[House Hearing, 105 Congress]
[From the U.S. Government Publishing Office]
IMPLEMENTATION OF THE DEBT COLLECTION IMPROVEMENT ACT OF 1996
=======================================================================
HEARING
before the
SUBCOMMITTEE ON GOVERNMENT MANAGEMENT,
INFORMATION, AND TECHNOLOGY
of the
COMMITTEE ON
GOVERNMENT REFORM
AND OVERSIGHT
HOUSE OF REPRESENTATIVES
ONE HUNDRED FIFTH CONGRESS
FIRST SESSION
__________
APRIL 18, 1997
__________
Serial No. 105-45
__________
Printed for the use of the Committee on Government Reform and Oversight
U. S. GOVERNMENT PRINTING OFFICE
44-176 WASHINGTON : 1997
___________________________________________________________________________
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COMMITTEE ON GOVERNMENT REFORM AND OVERSIGHT
DAN BURTON, Indiana, Chairman
BENJAMIN A. GILMAN, New York HENRY A. WAXMAN, California
J. DENNIS HASTERT, Illinois TOM LANTOS, California
CONSTANCE A. MORELLA, Maryland ROBERT E. WISE, Jr., West Virginia
CHRISTOPHER SHAYS, Connecticut MAJOR R. OWENS, New York
STEVEN SCHIFF, New Mexico EDOLPHUS TOWNS, New York
CHRISTOPHER COX, California PAUL E. KANJORSKI, Pennsylvania
ILEANA ROS-LEHTINEN, Florida GARY A. CONDIT, California
JOHN M. McHUGH, New York CAROLYN B. MALONEY, New York
STEPHEN HORN, California THOMAS M. BARRETT, Wisconsin
JOHN L. MICA, Florida ELEANOR HOLMES NORTON, Washington,
THOMAS M. DAVIS, Virginia DC
DAVID M. McINTOSH, Indiana CHAKA FATTAH, Pennsylvania
MARK E. SOUDER, Indiana ELIJAH E. CUMMINGS, Maryland
JOE SCARBOROUGH, Florida DENNIS J. KUCINICH, Ohio
JOHN B. SHADEGG, Arizona ROD R. BLAGOJEVICH, Illinois
STEVEN C. LaTOURETTE, Ohio DANNY K. DAVIS, Illinois
MARSHALL ``MARK'' SANFORD, South JOHN F. TIERNEY, Massachusetts
Carolina JIM TURNER, Texas
JOHN E. SUNUNU, New Hampshire THOMAS H. ALLEN, Maine
PETE SESSIONS, Texas HAROLD E. FORD, Jr., Tennessee
MICHAEL PAPPAS, New Jersey ------
VINCE SNOWBARGER, Kansas BERNARD SANDERS, Vermont
BOB BARR, Georgia (Independent)
ROB PORTMAN, Ohio
Kevin Binger, Staff Director
Daniel R. Moll, Deputy Staff Director
Judith McCoy, Chief Clerk
Phil Schiliro, Minority Staff Director
------
Subcommittee on Government Management, Information, and Technology
STEPHEN HORN, California, Chairman
PETE SESSIONS, Texas CAROLYN B. MALONEY, New York
THOMAS M. DAVIS, Virginia PAUL E. KANJORSKI, Pennsylvania
JOE SCARBOROUGH, Florida MAJOR R. OWENS, New York
MARSHALL ``MARK'' SANFORD, South ROD R. BLAGOJEVICH, Illinois
Carolina DANNY K. DAVIS, Illinois
JOHN E. SUNUNU, New Hampshire
ROB PORTMAN, Ohio
Ex Officio
DAN BURTON, Indiana HENRY A. WAXMAN, California
J. Russell George, Staff Director and Chief Counsel
Mark Brasher, Professional Staff Member
John Hynes, Professional Staff Member
Andrea Miller, Clerk
David McMillen, Minority Professional Staff Member
Mark Stephenson, Minority Professional Staff Member
C O N T E N T S
----------
Page
Hearing held on April 18, 1997................................... 1
Statement of:
Adams, Mitchell, commissioner, Massachusetts Department of
Revenue.................................................... 34
Catlett, D. Mark, Assistant Secretary for Management and
Chief Financial Officer, Department of Veterans Affairs.... 134
David, Ted, Chief Financial Officer, Department of
Agriculture................................................ 98
Donovan, Anne, Office of Child Support Enforcement,
Department of Health and Human Services.................... 146
Hawke, John D., Jr., Under Secretary, Department of Treasury. 59
Koskinen, John, Deputy Director, Office of Management and
Budget..................................................... 47
McNamara, Steven, Assistant Inspector General for Audit,
Department of Education.................................... 111
Murphy, Gerald, Assistant Fiscal Secretary, Department of
Treasury................................................... 65
Summers, Lawrence, Deputy Secretary, Department of Treasury.. 10
Letters, statements, etc., submitted for the record by:
Adams, Mitchell, commissioner, Massachusetts Department of
Revenue, prepared statement of............................. 37
Catlett, D. Mark, Assistant Secretary for Management and
Chief Financial Officer, Department of Veterans Affairs:
Information concerning balance sheets.................... 159
Information concerning collection agencies............... , 162
Information concerning referring debt.................... 162
Prepared statement of.................................... 136
David, Ted, Chief Financial Officer, Department of
Agriculture, prepared statement of......................... 101
Donovan, Anne, Office of Child Support Enforcement,
Department of Health and Human Services, prepared statement
of......................................................... 149
Hawke, John D., Jr., Under Secretary, Department of Treasury,
prepared statement of...................................... 62
Horn, Hon. Stephen, a Representative in Congress from the
State of California:
Letter dated April 14, 1997, from Mr. Rubin.............. 79
Letter dated May 27, 1997, from Mr. Murphy............... 93
Prepared statement of.................................... 3
Wall Street Journal article of March 11, 1997............ 113
Koskinen, John, Deputy Director, Office of Management and
Budget, prepared statement of.............................. 50
Maloney, Hon. Carolyn B., a Representative in Congress from
the State of New York:
Prepared statement of.................................... 8
September 21, 1996, New York Times op-ed................. 6
McNamara, Steven, Assistant Inspector General for Audit,
Department of Education, prepared statement of............. 117
Murphy, Gerald, Assistant Fiscal Secretary, Department of
Treasury, prepared statement of............................ 68
Summers, Lawrence, Deputy Secretary, Department of Treasury,
prepared statement of...................................... 14
IMPLEMENTATION OF THE DEBT COLLECTION IMPROVEMENT ACT OF 1996
----------
FRIDAY, APRIL 18, 1997
House of Representatives,
Subcommittee on Government Management, Information,
and Technology,
Committee on Government Reform and Oversight,
Washington, DC.
The subcommittee met, pursuant to notice, at 9:30 a.m., in
room 2154, Rayburn House Office Building, Hon. Stephen Horn
(chairman of the subcommittee) presiding.
Present: Representatives Horn, Sessions and Maloney.
Staff present: J. Russell George, staff director and chief
counsel; Mark Brasher and John Hynes, professional staff
members; Andrea Miller, clerk; and David McMillan and Mark
Stephenson, minority professional staff members.
Mr. Horn. The Subcommittee on Government Management will
come to order.
Nearly 1 year ago, Congress passed and the President signed
into law the Debt Collection Improvement Act of 1996. This
important law was sponsored by myself and Mrs. Maloney, the
ranking Democrat on the subcommittee. It changed the rules of
the game for debt collection. By providing agencies with new
tools and incentives to increase collections, Congress hoped to
improve the Federal Government's dismal debt collection
performance.
What are the results so far? Currently, the total of
delinquent non-tax debts is $51 billion. The Treasury
Department's Financial Management Service has spent $20 million
implementing the Debt Collection Improvement Act, coordinating
with Federal agencies, conducting awareness campaigns, drafting
contracting documents and regulations, and working with
agencies to refer their debts to Treasury. Unfortunately, the
Financial Management Service has only collected about $300,000
from these efforts.
I realize that implementation does not happen overnight,
but I feel this committee has a responsibility to ensure that
the record improves quickly. How could we have spent $20
million to collect $300,000? I have two principal concerns
about the implementation of the Debt Collection Improvement
Act. First, the initial year of implementation has given us
reason to fear that the Financial Management Service debt
collection function does not have the political support it
needs, either in the Department of the Treasury or the Office
of Management and Budget. Second, agencies appear to be balking
at implementing the Debt Collection Improvement Act. Let me
elaborate on each of these concerns.
Political support is critical. Success stories resulting
from the Debt Collection Improvement Act of 1996 illustrate
this point. The child support enforcement provisions are
working well. The Financial Management Service is working with
the Office of Child Support Enforcement at the Department of
Health and Human Services to successfully implement the child
support enforcement provisions along with the responsibilities
added by the President's Executive Order 13019, last September
28, 1996. Of course, that Executive order was issued 5 weeks
before the Presidential election.
We are delighted that the direct deposit provisions are
spurring improvements in electronic payments at a number of
agencies and that the Treasury Department is on track to meet
its timetable. Each of those programs involves administrative
complexities equal to or exceeding those in the debt collection
program. They involve working with 50 different State
governments and 100 million payees. Why are these programs
succeeding where the debt collection operation is failing? The
answer is simple: a lack of political support.
The President made his child support enforcement
announcement in a weekly radio address. He clearly demonstrated
his commitment to achieving the aggressive goals his advisors
have laid out for him. Similarly, the Treasury Department has
aggressively moved forward to implement the electronic payment
legislation, with strong backing from the President's Office of
Management and Budget as well as agencies with large
beneficiary groups such as the Social Security Administration.
In order for the Debt Collection Improvement Act to be a
success, it will need the strong backing of the President and
the Office of Management and Budget, as well as the best
efforts of those in the creditor agencies. Talking about
reinventing government is frankly not enough. It is time for
some follow-through.
Second, agencies appear to be balking at some aspects of
the Debt Collection Improvement Act. According to a draft
report of the General Accounting Office, ``some agencies have
expressed reluctance'' about transferring delinquent debt to
the Financial Management Service. Congress worked long and hard
on this new law, and we will work just as long and just as hard
to see that it is properly implemented. The massive sum of
uncollected non-tax debt makes it clear that agencies cannot
continue to operate as they have in the past.
The task of implementing the Debt Collection Improvement
Act is complex. It requires cross-agency coordination. Everyone
has a role: The Office of Management and Budget, the Treasury
Department, and every Federal agency. Today, I hope we can hear
how we are going to proceed with collecting debts, not with
blaming each other. By my estimation, we have all failed to
achieve our preliminary goals. We now look forward to the
hearing and to future hearings on the Debt Collection
Improvement Act, which I will state at this point will be
scheduled every 6 months for the next several years.
We have a quorum present, and I would like to call on Mrs.
Maloney, the ranking Democrat, who was very helpful in the
enactment of this legislation, for her opening statement.
[The prepared statement of Hon. Stephen Horn follows:]
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[GRAPHIC] [TIFF OMITTED] 44176.002
Mrs. Maloney. Thank you very much, Mr. Chairman. I am
pleased that you are holding this anniversary hearing on our
Debt Collection Improvement Act of 1996. As you know, I was
very honored to play a major role in passing this bipartisan
legislation last year, and I want to commend you, Mr. Chairman,
on your leadership and your staff for all their hard work, and
mine too for that matter. I would also like to thank the
administration for their help and diligence which was
instrumental in developing a comprehensive and effective new
law. Since Mr. Summers is here from Treasury, I would like to
note that Treasury was particularly helpful in their leadership
on this legislation.
Two years ago, I became extremely concerned that Congress
was cutting vital programs that benefit millions of Americans,
like Medicare, Medicaid and school lunches. I wanted to offer
something positive to the American people.
