To respond to your request, we performed work primarily at RHS, FSA, and Agriculture’s Office of the Chief Financial Officer. We also performed work at Treasury and conducted interviews with agency officials at RHS and FSA who are responsible for taking corrective actions to ensure that all eligible delinquent debt is promptly referred to Treasury for collection action. We conducted interviews with Agriculture’s CFO and members of his staff regarding Agriculture’s implementation of AWG. To corroborate information we obtained from interviews, we obtained and reviewed pertinent agency documents including action plans and implementation schedules. We did not verify the reliability of certain information that was provided to us by agencies such as delinquent debt referred to Treasury. We also did not assess the technical adequacy of the specific systems enhancements that have been deemed by the agencies as necessary for addressing the DCIA implementation problems that we identified and discussed. We conducted interviews with Treasury officials who were knowledgeable about the debt collection improvement account provision of DCIA and the status of the account at Treasury. We performed our work from July through September 2002 in accordance with U.S. generally accepted government auditing standards. In December 2001, we testified that, as of September 30, 2000, RHS reported it had referred to Treasury’s offset program $201 million of direct Single Family Housing (SFH) loans but had not referred any amounts to Treasury for cross-servicing, primarily due to RHS’s systems limitations. RHS officials told us that since implementing a new automated centralized loan servicing system in fiscal year 1997, RHS had been unable to readily identify direct SFH loans that are eligible for referral to Treasury for cross- servicing. Essentially, the system did not contain sufficient data to differentiate loans eligible for cross-servicing from those that were not. For example, the system needed to be capable of determining the status of any collateral, because all collateral must be liquidated prior to a loan’s referral to Treasury for cross-servicing. After the hearing, we recommended that the Secretary of Agriculture direct the Administrator of RHS to complete development of the software enhancements that will allow automated identification of loans eligible for cross-servicing and promptly refer all such loans to Treasury. RHS has completed and implemented the system enhancements necessary for automated identification of direct SFH loans eligible for cross-servicing and the prompt referral of such loans. In April 2002, RHS made its first automated referral of direct SFH loans to Treasury for cross-servicing. This referral involved about 10,900 loans totaling about $165.6 million. RHS is currently using its enhanced system to identify loans eligible for cross- servicing and electronically refer them to Treasury on a monthly basis. According to RHS documents and Treasury officials, RHS has referred all of the loans that it has reported as eligible for cross-servicing. Moreover, an RHS document indicates and Treasury officials told us that there have been no significant problems regarding eligibility for cross-servicing for the loans that RHS has referred since April 2002. As we stated at the December 2001 hearing, when we attempted to independently verify specific debts that RHS had excluded from referral to Treasury’s offset program as of September 30, 2000, we were told by RHS officials that the supporting documentation for the $182 million of direct SFH loans excluded from referral had not been saved. We subsequently recommended that the Secretary of Agriculture direct the Administrator of RHS to maintain supporting documentation, in an appropriate level of detail that can be made readily available for independent verification, for all SFH debts reported and certified to Treasury as excluded from referral for collection action. At a minimum, the documentation should include, for each exclusion category, such as foreclosure, the total amount reported as excluded on the certified Treasury Report on Receivables Due from the Public (TROR) and a listing of the identities and dollar amounts of the specific loans excluded. Such documentation would facilitate an efficient independent review to determine whether RHS’s exclusions meet relevant legislative and regulatory criteria. The Comptroller General’s Standards for Internal Control in the Federal Government states that all transactions and other significant events need to be clearly documented and that the documentation should be readily available for examination. During our follow-up review, RHS provided us a detailed listing of specific direct SFH loans and the loans’ corresponding dollar amounts that had been reported as excluded from referral to Treasury on the TROR as of September 30, 2001, the last period for which certified data were available. Although we were not requested to and did not test the specific loans excluded to determine whether they met relevant legislative and regulatory criteria, RHS’s ability to provide such listings should facilitate future independent verifications of the validity of its reported exclusions, and is critical for the oversight of the agency’s DCIA implementation. Treasury