Debt Collection: Agriculture Making Progress in Addressing Key Challenges
Published: 2002-11-13T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: In December 2001, GAO testified at a hearing, before the Subcommittee on Government Efficiency, Financial Management and Intergovernmental Relations, House Committee on Government Reform, that the Department of Agriculture, primarily the Rural Housing Service (RHS) and the Farm Service Agency (FSA), faced challenges in implementing key provisions of the Debt Collection Improvement Act of 1996 (DCIA). The testimony focused on RHS's and FSA's progress in referring delinquent debt for administrative offset and cross-servicing and Agriculture's implementation of administrative wage garnishment (AWG). During the hearing, Agriculture pledged to place a higher priority on delinquent debt collection and to substantially improve its implementation of DCIA by December 31, 2002. After the hearing, GAO made recommendations The Subcommittee requested GAO to review and provide an update on actions Agriculture has taken to resolve these problems. In addition, the Subcommittee requested that GAO report on the status of Treasury's implementation of a debt collection improvement account, a vehicle authorized by DCIA to give agencies financial incentives to improve their debt collection efforts.
section_title: What GAO Found
paragraphs: Recent actions taken by Agriculture demonstrate increased commitment to DCIA implementation. However, it will take sustained commitment and priority by top management to fully address the problems we identified. RHS has worked to address systems limitations that hampered it from promptly referring debts to Treasury for cross-servicing and is now referring all reported eligible debt. RHS will begin reporting certain loans' entire unpaid principal balances on accelerated debt as delinquent, beginning with its report for the fourth quarter of fiscal year 2002. RHS is working on making regulatory changes needed for it to refer losses on guaranteed loans to Treasury's offset program, but the changes are not expected to be completed until about August 2003. FSA has developed an action plan to improve its process and controls for identifying and referring eligible debts to Treasury. GAO's review of documents related to the plan indicates that FSA has made progress toward implementing the improvements. In addition, by December 2002, FSA expects to be able to begin reporting information for some codebtors when referring delinquent debts for collection action; to begin referring debts quarterly, rather than annually; and to be able to refer eligible losses on guaranteed loans. Agriculture has taken steps toward departmentwide implementation of AWG. Agriculture has completed its AWG implementation plan but still needs to carry out certain elements of the plan, including obtaining from its component agencies specific information on the types of debt subject to AWG and finalizing an agreement with the Department of Veterans Affairs to conduct AWG hearings on Agriculture's behalf. Agriculture has also drafted regulations necessary for implementing AWG, which may not be published until May 2003. Treasury has established a debt collection improvement account but, to date, it has not been activated because no amounts have been made available in Treasury's appropriations to fund the account. Agencies would be allowed to contribute a portion of their debt collections into the account, and amounts could be used to reimburse agencies for certain expenses related to credit management and debt collection and recovery. Because the account has not been activated, it is difficult to assess how effective it might be in improving federal debt collection beyond the debt collection improvements that have resulted directly from DCIA's major debt collection requirements for federal agencies.

section_title: Letter
paragraphs: I am pleased to be here today to discuss the Department of Agriculture’s  (Agriculture’s) actions and plans to resolve certain implementation  problems involving the Debt Collection Improvement Act of 1996 (DCIA),  and the status of the Department of the Treasury’s (Treasury’s) use of a  special financial incentive provision of the act to encourage federal  agencies to improve their delinquent debt collection efforts.  During a  hearing on Agriculture’s implementation of DCIA, which was held before  this Subcommittee on December 5, 2001, we stressed that the department’s  implementation of DCIA requirements would have to improve vastly if the  debt collection benefits of DCIA were to be more fully realized. Also during  that hearing, Agriculture officials pledged to give debt collection higher  priority and to substantially improve the department’s implementation of  the act by December 31, 2002. Subsequent to the hearing, we made a  number of recommendations to Agriculture to help it address specific  DCIA implementation problems that we identified and discussed at the  hearing. It is with this backdrop that you asked us to review actions taken  by Agriculture to resolve the specific DCIA implementation problems that  we identified and discussed. In addition, given the fact that in recent  hearings on DCIA implementation, little if any mention has been made of  the act’s financial incentive provision’s merits, you wanted to know  whether Treasury has established a fund or account to implement this  provision, and if so, which federal agencies have received payments from  the account and for what activities.
