  VA indicated that it views AWG as a collection tool  of last resort and stated that it would concentrate on its own established  methods of collection, such as internal offset and referral of debts to the  Treasury Offset Program.  Although USDA stated that it plans to rely  primarily on FMS to perform AWG, the agency did not comment on why it  preferred this course of action.  In addition, four of the surveyed agencies  (Education, HHS, SBA, and SSA) plan to implement AWG in-house and, to  varying degrees, through FMS’s cross-servicing program.  The use of AWG  in conjunction with other debt collection tools, whether performed in- house or at FMS, can provide leverage to obtain payments from delinquent  debtors.
section_title: FMS’s Use of AWG Could Be Limited
paragraphs: Depending on the nature of an agency’s delinquent debt, relying on FMS to  apply AWG as part of cross-servicing may be the best approach.  FMS’s  incorporation of AWG into the cross-servicing program would undoubtedly  improve its collection success and make its cross-servicing collection  efforts more comprehensive.  However, relying primarily on FMS to  perform AWG has definite limitations.  First, not all delinquent debt  reported by agencies as eligible for cross-servicing has been promptly  referred to FMS in the past, and debt that has been referred has often been  well beyond DCIA’s 180-day delinquency threshold.  Second, under FMS’s  cross-servicing program, AWG is considered to be a collection means of  last resort and will therefore be used far into the debt collection process.  To maximize the debt collection potential of AWG for debts referred to  FMS for cross-servicing, agencies should send eligible debts to FMS  promptly—even, when practicable, prior to the 180-day delinquency  threshold. As we stated in our October 2001 testimony, debt collection  experts have testified that AWG can be an extremely powerful debt  collection tool, as the mere threat of AWG is often enough to motivate  debtor repayment.
Although debt referred for cross-servicing was not reported to Treasury on  the Report on Receivables separately by consumer and commercial debt,  the four surveyed agencies that plan to rely primarily on FMS for AWG  implementation (USDA, DOE, HUD, VA) together reported having referred  only $288 million of about $690 million of all types of debt that they  reported as eligible for cross-servicing as of September 30, 2000. For  example, as discussed in our October 2001 testimony, the USDA agencies  we reviewed (the Rural Housing Service and the Farm Service Agency) had  not identified and promptly sent debts to FMS for cross-servicing.  Consequently, if AWG had been attempted only on delinquent debts  reported as referred for cross-servicing, substantial amounts of delinquent  debt would not have been subject to this debt collection tool.
Because FMS views AWG as a collection tool of last resort, it is critical that  agencies relying on FMS to implement AWG refer debts promptly to FMS  for cross-servicing, even, when practicable, before they reach the 180-day  delinquency threshold.  According to the “AWG Operations & Procedures  Manual” developed by FMS for its PCA contractors, AWG is a tool to be  used after all other collection efforts have been exhausted.  FMS has taken  the position that AWG should generally be the collection tool of last resort  because AWG will only allow the government to receive up to 15 percent of  a person's disposable wages as long as the person is employed.
The collection procedures FMS has provided to PCA contractors require  that they attempt first, to collect the entire debt by having the debtor pay  the debt in full with one payment; second, to establish an acceptable  payment plan that pays the debt in full; third, to establish an acceptable  one-time compromise agreement; and fourth, to establish a compromise  agreement that is paid off in 6 months.  The “AWG Operations &  Procedures Manual” does not incorporate the use of AWG in conjunction  with other debt collection tools as leverage to obtain payment in full, a  repayment plan, or a more favorable compromise amount and payment  schedule.
The potential leverage of AWG and related collections may be delayed if  agencies do not refer debts to FMS as soon as possible.  Based on FMS’s  established procedures for cross-servicing, debts agencies refer to FMS  would typically age at least another 90 days before issuance of the AWG  notice to the debtor and 120 days before issuance of the garnishment order  to the employer.  FMS first attempts to collect referred debts for 30 days at  its governmentwide debt collection center before referring the debt to a  PCA.  Assuming that FMS’s cross-servicing activities operate in a manner  consistent with the schedule in its manual, after referral, debts would  generally remain with the PCA to be pursued using other collection tools  for another 60 days before the agency could request FMS’s approval to mail  the AWG notice.  Debts would age another 30 days before the AWG package  could be sent to the debtor’s employer.