That's why I conducted a survey of 100 Federal Government
agencies regarding their delinquent debt. These agencies
responded that businesses and individuals owed more than $50
billion in non-tax delinquent debt to the Federal Government
and to the American taxpayers and that a mismatched hodgepodge
of collection methods and procedures hindered the Government's
ability to collect debt.
As a result, we designed the Debt Collection Improvement
Act to fix these problems. Our bill will force the cheaters to
pay up through common sense debt collection tools like
administrative, salary and tax refund offsets, governmentwide
cross-servicing, TIN access and gain sharing. I am very proud
of what we developed, and I am hopeful that this new law will
help collect up to $10 billion in additional revenue over 5
years; that's a lot of school lunches and that's a lot of
police officers. To ensure that we reach our goals, I want to
continue to monitor the administration's implementation of the
new law. That's the purpose of our hearing today.
But we must do more.
Today, I would like to announce that I am drafting
legislation that would collect even more delinquent debt, and I
hope our distinguished chairman will join me so that we will
have yet another successful piece of legislation out of this
committee. My bill would improve communication between the
Federal Government and State governments through a joint
Federal-State partnership for the purposes of collecting
delinquent debt from deadbeats. The legislation would prevent
debtors from eluding the Government by allowing Federal
agencies to match delinquent debtors with State employment
information. Debtors would still have the same due process and
hardship protections under current law.
The need for this legislation was most eloquently described
in a New York Times op-ed by the Massachusetts Commissioner of
Revenue, Mitchell Adams, who is present here today and will be
testifying later. Mr. Chairman, I would like to submit for the
record the op-ed which he authored. Is that all right?
[The article referred to follows:]
[GRAPHIC] [TIFF OMITTED] 44176.003
Mrs. Maloney. Let me give you an example of the problem the
bill addresses. Under current law, if a person living in New
York defaults on a Federal student loan from New York, the
State and Federal Government can garnish the wages of that
person to resolve the debt. However, if that person moves to
work and live in another State, New York and the Federal
Government can no longer garnish the student's wages or the
employee's wages. That is because Federal law prevents it. My
legislation would help the Government find that debtor.
Mr. Chairman, I invite you to cosponsor this as the lead
Republican and hope that we will be working together. We have
been talking to you and your staff about it.
This is an issue that I worked on for many years when I was
a member of the city council. Every year I would do my survey
of the debt that was owed the city of New York, and in fact
authored a collections bill for the city of New York, and that
bill never passed. So I don't know if that says it is easier to
pass a bill in the U.S. Congress than in the city of New York.
But in any event I think it is a fine example of the
administration and the Republican and the Democratic party
working together to really make government work better, to help
bring moneys into the Treasury and to help us on our other
major goal this year, that of balancing the budget, of bringing
these revenues in. Any amount will help us reach that goal.
I thank the chairman for his leadership in so many things
and for this followup hearing today. Thank you.
[The prepared statement of Hon. Carolyn B. Maloney
follows:]
[GRAPHIC] [TIFF OMITTED] 44176.004
[GRAPHIC] [TIFF OMITTED] 44176.005
Mr. Horn. Thank you very much. Now I am delighted to yield
to the gentleman from Texas, Mr. Sessions.
Mr. Sessions. Good morning, Mr. Chairman. Mrs. Maloney, it
is good to see you. I am delighted to be here.
I have somewhat of a background in debt collection. I was
in charge of debt collection for Southwestern Bell Telephone
Co., a 5-State region, for several years at the corporate
headquarters level, and so I have some understanding, though
some people would argue no expertise, in this area. But I am
extremely interested and I am delighted to be here this
morning, Mr. Chairman. Thank you.
Mr. Horn. I want to say that understanding is a lot better
than expertise.
We are delighted to have you with us, Mr. Secretary. We
have a tradition on this subcommittee and the full committee
that all witnesses take the oath. So if you don't mind standing
and raise your right hand.
[Witness sworn.]
Mr. Horn. The clerk will note the witness has affirmed and
you may proceed in your own way. Obviously, we just saw your
statement. We didn't have it before, so we are going to be
looking at it very carefully as you speak. But feel free to
take the time you need.
STATEMENT OF LAWRENCE SUMMERS, DEPUTY SECRETARY, DEPARTMENT OF
TREASURY
Mr. Summers. Thank you very much, Mr. Chairman,
Congresswoman Maloney, distinguished members of this
subcommittee. I am pleased to be here to talk with you about
Treasury's plan to implement lasting solutions to difficulties
the IRS has encountered. Later this morning, it is my
understanding that Under Secretary Hawke and Assistant
Secretary Murphy from the Treasury Department will testify
along with Deputy Director Koskinen on the Department of the
Treasury's actions to implement the Debt Collection Improvement
Act of 1996. But let me say for my part that we in the
Department regard this--the Debt Collection Act as a crucial
initiative and one that we're working as hard as we can to be
as constructive as possible in implementing. And I think that
it is absolutely clear with the kind of cutbacks that
Government is forced--Government in today's world--as we move
to a balanced budget, to do everything that we possibly can to
collect what is owed to us.
That is a point that has resonance in the debt collection
area. Frankly, it has resonance with respect to the IRS because
I believe improving the IRS is important not just to serve
taxpayers better, but also because we have a large tax gap
which represents money that could otherwise be available to the
Government to support lower tax rates, to support more
effective public services.
I would like to thank the chairman, the ranking minority
member and other members of the committee for their leap in
recognizing issues of information technology at the IRS and in
particular, governmentwide, for highlighting, Mr. Chairman, the
salience of the Y2K problem, which is something very critical
that we are going to have to get through.
Let me be very clear, the difficulties with information
technology management primarily manifested by the troubled tax
system modernization program are not fully behind us. Other
serious problems have come to light, such as recent incidents
of IRS employees browsing through tax records outside their
assigned work. These kinds of problems deserve the utmost
seriousness because the American people deserve an IRS that is
responsive, efficient, and totally respects privacy. As
Commissioner Richardson has said, the IRS may not earn people's
affection, but it should deserve their respect.
Today, I want to talk about some of the progress that the
IRS has made under Treasury's oversight and in turn talk a bit
about the administration's plan to provide the IRS with the
framework for effective management. But before I do that, let
me just highlight that this week we completed one of the
rituals of our democracy, the annual filing season. The vast,
vast majority of American citizens paid what they owed, and
paid it in full. That voluntary compliance is a precious
national asset for this country and one we must not squander.
I want to thank the 100,000 dedicated and local IRS
employees who have helped to make this filing season a
successful one for the American taxpayers. Seventy-six million
returns have already been processed; electronically filed
returns are up by 25 percent; 36 percent more taxpayers--not
enough, let me be clear, but 36 percent more taxpayers have
been served by IRS employees over the telephone and tax law
questions are being answered with 93 percent accuracy, up from
90 percent last year. The IRS web site has received over 95
million hits in this fiscal year, and I guess it is appropriate
to quote a poll. The Associated Press in a recent poll found
that 7 out of 10 taxpayers--that is 3 too few--gave the IRS a
positive rating on its ability to handle returns and inquiries.
This is progress. But we need to build much more on this
progress.
Last year, Secretary Rubin and I recognized in testimony
before this committee and others that the modernization program
was, as we put it at the time, off track. We called for a sharp
turn and made clear our determination to energize Treasury's
oversight to bring about change in the way IRS uses information
technology and provides customer service. And there has been
change. Specifically, we have appointed a new Associate
Commissioner for Modernization and Chief Information Officer,
Mr. Arthur Gross. Following his review of technology projects,
we canceled or consolidated 26 programs into 9. Mr. Gross is
sitting here beside me, and I want to acknowledge an exemplary
job that he has done in getting hold of something that has been
very--was very out of control for a very long time.
We will be submitting a draft Request for Proposal for Tax
Systems Modernization prime contractor to the Congress and to
industry on May 15th, 10 weeks ahead of the required due date.
On May 15th of this year, we will submit to the Congress an
architectural blueprint which will clearly describe what
modernization would and would not include and how the pieces
will fit coherently together. We are exploring in other areas
the possibility of outsourcing.
Steps such as these are only the beginning. It will take
time. Everyone involved in this process recognizes that
problems at the IRS have developed over decades and will not be
solved overnight or even over a couple of filing seasons. But
as we chart our course, we see our job at Treasury as ensuring
that there is effective and vigilant oversight so as to make
sure that the IRS performs as effectively as it possibly can.
Our approach to provide a framework for effective
management at the IRS encompasses five critical areas. Let me
say a word about each of them.
First, oversight. We will consolidate the success to date
of the Modernization Management Board, which has supported Mr.
Gross in his cancellation of projects that were not as
effective as they needed to be, by making it permanent and
extending its mandate to cover the broad range of strategic
issues confronting the IRS. This will continue to operate like
the board of a troubled company with an outside chairman
located in the Treasury Department and senior officials from
other parts of Government. This is a crucial executive branch
responsibility, and we plan to carry it out. We will also
establish a Blue Ribbon Advisory Committee to bring private
sector expertise to bear on the management of the IRS.
Second, we look forward to working with the National
Commission on IRS Restructuring, ably chaired by Senator Kerrey
and Congressman Portman, as well as the Congress and the
National Treasury Employees Union, to enhance and strengthen
the IRS's ability to manage its operations, working in
particular to improve management flexibility in personnel and
procurement. No commissioner, no matter how capable, can do
this job by him or herself. They need the flexibility necessary
to make changes that can make the IRS a more effective
organization. In return, we will hold senior management of the
IRS, as in any well-managed business, accountable for results.
Third, we will work with Congress to help the IRS get the
stable and predictable funding it needs to operate more
effectively. Frankly, Mr. Chairman, we operate now in a low-
trust, short-tether environment in which--in response to very
real problems that there have been--Congress holds the IRS on a
very short tether, changing the budget frequently in response
to conditions. It is easy to understand that choice. But short-
tether budgeting for capital projects combined with the
inability to amortize expenses over time makes rational
planning almost impossible. It is very difficult to operate in
a budgetary environment where increased resources are treated
as a cost but none of the cash-flows that come back as a
consequence of increased customer service or increased
enforcement come back as benefits.
Fourth, we will work to simplify the Tax Code that is now
9,451 pages long. Earlier this week, Secretary Rubin announced
some 60 simplification measures that will save individuals and
businesses millions of hours now spent filling out tax forms.
No longer if you were a paper boy with a $100 bank account will
you be required to file a tax return. Ninty-five percent of
corporations will be entirely separate from the alternative
minimum tax.
Finally, fifth, Mr. Chairman, leadership is crucial to
performance. Commissioner Richardson has guided the IRS through
some difficult times. As we move forward, though we are
committed to appointing a new commissioner with a different
type of experience than has been typical for IRS commissioners,
a commissioner whose experience in either the public or the
private sector equips them to address the problems of
organizational change, customer service improvement and
information technology management, as well as change in the
business culture that are the preeminent problems at IRS right
now.
Mr. Chairman, I don't believe that for any of us involved
in Government there is a more important challenge than making
our national tax collection agency function effectively.
Justice Holmes said that taxes are what we pay for
civilization. Whatever our precise view of Government, whatever
our politics are, we all, I think, agree that taxes need to be
collected as efficiently, as nonintrusively, as fairly, and as
fully as they possibility can.
Thank you very much.
[The prepared statement of Mr. Summers follows:]
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Mr. Horn. We thank you, Mr. Secretary. We are going to have
questioning 10 minutes per person, and I know you have to be
out of here by about 10:30. Let me start in. How long have you
been Deputy Secretary?
Mr. Summers. I was sworn in as Deputy Secretary in August
1995.
Mr. Horn. Since August 1995, how many hours a week do you
give to IRS management problems?
Mr. Summers. I would say that in the early part of the time
that I was deputy, that I was Deputy Secretary, I had not come
to a full appreciation of the seriousness of these problems.
But following a fairly close effort to understand the
situation, I have appreciated its gravity, and I would say that
in the last few months there has probably been no single
issue--no single other issue in the Department--that has
occupied more of my time than questions relating to management
and governance of the IRS.