Agriculture’s full implementation of certain key provisions of DCIA is  critical to overall federal nontax debt collection.  As a major federal lending  agency, Agriculture continues to hold a substantial amount of delinquent  federal nontax debt. As of September 30, 2001, Agriculture reported  holding about $6.2 billion of debt over 180 days delinquent. In DCIA, the  Congress, with key leadership and support from this Subcommittee,  provided agencies, including Agriculture, with a full array of tools to collect  such delinquent debt. Among other things, DCIA provides (1) a requirement  for federal agencies to notify Treasury of eligible debts delinquent over 180  days for purposes of centralized administrative offset, (2) a requirement for  agencies to refer such debts to Treasury for centralized collection action  known as cross-servicing, and (3) authorization for agencies to  administratively garnish the wages of delinquent debtors.
The primary emphasis of my testimony today is on corrective actions taken  by two major Agriculture components—Rural Development’s Rural  Housing Service (RHS) and the Farm Service Agency (FSA)—to resolve  problems associated with the identification and referral of eligible  delinquent debts to Treasury for collection action since the December 2001  hearing. I will also provide an update of Agriculture’s departmentwide  implementation of administrative wage garnishment (AWG). As you recall,  we discussed Agriculture’s actions and plans for implementing AWG in  context with information dealing with the extent to which eight other large  Chief Financial Officers (CFO) Act agencies and Treasury’s Financial  Management Service (FMS) used or planned to use AWG to collect  delinquent federal nontax debt.
subsections: section_title: Scope and Methodology
paragraphs: To respond to your request, we performed work primarily at RHS, FSA, and  Agriculture’s Office of the Chief Financial Officer. We also performed work  at Treasury and conducted interviews with agency officials at RHS and FSA  who are responsible for taking corrective actions to ensure that all eligible  delinquent debt is promptly referred to Treasury for collection action.  We  conducted interviews with Agriculture’s CFO and members of his staff  regarding Agriculture’s implementation of AWG. To corroborate  information we obtained from interviews, we obtained and reviewed  pertinent agency documents including action plans and implementation  schedules. We did not verify the reliability of certain information that was  provided to us by agencies such as delinquent debt referred to Treasury. We  also did not assess the technical adequacy of the specific systems  enhancements that have been deemed by the agencies as necessary for  addressing the DCIA implementation problems that we identified and  discussed. We conducted interviews with Treasury officials who were  knowledgeable about the debt collection improvement account provision  of DCIA and the status of the account at Treasury.  We performed our work  from July through September 2002 in accordance with U.S. generally  accepted government auditing standards.
section_title: RHS Using Its Automated Systems to Make Cross-Servicing Referrals
paragraphs: In December 2001, we testified that, as of September 30, 2000, RHS  reported it had referred to Treasury’s offset program $201 million of direct  Single Family Housing (SFH) loans but had not referred any amounts to  Treasury for cross-servicing, primarily due to RHS’s systems limitations.  RHS officials told us that since implementing a new automated centralized  loan servicing system in fiscal year 1997, RHS had been unable to readily  identify direct SFH loans that are eligible for referral to Treasury for cross- servicing. Essentially, the system did not contain sufficient data to  differentiate loans eligible for cross-servicing from those that were not.   For example, the system needed to be capable of determining the status of  any collateral, because all collateral must be liquidated prior to a loan’s  referral to Treasury for cross-servicing. After the hearing, we  recommended that the Secretary of Agriculture direct the Administrator of  RHS to complete development of the software enhancements that will  allow automated identification of loans eligible for cross-servicing and  promptly refer all such loans to Treasury.
