Criminal Debt: Oversight and Actions Needed to Address Deficiencies in Collection Processes
Released: 2001-08-16T00:00:00

Letter

Introduction

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.

Background

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.

Assessing Criminal Fines and Restitution

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.

Criminal Debt Collection Process

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.

Objectives, Scope, and Methodology

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.

Factors Contributing to the Growth in Uncollected Criminal Debt

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.

Nature of the Debt

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.

Assessment of Mandatory Restitution

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.

Payment Schedules Set by Judges

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.

State Laws

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.

Inadequate Criminal Debt Collection Processes and Lack of Coordination Contribute to Low Collection Rate

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.

Financial Litigation Units

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.

Entering Cases into the FLUs’ Tracking Systems

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.

Filing Liens

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.

Performing Asset Discovery Work

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.

Using Other Enforcement Techniques

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.

Monitoring and Reassessing Cases

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.

Sending Demand, Delinquent, and Default Letters

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.

Assessing Interest and Penalties

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.

Human Capital Issues

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.

FLU Tracking Systems

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.

Probation Offices

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.

Developing Pre-Sentence Reports

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.

Establishing Installment Schedules

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.

Monitoring Installment Schedules

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.

Coordination Among the Entities Involved

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.

Sharing Financial Information With FLUs

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.

Communication Between FLUs and Probation Offices

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.

Databases for Tracking Collections and Disbursements

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).

Oversight Roles of OMB and Treasury

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.

Accounting For, Reporting, and Managing Criminal Debt

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.

Referring Debt to Treasury

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.

Conclusions, Recommendations, and Agency Comments

Conclusions

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.

Recommendations

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.

Agency Comments and Our Evaluation

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.

Establishment of a Task Force

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.

Agency Specific Comments

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.

Justice and AOUSC’s Comments on Our Methodology

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.

Justice

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.

Administrative Office of the U.S. Courts

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.