Mr. Horn. Well, since August 1995, are we saying 2 hours a
week you have spent on it; 3 hours, 4?
Mr. Summers. More. I would hesitate to give you an
estimate, to give you a precise estimate, but I think as I say,
in the last period, there hasn't been any other issue that I
have spent more time on.
Mr. Horn. In the 103d Congress, which was my first
Congress, I happened to serve on Mr. Spratt's Financial
Institutions Subcommittee of this Oversight Committee. We had
the IRS before it and, on a bipartisan basis, we were concerned
in 1993 that they were a basket case then, well-known to most
people in town. And I guess the classic remark was made by Mr.
Cox, who had hoped to be here this morning, the vice chairman
of the full committee, when he said if a corporation turned in
financials to IRS such as you just turned into us, you would
have gone and probably turned over the case to the U.S.
Attorney.
Now, one of my concerns is your Assistant Secretary for
Management that also ought to be involved in some of this--Mr.
Munoz is also the Chief Financial Officer of the Treasury. I
think that a role of Chief Financial Officer ought to be a
full-time job, especially when you probably have the
Government's prize basket case, and the only exclusion from
that would be the civilian sector of the Pentagon, which
borders a prize basket case and which will probably not be able
to submit to Congress, as the law requires, this September a
balance sheet. There are two agencies, IRS and the Pentagon,
that will not be able to meet the requirements of law that was
put out years ago on a bipartisan basis.
So, are we going to get a chief financial officer that can
pay attention to this or are we going to sort of put it off
until the heat rises? We get a blue ribbon committee, they come
into town. They are prestigious. They do a report, and the
report gathers dust. We are down to crunch time. Are we going
to straighten out that agency or not?
Recently I wrote the President and said let's quit getting
bright CPAs and bright tax attorneys--and I didn't say the
following, but the following is obvious, that they all get a
nice living after they go to Gucci Gulch and become lobbyists
and all the rest--when do we get a commissioner that knows
something about managing a large complex organization?
I understand Secretary Rubin is concerned about that and
that he has asked various leaders in the private sector to help
advise him on a new commissioner. I think that is progress, and
I hope we don't go the route of the tax attorney-CPA, no matter
how much they like the job. You can get a million of those on
the staff. What are we going to do about this focus of the
Chief Financial Officer and the focus of being serious about
management?
Mr. Summers. Mr. Chairman, I have just submitted to you in
my testimony that it is our determination to hire an IRS
commissioner whose background equips them to take on the
fundamental management challenges that are involved in work at
the IRS, precisely because we share exactly your recognition
about the kind of person that is appropriate to lead the IRS
forward. We are deeply troubled by the difficulty in producing
a financial report, and as we move forward here in the
President's second term, in Treasury's own management area, we
are strengthening in a variety of ways our capacity to provide
oversight to the IRS and to ensure that it works to meet the
appropriate deadlines.
We share exactly the concerns that you are expressing, Mr.
Chairman. That is why in my first testimony before the Congress
after taking this responsibility, I recognized that the
modernization program was way off track and indicated our
intention to bring about change. I think the record of canceled
projects, the record of meeting congressional mandates, the
record of improved, though still flawed, service this year,
bears out the fact that we are making progress on the sharp
turn that we promised, though not as rapidly as any of us would
like.
Mr. Horn. Given the problems the Treasury faces in terms of
management of the national debt, major budget problems, one of
the key advisors to the President of the United States, so
forth, should we simply have an independent agency? Get them
out of Treasury, get a first-rate commissioner in there, get
them independent of any even perception of political influence,
which occurred as you know in violation under the Nixon
administration and probably has occurred given Filegates under
this administration.
My query is, how much is the Treasury thinking about saying
let's get this operation and start anew? Let's cut the
corporate culture and the attitude there. Some are wonderful
employees and, unfortunately, they aren't given a chance to be
fully productive employees because of the lack of management
and the lack of organization. Yet, there is also an attitude in
that agency that maybe the customers are supposed to serve them
instead of them serving the customers, and that bothers me.
I found a lot of fine people in IRS. I think you have a
superb congressional relations staff at Laguna Niguel that my
district office deals with and a lot of good people, but we are
not doing the right thing by them having such a fouled up
management operation. Now should it be independent? What does
the Treasury think about that? Are you even exploring it?
Mr. Summers. Mr. Chairman, this is something that Secretary
Rubin and I have spent a great deal of time talking about. It
would be very easy for us to shirk this challenge by suggesting
that the IRS should be independent. It would be much easier.
But I believe, as I think Secretary Rubin does, that it would
be a grave error for three reasons. First, the problem the IRS
has had has been too little oversight, not too much. The IRS
hasn't been held accountable. The IRS commissioner hasn't been
called on to the carpet when there have been problems.
The task of the executive branch should have been pursued,
and it has had to fall to Congress, which is not well-
positioned to monitor management on a week-by-week basis. That
is why we believe the answer lies in strengthened executive
branch accountability, not weakened executive branch
accountability. That is also why we have taken concrete steps
to strengthen our own oversight of the IRS through the creation
of a board modeled on the kind of board of directors that a
troubled company has, with an outsider from the IRS--somebody
who is in the administration but not a part of the IRS--as the
chairman that has to approve major IRS strategic decisions. We
believe taking on that accountability and assigning that
accountability to some of the President's most senior
appointments is the way to increase accountability. To isolate
the IRS and make it independent would be to substantially
undermine accountability and to make more serious the kinds of
problems that we have. I believe it would be a grave error.
The second reason why it would be a grave error, in my
view, is that tax policy and tax administration are
consistently intertwined. Tax policy has to be informed by a
judgment about what is administratively feasible. Tax
administration has to reflect policy concerns. Tax
administration, for example, now has a substantial voice in
policy deliberations as we work through things like the
administration's tax credit proposal. If the IRS were
independent from the Treasury Department, you would not have
that kind of voice as tax policy was designed. It is only a
matter of the senior most levels. The officials at the legal
level in the IRS work closely with the Department's tax policy
staff, and there are close links also between the IRS and the
Department's financial management officials.
Third, I believe that to invite a debate about IRS
independence now would make it much more difficult to carry on
the kind of progress that we are making. I believe that our
oversight process has gained traction and is starting to bring
about change. If we were to move to a discussion of what broad
governance arrangements should be in the future, I believe that
a period of limbo would inevitably result--the progress that we
have made would be lost.
Mr. Horn. Let me ask one last question here in my time, and
that is why couldn't the modernization problems in that
computing operation be caught at the $4 million level or the
$40 million level and not have to wait to what I gather from
press reports is a $4 billion level?
Now having gone through this with the FAA, I wonder if
there is a learning curve in the executive branch of the
Federal Government? I mean, we went through this. We had the
same problems with FAA. Everybody wanted their bells and
Christmas tree ornaments and all of that on there when we ought
to be trying to get a lot of this off, what corporations
already do. And I can't believe the problems of IRS are that
much more complicated than some of the complicated American
corporations. I just can't understand why we can't say get that
equipment and get it going, even if it is--and we know all
computer software and hardware is--out of date the day you buy
it, but to constantly think we can solve this problem on our
own I think boggles the mind.
I went through this as a university president. I determined
one bright precedent: Do not be the alpha site. Be the beta
site or buy down the road after people have taken the messes
out of it.
Mr. Summers. Mr. Chairman, we share your concerns. That is
why we brought in Art Gross as Chief Information Officer,
because he was from the outside and because he had a proven
record of working with the private sector to accomplish
outsourcing in his work in New York State. That's why we
canceled or consolidated 26 projects that in many cases
represented leaps that were beyond what we thought we were
technologically capable of.
That is why we suspended major project development, so a
clear architecture laying out our plans can be presented. That
is why it has been made very clear to everyone who is involved
with the TSM project that henceforth we will be proceeding in a
modular way to measure progress step by step and see what is
working and what is not working. We are not going to wait for
people to spend billions of dollars and then see whether we
have the Taj Mahal or not. You are absolutely right in your
concerns, and those concerns have informed the management
approach we have taken for the last year and a half.
Mr. Horn. I yield 10 minutes to Mrs. Maloney.
Mrs. Maloney. I understand that Under Secretary Hawke and
Assistant Secretary Murphy will testify for the Department
today on the implementation of the Debt Collection Improvement
Act. I will hold my questions until they are here. I just would
like to convey to you my deep appreciation to the Treasury
Department for how professionally and diligently you have
worked to implement this act. They have truly worked hard. They
have met every single timetable. They have come up with new
ideas. Their paperwork is terrific, and you have a very strong
group of professionals, and I have had the honor to work with
them closely on this bill. I just want to publicly thank you.
You may also know that the Secretary is from the great city of
New York, I extend my regards. I will save my questioning for
later witnesses.
Mr. Horn. We thank the gentlewoman. The gentleman from
Texas, Mr. Sessions, 10 minutes.
Mr. Sessions. Thank you, Mr. Chairman. Mr. Summers, I am
glad you are here and I am sure you did not anticipate this
morning that you were going to get to come up here this morning
and be beat up, but that is all right. So thank you for staying
with us on these issues.
I would like to, if I could, go back to some of your
comments about how much time you're spending in oversight. Can
you take a few minutes with me and tell me what the management
tools are in place that you have found within the IRS that
allow you the ability to then judge their progress or their
weekly reports, monthly reports, in the debt collection? The
older a debt is, the colder it gets, the harder it is to get
it. How are you focusing your attention on the tools and the
management tools and the report tools to where you then know in
which direction to place your resources?
Mr. Summers. Congressman, you have asked a very, very
thoughtful question and I wish I had a better answer. Let me
answer as honestly as I can. My role as Deputy Secretary is
really to be the chairman of the board; as a kind of outside
chairman of the board. In that capacity, at our monthly
management board meetings, I do receive reports on progress the
IRS is making in overall tax administration, the kinds of
statistics that I had an opportunity to review briefly in my
testimony; on the way in which the phones were being considered
accuracy rates, extent of increases in electronic filing,
progress with refunds and so forth. Also, I have an opportunity
to review progress reports on the key projects in the TSM area,
the development of the architecture moving to a prime
contractor and so forth.
Reporting to me is the Assistant Secretary for Management
and Chief Financial Officer of the Department, who receives
periodic reports on the IRS's progress in debt collection and
also receives periodic reports on the financial statement
problem at the IRS' keeping posted on the progress in those
areas. But I'm not, myself, directly involved in evaluating the
status of different debts or retargeting resources.
I think the Department has been constructive in its
oversight role with respect to that, although I think
ultimately the responsibility in that area has to rest with the
IRS Commissioner and the people the IRS Commissioner
designates. I think the most effective approach we will have is
getting a management-oriented commissioner, and then creating a
kind of flexibility that will let that commissioner appoint the
people on their team and then having them report to us
periodically. But frankly, I don't think the responsibility of
reallocating resources with respect to debt collection is one
that we can sensibly undertake in the Department.
I have, working with Secretary Rubin as we have, thought
about staffing the whole management area at Treasury for the
President's second term. A number of the appointments that we
intend to make and the approach we intend to take to hiring is
really directed at being able to bring, frankly, a greater
degree of sophistication and relevant experience in other parts
of the public sector or in the private sector to bear on
overseeing the functions of the IRS.
Mr. Sessions. Do you think that those people in the IRS are
aware that you were today going to be up here talking about
debt collection?
Mr. Summers. In fairness, Mr. Chairman--Congressman, in
fairness to them, while I'm aware that your overall hearing is
on the subject of debt collection, the invitation that I
received from the chairman was really to address some of the
topics that I think you had also discussed on Monday, having to
do with the overall IRS approach, so I was not asked to come to
talk about debt collection.
Mr. Sessions. That was my fault then. I would like to
direct my questions to a comment that you made about having
proper resources available, and that would have come under the
third point that you made.