RHS has completed and implemented the system enhancements necessary  for automated identification of direct SFH loans eligible for cross-servicing  and the prompt referral of such loans. In April 2002, RHS made its first  automated referral of direct SFH loans to Treasury for cross-servicing. This  referral involved about 10,900 loans totaling about $165.6 million. RHS is  currently using its enhanced system to identify loans eligible for cross- servicing and electronically refer them to Treasury on a monthly basis.  According to RHS documents and Treasury officials, RHS has referred all  of the loans that it has reported as eligible for cross-servicing. Moreover, an  RHS document indicates and Treasury officials told us that there have been  no significant problems regarding eligibility for cross-servicing for the  loans that RHS has referred since April 2002.
section_title: RHS Able to Provide Listing of Excluded Loans for Independent Verification
paragraphs: As we stated at the December 2001 hearing, when we attempted to  independently verify specific debts that RHS had excluded from referral to  Treasury’s offset program as of September 30, 2000, we were told by RHS  officials that the supporting documentation for the $182 million of direct  SFH loans excluded from referral had not been saved. We subsequently  recommended that the Secretary of Agriculture direct the Administrator of  RHS to maintain supporting documentation, in an appropriate level of  detail that can be made readily available for independent verification, for  all SFH debts reported and certified to Treasury as excluded from referral  for collection action. At a minimum, the documentation should include, for  each exclusion category, such as foreclosure, the total amount reported as  excluded on the certified Treasury Report on Receivables Due from the  Public (TROR) and a listing of the identities and dollar amounts of the  specific loans excluded. Such documentation would facilitate an efficient  independent review to determine whether RHS’s exclusions meet relevant  legislative and regulatory criteria. The Comptroller General’s Standards for  Internal Control in the Federal Government states that all transactions  and other significant events need to be clearly documented and that the  documentation should be readily available for examination.
During our follow-up review, RHS provided us a detailed listing of specific  direct SFH loans and the loans’ corresponding dollar amounts that had  been reported as excluded from referral to Treasury on the TROR as of  September 30, 2001, the last period for which certified data were available.  Although we were not requested to and did not test the specific loans  excluded to determine whether they met relevant legislative and regulatory  criteria, RHS’s ability to provide such listings should facilitate future  independent verifications of the validity of its reported exclusions, and is  critical for the oversight of the agency’s DCIA implementation.
section_title: Treasury Instructs Rural Development to Report Accelerated Balances for RHS’s Direct SFH Loans
paragraphs: Treasury is the sole operator of a governmentwide centralized debt  collection center. As such, it is critical that Treasury obtain accurate  information from federal agencies on the status of their nontax debt,  particularly the debt over 180 days delinquent, for which DCIA was  designed in large part to help agencies collect through centralized  collection. During the December 2001 hearing, we stressed that RHS was  only reporting the delinquent installment portion of its direct SFH loans as  delinquent in its TROR. It was not reporting, as required by Treasury, the  accelerated loan balance, which is the total debt due and payable.  In the  report we issued after our testimony, we stated that, as a result of such  reporting, RHS may have underreported to Treasury direct SFH loan  amounts delinquent over 180 days by about $849 million and direct SFH  loan amounts eligible for Treasury’s offset program by about $348 million  as of September 30, 2000. We recommended that the Secretary of  Agriculture direct the Administrator of RHS to work with Treasury to  resolve any inconsistencies between RHS’s reporting of delinquent debts  on its TROR and Treasury’s instructions for such reporting. In addition, we  recommended that absent any modifications to Treasury’s instructions for  preparing the TROR, RHS report the entire accelerated balance of  delinquent direct SFH loans to Treasury as delinquent debt and, absent any  allowable exclusions, as debt eligible for referral to Treasury for collection  action.