The four surveyed agencies that said they would rely primarily on FMS to  implement AWG (USDA, DOE, HUD, VA) do not forward debts to FMS for  cross-servicing until they are at least 61 days delinquent.  Some debts are  more than 180 days delinquent when they are sent to FMS.  In response to  our survey, USDA and DOE indicated that the delinquency timeframe for  referring debts to FMS varies by field office.  For DOE, debts range from 61  to 180 days delinquent at the time of referral to FMS.  USDA did not provide  the range of delinquency for debts referred to FMS.  HUD indicated that it  currently refers debts to FMS for cross-servicing when they are from 121 to  180 days delinquent.  VA indicated that it refers debts to FMS when they are  more than 180 days delinquent.  Since PCAs will typically use AWG as a  debt collection tool of last resort under FMS’s cross-servicing program,  debts of agencies that rely primarily on FMS to implement AWG will be, at a  minimum, more than 150 days delinquent (i.e., 61 days at referral plus 30  days at FMS plus 60 days at the PCA) before the notice is sent to the debtor.  These debts will be more than 180 days delinquent (because an additional  30 days will transpire after the notice is mailed to the debtor) before wage  garnishment begins.  If the debtor requests a hearing within the required  time frame, wage garnishment could be delayed as much as 60 additional  days pending a hearing decision.
It is important to note that, regardless of what the surveyed agencies told  us about when they are referring debts to FMS for cross-servicing, DCIA  does not require agencies to refer debts to FMS until they are 180 days  delinquent.  Moreover, as previously mentioned, agencies have not in the  past promptly referred all eligible debts that are 180 days delinquent to  FMS.  According to FMS data, as of September 30, 2001, more than 50  percent of debt referred for cross-servicing governmentwide was more  than 2 years delinquent at the time of referral.  As we have previously  testified, industry statistics have shown that the likelihood of recovering  amounts owed on a debt decreases dramatically as the age of the debt  increases.  Although FMS officials told us that the age of delinquency has  no bearing on what can be collected using AWG, this view ignores AWG’s  potential to motivate debtors to pay their debt in full, to enter into a  repayment plan for the full amount, or to agree on a compromised amount.  The old adage that “time is money” is very relevant to the application of  AWG to delinquent debts.  Therefore, whenever possible, eligible debts  should be referred promptly to FMS for cross-servicing, even prior to the  180-day delinquency threshold established by DCIA.
section_title: Surveyed Agencies Lacked Comprehensive Implementation Plans and Regulations
paragraphs: If AWG’s potential for boosting collections on delinquent debts is to be  realized, agencies must develop clear implementation plans and  regulations that are consistent with those issued by Treasury.  Agencies  must take these steps whether they intend to implement AWG in-house, to  rely on FMS to implement AWG, or to do both.  At the completion of our  fieldwork, however, none of the eight agencies that plan to use AWG had  comprehensive written implementation plans.  In addition, although all  eight agencies were developing regulations to implement AWG, none had  finalized their regulations.  It is not clear when the eight agencies will be  able to take full advantage of the debt collection potential of AWG, either  in-house or through FMS.  As of the completion of our fieldwork, only two  small agencies not included in our review, the Railroad Retirement Board  and the James Madison Foundation, had provided FMS the authority to use  AWG as part of cross-servicing.
subsections: section_title: Implementation Plans Are Critical for Incorporating AWG as a Collection Tool
paragraphs: Although Treasury regulations do not require that agencies prepare written   implementation plans before implementing AWG, we believe that   comprehensive written implementation plans are critical for the eight   surveyed agencies that intend to use AWG.  At a minimum, each agency’s  implementation plan should specify     whether the agency intends to implement AWG in-house, through FMS,     the types of debts to which the agency will apply AWG, since AWG may  not be a feasible means of collection for all types of debt the agency  holds;     the tasks involved in implementing AWG and who will have  responsibility for carrying out each task; and     the process for conducting hearings, regardless of whether AWG is  conducted in-house or through FMS.
Three of the agencies had plans, but the plans were deficient.  The other  five agencies said they did not have written implementation plans.