Beginning in or about 1988, there was money that was
allocated to the TSM project. I don't know if that's what it
was called then, but the Congress has attempted to allocate
resources, maybe some $4 billion. Can you talk with me in the
limited scope that you have, because I know that you have only
been there several years, about the realization of that
problem, when you realized internally you were in trouble and
how you were going to go about the TSM project?
From my perspective, I would say that that is throwing
resources at an organization that they just did not effectively
use, and I am very reticent--it is a regular discussion up on
the Hill about giving people more money when they don't
properly utilize it. In this case, let's face it. We know we
are dealing with the Tax Code, which Congress created, so we
are giving someone else our problem. But can you briefly
discuss that allocation of resources as it relates to TSM? Give
us an update when you knew you had internal problems.
Mr. Summers. Congressman, let me first say that in speaking
about the question of the budgetary environment, I was careful
to say that we operated in a low-trust, short-tethered
environment because the IRS hadn't earned trust. When I spoke
about more resources and I spoke about resources for a longer
term, I was speaking about the need for us to earn the trust
that would make that kind of provision of resources possible.
Because I share your concern and that of most people up here,
that until there is demonstration that resources can be spent
well, they shouldn't be appropriated and allocated and they
will not be sought. That is also reflected in the fact that the
administration cut the budget for TSM by more than 75 percent.
It cut our request for this year precisely because, given all
the problems, we weren't sure the money could be used well. So
we do not want resources for the sake of having resources.
On the other hand, I think you can appreciate that even the
best managers in the world, with their appropriation completed
partway through the fiscal year, would have difficulty managing
rationally. I think there has been an awareness for a long time
in this town that there were problems with the TSM project and
there were constantly statements that--well, there are problems
but we are getting them fixed and that was this and now it's
now and we have got to go into the future, and so forth.
Frankly, when I inherited this situation as Deputy
Secretary, my predecessor told me that it was something that
was going to require attention because there were problems. I
don't think I fully appreciated for a few months the gravity of
the problems, but when I came to appreciate the gravity,
working with Secretary Rubin, we did what I think were the
right things.
First, we testified that the thing was way off track;
second, we indicated that we were determined to bring in
outside help; third, we indicated that there was a need for a
change in the strategic concept toward much more use of the
private sector; and, fourth, we made clear that we wanted to
plan before we build instead of building before we planned, and
therefore, that it was crucial that an architecture be
developed along the lines of GAO recommendations; and fifth, we
indicated that the steps going forward had to be modular in
nature because we couldn't take the risk of sitting back and
waiting for several years to see whether something worked or
not, given how much money had been spent.
We also tried to account as accurately as we could for the
money that had been spent. And I will say to you, Congressman,
that I don't think I've minimized the problems here today, but
I think that some of the reports that suggest that somehow $4
billion was wasted really do represent substantial
exaggerations. We didn't get everything we wanted out of those
expenditures and there were $4- or $500 million, which is $4-
or $500 million too much, that went for projects that have been
discontinued. However, it is also true that a lot of equipment
was modernized, many capacities were obtained, and the fact is
that 4.5 million Americans were able to file their tax returns
without ever coming in contact with pencil and paper simply by
pushing buttons on a telephone, was a factor of the TSM
project. We are increasing the use of electronic filing by 35
percent. That too is a reflection of the TSM project. Phone
inquiries are being handled in a better way. That too is a
reflection of the TSM project.
So it is off track. It was not managed the way it should
have been. There were a lot of mistakes made, but I think to
call it a $4 billion waste is to exaggerate a problem that is
serious enough that it doesn't have to be exaggerated to get
people's attention.
Mr. Sessions. Well, let me just say this, that you are the
first person that I have ever heard not characterize that as a
$4 billion mistake, and I am using what is often well described
as a $4 billion mistake. So this is not my characterization,
and I'm interested that you disagree with that.
One last question: The Y2K project as chairman of the
board, do you think your organization has a handle on that?
Mr. Summers. I think we are--I couldn't tell you that we've
got a total handle on it. What I can tell you is that we've
recognized it. We are moving on it. We have dimensioned the
problem in our core business and have put in place strategies
for addressing it, and we are dimensioning the other parts of
the problem outside of our core systems and making decisions.
In some cases it may be better to abandon systems than to try
to update them for the Y2K project outside of our core business
systems. That's the judgment that is being made. But what I can
assure you of is that this is recognized as a stay-in-business
issue, and that the IRS is one business that has to stay in
business.
So it's seriousness is fully appreciated and I am sure we
look forward to, and I'm sure in any event we will be asked to,
report periodically to Congress on the progress that we are
making and on the extent to which this problem has been
dimensioned. I will say to you that I think experience in the
private sector and in the public sector is that the more you
know about it, the more you know there is a problem here. And
then I think I have made it very clear to the people who are
involved, following Secretary Rubin's lead, that we need to be
very, very careful about underestimating the magnitude of this
problem and we need to be able to face up to it in full. There
is a situation like when you are at the airport and the planes
aren't flying and they change it from 8:30 to 9:30 and what
that really means is that for sure it won't go before 9:30 and
maybe at 9:30 it will become 10:30 and at 10:30 it will become
noon.
I think there are dangers of the Y2K problem taking on that
kind of character, so we need to be very careful to qualify the
estimates that we give, to recognize that other things will be
discovered, and to recognize that, you know, there are a lot of
deadlines that can slip in this town but January 1st is not one
of them.
Mr. Sessions. But as chairman of the board of this
organization, you feel like you have put your attention to it?
Mr. Summers. Yes. Yes, absolutely.
Mr. Sessions. Thank you so much, Mr. Chairman.
Mr. Horn. I thank the gentleman from Texas for his fine
questions. I have just two and then you will be free. In your
thinking through of what a new IRS ought to be, to what extent
have you thought about using private debt collectors to collect
IRS debt? Now, the background on this, what started me in this
whole endeavor 2 years ago, was when I looked at what there
were of financials and saw that over $100 billion had been
written off since 1990, started under the Bush administration,
but greatly accelerated in 1993. And then I saw there was
another $64 billion they thought was collectable.
When I talked to Commissioner Richardson in my office, I
said what operation do you have to collect the 64, let alone
the 100, which I think is a national scandal, and there was
great reluctance to even think about private debt collectors.
In our bill we have a role for private debt collectors. I heard
a lot of nonsense about confidentiality, and so forth. It is
nonsense. Give them the number and give them the address and
tell them to go out and find it and work out something, and
that is better than having $100 billion written off.
So what is the thinking of the leadership of the Treasury
as to what should be done in either a joint partnership where
IRS might have the first 30 days, but they simply aren't
getting in the money, and the private collectors's role?
Mr. Summers. Following the legislation, we have moved to
create a private debt collection pilot project to evaluate
this. It's being done at the IRS Service Center for the Western
Region. It involves five contractors who were chosen last June.
The IRS provides selected cases to the contractors for
collection activity. Those are cases where the IRS has been
unable to locate or contact taxpayers or where the IRS has been
unable to secure payment through written notices and phone
calls. To respect obvious sensitivities, the IRS has suspended
cases where there has been taxpayer hardship, those were not
given over to the collection agents.
The private collection agencies are paid a fixed price for
each successful contact when they locate somebody and also
performance fees when they are able to fully close or establish
an installment agreement. The pilot project as I say, has been
underway since June, and it was a 1-year pilot and we will,
after a year, evaluate the results, make a judgment about what
the consequences have been and be prepared to report to
Congress.
Mr. Horn. Maybe I am misinformed, but someone told me that
in that pilot project was a lot of 5-year-old debt to be
collected; is that true?
Mr. Summers. I don't know.
Mr. Horn. Well, 5-year-old debt, they have long since
forgotten about it is my point. It seems to me that we should
have a better balance of that.
Mr. Summers. We certainly would be wrong to only refer to
this project debt of a kind that was particularly difficult to
collect and then compare performance with overall debt
collection. That would certainly be wrong.
Mr. Horn. You get the point.
Mr. Summers. The instructions----
Mr. Horn. It is made to fail.
Mr. Summers. Clearly there were concerns about this
project, but we have given a very strong instruction to the IRS
and I will ask for a report that this pilot project be carried
out in good faith and we all attempt to evaluate the results
from it. And I would be very concerned if anything was being
done that was undermining the objective of doing an honest
pilot.
Mr. Horn. Last question. How much concern does the
Secretary or the Deputy Secretary have about the fraud GAO has
found in the earned income tax credit? Are you worried about
that? This is one of the greater fraudulent programs of
America. People are adding dependents that don't exist and all
the rest of it. What are the plans of the Treasury to do
something about it?
Mr. Summers. This is a very serious problem. It is, I
think, important to understand that it is a problem that
parallels the broader problem we have of tax noncompliance,
people claiming false deductions, people claiming losses that
they didn't have, and it occurs also in the EITC area. I don't
think the EITC area stands out uniquely. We are continually
working and I expect--I am not able to do it this morning, but
we will be in a position to describe measures we are taking to
increase penalties and to increase detection of these incidents
because clearly this is something that is very, very important
for us to do everything we can to discourage.
I would highlight that the ratio of administrative costs to
benefits delivered in the EITC is extremely low compared to
that of many, many other Government programs, and it may well
be necessary to take further steps to address this problem
because I think it is a serious one.
Mr. Horn. Well, I appreciate that, and if you might work it
out with our staff and your staff, maybe we can get a little
elaboration in the record at this point.
Mr. Secretary, I appreciate you taking the time to come up
here. I know you have a busy schedule.
Mr. Summers. Thank you very much for the opportunity,
Congressman.
Mr. Horn. You have done a fine job testifying and we wish
you well.
Mr. Summers. Thank you very much for the opportunity,
Congressman.
Mr. Horn. Thank you.
We now have panel two, Commissioner Mitchell Adams of the
Massachusetts Department of Revenue. Mr. Adams.
I don't know if you were in the room, Mr. Adams. The
tradition is to swear in all witnesses, so if you would raise
your right hand.
[Witness sworn.]
Mr. Horn. The clerk will note the witness has affirmed the
oath.
It is a great pleasure to have you here. You were kind
enough to call me, I think, when this act took effect and say I
had made your day, so I am anxious to hear how I have made your
year in the process, and I know you are doing a lot to collect,
as I remember, for the dead beat dad department. You were on
that issue long before the President or anybody else had talked
about it, so we look toward to hearing your testimony and what
progress has been made by you as a State that has set a real
model in this area.
STATEMENT OF MITCHELL ADAMS, COMMISSIONER, MASSACHUSETTS
DEPARTMENT OF REVENUE
Mr. Adams. Thank you, Chairman Horn and members of the
subcommittee. It is a pleasure for me to be here this morning.
I would like to talk a little bit about how we collect debts in
Massachusetts and the experience in the Department of Revenue,
and also make some comments about studies in work we have done
in the area of defaulted student loans.
Massachusetts Department of Revenue has fully downsized 30
percent in the last 5 years. We have reduced the size of the
institution from 2,100 people down to 1,500 people. While we
have done this substantial downsizing, all of the performance
measures at the Department of Revenue are up substantially,
that is, collection of delinquent taxes is up significantly,
assessments are up, refund turnaround time has been improved
significantly, and the waiting time to reach a human being on
our telephones, even at peak tax time, is now zero.
There are primarily two factors which contribute to this.
First we have used information technology aggressively across
the board essentially to convert the Department of Revenue from
the paper factory that it has been into a center of digital
technology to the point now where I am happy to tell you we
have the reputation of being one of the most advanced tax
agencies in the country, possibly in the world, in terms of
information technology. The other factor is access to
information. The Department of Revenue is the agency appointed
under Federal law to collect quarterly employment data from all
employers in the Commonwealth and so we are able to keep a data
base, which is up to date and current, that has information
with regard to all individuals who are on any payroll in the
State.
Second, we have a program that we call ``bank match,'' and
I think it is maybe unique in the United States, whereby every
financial institution and money market mutual fund has to
report to the Department of Revenue quarterly with regard to
all accounts that may relate to individuals who owe a tax
obligation or child support debts.