After we made our recommendations, Agriculture and Treasury officials  met to address the inconsistency that existed between RHS’s reporting of  delinquent direct SFH loans on the TROR and Treasury’s instructions for  such reporting. In a September 2002 letter, Treasury informed Rural  Development that RHS should report the entire unpaid principal balances  as delinquent on the TROR, and requested that such reporting begin with  the TROR for the fourth quarter of fiscal year 2002. Treasury stated in the  letter that once an acceleration notice is sent to the borrower, which has  been RHS’s ongoing practice, the entire debt is due and payable and should  be reflected as such on the TROR. Treasury also stated that its decision was  based on consultation with its legal counsel and recent discussions with  Agriculture officials including its CFO. According to RHS officials, the  agency will report the entire unpaid principal balances for its direct SFH  loans that have been accelerated beginning with the TROR for the fourth  quarter of fiscal year 2002.
section_title: Efforts Under Way, But RHS Will Not Be Able to Refer Guaranteed Losses in the Immediate Future
paragraphs: At the December 2001 hearing, we stated that RHS had not referred losses  on its guaranteed SFH loans to Treasury for collection action. RHS officials  told us that the agency could not pursue recovery from the debtor or utilize  DCIA debt collection tools because under the SFH guaranteed loan  program, no contract existed between the debtor and RHS. Consequently,  RHS did not recognize the losses that it paid to guaranteed lenders as  federal debt and could not apply DCIA debt collection remedies to them.  We were particularly concerned about DCIA debt collection remedies not  being available for RHS’s guaranteed SFH losses because, according to  RHS, through September 30, 2000, such losses totaled about $132 million.  After the hearing, we recommended that the Secretary of Agriculture direct  the Administrator of RHS to finalize and implement necessary regulatory  changes and modifications to lender agreements so that losses on  guaranteed SFH loans could be treated as federal debt and referred to  Treasury for collection action.
RHS is currently working on making the regulatory changes that are  needed to refer losses on guaranteed SFH loans to Treasury’s offset  program; however, the agency will not be able to refer such losses until  regulatory action is completed and guaranteed loan applications are  modified. According to a RHS official, to expedite the regulatory  recognition of losses on guaranteed SFH loans as federal debt, Agriculture  is currently incorporating the regulatory changes that are needed into the  draft final rule for the Section 502 Guaranteed Rural Housing Program. It is  important to note, however, that the Office of Management and Budget  (OMB) has determined that the final rule for this program will constitute a  “significant regulatory action.” As such, the rule will be subject to a more  lengthy clearance process that will involve OMB review in the final rulemaking stages. According to a schedule provided by Agriculture,  which includes internal agency review as well as OMB review, publication  of the final rule for the Section 502 Guaranteed Rural Housing Program is  expected by about August 2003.
Given that the aforementioned regulation is not expected to be finalized for  a considerable time, it is important to note that, as of our fieldwork  completion date, RHS also had not modified the guaranteed loan  applications for the SFH guaranteed loan program that are needed to  establish a contractual relationship between the debtor and RHS so that  losses stemming from SFH guaranteed loans can be recognized as federal  debt and be subject to the debt collection provisions of DCIA. Initially, an  RHS official stated that RHS planned to make changes to the applications  when the final rule for the guaranteed loan program is issued. However, we  pointed out that that approach could possibly delay RHS’s ability to  recognize guaranteed loan losses as federal debt, and we suggested that  RHS change the guaranteed loan applications as soon as practicable so that  once the rule goes into effect, it may be able to be applied retroactively to  cover as many guaranteed loans as possible. As a result, according to an  RHS official, RHS consulted with its Office of General Counsel and  obtained approval for changing the guaranteed loan applications prior to  the issuance of the final rule. Currently, RHS is in the process of revising  its guaranteed loan application form to include an acknowledgement that  any claim paid by RHS on a guaranteed loan would be subject to provisions  of the DCIA.