Three surveyed agencies (HUD, SBA, and SSA) indicated on their surveys  that they had a written plan for implementing AWG.  The plans they  submitted, however, did not clearly describe how and by whom hearings  would be conducted or clearly indicate when the agencies could fully  implement AWG as a routine debt collection tool.  In addition, SBA’s and  SSA’s plans did not specify which types of debts would be subject to AWG.  They did not address, for example, which age categories of debts would be  subject to AWG and what the minimum debt amount subject to AWG would  be.  HUD’s plan stated that debts related to certain programs that are  referred to FMS for cross-servicing would be subject to AWG, but the plan  did not make it clear whether AWG would be applicable to all other  programs and related debts administered by the agency.
The other five surveyed agencies that plan to implement AWG indicated  that they did not have written implementation plans.  Three of these  agencies (USDA, DOE, and VA) plan to rely primarily on FMS to perform  AWG.  The other two agencies (Education and HHS) plan to implement  AWG in-house and, to varying degrees, through FMS’s cross-servicing  program.  The survey responses and follow-up information do not make it  clear whether most of these agencies intend to develop an implementation  plan.
USDA stated that it has not prepared a formal AWG implementation plan  because of a shortage of resources and the need to address other DCIA  priorities.  The importance of an AWG implementation plan for USDA was  discussed in a hearing before your subcommittee on December 5, 2001.  In  that hearing, the commissioner of FMS stated that USDA intended to  authorize FMS to use AWG as part of the cross-servicing program and  needed to develop a plan to take full advantage of this debt collection tool.
The commissioner emphasized that a significant percentage of USDA’s  delinquent debt portfolio, such as Food Stamp Program debts, is exempt  from cross-servicing by Treasury and therefore would not be subject to  FMS’s AWG program.  DOE indicated that it has not developed a written  implementation plan because it has submitted its debt collection  regulations to FMS to determine if they adequately cover AWG and will  allow FMS to administer AWG functions on DOE’s behalf.  VA indicated  that it will rely on FMS to implement AWG and does not believe that a  written implementation plan is necessary.  HHS indicated that it plans to  implement AWG based on departmental regulations, but the regulations  have not yet been published.  Although Education did not provide a written  implementation plan, agency officials stated that they have prepared a  system requirements document that includes steps for making the system  changes necessary to administer AWG under DCIA.
Notwithstanding the reasons agencies gave for not yet having written AWG  implementation plans, we believe such plans are needed to help ensure that  agencies fully incorporate AWG into their debt collection processes in the  near future.  We recognize that Education may not have as great a need for  an implementation plan because the agency has wage garnishment  experience under authority separate from DCIA.
section_title: Regulations Are Required for AWG Implementation
paragraphs: As of the completion of our fieldwork, none of the eight surveyed agencies  that plan to use AWG as authorized by DCIA had finalized the regulations  needed to implement AWG, but each agency was developing such  regulations.  Treasury regulations require an agency to prescribe  regulations for the conduct of AWG hearings that are consistent with the  Treasury regulations.  FMS considers the performance of AWG hearings to  be a creditor agency function and does not plan to conduct hearings on  behalf of such agencies.  FMS will refer debts back to creditor agencies to  conduct required hearings.
In the responses to our survey and in FMS’s discussions with agencies, a  major concern agencies raised about AWG was their ability to handle the  hearings that debtors may request once they receive an AWG notice.  Two  of the surveyed agencies (SBA and USDA) indicated that they anticipate  obstacles related to the hearings process, including arranging for hearings  and developing hearing procedures.
Many agencies have stated to FMS that they do not have the staff to handle  AWG hearings.  Accordingly, agencies will have to either establish that  capacity or obtain hearings services on a contract basis through another  agency that is willing to provide such services.  FMS has informed agencies  that if they do not believe they have the staff to handle the hearing requests,  other agencies are available to perform hearing activities for a fee.  According to a VA official, for example, VA provides hearing services on  federal salary offset to other agencies for about $100 per hearing.  VA  expects to conduct AWG hearings for its own agency and for other agencies  for a similar fee.  The best available indication of the frequency of hearing  requests is from Education’s experience with wage garnishment under  student loan legislation.  During fiscal year 2000, Education issued 90,658  Notices of Intent for wage garnishment, and approximately 10 percent of  the debtors who received a notice requested a hearing.
section_title: Conclusions
paragraphs: AWG has the potential to be a powerful tool for collecting delinquent  federal debts, especially those owed by debtors who are not currently  making payments under an agreement with the agency.  More than 5 years  after the enactment of DCIA, which authorized but did not mandate use of  AWG, and more than 3 years after Treasury issued implementing  regulations for AWG, however, none of the large CFO Act agencies we  surveyed had begun using AWG as authorized by DCIA, either in-house or  through FMS.  And although eight of the nine agencies we surveyed said  they intended to use this debt collection tool, none had adequately  completed crucial preliminary steps—preparing detailed implementation  plans and developing the necessary implementing regulations.