Let me just make a comment--listening to Under Secretary
Summers this morning, if I could, as a tax person, make the
comment--that they are on the right track here. I think for the
first time in a while we are seeing some progress here. They
have a real CIO in Arthur Gross, whom I have met with. They
have been to Massachusetts to see our imaging systems. They are
on the right track in terms of outsourcing.
The only way for governments really to do a good job in
obtaining computers is to get the private sector to put them in
place. They have a blueprint for planning, and they have
determined for the first time in a long, long time what they
need to run the place is a manager.
Back to my point, just for a moment.
Let me give you an example of the standard way that
collection has occurred in tax agencies in the past and child
support enforcement operations. It is the standard one by one
method of collecting a tax or a child support obligation where
you have a collector who is after one individual, and that
person, the collector, may determine that the person has--works
at Acme Rug Co., or whatever it is down the road, they type up
a wage attachment, put it in the U.S. mail and attach the
person's wage in that fashion. We don't do it that way anymore.
We take a magnetic tape that has 100,000 child support
obligors on it and we match it against our data base, which has
3 million listings of all the people employed in the
Commonwealth, and wherever the computer finds a match, zap, it
makes a wage attachment. It is automatic and it is done without
human intervention, essentially.
To the point now--two-thirds of the $270 million a year we
collect in child support comes from automated wage attachment,
fully, two-thirds.
Let me turn now for a moment to a related but different
subject, and that is the matter of defaulted student loans. I
am referring to the Federal Government programs, the guaranteed
student loan programs.
In Massachusetts, we did a study about a year ago in which
we took the listing of defaulted student borrowers in the
State, it was a listing of about 30,000, and we did this
automatically. Of course, we had a magnetic tape and we matched
it against a wage reporting data base in Massachusetts, that is
the data base with 3 million employed individuals, and what we
found was that 53 percent of them had paying jobs in
Massachusetts. Further, our analysis indicated that if an
automated wage attachment were undertaken with regard to those
defaulted student borrowers, that would increase the annual
amount of money collected from defaulted student loan borrowers
by about 25 percent.
The study further looked at what else is going on in the
United States, and we found that two States, and to my
knowledge only two States, are doing this. Illinois and
Pennsylvania have similar programs where they can do automated
wage attachment programs, and 25 percent of their defaulted
student--income from defaulted student loans comes from the
automated program.
Nationally, our study indicated, and this is what the
conclusion of the op-ed piece that Congresswoman Maloney was
referring to, if this program were instituted nationally, it
would increase collections from defaulted student borrowers to
the extent of about $650 million a year. That would provide
additional tuitions for about 100,000 students.
What is necessary to make this happen is the guarantee
agencies in all of the States, and the Department of Education,
must have access to the employment data that I referred to that
is available in Massachusetts, and what we need to do is create
a Federal statute that will make that information available as
quickly as it can be, because the sooner that is done, the
sooner the system will have access to about $650 million of new
money for student education.
Thank you very much, Mr. Chairman. I am happy to address
any questions you may have.
Mr. Horn. Well, we thank you very much. You have had a
splendid record before this law was passed, and I am glad to
see you have used some of the things in the law and your record
is still upward.
[The prepared statement of Mr. Adams follows:]
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Mr. Horn. Mrs. Maloney I know has some questions, and I
yield 10 minutes to her.
Mrs. Maloney. Thank you.
Congratulations on your pioneering successful efforts. You
are familiar with our proposed legislation. If it becomes law,
how will it help out the individual States?
Mr. Adams. With regard to defaulted student loans, I think
it is very important that it happen, and it will mean that
substantial funds will be generated by the Department of
Education and the guarantee agencies that can be used to
support educational programs.
Mrs. Maloney. How do delinquent debtors hurt the Federal
student loan program?
Mr. Adams. I think in a lot of ways. No. 1, substantial
resources that could be made available are not made available.
No. 2, it really does damage, I think, to the overall program
because there is a perception--I mean, all of us know of people
who default on their student loans, and it doesn't make
taxpayers feel good when they know that others scoff laws and
fail to meet their responsibilities. I think it dampens the
enthusiasm of Congress to support the programs.
Mrs. Maloney. You have estimated in your testimony that
correcting the problem the bill we are working on addresses,
would bring in $625 million annually in additional payments,
enough for tuition for 100,000 more students yearly.
How did you come up with that calculation?
Mr. Adams. The calculation was essentially based on the
evidence which indicated that, if you do an automated wage
garnishment program, you will increase the annual amount that
comes from--collections from defaulted student borrowers by
about 25 percent. That is what the analysis showed in
Massachusetts, and that is what the analysis showed in the
State of Illinois and in the State of Pennsylvania as well. I
believe they are the only States that have active programs
going where they can have computerized wage garnishment.
They have access to the data we have talked about, and the
reason they have access to it is a little bit of an anomaly.
They have access because their State legislatures have passed
laws saying that the State agency that collects the employment
data may share it with the guarantee agency in that State, but
only that guarantee agency; it is not available to other
States.
Mrs. Maloney. Did your study take into account the benefit
of being able to track debtors across State lines?
Mr. Adams. No, it really didn't, and to that extent, I
think the $625 million is conservative. I think there is more
money there for that reason.
Mrs. Maloney. And you note that 53 percent of defaulters
had jobs in Massachusetts. If the law were changed, wouldn't
you be able to find the other 47 percent, no matter where they
lived?
Mr. Adams. A big portion, you are absolutely correct. Those
people are working, many of them, in neighboring States.
Mrs. Maloney. Now, Massachusetts is able to garnish the
wages of everyone employed in the State through automated
computer processing. How much does the State generally garnish
and what are the legal limits, and how long did it take you to
develop the necessary technology to be able to support this
process?
Mr. Adams. The technology at this point in time is not
rocket science, it is not leading edge, it is pretty easy to
do, and it is, as far as information technology, and as far as
administrative burden, it is close to de minimis. It is pretty
easy to do.
Mrs. Maloney. Then why aren't other States doing it if it
is so easy?
Mr. Adams. We have been kind of bold in Massachusetts in
sort of going for it, and as near as I can tell, and I believe
this is true in child support enforcement, we began to do this
aggressively in 1993, and the limits you were asking about are
prescribed by law, basically.
What you can do is garnish, I am forgetting how the rules
work, but it is up to a certain percentage of the paycheck.
Mrs. Maloney. And how much did it cost you to put into
effect this program, and have you estimated how much collection
costs could possibly drop or increase with this program?
Mr. Adams. I don't have numbers with me right now, and I
certainly could get back to you with some analysis, but I don't
have them right now.
But I would like to say that really what you are talking
about here is so highly automated right now and we are so far
beyond the point where computer systems don't talk to one
another, that the administrative costs are not significant.
Essentially, what you are talking about is a tape match,
and if you do a tape match and you find that in one data base
there are matches with another data base, and then all you have
to do is perform the software, create the software necessary to
get the computer to dispatch the appropriate letters and due
process and so forth, or wage attachment or whatever it is, it
is not complicated nor is it expensive.
Mrs. Maloney. Are you familiar with the Debt Collection
Improvement Act, which the chairman and I worked on together
and enacted into law with the administration last year?
Mr. Adams. I am generally familiar with it. However, it
goes far beyond the area of my focus. I should know more about
it.
Mrs. Maloney. If you have any suggestions for improvement,
we would be delighted to look at them.
And I just want to say, I want to congratulate you, Mr.
Adams, on your pioneering effort and the significant progress
Massachusetts is making in the area of debt collection. You are
leading the Nation in your efforts and your expertise, and I
applaud you.
I yield back the balance of my time.
Mr. Horn. I thank the gentlewoman.
Remember in our chat when this law was signed by the
President, you were planning to match the tapes, I thought,
outside the State of Massachusetts. Now do we not have the
authority for you to do that in terms of matching the
employment tapes or does that authority exist somewhere in the
Federal Government?
Mr. Adams. No, that is the problem, it doesn't exist.
Mr. Horn. It doesn't exist.
Mr. Adams. We have the legal right to do that in
Massachusetts.
Mr. Horn. Right. OK. When you did the garnishment, did you
need additional authority from your own legislature or did you
already have that as a basic existing authority in the
Department of Revenue?
Mr. Adams. With regard to child support, it exists by
virtue of Federal law. With regard to tax obligations, it
exists by virtue of State law. In defaulted student loans, I
believe, and I think people in the room here who might know
better than I, that any guarantee agency, by virtue of Federal
law since 1991, has the legal right to administratively garnish
wages, that is, without the action of a court.
Mr. Horn. Are there any suggestions that you would make to
the Secretary or the Deputy Secretary of the Treasury, and the
IRS, as to management of the agency? Have you ever looked at
their structure versus the Department of Revenue and
Massachusetts, or other State tax agencies? What are the things
that strike you between the two? I realize you have to get
along with everybody here, so I know you have to be diplomatic,
but I would like to know just what are your feelings as a
professional as to how such an agency should be organized.
Mr. Adams. I was really taken with Deputy Secretary
Summers' comments. Most of the initiatives that he is talking
about taking and that they have taken are really a significant
new start and they are on the right track.
Arthur Gross comes from the State of New York, as I think
you may know, and is a first rate professional, and that
really, I think, is the first time they have had someone at
that level from outside of the agency to take a good look at
how it really ought to be done, and he has not been shy in
being very clear and public about where it has fouled up and
how it has to be changed.
Their conclusion that they have to put significantly
greater emphasis and outsourcing for information technology
expertise is absolutely right on the point. They are doing a
planning effort and blueprint, I understand. I guess it hasn't
been released yet, but the understanding that you have to do
the planning before you do the implementation is pretty basic.
And then the leadership question of someone from a management
background instead of a CPA or a tax lawyer is absolutely
vital, and it is not a tax matter, it is a management matter.
Mr. Horn. All right. Well, thank you. I yield 10 minutes
now to the gentleman from Texas, Mr. Sessions.
Mr. Sessions. Thank you, Mr. Chairman.
Mr. Adams, thank you for being here today. I have just a
few questions. I found that your annual report is quite
interesting and I would like to direct some of my comments to
that annual report, if I could.
On page 18, you talk about offers in financial settlement.
Can you please discuss with me, because it became--if you were
here before when the discussion about how old these debts are
that the Federal Government is working on, I note that you
collected what would be about two-thirds of the money from
these settlements that are listed here.
Can you discuss with me how old these are, what that
process is?
Mr. Adams. Sure. Some of those are quite old. I don't have
exact information. The process is one in which there is an
agreement with the taxpayer to settle the obligation for less
than the full amount, and it is a process which, No. 1, the
attorney general of the Commonwealth has the right to void the
proposed agreement within a 21-day period of time, and, No. 2,
it has to be made public in that report. It is a low volume
part of our operation. In other words, it is not a significant
amount. The settlements are made because we conclude that it
really is not feasible to get the full amount, and so it is an
agreement for something else.
Mr. Sessions. How early in the process do your managers of
the business make that evaluation? I guess what I am trying to
get at is there anything I can learn from you--a two-thirds
collection rate is probably pretty good and I know we are only
talking about a handful of accounts, but do you make an
evaluation into this process early on, a case manager, a
financial manager, in order to get the money? I mean, the----
Mr. Adams. These settlements are really ad hoc and they are
all kind of a one-on-one kind of situation, and the taxpayer
comes to us and makes an offer, mainly.
Mr. Sessions. So these probably are old accounts.
Mr. Adams. They are old accounts, yes.
Mr. Sessions. All right. Sir, I sit on the Banking and
Financial Services Committee, and several weeks ago, I had an
opportunity to talk with Chairman Greenspan about bankruptcy
matters in this country, and I am seeing a trend, not only in
the amount of money in bankruptcy, but trying to make an
evaluation of the process, in other words, when a person takes
bankruptcy, Chapter 7, Chapter 11, Chapter 13.