Once the regulations are finalized and RHS makes the necessary  modifications to the guaranteed loan application, the agency will need to  be able to promptly refer guaranteed losses to Treasury’s offset program.  Given the fact that the SFH guaranteed loan program continues to grow  significantly, thereby increasing the number of loss claims being processed  each year, automated tracking of guaranteed loan losses and referring them  to Treasury will be critically important. RHS has initiated a project to  automate the tracking of SFH loss claims from lenders and payments made  to lenders to cover such claims, which it plans to complete in April 2003. It  is important to note, however, that the project does not cover the process  for the automated referral of guaranteed losses to Treasury. According to  RHS officials, this automated referral process will not be covered until RHS  initiates the second phase of the current project after April 2003, and which  is estimated to take an additional 9 to 12 months to complete. However,  RHS currently tracks guaranteed losses, and RHS officials stated that  referrals to Treasury could be done manually if the automated  enhancements needed to make such referrals are not complete.
section_title: FSA Has Initiated Actions to Improve Its Process and Controls for Identifying and Referring Debts
paragraphs: At the December 2001 hearing, we stated that FSA did not have a process  or sufficient controls in place to adequately identify direct farm loans  eligible for referral to Treasury. We emphasized that, as a result, amounts of  direct farm loans FSA reported to Treasury as eligible for referral were not  accurate and, for certain loans, not only distorted the TROR for debt  management and credit policy purposes but also distorted key financial  indicators such as receivables, total delinquencies, and loan loss data.   Specifically, FSA automatically excluded from referral all judgment debts  without any review to identify and refer deficiency judgments, which are  eligible for Treasury’s offset program and should be referred.  We  emphasized that, as of September 30, 2000, FSA’s judgment debts totaled  $295 million, and our inquiries prompted the agency to initiate a manual  process to identify deficiency judgments eligible for referral.
Moreover, FSA’s Program Loan Accounting System did not contain current  information from the detailed loan files located at the numerous FSA  county field offices that would be key to determining a farm loan’s  eligibility for referral to Treasury. In addition, there were no monitoring or  review procedures in place to help ensure that FSA personnel routinely  updated the detailed loan files that are the source of such key information.  The severity of this problem was reflected in the results of our statistical  sample of loans that had been excluded by FSA in four large states. Based  on our review of this sample, we estimated that about one-half of the  excluded loans in the four states had been inappropriately placed in  exclusion categories by FSA as of September 30, 2000. One of the most  frequently identified inappropriate exclusions pertained to amounts that  had been discharged in bankruptcy. Such exclusions involved debts that  FSA should have written off and closed out, in many instances, several  years prior to our test date. In addition, the written-off and closed-out  amounts for such debts should have been reported to IRS as income to the  debtor in accordance with the Federal Claims Collection Standards and  OMB Circular A-129.
After the hearing, to address these problems, we recommended that the  Secretary of Agriculture direct the Administrator of FSA to develop and  implement (1) automated system enhancements to make the Program Loan  Accounting System capable of identifying all judgment debts eligible for  referral to Treasury for collection action, (2) oversight procedures to  ensure that FSA field offices timely and routinely update the Program Loan  Accounting System to accurately reflect the status of delinquent debts,  including whether the debts are eligible for referral to Treasury for  collection action, and (3) oversight procedures to ensure that all debts  discharged through bankruptcy are promptly closed out and reported to  the IRS as income to the debtor in accordance with the Federal Claims  Collection Standards and OMB Circular A-129. We also recommended that  FSA continue to manually identify deficiency judgments eligible for referral  until the system enhancements for automated identification were  completed and implemented.
FSA has developed an action plan to improve its process and controls for  identifying and referring eligible debts to Treasury and, based upon our  review of documents provided by FSA, the agency has made progress  toward implementing such improvements.  As of our fieldwork completion  date, FSA was using its Program Loan Accounting System and system- generated reports to better track the status of FSA’s delinquent debts,  including judgment debts, for the purpose of meeting the DCIA referral  requirements. Specifically, FSA was generating an enhanced debt report to  include various types of debts under FSA’s farm loan programs, including  judgment debts, to facilitate field office review of debts to determine  eligibility for referral to Treasury. In September 2002, FSA provided its field  offices the initial enhanced debt report and directed the field offices to  review the debts for accuracy. FSA plans to routinely use the enhanced  debt report in such field office reviews in the future.
