Treasury urged to review debt collection process

The Treasury Department's Financial Management Service (FMS) should review its current process for collecting non-tax debts owed to federal agencies, the General Accounting Office recommends in a new report.

The Treasury Department's cross-servicing program allows the department to collect debts for other agencies directly from debtors or refer them to private collection agencies. FMS runs the cross-servicing program and also recovers delinquent debt through other programs.

This past June, GAO officials told a House Government Reform subcommittee that the debt collection process was not working effectively due to problems at both FMS and the agencies whose debt it collects. GAO criticized agencies for inaccurate and untimely debt reporting and expressed concern that FMS staff did not always follow the agency's standard operating procedures for handling debts.

As of September 1999, FMS officials estimated approximately $60 billion in debts to agencies were at least 180 days delinquent.

The Debt Collection Improvement Act (DCIA) of 1996 requires agencies to refer non-tax debts that have been delinquent for more than 180 days to the Treasury Department. Non-tax related debts include defaults on loans provided to students, small businesses and home buyers. Debt delinquencies also occur when an agency overpays federal beneficiaries and vendors.

In the report, "Treasury Faces Challenges in Implementing its Cross-Servicing Initiative" (GAO/AIMD-00-234), GAO said the FMS commissioner should:

• Work with the Office of Management and Budget and agency inspectors general in developing an accurate and thorough debt-reporting process.
  
• Establish policies for obtaining and monitoring written debt referral plans from agencies.
  
• Ensure agency officials are notified when agencies fail to comply with their debt referral plans.
  
• Work with private collection agency contractors on which debt characteristics-debt balance, age of deliniquency, agency referring debt-should be taken into account when debts are referred to private collection agencies.
  
• Assess the overall feasibility of the current cross-servicing system.

FMS concurred with most of GAO's recommendations, except for one suggesting a comprehensive review of the cross-servicing process. FMS said its current procedure for handling debts works well, and that because agencies often refer debts "sporadically and randomly," it is impractical to assess FMS collection efforts overall.

"One of the very reasons that FMS should perform a comprehensive review of its cross-servicing processes is that large fluctuations in the number of debts referred to at any particular time by agencies do occur and can have a significant impact on workloads," GAO concluded in the report.

FMS said that many workload issues arise when new agencies begin to use cross-servicing and refer thousands of their old debts to FMS at one time.