By failing to implement AWG, agencies have clearly missed opportunities to  maximize collection of delinquent debts.  Even when agencies do begin  implementing AWG, those that rely primarily on FMS may find that the  tool’s effectiveness—particularly its usefulness in leveraging full or  compromise payments from debtors who wish to avoid wage  garnishment—is limited because agencies have in the past failed to  promptly refer a significant portion of eligible debts to FMS for cross- servicing and because FMS intends to use AWG as a collection tool of last  resort, thus allowing debts (that may already be more than 180 days  delinquent) to age significantly before sending an AWG notice to the  debtor.
section_title: Recommendations for Executive Action
paragraphs: To help ensure that agencies effectively incorporate AWG into their debt  collection processes, we recommend that the secretaries of the  Departments of Agriculture, Education, Energy, Health and Human  Services, Housing and Urban Development, and Veterans Affairs; and the  commissioner of the Social Security Administration direct their chief  financial officers and that the administrator of the Small Business  Administration direct the associate deputy administrator for capital access  to take the following steps:     Prepare comprehensive written implementation plans that clearly  define, at a minimum, the types of debt that will be subject to AWG, the  policies and procedures for administering AWG, and the process for  conducting hearings.  Some of the details that should be considered for  inclusion in the plan are (1) whether the agency will conduct AWG in- house, at a debt collection center, or both; (2) the types of debts, if any,  that will be sent to FMS prior to becoming 180 days delinquent; and  (3) whether hearings will be conducted by the agency or contracted out.
Complete and finalize regulations for conducting AWG.     Use AWG in conjunction with other debt collection tools, when  practicable, as leverage to obtain payments from delinquent debtors.
Expedite referrals of eligible debts to FMS for cross-servicing when  relying on FMS to perform AWG.  Agencies should refer such debts prior  to the 180-day delinquency threshold when practicable.
We also recommend that the commissioner of FMS modify FMS’s “AWG  Operations & Procedures Manual” to incorporate the use of AWG in  conjunction with other debt collection tools, when practicable, as leverage  to obtain payments from delinquent debtors.
section_title: Agency Comments and Our Evaluation
paragraphs: Each of the 10 agencies covered by our report responded to our request for  comments.  We received a combination of written and oral comments from  the 9 agencies we surveyed and written comments from FMS.  Letters with  comments from FMS, Education, HHS, HUD, SBA, SSA, and VA are  reprinted and discussed in further detail, when applicable, in the  appendixes.  Eight of the 9 agencies we surveyed either stated that they  agreed with our report or indirectly indicated some level of agreement by  describing their efforts to implement one or more of our recommendations.  Several of these provided updates to their responses to our survey  document that was in large part the basis for this report.  We modified our  report to reflect stated changes in how agencies expected to implement  AWG and any related schedule changes.  We also incorporated a number of  technical suggestions as appropriate.  The 9th agency, EPA, stated that  appropriate staff reviewed the report and the agency did not have any  comments.
The only explicit disagreement on our recommendations was expressed by  FMS.  While saying it strongly agreed that agencies relying on FMS to  implement AWG should refer debts promptly to FMS for cross-servicing, it  disagreed with our recommendation concerning its timing and philosophy  in applying AWG.  We recommended that FMS modify its “AWG Operations  & Procedures Manual” to incorporate the use of AWG in conjunction with  other debt collection tools, when practicable, as leverage to obtain  payments from delinquent debtors.  FMS stated that PCA officials cannot  threaten an action unless they actually intend to take it and FMS policy  requires that AWG only be used when all other attempts at collection have  been exhausted.  FMS acknowledged that its policy does allow expedited  use of AWG in defined circumstances but said it continues to believe that  AWG should be used only when all other collection attempts have been  unsuccessful and the debtor has been given every opportunity to otherwise  resolve the debt.