In addition, actions are being taken to improve field office oversight for  DCIA implementation. Beginning in August 2002, county field offices must  provide their respective state offices with documentation for loans that  they determine are ineligible for Treasury’s offset program because of  bankruptcy, foreclosure, or litigation. The state offices, in turn, are  responsible for making the final decision regarding the loans’ eligibility for  referral and for actually excluding the loans from referral. In addition, FSA  has amended its National Internal Review Guide to include specific  procedures that are designed to help ensure that state offices, among other  things, establish monitoring systems to accurately track borrowers in  foreclosure, bankruptcy, and litigation. The procedures are intended to  facilitate the timely and routine updating of information in the Program  Loan Accounting System to accurately reflect the status of delinquent  debts, including whether the debts are eligible for referral to Treasury for  collection action, and that all debts discharged through bankruptcy are  promptly closed out and reported to IRS. FSA’s policy is to perform its  national internal reviews at state offices not less than every 2 years, and the  new procedures should improve FSA’s implementation of DCIA’s delinquent  debt referral requirements. It is important to note, however, that specific  actions in FSA’s action plan that are needed to (1) ensure field offices are  routinely reviewing accounts for Treasury’s offset program and cross- servicing referral eligibility; (2) ensure that field offices routinely monitor  the status of accounts and properly code them for foreclosure, bankruptcy,  and litigation; and (3) ensure discharged bankruptcy accounts are promptly  closed out, removed from the farm loan debt portfolio, and appropriately  reported to the IRS as discharged debts, have target completion dates of  September 2003.
section_title: Efforts Under Way at FSA to Begin Referring Codebtors to Treasury
paragraphs: We stated at the December 2001 hearing that even though FSA reported  having referred $934 million of direct farm loans to Treasury’s offset  program as of September 30, 2000, the agency has lost opportunities for  maximizing collections on this debt because it does not refer codebtors. We  emphasized that the vast majority of direct farm loans have codebtors and  pointed out that FSA’s Program Loan Accounting System did not have the  capacity to record more than one debtor and that the necessary system  modifications to record more than one taxpayer identification number had  not been made. After the hearing, we recommended that the Secretary of  Agriculture direct the Administrator of FSA to monitor planned system  enhancements to the Program Loan Accounting System to ensure that  capacity to record and use codebtor information is available and  implemented by December 2002.
FSA has acknowledged the need to refer codebtors. Its action plan includes  time frames for developing and testing the systems enhancements deemed  necessary for recording and reviewing relevant information needed for  referring debts to Treasury’s offset program, including the codebtor’s name,  address, and taxpayer identification number. Based on our review of  documents provided by FSA, the agency has established a codebtor code  for its system and has begun to input codebtor information. According to  FSA, as of our fieldwork completion date, 254 loans with codebtors totaling  about $8.3 million had been identified for initiating the due process  required for referral to Treasury’s offset program in December 2002. Given  that the vast majority of the agency’s direct farm loans have codebtors, FSA  has a substantial challenge ahead to obtain the required information to  refer all eligible debt for codebtors to Treasury’s offset program.
section_title: Quarterly Referrals to Treasury’s Offset Program to Begin in December 2002
paragraphs: As we noted at the December 2001 hearing, data provided by FSA officials  showed that about $400 million of new delinquent debt became eligible for  Treasury’s offset program during calendar year 2000. Although FSA  officials acknowledged that debts became eligible relatively evenly  throughout the year, debts eligible for offset were being referred to  Treasury only once annually, during December. As a result, a large portion  of the $400 million of debt likely was not promptly referred when it became  eligible. FSA agreed that quarterly referrals could enhance possible  collection of delinquent debts by getting them to Treasury earlier. After the  hearing, we recommended that the Secretary of Agriculture direct the  Administrator of FSA to monitor effective completion of the planned  automated system modifications to refer eligible debt to Treasury’s offset  program on a quarterly, rather than annual, basis.
