Over the past several years, the federal government has reported an outstanding balance of delinquent debt in the range of $50 billion to $60 billion. DCIA reflected the Congress’ recognition that timely and effective agency debt collection efforts were needed to maximize collections of delinquent debts owed to the federal government. A central theme of the legislation is that before discharging any delinquent debt owed to any executive, judicial, or legislative agency, agencies should take all appropriate steps to collect the debt. Among the collection tools the act authorized were administrative offset (withholding some or all of a federal payment scheduled to be issued to the debtor), federal salary offset, referral to PCA contractors, referral to agencies operating a debt collection center, reporting delinquencies to credit reporting bureaus, and administratively garnishing the wages of delinquent debtors. Some DCIA-authorized debt collection tools are mandatory, while others are discretionary. AWG, one of the discretionary tools, is a process whereby an employer withholds amounts from an employee’s wages and pays those amounts to the employee’s creditor in satisfaction of a withholding order. Prior to the enactment of DCIA, agencies generally were required to obtain a court order before garnishing the wages of nonfederal employees. DCIA authorizes agencies to administratively garnish up to 15 percent of a debtor’s disposable pay to satisfy delinquent nontax debt owed to the United States. Under a separate statute, Education has had authority since 1993 to garnish up to 10 percent of the disposable pay of debtors who have defaulted on student loans. Treasury’s FMS is responsible for promulgating regulations to implement AWG and other debt collection tools authorized by DCIA. In May 1998, 2 years after the act was passed, Treasury issued final regulations that provide agencies with an overall framework for implementing AWG. The regulations authorize agencies to begin the AWG process as debt becomes delinquent, but they do not stipulate when in the collection cycle this tool may be used. According to the regulations, any federal agency that administers a program that might result in a delinquent nontax debt owed to the federal government and any agency that pursues recovery of such debt may administer AWG. Therefore, agencies holding delinquent debt may administer AWG in-house; they may authorize a debt collection agency, such as FMS, to administer AWG on their behalf as part of cross- servicing operations; or they may do both. To assist agencies in implementing AWG, Treasury issued AWG Form 329, known as the AWG package, in November 1998. The package includes a Letter to Employer & Important Notice to Employer, Wage Garnishment Order, Wage Garnishment Worksheet, and Employer Certification. In February 1999, FMS issued “Instructions to Federal Agencies for Preparing AWG Forms.” As is the case with other debt collection tools, Treasury’s regulations dealing with AWG provide for due process for debtors. The regulations require that at least 30 days before initiating wage garnishment proceedings, agencies notify delinquent debtors in writing of the nature and amount of the debt and of the agency’s intention to collect through deductions from pay. The notification must also include an explanation of the debtor’s rights regarding the proposed action. These rights include the opportunity to inspect and copy agency records related to the debt, to enter into a written repayment agreement with the agency, and to request a hearing concerning the existence or amount of the debt or the terms of the proposed repayment schedule under the garnishment order. An agency must provide a debtor with a hearing before it issues a garnishment order if the agency receives the debtor’s written request for a hearing on or before the 15th business day following the mailing of the notice. If a debtor does not make a timely request for a hearing, the agency is to send a withholding order to the debtor's employer within 30 days after the debtor fails to make a timely request for a hearing. If the agency receives a debtor’s written request for a hearing after the 15th business day following the mailing of the notice, the agency must still provide a hearing to the debtor. In such a case, however, the agency is not to delay issuing a withholding order unless it determines that the delay in filing the hearing request resulted from factors over which the debtor had no control or receives information that it believes justifies delaying or canceling the withholding order. Following receipt of a withholding order, employers are required to certify to the agency certain information about the debtor, such as the debtor’s employment status and disposable pay available for withholding. The employer must deduct from all disposable pay paid to the debtor during each pay period the amount of the garnishment, which is the lesser of (1) the amount indicated on the garnishment order, up to 15 percent of the debtor’s disposable pay, or (2) the amount by which the debtor’s disposable pay exceeds an amount equivalent to 30 times the minimum wage. If multiple garnishments from various sources are applied to one debtor’s wages, the total garnishments may not exceed 25 percent of the individual’s disposable pay. Once the agency has fully recovered the amounts owed by the debtor, the agency is to send the debtor’s employer notification to discontinue wage withholding. Agencies are to review their debtors’ accounts at least annually to ensure that garnishment has been terminated for accounts that have been paid in full. The objective of our review was to determine the extent to which certain CFO Act agencies use or plan to use AWG as authorized by DCIA to collect delinquent nontax federal debts. As previously noted, we surveyed nine federal agencies: USDA, Education, DOE, HHS, HUD, VA, EPA, SBA, and SSA. Together, these agencies held about $40 billion of delinquent nontax federal debt as of September 30, 2000, which represented more than 90 percent of all CFO Act agencies’ reported delinquent nontax debt as of that date. We developed a survey instrument to obtain agency responses to a uniform set of questions (see appendix I) and received completed surveys from all nine surveyed agencies. We reviewed agency responses and followed up with cognizant agency officials, where necessary, to obtain any needed clarifications or additional information. Although we discussed certain of the survey responses with agency officials by telephone or electronic mail, we did not independently verify the reliability of all the information that agencies provided. We also conducted interviews with FMS officials responsible for regulations, guidance, and cross-servicing operations related to AWG and reviewed pertinent documents, including FMS’s “AWG Operations & Procedures Manual” and its “Performance Summary Report.” We performed our work from March 2001 through September 2001 in accordance with U.S. generally accepted government auditing standards. We requested written comments on a draft of this report from the 10 agencies covered by the report. All 10 agencies responded to our request and provided either written or oral comments, which are discussed in the “Agency Comments and Our Evaluation” section of this report and are incorporated in the report as applicable. Letters with comments from FMS, Education, HHS, HUD, SBA, SSA, and VA are reprinted and discussed in further detail, when applicable, in the appendixes. The nine large CFO Act agencies we surveyed had not used AWG as authorized under DCIA, thus undoubtedly losing some collection opportunities. Together, the surveyed agencies reported holding about $23 billion in consumer delinquent debt as of September 30, 2000. This is not to imply that AWG could be used to collect all such debt because circumstances such as bankruptcy or appeals could limit the application of this debt collection tool. Eight of the nine surveyed agencies said that they planned to adopt AWG as authorized by DCIA. Four agencies expected to implement AWG in-house and, to varying degrees, through FMS’s cross- servicing program. One of these agencies, Education, has been using AWG in-house under separate statutory authority since 1993. The four remaining agencies indicated that they would not perform AWG in-house but would authorize FMS to apply AWG to debts they referred to FMS for cross- servicing. However, we found in previous work that agencies have not been promptly referring all eligible debts to FMS when they become 180 days delinquent, as required by DCIA. Prompt referral of eligible debts is especially important for agencies that contemplate relying primarily on FMS to conduct AWG through cross-servicing because FMS intends to apply AWG as a tool of last resort, to be used only after all other collection efforts have been exhausted. Use of AWG, whether in-house or at FMS, should likely yield a marked increase in agency collections of consumer delinquent debt. The increase would result largely from AWG’s effectiveness as leverage to obtain payment in full, to secure a repayment plan, or to obtain full payment on a compromised amount. According to testimony by debt collection experts, the mere threat of AWG is often enough to motivate repayment. These experts based their testimony on experience at Education, which indicated that employees did not want their employers to find out that they had defaulted on their student loans. As a result, according to the debt collection experts, about 50 percent of the debtors notified of Education’s intent to use AWG made payment arrangements instead of allowing their wages to be garnished. According to Education officials and agency documents, collection of defaulted student loans has increased dramatically since Education implemented AWG in 1993 under the Higher Education Act, as amended. Education indicated that it had collected more than $306 million in principal and interest on defaulted student loans from fiscal year 1997 through March 2001 using 10 percent garnishment authority.