We did not recommend that FMS threaten debtors with the use of AWG  with no intention of using it.  Rather, if upon contacting the debtor, FMS  could not obtain payment in full or a satisfactory repayment agreement,  our view was that FMS or its PCA contractor could immediately initiate  AWG.  The intent would be to use AWG alone or in conjunction with other  debt collection tools to liquidate the debt.  Although FMS policy currently  prescribes that its PCAs use AWG only after all other collection efforts have  been exhausted, neither current law nor regulation contemplates that only  one collection tool may be used at a time.  In fact, the AWG regulations  specifically state that agencies may pursue other debt collection remedies  separately or in conjunction with AWG.  As stated in our report, viewing  AWG only as a collection tool of last resort ignores AWG’s potential to  motivate debtors to pay their debt in full, to enter into a repayment plan for  the full amount, or to agree on a compromise amount.  In our view,  deferring the notice of intended use negates a major benefit mentioned by  experts on the utility of AWG.  Their main point was that invoking the  possibility of use could influence those who otherwise might not respond  to a request for payment, or to actually pay, to do so because they do not  wish employers to become aware that they have delinquent federal debt.
FMS stated that it allows its PCAs under certain circumstances to initiate  the AWG process before the expiration of the 60-day period following  receipt of referred debt from other federal agencies.  Our recommendation  contemplates that such action should be the norm rather than the  exception.  As mentioned in our report, according to FMS data, more than  50 percent of debt referred for cross-servicing governmentwide as of  September 30, 2001, was more than 2 years delinquent at the time of  referral.  Moreover, agencies are not required to send debts to FMS until  they are more than 180 days delinquent.  Consequently, FMS in most cases  is not the first federal agency to attempt collection from or debt resolution  with the debtors because creditor agencies should be attempting to collect  their delinquent debts prior to sending them to FMS for cross-servicing.  For FMS to wait until it or its PCA contractors have exhausted all  collection efforts prior to initiating AWG by notifying the debtor that such  action will be taken greatly diminishes AWG’s potential to help FMS  leverage payment from debtors who are significantly delinquent on their  obligations to the federal government and who likely had not cooperated  with the referring federal agencies in resolving their debts.
Finally, while there may be differences of opinion on when FMS should  initiate AWG in its collection process, HUD in its comments on our report  spoke in favor of our recommendation to FMS that FMS should incorporate  the use of AWG in conjunction with other debt collection tools rather than  consider AWG as a collection tool of “last resort.”  In developing its own  implementation plan for AWG, HUD said that it expected that effective use  of AWG would be part of FMS’s plan for servicing debt referred for cross- servicing.  In that light, HUD said that it would expect that those assigned  to cross-service debts would be encouraged to use AWG as a tool to obtain  voluntary payment.
This view from HUD aptly summarizes our position and is a key aspect of  the reasoning behind our recommendation that FMS use AWG in  conjunction with other collection tools and not principally as a last resort.  For the reasons offered above, we continue to believe that FMS should  modify its “AWG Operations & Procedures Manual” and policy with regard  to the use of AWG.
As agreed with your office, unless you announce its contents earlier, we  plan no further distribution of this report until 30 days after its issuance  date.  At that time, we will send copies to the chairmen and ranking  minority members of the Senate Committee on Governmental Affairs and  the House Committee on Government Reform and to the ranking minority  member of your subcommittee.  We will also provide copies to the heads of   the agencies we surveyed, the secretary of the treasury, and the   commissioner of FMS.  We will then make copies available to others upon   request.
Please contact me at (202) 512-3406 if you or your staff have any questions   on this report.  I can also be reached by e-mail at engelg@gao.gov.  Key   contributors to this assignment were Kenneth R. Rupar, Michael S.   LaForge, Linda K. Sanders, and Michael D. Hansen.
section_title: Survey of Administrative Wage Garnishment
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section_title: Comments from the Financial Management Service
subsections: section_title: GAO Comments
paragraphs: 1.  See our discussion in the “Agency Comments and Our Evaluation”  section.
section_title: Comments from the Department of Education
subsections: section_title: GAO Comments
paragraphs: 1.