FSA plans to make quarterly referrals to Treasury’s offset program and  intends to make the first such referral in December 2002.  In August 2002,  FSA issued guidance to the field offices for review of eligible debts for the  December 2002 referral. In September 2002, FSA informed its field offices  that quarterly referrals are now required, and the agency has determined  that the same due process notification and referral process that has been  used annually will be used quarterly, except under a shorter time frame.
section_title: Significant Actions Taken by FSA to Be Able to Refer Guaranteed Losses to Treasury’s Offset Program
paragraphs: At the December 2001 hearing, we pointed out that FSA had paid out about  $293 million in losses for guaranteed farm loans since fiscal year 1996, but  like RHS, FSA had missed opportunities to potentially collect millions of  dollars related to guaranteed loan losses because they were not treated as  federal debt. We also noted while performing work at FSA that the agency  had revised its guaranteed loan application applicable to guaranteed loans  made after July 20, 2001, to include a section specifying that amounts FSA  pays to a lender as a result of a loss on a guaranteed loan constitute a  federal debt. After the hearing, because FSA needed to make revisions to  its Guaranteed Loan Accounting System to classify guaranteed farm loan  losses as federal debt, we recommended that the Secretary of Agriculture  direct the Administrator of FSA to monitor planned system enhancements  to the Guaranteed Loan Accounting System to ensure that the software  needed to implement the revisions to the lender agreement to establish  guaranteed loan losses as federal debt is completed. In addition, we  recommended that once FSA establishes guaranteed loan losses as federal  debt and deems them to be eligible for referral to Treasury, FSA timely  refer such debt to Treasury for collection action in accordance with DCIA.
FSA has issued the final regulations for recognizing claims paid on  guaranteed farm loans as federal debt and is currently making needed  systems modifications to refer such losses to Treasury’s offset program.  According to FSA officials, the July 2002 regulations apply to guaranteed  farm loans made after July 20, 2001, the date of the revised guaranteed loan  application. FSA has established December 2002 as the milestone date for  completing the automated systems capability to refer eligible losses to  Treasury’s offset program and, according to FSA officials, the agency is on  schedule. According to FSA officials, as of our fieldwork completion date,  the agency has not paid any loss claims associated with guaranteed farm  loans made under the July 20, 2001, revision of the guaranteed loan  application, and does not expect to experience such losses in the near  future because the loans are relatively new. However, it is important to  note that if FSA experiences such losses, it has procedures for the manual  referral of guaranteed loan loss debt to Treasury’s offset program.
section_title: Agriculture Is Working toward Departmentwide Implementation of AWG
paragraphs: At the December 2001 hearing, we stated that Agriculture and eight other  agencies we surveyed still had not utilized AWG as authorized by DCIA to  collect delinquent nontax debt even though experts had previously testified  before this Subcommittee that AWG could potentially be an extremely  powerful debt collection tool. We noted that the agencies, including  Agriculture, needed to develop the required regulations to implement AWG.  In addition, we emphasized that Agriculture had not established specific  dates for implementing AWG and was among five surveyed agencies that  said they intended to implement AWG in the future but had no written  implementation plan for doing so. After the hearing, we recommended,  among other things, that the Secretary of Agriculture direct the CFO to  complete and finalize regulations for conducting AWG and prepare a  comprehensive written implementation plan that clearly defines, 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, which are required by Treasury. We also recommended that, when  practicable, (1) AWG be used in conjunction with other debt collection  tools and (2) debts be referred to Treasury prior to 180 days delinquent  when relying on Treasury to perform AWG.
Agriculture agrees that AWG has the potential to be a powerful tool for  collecting delinquent federal debts and has taken actions to develop  needed regulations and has completed a departmentwide AWG  implementation plan. As of our fieldwork completion date, Agriculture had  drafted AWG regulations and incorporated them into the overall debt  collection regulations for the department, which are currently being  revised. Agriculture also plans to work with OMB to determine whether  Agriculture’s regulatory revisions for debt collection should be considered  a “significant regulatory action.” According to Agriculture’s implementation  plan, if the regulatory revisions are determined to be a “significant  regulatory action,” they will require a more lengthy review process  resulting in a target date of May 2003 for final publication.