is the sole operator of a governmentwide centralized debt collection center. As such, it is critical that Treasury obtain accurate information from federal agencies on the status of their nontax debt, particularly the debt over 180 days delinquent, for which DCIA was designed in large part to help agencies collect through centralized collection. During the December 2001 hearing, we stressed that RHS was only reporting the delinquent installment portion of its direct SFH loans as delinquent in its TROR. It was not reporting, as required by Treasury, the accelerated loan balance, which is the total debt due and payable. In the report we issued after our testimony, we stated that, as a result of such reporting, RHS may have underreported to Treasury direct SFH loan amounts delinquent over 180 days by about $849 million and direct SFH loan amounts eligible for Treasury’s offset program by about $348 million as of September 30, 2000. We recommended that the Secretary of Agriculture direct the Administrator of RHS to work with Treasury to resolve any inconsistencies between RHS’s reporting of delinquent debts on its TROR and Treasury’s instructions for such reporting. In addition, we recommended that absent any modifications to Treasury’s instructions for preparing the TROR, RHS report the entire accelerated balance of delinquent direct SFH loans to Treasury as delinquent debt and, absent any allowable exclusions, as debt eligible for referral to Treasury for collection action. After we made our recommendations, Agriculture and Treasury officials met to address the inconsistency that existed between RHS’s reporting of delinquent direct SFH loans on the TROR and Treasury’s instructions for such reporting. In a September 2002 letter, Treasury informed Rural Development that RHS should report the entire unpaid principal balances as delinquent on the TROR, and requested that such reporting begin with the TROR for the fourth quarter of fiscal year 2002. Treasury stated in the letter that once an acceleration notice is sent to the borrower, which has been RHS’s ongoing practice, the entire debt is due and payable and should be reflected as such on the TROR. Treasury also stated that its decision was based on consultation with its legal counsel and recent discussions with Agriculture officials including its CFO. According to RHS officials, the agency will report the entire unpaid principal balances for its direct SFH loans that have been accelerated beginning with the TROR for the fourth quarter of fiscal year 2002. At the December 2001 hearing, we stated that RHS had not referred losses on its guaranteed SFH loans to Treasury for collection action. RHS officials told us that the agency could not pursue recovery from the debtor or utilize DCIA debt collection tools because under the SFH guaranteed loan program, no contract existed between the debtor and RHS. Consequently, RHS did not recognize the losses that it paid to guaranteed lenders as federal debt and could not apply DCIA debt collection remedies to them. We were particularly concerned about DCIA debt collection remedies not being available for RHS’s guaranteed SFH losses because, according to RHS, through September 30, 2000, such losses totaled about $132 million. After the hearing, we recommended that the Secretary of Agriculture direct the Administrator of RHS to finalize and implement necessary regulatory changes and modifications to lender agreements so that losses on guaranteed SFH loans could be treated as federal debt and referred to Treasury for collection action. RHS is currently working on making the regulatory changes that are needed to refer losses on guaranteed SFH loans to Treasury’s offset program; however, the agency will not be able to refer such losses until regulatory action is completed and guaranteed loan applications are modified. According to a RHS official, to expedite the regulatory recognition of losses on guaranteed SFH loans as federal debt, Agriculture is currently incorporating the regulatory changes that are needed into the draft final rule for the Section 502 Guaranteed Rural Housing Program. It is important to note, however, that the Office of Management and Budget (OMB) has determined that the final rule for this program will constitute a “significant regulatory action.” As such, the rule will be subject to a more lengthy clearance process that will involve OMB review in the final rulemaking stages. According to a schedule provided by Agriculture, which includes internal agency review as well as OMB review, publication of the final rule for the Section 502 Guaranteed Rural Housing Program is expected by about August 2003. Given that the aforementioned regulation is not expected to be finalized for a considerable time, it is important to note that, as of our fieldwork completion date, RHS also had not modified the guaranteed loan applications for the SFH guaranteed loan program that are needed to establish a contractual relationship between the debtor and RHS so that losses stemming from SFH guaranteed loans can be recognized as federal debt and be subject to the debt collection provisions of DCIA. Initially, an RHS official stated that RHS planned to make changes to the applications when the final rule for the guaranteed loan program is issued.