Can you give me any feedback from your managerial
experience in Massachusetts, is the Federal law and that
bankruptcy process having an impact on you? And do you see a--I
would like your overall evaluation of that because I think that
at some point you are having to look at that with the money you
collect.
Mr. Adams. I am really not able to be helpful right now. It
is not a significant issue for us right now and I wish I could
make a helpful comment, but, honestly, I can't.
Mr. Sessions. I applaud you for your efforts.
Mr. Chairman, that is the extent of my comments. And, sir,
I apologize, but I have another appointment and I will be
leaving.
Mr. Horn. OK. Thank you very much for your helpful
questions.
Commissioner, let me just ask, do you report directly to
the Governor?
Mr. Adams. I have a joint appointment between the Governor
and the Secretary of Administration and Finance.
Mr. Horn. I see, because you heard my question, probably,
should the IRS be an independent agency? Do you have any
feelings as you look across the country at State commissioners
of revenue, as to how is an effective way to set up such a
revenue with collection and administration entity?
Mr. Adams. My belief is that all of them--none of them is a
separate entity. I think I am right in that.
Mr. Horn. So they are all somewhere related to either the
Governor, directly, as a separate entity, would also be related
to the President, just as the National Science Foundation, the
National Aeronautics Space Administration. These are all
independent agencies. They can't just do anything they want.
They have to go to OMB for policy direction, management, so
forth, budget examination.
But I am just wondering what the practices were, if we can
pursue it at the staff level, and what your thoughts were on
that.
Mr. Adams. Well, with regard to the States, I believe that
all of them are simply a part of the executive.
Mr. Horn. Right, reporting to the Governor.
Mr. Adams. Yes, absolutely. That is my understanding.
Mr. Horn. In some States, they obviously could have a super
cabinet Secretary.
Mr. Adams. Right.
Mr. Horn. Do you have any other advice for us as you listen
to this discussion this morning?
Mr. Adams. I really don't.
Mr. Horn. Well, I will tell you, Commissioner, yours is the
best report I have seen in any Government agency anywhere,
State, local, national, in terms of easy readability, and I
would like it to be in the record at this point, if we can
reproduce these things, which is dubious in the Federal
Government, but that is a marvelous report.
Did you win any awards from any State society? You should
have.
Mr. Adams. Thank you.
[Note.--The Massachusetts Department of Revenue Annual
Report may be found in subcommittee files.]
Mr. Horn. Well, we thank you very much for coming. Your
testimony and your administration of the law, as it applies to
the State, has been most helpful. We do hope the Ways and Means
Committee will get a matching legislation, they say they want
to, that relates to our bill. That is the one piece missing and
it is the piece that got me going in this thing. Anyhow, we
thank you for coming.
Mr. Adams. Thank you very much.
Mr. Horn. We now have panel three, and panel three, Mr.
Koskinen, Mr. Hawke and Mr. Murphy.
As you know, gentlemen, maybe you want to move down. If you
will raise your right hands, gentlemen.
Mr. Horn. Mr. Koskinen, I take it you affirmed that, too.
Mr. Koskinen. Yes.
[Witnesses sworn.]
Mr. Horn. The clerk will note all three witnesses have
affirmed.
We will start with Mr. Koskinen, Deputy Director, Office of
Management and Budget.
STATEMENT OF JOHN KOSKINEN, DEPUTY DIRECTOR, OFFICE OF
MANAGEMENT AND BUDGET
Mr. Koskinen. Thank you, Mr. Chairman, and distinguished
members of the Subcommittee on Government Management,
Information, and Technology. I am pleased to appear before you
today with the Treasury Department, which is responsible for
implementing many of the core provisions of the Debt Collection
Improvement Act.
With your permission, I will summarize my prepared
statement and submit my complete testimony for the record.
Mr. Horn. All of the statements are put in automatically.
Mr. Koskinen. Thank you.
I must apologize in advance, as I explained to your staff
last night when we established this hearing, we scheduled my
testimony at 9:30 and I must leave for another engagement at
11:45.
Mr. Horn. Don't worry, we will have plenty of time.
Mr. Koskinen. I have been here before and I know how long
we go sometimes.
Mr. Horn. Right. I have to catch a plane at 3, so that is
fine.
Mr. Koskinen. I am sure the next panel feels much better.
The Debt Collection Improvement Act was signed into law
almost 1 year ago. It was a result of a bipartisan effort in
Congress to reform the management of Federal nontax
receivables. The administration appreciates the leadership and
efforts of the chairman and the ranking member of this
subcommittee in obtaining passage of this act. Your sponsorship
was instrumental in giving agencies modern management tools for
their credit programs and other nontax receivables.
The management of Federal credit programs is basically the
responsibility of each agency. However, a major tenet of the
act is that when agencies work together to prevent and collect
delinquent debts, loan recipients and taxpayers will benefit,
and public confidence in the Federal Government's management of
cash and loan assets will increase. Since enactment, the Chief
Financial Officers' Council and the Federal Credit Policy
Working Group have been monitoring the implementation of the
act. As chairman of these interagency groups, which were
instrumental in developing the act, I think it is clear that
the Treasury Department and the major debt collection agencies
are making real progress in implementing the act.
The rate of implementation varies by agency, due to
differences in program requirements and operational issues.
However, there is no question agencies are committed to working
together in using the authorities in the act.
Our experience--not unlike the private sector or the State
of Massachusetts, from which you just heard--is that a debt
that is delinquent for more than 1 year is uncollectible
without the use of special collection tools such as offsets,
referral to private collection agencies and litigation. In
1996, more than $3 billion was collected through offsets,
private collection agencies, and litigation.
The act significantly improves the ability of the
Departments of Treasury and Justice, along with loan making
agencies, to maximize collection of delinquent debts by
ensuring quick action, such as sharing payment and collection
information between agencies when an account is over 180 days
overdue. Also, agencies have a range of new tools for improving
credit collection and performance. In the President's 1998
budget, several of these tools were highlighted as
administration management priorities.
First, we need to obtain higher recoveries on delinquencies
within enhanced payment offset. Next, we are focused on
lowering the cost of program administration. The act encourages
agencies to use the private sector to contact delinquent
debtors as well as private attorneys to support Justice
Department litigation enforcement of past due claims. A new
governmentwide contract to acquire private sector debt
collection services is nearing completion by the Treasury
Department.
We also need to take advantage of the authority for
gainsharing for increased collections. The act allows agencies
to keep up to 5 percent of any increase in their collections
and to use the funds on improved credit management and debt
collection. The Small Business Administration, the
Environmental Protection Agency, the Department of Health and
Human Services, and the Federal Emergency Management Agency are
piloting this authority, and their requests are included in the
President's 1998 budget.
Finally, we are focused on the need for coordinated and
expedited asset sales. The act encourages agencies to sell loan
assets when the Federal Government will benefit financially.
Both performing and nonperforming loan assets have been sold
successfully by Federal agencies. The Federal Credit Policy
Working Group has formed a subcommittee to identify successful
loan sales practices and to assist agencies that are
considering asset sales.
The challenges to speedy implementation of the act include
organizing and training personnel, revising procedures, issuing
new regulations, notifying debtors, upgrading systems, and
modifying reporting requirements. The need to upgrade and
enhance systems is proving to be the most challenging obstacle,
especially for interagency debt collection system requirements
that must be synchronized to track and report on referred
accounts.
Most agency systems will require some modification to
identify debt to be referred to Treasury for offset. During the
next year, the Office of Management and Budget, working closely
with the Chief Financial Officers Council and the Federal
Credit Policy Working Group, will continue to support
interagency efforts to improve receivables management
information systems.
In a time of fiscal constraint and tightly budgeted staff
resources, Treasury and the major receivables management
agencies face many operational and systems challenges. The
development of the governmentwide approach to receivables
management is a formidable task. We look forward to continuing
to work with you and the Congress in meeting these challenges
and implementing this significant legislation.
Mr. Chairman, that concludes my summary.
[The prepared statement of Mr. Koskinen follows:]
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[GRAPHIC] [TIFF OMITTED] 44176.026
Mr. Horn. I think I am going to, given your time situation,
start in on the questioning with you and then we will hear the
Treasury officials after that.
As I looked at the testimony, and I read a lot of it last
night--I did not have your statement at the time--I am reminded
of my favorite television show, which is ``Yes, Minister and,
Yes, Prime Minister,'' which hasn't been broadcast in this
country much lately, but it stops the House of Commons whenever
it is broadcast in England, and the leading civil servant in
that great show is Humphrey Urbane, sophisticated and running
circles around the political appointee. May I say, and I am
sort of reminded here that everybody is saying we have done a
wonderful job but we haven't collected very much, and Humphrey
would say, Mr. Minister, we agree with this in principle, but
nothing is happening.
Now, that is what worries me here. Let me read you a quote.
It is passed anonymously to the committee:
As the Financial Management Service provided technical
assistance to agencies, the Office of Management and Budget
took the lead to ensure implementation of the Debt Collection
Act of 1982 in the follow-on measures, and we are of course one
of the follow-on measures. OMB has little role in the Debt
Collection Improvement Act and the Financial Management Service
lacks implementation muscle due to its lack of budgetary
authority.
Federal agencies do not have an incentive for compliance
with the Debt Collection Improvement Act. Most agencies will
resist sending accounts to Treasury and the loss of the debt
collection function, thus, defending their turf.
OMB supports the Debt Collection Improvement Act but the
program examiners who exercise the muscle in OMB are not
involved. This neutralizes OMB in the face of strong agency
resistance and sets Treasury up to squabble with agencies and
get little accomplished.
What is your reaction to that?
Mr. Koskinen. Perhaps as Humphrey might say, I think your
anonymous source is all wet. OMB is noted in that source as
strongly supportive of this act. The agencies are strongly
supportive of it. This is not an act imposed on the executive
branch by the Congress.
As you will recall, this is an act that was generated by
the agencies themselves working together as the Federal Credit
Policy Working Group, and the CFO Council, along with the
Inspectors General who had done studies beforehand. This was an
act that the agencies were seeking to give them more authority
to allow them to more effectively collect on their debt. So
this act was received enthusiastically by the agencies when it
was passed.
Mr. Horn. Well, it was received by the people who were
concerned in finance and in budget, but has it soaked down
through the system to the actual working program officer that,
one, signed off on the loan and maybe doesn't want to really do
much about collection? I think of the Department of
Agriculture, and this is true of most agencies, true of many
congressional authorized committees, that people in the
Department of Agriculture--their mission is to help farmers, I
understand that, I grew up on a farm, and tears come to my eyes
when foreclosures occur on farms--so as this percolates down
through the system, how are the program people implementing it?
Do they really much care about collection that is hurting some
of the friends, in some cases, in the same communities that
they live?
Mr. Koskinen. First of all, the Federal Credit Policy
Working Group is program officials of the departments, as well
as their finance people. And they worked with this jointly from
the start of this matter. Second, with regard to incentives,
the Federal Credit Reform Act requires that subsidy rates take
into account the actual performance of the credit program. So
there is, built into the Credit Reform Act and the calculation
of the subsidy rate, an incentive for agencies to collect on
their loans and not have losses any greater than necessary.
Also, as noted, and you, Mr. Chairman, were a strong
supporter of it, the agencies are provided incentives in the
sense that they are allowed to keep up to 5 percent of
increased collections to improve their collection efforts.
Again, a provision that was strongly sought by the agencies and
received with enthusiasm.
With regard to the OMB program examiners, we have a working
group within OMB of program examiners, working on these
matters. The meetings of the Federal Credit Policy Working
Group are attended by the relevant programming examiners. The
President's budget, as I noted, has improvement in debt--in
collection and credit program management as its highest level.
One of the directors, Director Frank Manes--management
objectives for this year is to improve credit program
management and debt collection. So I think there is no shortage
of enthusiasm, but I will also say this is not an easy issue to
implement overnight.