In addition, Agriculture’s implementation plan contains other milestone  dates that need to be met and key elements that are needed to implement  AWG. In accordance with the implementation plan, the CFO’s office has  obtained from component agencies their best estimates of the number of  AWG cases they are likely to have each year for loans and administrative  debt along with a corresponding estimate for the number of requests for  hearings. Agriculture plans to have the Department of Veterans Affairs  conduct AWG hearings on Agriculture’s behalf and has had discussions  with Veterans Affairs regarding such services.
To actually perform AWG, Agriculture plans to rely upon Treasury’s cross- servicing program for the vast majority of its debt types for specific debts  of $100 or more. Agriculture believes that Treasury’s private collection  agency contractors already have the knowledge, expertise, and resources  to seek out debtors, verify employment sources, and pursue debt collection  through AWG. Because of Agriculture’s reliance upon Treasury to perform  AWG as part of cross-servicing, the CFO’s office plans to incorporate into  Agriculture’s due process notifications to delinquent debtors, which are  mailed prior to debt referrals to Treasury, the potential use of AWG as part  of cross-servicing.  In addition, the CFO’s office plans to work with  Agriculture’s component agencies to refer debts for cross-servicing prior to  the 180-day threshold, when practicable. These steps could serve to  accelerate collections of delinquent debt.
Although Agriculture has completed its departmentwide AWG  implementation plan, components of the plan still need to be carried out.  For example, the CFO plans to obtain individual AWG implementation  plans from Agriculture’s agencies that include each agency’s timetable for  implementation, written policies and procedures, and types of debt subject  to AWG.  In addition, Agriculture still needs to work with its agencies to  provide Treasury with authorization to use AWG as part of cross-servicing  and to complete the agreement with Veterans Affairs to conduct AWG  hearings on Agriculture’s behalf.
section_title: Treasury’s Debt Collection Improvement Account Has Not Been Activated
paragraphs: DCIA includes a voluntary “gainsharing” provision that allows agencies to  deposit a limited and defined portion of their debt collections into a special  fund account maintained and managed by Treasury. The law provides that  deposits into the special fund are available to the Secretary of the Treasury  for gainsharing purposes only in amounts provided in advance in  appropriations acts. The Secretary may make payments from amounts  appropriated to agencies for purposes related to credit management, debt  collection, and debt recovery. However, because collections are routinely  deposited into the general fund of the Treasury, appropriations would be  required in order to implement this incentive provision.
Treasury has established a debt collection improvement account that can  be activated if its appropriations authorize the expenditure. To date, only  the Small Business Administration (SBA) has requested funding for  gainsharing through Treasury’s debt collection improvement account.  Based on SBA’s requests, Treasury’s appropriation requests for fiscal years  1998 and 1999 included language for funding the debt collection  improvement account for up to $384,000 and $3 million, respectively.   However, the Congress made no amounts available in Treasury’s  appropriations to fund the account.
According to Treasury, because the debt collection improvement account  has never been utilized, it is difficult to assess how effective the account  could be in enhancing federal agencies’ debt collection or what changes, if  any, should be made in the financial incentive area to improve debt  collection governmentwide.
Although the effectiveness of DCIA’s gainsharing provision cannot be fairly  assessed at this time, it is important that the provision be kept in proper  perspective relative to the overall effectiveness of DCIA in improving the  federal government’s debt collection efforts.  DCIA contains specific  requirements for federal agencies to improve collection of their nontax  debts, namely referral of certain delinquent debts to Treasury for  centralized collection. While the pace of implementation has been slow,  and collection opportunities have been lost, progress is being made.
Mr. Chairman, this concludes my prepared statement. I would be pleased to  respond to any questions you or other Members of the Subcommittee may  have.