Education stated that the draft report is misleading and should be  revised because it leaves the reader the impression that no agency is  conducting AWG and does not give a clear synopsis of Education’s use  of AWG.  We disagree.  The primary focus of our work was  implementation of AWG as authorized by the DCIA.  We accurately  stated that none of the nine CFO Act agencies we surveyed were using  AWG as authorized by DCIA and all but one agency indicated that they  intend to do so.  Despite this, we clearly state in this report, as  Education noted in its response, that Education has effectively used  wage garnishment under authority similar to DCIA’s since 1993 to  collect delinquent student loans.  According to Education, such efforts  have dramatically increased collections on delinquent student loans.  We made this point at the beginning of our report, as well as in the body  of our report and in a separate subsection that is titled “Education’s Use  of Wage Garnishment under Separate Authority Has Increased Debt  Collections.”
2.
As stated in this report, Education has been using AWG under separate  authority, to garnish up to 10 percent of debtors’ disposable pay and  plans to implement AWG under DCIA authority in fiscal year 2002.  While we acknowledge that Education has had to consider the  additional requirements to smoothly transition to the DCIA process,  other agencies have also had to develop the necessary procedural and  programmatic changes for implementing AWG.  As such, we stated in  this report that the eight agencies we surveyed that are planning to  implement AWG under DCIA authority, including Education, gave  various reasons for the delay in its implementation, including the need  to complete the necessary systems changes.
section_title: Comments from the Social Security Administration
subsections: section_title: GAO Comments
paragraphs: 1.   Although SSA provided us copies of their written implementation plan  and project scope agreement, we do not consider either document to be  a comprehensive written AWG implementation plan.  The one-page  written implementation plan that was provided to us did not address  (1) which debts would be subject to AWG, (2) which age categories of  debts would be subject to AWG, and (3) what would be the minimum  debt amount subject to AWG.  Also, the plan did not clearly describe  how and by whom hearings would be conducted or clearly indicate  when SSA could fully implement AWG.  Although SSA provided us its  project scope agreement, it only documented the scope of software  changes that are needed to implement AWG.
section_title: Comments from the Small Business Administration
subsections: section_title: GAO Comments
paragraphs: 1.   We have revised our report to reflect that responsibilities for  addressing our recommendations at SBA reside with the associate  deputy administrator for capital access.
section_title: Comments from the Department of Housing and Urban Development
subsections: section_title: GAO Comments
paragraphs: 1.   We understood that the survey and implementation plan submitted by  HUD covered the agency as a whole.  The intent of our comment was to  address our concern that HUD’s departmentwide implementation plan  only specifies the use of AWG for certain debts referred to FMS for  cross-servicing and did not make it clear whether AWG would be  applicable to all other programs and related delinquent debts  administered by the agency that are not referred to FMS for cross- servicing.  2.   We have revised our report to reflect HUD’s expected implementation  date of fiscal year 2002.
section_title: Comments from the Department of Health and Human Services
subsections: section_title: GAO Comments
paragraphs: 1.
HHS suggested that the report highlight that it will utilize AWG in-house  and through FMS.  Although table 1 reflects that HHS will be using AWG  both in-house and through FMS’s cross-servicing program, we have  revised the body of our report so that it more clearly reflects that HHS  and certain other agencies will implement AWG in-house and to varying  degrees through FMS’s cross-servicing program.
2.
HHS suggested that the date for its expected implementation be  changed to fiscal year 2002.  As of the completion of our fieldwork,  HHS estimated its expected implementation date to be the end of  calendar year 2001.  We have revised our report to incorporate HHS’s  updated expected implementation date.
3.
HHS stated that it transmits data elements to Treasury that identify a  claim as consumer or commercial debt and suggested that we modify  the report to identify the agencies that do not report the consumer or  commercial debts separately.  We understand that agencies transmit  debts to Treasury for cross-servicing as consumer or commercial debts,  however, debts are not separately reported in this manner on the  Treasury Report on Receivables.  We have revised our report to clarify  that debts referred are not reported as consumer or commercial debts  on the Treasury Report on Receivables.
section_title: Comments from the Department of Veterans Affairs
subsections: section_title: GAO’s Mission
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section_title: Public Affairs