As noted, and you will hear from other agencies, a major
obstacle is making sure the systems are able to provide data
effectively, but as you will note in the Agriculture Department
testimony, for instance, with reference to your note, they in
fact already are referring debt to the Treasury Department.
They have previously used many of the authorities available
under the act, under special provisions, and no one has been
more enthusiastic in working with us on this act than the
Agriculture Department.
Mr. Horn. Well, that is good to hear.
By the way, Secretary Hawke, if you want to get in on this
sometime.
Mr. Koskinen. That's right, you guys can chime in any time
you like.
Mr. Horn. I am just trying to help John get out of here to
his next commitment.
Mr. Hawke. I think the Minister is doing fine.
Mr. Horn. I suspect you are correct on that.
In your capacity, Mr. Koskinen, chairman of the President's
Council on Integrity and Efficiency, could you commit to making
auditing for implementation of the Debt Collection Improvement
Act a part of the next annual audit plan for agencies which
have substantial delinquent debt?
Mr. Koskinen. You will be happy to know I cannot speak on
behalf of the Inspectors General in terms of how they do their
work. I do chair the committee and work closely with them, but
each Inspector General has to set its own work plan. They are
independent in that respect.
On the other hand, as I noted, this is an area that they
have previously expressed interest. Their report on our debt
collection activities in the agencies was a major resource for
the Federal Credit Policy Working Group, and I would expect in
the major credit program agencies that these would continue to
be monitored.
I would also note we have been working for the last 2
years, even before passage of the act, with the Federal Credit
Policy Working Group on the development of performance measures
for credit programs. The Government Performance and Results Act
requires agencies generally, and departments, to have strategic
plans which state not only their goals and objectives, but
their performance measures. Again, in terms of incentives, I
think as we get greater visibility about what is happening with
these programs, we will have program managers and political
officials, as well as ministers, interested in ensuring that
the programs run effectively and efficiently.
Mr. Horn. Have any agencies referred to the Treasury, are
there any debts for cross servicing since enactment of the Debt
Collection Improvement Act?
Mr. Koskinen. I will let the detailed answer be provided by
Mr. Murphy.
My understanding is a number of agencies have already begun
to transfer debt to the Treasury, but I think Mr. Murphy can
give you more details.
Mr. Murphy. Yes, there are 12 agencies that have referred
some cases to us already. The numbers are not staggering, but
the system is just getting up and running and it is starting to
happen. We have two agreements with other agencies, as to they
are starting to refer debts to us, and we are still working
with others as they try to overcome some of their system
problems to get ready to do so.
Mr. Horn. That leads to my next question. Currently, as I
understand the figures and correct me if this is in error,
Federal agencies have transferred a mere $28.6 million, that is
million with an ``M,'' to the Financial Management Service for
collection action out of the total of delinquent nontax debt of
$51.3 billion, that is billion with a ``B,'' or slightly better
than $1 out of every $1,800 of delinquent debt owed the Federal
Government.
My query to the Deputy Director for Management is does OMB
intend to do anything to increase referrals of delinquent debts
to the Financial Management Service?
Mr. Koskinen. As Mr. Murphy, Mr. Hawke, and I noted in our
testimony, we think the process is beginning. It is
complicated. We do not detect any reluctance by the agencies to
make the transfers. And we are working and continuing to
oversee this. We are measuring the progress they are making. We
fully expect that when the Treasury's offset program is up and
running full scale in January, by that time, there will be
several billion dollars referred to either the Treasury or
other debt collection centers.
Mr. Horn. I might add that the General Accounting Office
informs us that the agencies are very reluctant so they are
getting one word and you are getting the words because people
like to please you, and the question is, what are we going to
do about it? And my next question has to do with the role of
the budget examiners, are the budget examiners making this a
major item in the things they ask when budgets come before
them.
We also have a Government Performance and Results Act. Will
this be the collection of debt, one of the things that the
government across the board, with OMB direction? Is this a
result to measure what kind of agency you are?
Mr. Koskinen. The short answer is yes, we are working
across all those frontiers. We expect, that, in the major
credit agencies, the performance of their credit programs will
be a significant part of their strategic plans. The testimony
you have or will receive from the Department of Education, IG's
office, shows that the Education Department has put debt
collection as part of its strategic plan. We expect that the
Federal Credit Policy Working Group and CFO Council will
continue to report on performance on debt collection as we go
forward.
As I noted, this is a high priority in the President's
budget. It is a management priority of the director, and the
program examiners are participating actively with the agencies
directly through the Federal Credit Policy Working Group.
Mr. Horn. OK. So the program director, I assume, is the
budget examiner, in the old days?
Mr. Koskinen. In the old days; they are now program
examiners.
Mr. Horn. Fine. But they are going to make this part of
their review of all agency budgets?
Mr. Koskinen. Yes.
Mr. Horn. OK. In the agency's response to the
subcommittee's inquiry to the largest Federal agencies, there
was scant interest among the agencies in conducting an asset
sales program. As the successful experience that HUD indicated,
this can be an effective way to deal with agency receivables.
Is there a way to build an incentive for agencies to manage
their receivables in this manner?
Mr. Koskinen. Yes, it is an important initiative. In my
more detailed statement, I reference the fact that we have had
two substantial presentations at the Federal Credit Policy
Working Group on this. There is now a support group working
with the Small Business Administration which is for the first
time going to be engaging in significant asset sales. They are
going to draw upon the expertise, not only of HUD, but of the
FDIC and other agencies, that have had asset sales. What we
hope to do is develop a more effective and aggressive program
over time.
There has been a pilot program called the government-owned
real estate sales program run by GSA and the Treasury
Department, which again has been a way of trying to pool asset
sale expertise. We expect that this will improve and there will
be significantly more sales over the next 12 to 24 months.
Mr. Horn. My understanding is that the agencies are also
not very excited about selling delinquent debts, even after the
agency has given up collection action, which they are required
to do.
Do you have any thoughts on agency reluctance in this
regard? What can OMB do about it?
Mr. Koskinen. The act provides after 180 days, unless the
debtor actually meets some specific statutory exemptions, it
has to be referred to a debt collection agency or the Treasury
Department for active collection.
We expect there will be, as I noted, more loan sales.
Ultimately, the incentive for the agencies is if a loan sale is
financially more beneficial to the Government than holding,
which is often the case, that will result in a lower subsidy
rate and more funds available for that program. So if we can
get people to understand that connection, I think they will be
increasingly supportive of the importance to the Government of
maximizing a return from these assets.
Mr. Horn. One or two last questions and you are a free man
this morning.
According to Mr. McNamara's testimony, which we will have
later, a match was performed between the IRS income records and
students' Pell Grant applications, over $100 million in grants
went to individuals who had lied and understated their income.
This, to me, is rather remarkable. If this is a problem in one
program area, can we expect similar deceptions are incurring in
the programs of other agencies? What are OMB's ideas to solve
the problem?
Mr. Koskinen. We have been focused on this issue for some
time. As you know, income verification is at the height of a
wide range of Government programs, not just credit programs,
but grant programs, and other issues as well. It is important
for us to ensure that the limited Government resources are
actually being applied and made available to people who qualify
for them.
There are, on the other hand, obviously substantial
interests and concerns about individual privacy in terms of
what information is available. But in terms of my touting here,
the Federal Credit Policy Working Group, at our recent meeting,
there was a discussion by different agencies of what they do
for income verification, and it was noted that you can, in
fact, ask applicants to waive privacy of their Internal Revenue
Service records. So that, in fact, it's possible for grant
recipients and loan recipients to voluntarily waive, if they
want to apply for a program, any access to IRS records, which
would allow you to make that match. I also think it is an
important initiative to ensure, as we go forward, that we are
making loans to, in fact, qualified people.
Mr. Horn. Do we really need an amendment to the law to say
that would automatically be done when you are up for a Federal
loan? I assume this is the Buckley Act or what are we thinking
of on the Privacy Act.
Mr. Koskinen. There is a privacy act issue there. At this
point, I am not aware of the need for legislation. As I say, we
are pursuing the level of--the need for this. We think it is an
important initiative and if there is a need for legislation, we
will certainly advise you of that.
Mr. Horn. Well, I just suggested to staff that we need to
get this on the list of things to do because it is silly to sit
in a student aid office and say, well, student, will you give
me access to your income filing.
The Government is giving out taxpayers' money to people to
get an education. If they are lying, we shouldn't have to find
out 5 years down the line or something; we should find out
right then and there who is conning whom and deal with it, I
don't know why we have to have a lot of paper on people signing
some Privacy Act, to, in essence, commit a crime, and that is
what we are perpetuating right now. So I would think we need
legislation on it, rather than go down the Privacy Act route,
just do it.
Now are you prepared to have OMB say it or is there some
great myth here that all students are honest?
Mr. Koskinen. And I don't think our experience is that. At
this point, as I say, we are looking into it. We are not
prepared at this time to state whether or not legislation is
needed.
Mr. Horn. When will you be done looking into it?
Mr. Koskinen. We don't have a time line.
Mr. Horn. Yes, that does sound like Humphrey. Let's keep on
it. We will expect a conclusion to be raised on this and we
will raise the issue with you in a letter and exchange. Let's
get an answer on it, because we ought to change that. This is
crazy, to pour money down drains when we can check an income
tax record. Maybe they are lying there, too, at which point we
have other problems, and we will hope in the reorganization of
IRS, it provides for that type of investigation.
OK. We have met your need to go somewhere else. We are glad
to have you come, and we appreciate your support of this act. I
hope in the 6-month hearing we will hold 6 months from now
there will be substantial transfers of delinquent debt to one
of my favorite agencies, which is the Financial Management
Service. They seem to get things done in a very efficient,
orderly way, but they can't do it if they don't have the
agencies send them the base material with which to operate.
Mr. Koskinen. I appreciate your cooperation here this
morning, Mr. Chairman. Let me conclude by saying that we have
been extremely pleased with the efforts of the Treasury
Department and the Financial Management Service in implementing
this act. As Mr. Murphy's testimony notes, they have held
training sessions, and they have worked very closely with the
agencies on trying to improve the systems and facilitate the
progress. I think that at this point we are confident that the
program will work effectively under their leadership.
Mr. Horn. Well, we thank you very much.
And now Secretary Hawke, please. I am sorry for the delay
in your testimony.
STATEMENT OF JOHN D. HAWKE, JR., UNDER SECRETARY, DEPARTMENT OF
TREASURY
Mr. Hawke. Thank you, Mr. Chairman.
Mr. Horn. I want to accommodate people when I can.
Mr. Hawke. Thank you, Mr. Chairman. I am delighted to be
here today and to have this opportunity to discuss the
Department's actions to implement the Debt Collection
Improvement Act.
First, I would like to thank you, Mr. Chairman, and the
ranking minority member, Mrs. Maloney, for your strong support
of this legislation and the work that you have put in to get it
passed.
The DCIA, through the establishment of new and improved
debt collection tools, has redefined how Federal agencies
should collect their delinquent debts. The provisions of this
act will make Government debt collection more efficient and
effective, resulting in improved fiscal integrity of the United
States while preserving the due process rights of our citizens
and treating debtors fairly.
This legislation had strong support in Congress and the
executive branch because improving Government processes, making
government more efficient, and saving taxpayers money, make
good sense. The development of the legislative language
contained in the act, the enactment of law, and the
implementation of its provisions represent Government at its
best.
Above all, this legislation represents a Government
commitment to those millions of citizens who pay debts to the
government in a timely and responsible way. The message that we
send to them is that we will respect their integrity and
conscientiousness by making every reasonable effort to assure
that others who owe money to the Government discharge their
obligations as well. We owe it to all of our citizens to make
clear that the Government will act prudently in assuring that
it recovers amounts that are due to it. To do less would be to
send a very unfortunate message to those that have financial
obligations to the Government.
Mr. Chairman, we at the Treasury have supported this
legislative initiative from its onset and we are committed to
its success. We are hoping our testimony today will assure you
of our commitment.
When the legislation was initially being considered by the
Congress, more than $51 billion of the $245 billion of
nontaxable receivables owed to various program agencies was
delinquent. Most of this debt was related to direct loans,
defaulted loan guarantees, and various other forms of accounts
receivable from Government operations.
At the end of 1966, the nontax receivables owed to the
Federal Government had increased to $252 billion, with $51.3
billion of that amount, that is 20 percent, or $1 in $5 owed to
the Government being delinquent. I think it is interesting to
note, Mr. Chairman, that this amount is almost half of last
year's budget deficit of $107 billion.
Mr. Horn. Right.
Mr. Hawke. Delinquent receivables over 1 year old
constitute 83 percent of the total, indicating that $4 in every
$5 of delinquent debt is old and may be difficult to collect.
Debts of this age are typically collected at the rate of only
25 cents on the dollar in the private sector.
Without strong commitment and cooperation across
Government, from the Federal agencies, the Office of Management
and Budget, Treasury, and every congressional committee that
has a hand in, in the process of authorizing funding and
providing oversight of programs that create debt, the volume of
delinquent debt is likely to grow. If we are to get the
delinquencies to a level that is considered tolerable, we must
fully implement the provisions of the act and we must use them
in each and every program.
We are heavily invested in showing Treasury can make a
difference in this process. After all, every dollar that is not
collected is a dollar that we will be responsible for borrowing
to finance the Federal Government.
Between April 1996 and September 1997, a 17-month period
since the passage of the act, we will have invested a
substantial amount of resources into the DCIA and laying the
foundation for its future operations. This was made possible
through close cooperation between OMB, Treasury, our
congressional appropriators, and through the ability of the
Financial Management Service to find funds and resources in
budgets that are already very tight.
In this short time, we have built a governmentwide
delinquent debtor data base, and we have already begun
offsetting payments, albeit not in great magnitude, as the
chairman has pointed out. We also built a basic debt management
work-flow system to cross-service and collect delinquent debt
that is over 180 days old through collection at FMS or through
private debt collectors.
Since the passage of the act last April, our efforts have
been intense and they will continue unabated. Next year we will
be able to report to you that all the Government's eligible
payments are subject to being offset; that all accounts over
180 days delinquent are being properly serviced; that all
agencies are using the debt collection contracts in situations
where Treasury and the agencies agree that they should; and
that all of the needed regulations are in place.
Mr. Chairman, that concludes my remarks. Jerry Murphy, our
Fiscal Assistant Secretary, who is far better able than I am to
discuss the details of the program will now discuss the FMS
implementation of the active agreement.
Mr. Horn. Well, thank you very much.
[The prepared statement of Mr. Hawke follows:]
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Mr. Horn. Secretary Murphy.
STATEMENT OF GERALD MURPHY, ASSISTANT FISCAL SECRETARY,
DEPARTMENT OF TREASURY
Mr. Murphy. Thank you, Mr. Chairman. I also have a longer
statement for the record but I will just briefly summarize the
accomplishments. I appreciate this opportunity to discuss our
role in the implementation of the Debt Collection Improvement
Act.
Within the Department of Treasury, the Fiscal Service, and,
specifically, the Financial Management Service that you
mentioned a while ago has the responsibility of the debt
collection provisions of the act, and we embrace those
responsibilities with enthusiasm because we are uniquely
qualified to accomplish that mission, and we strongly believe
in the purpose and the goals of the legislation.
I'll skip to some key results because I think there has
been a lot that has been accomplished that is sometimes being
overlooked by some of the numbers.
We are actually conducting disbursing official offsets
right now. We have an interim system to do that, and it was
built quite quickly. The act, of course, provides the
disbursing officials of the United States, with the authority
to conduct administrative offsets to collect delinquent debts
that are over 180 days old. We have developed the operational
computerized system to effectuate those offsets. It was
operational back in September 1996, and we began offsetting
payments at that time.
While the numbers on cross-servicing aren't too high, we
have about 2 million cases referred to us for offset, and they
represent close to $9 billion worth. We are also merging the
two offset programs, the Internal Revenue Service tax refund
offset program is going to be merged into the FMS offset
program effective January 1, 1998. And while that may not sound
like a big deal, it's a lot of work, believe me.
We are also going to be merging the salary offset program,
which has existed for a number of years, into the Treasury
offset system. Even though some of these things haven't
happened yet, it doesn't mean that people aren't out there
collecting debts because that salary offset system is out there
and they are using it--collectors that they are using and tax
refund that they are using. So money is coming in.
We are also, as I mentioned earlier, doing some cross-
servicing of debt. Agencies that have debts of more than 180
days old are supposed to be taking appropriate action to
collect those claims or to refer them to Treasury for
appropriate action.
You mentioned the $51 billion in delinquent receivables.
That's true. There are a number of exceptions in the law, as
you know. If they're currently being referred to Justice for
litigation or to a private collector they can be offset
internally within 3 years, et cetera. There are a number of
those $51 billion that will never be referred to Treasury or
the debt collection center necessarily.
We have set up a debt collection center within the
Financial Management Service in our Birmingham office, and we
are open for business and we are working with agencies to get
that business in. We understand that the agencies do have a
number of things that have to be done before they can
participate. We believe that they are working on those so that
schedules can be agreed to when debts will actually be
transferred.
We have also done a lot to inform people, provide guidance,
and train our employees. We held 17 conferences between August
and December of last year around the country to get to as many
people as we could, not only just in Washington but in the
field offices around the country, where a lot of the real work
is done.
We've visited virtually every agency individually to work
with staff and provide them the information that they need. We
established a home page on the Internet. We have a lot of debt
collection information on there, and we are getting anywhere
from 500 to 3,000 hits on the home page every month. People are
interested in this. They want information. They're trying to
get the job done.
We've also worked on drafting a host of regulations. Those
regulations cover a wide range of provisions in the act, and
the majority of those will be published for comment in May or
June. We have a couple of others that will come along in July
or August for comment. So we have a lot of regulations in the
mill. We've had to work jointly with a number of agencies on
those. We've worked with Justice Department, for example, and
the Department of Education on the wage garnishment draft regs.
We worked with Justice on the Federal claims collection
standards. We've consulted with other agencies on the various
regs as well.
We've also worked on the new governmentwide debt collection
contract, and that's in the procurement process. The request
for proposal went out in March, and we expect to get bids on
that beginning the first of May.
We are developing a public awareness campaign to inform the
public, at first in a general way, about the need to repay
their debts, and later in a more specific way. But the first
public service advertisements on that will start appearing on
radio and TV sometime in June.
Finally, I would just briefly mention our efforts to
improve the collection of delinquent child support. You will be
hearing more on that later from HHS, who we have worked along
with the States to implement the President's Executive Order
13019. And there, again, a cooperative effort between Treasury,
HHS, and the various States in partnership have been working to
resolve a host of due process issues, systems issues,
regulatory issues and other operational issues.
Working together, we have succeeded in resolving many of
those. We are still working on some. But we have four States
and the District of Columbia who have already issued notices,
and we will be offsetting beginning in May for those States.
Other States have systems problems they will be coming on a
little later. We would expect to have them all participating by
January 1998.
And internally, I'll just close by mentioning that we've
taken a number of steps organizationally to make sure that DCIA
receives high priority. And these include reorganizing within
the Financial Management Service, setting up a brand-new
assistant commissioner area for debt management services. We
established the debt collection center in our Birmingham
office. We've increased staff from 17 to 65 and are still
adding some, and we are committing to providing the resources
necessary to implement all provisions of the act. This past
year, we made significant investments in DCIA.
You mentioned the $20 million. That is our upfront
investment in systems. I believe it also is our estimate as to
what we will spend between now and the end of September, so we
haven't spent all of that quite yet. You also mentioned that we
had only collected some $300,000. That's true. That's the
offset amount we received the first 3 months we had the system
up, reflecting the $2.8 million from all of our tools.
Those investments that we incurred this year, however, I
really expect are going to be paying dividends in the coming
year. In the coming year we're going to be adding more debts
and more payments into the offset system. We will be providing
training and guidance for agencies so that there's a seamless
transition from the tax offset program to the Treasury offset
program. We are going to continue to enhance our computerized
debt collection management system. We expect to award the
competitive debt collection contract this summer. And we'll
have increased use, I think, of the collection contract and
improved collection rates from that.
There are a number of regulations, as I mentioned, and
those will also be published in the coming months, as well as a
rollout of our public awareness campaign.
This is a big partnership arrangement, working with all the
Federal agencies and working with the 50 States. But I think we
are going to be showing some measurable results in the
following year.
Mr. Chairman, that concludes my remarks, and I'd be pleased
to address any questions that you might have.
[The prepared statement of Mr. Murphy follows:]
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Mr. Horn. Well, thank you both for that very thorough
testimony, I appreciate it. I did have a chance to read both of
your statements last night.
Let me just note at this point I'd like to put in the
record the letter from Secretary Rubin addressed to me dated
April 14th, it is the summary of the major efforts made by
Treasury to improve Federal debt collection and implement the
Debts Collection Improvement Act. So this will be, without
objection, part of the record.
[The letter referred to follows:]
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Mr. Horn. Simply one question comes from that, and that is,
what steps has the Treasury not taken which will prevent the
referral of debts for administrative offset or cross-servicing?
Are there a few key things in this letter, and since I assume
you prepared it and he signed it. Brooks Hayes, the great
Congressman and raconteur, said that there are two types of
people in this town, one who prepares letters that other people
sign and one who signs letters that other people prepare. I am
curious in those categories, administrative offset or cross
servicing, what is missing? Anything?
Mr. Murphy. Basically, I think we had a lot of provisions
in the act to try and deal with, and we've been trying to deal
with them all simultaneously, but we have set some priorities
and our priorities were in the offset program, the cross-
servicing and the debt collection contract. At this point, I
don't think there are any things that we have done that have
substantially hindered the process. In the offset area, we
started a very small operation where we had just a few agencies
and a few payment streams we were matching up. We are in the
process now of adding vendors to the offset program, and we
hope to have 15 million of them in that matching process by
August.
The next step is to fold the salary offset program into the
Treasury offset, but we'll keep the existing one going so it's
available and being used until we get the new one up and
incorporated. One area that you might characterize as something
we haven't accomplished yet is we don't have the regulations
out as yet to offset benefit payments. So benefit payments will
not begin offseting for some time yet.
Mr. Horn. Could you give us an idea; 6 months; 3 months?
Mr. Murphy. The benefit payment regulation is scheduled to
be published for comment in July, and our target for getting a
final regulation on the street would be October 1997. That
would cover the offset of Social Security, railroad retirement
and black lung, for example. And as you know, there are some
limitations on those, where you don't conduct an offset unless
the recipient is receiving at least $9,000 a year in benefits
and then you only offset a reasonable amount from any excess.
So those are going to be a little more complicated, but that's
our general timeframe.
Mr. Horn. Very good.
Let me just ask you about the relationship with GSA.
General Services Administration's purchase requisitions and
travel cards will be accepted by millions of vendors, and we
just sent through the House legislation to really require the
travel card for most Federal employees unless certain
exceptions are made by the administrator.
Would it be possible to incorporate an administrative
offset feature if the Financial Management Service and the
General Services Administration worked together on this area?
Do you see any room there for that relationship?
Mr. Murphy. Yes, sir, we are discussing that right now, as
a matter of fact. We do want to move to the use of credit cards
extensively in Government. We think it's going to be very cost
beneficial. We have expressed some concerns about the ability
to build in some kind of process whereby we could at least
periodically determine whether vendors are escaping offset
because they are accepting credit cards which doesn't seem to
be fair and proper. We are also working with the GSA to see
what kind of solutions we might come up with that are
reasonable and cost-effective.
Mr. Horn. Did you happen to hear Commissioner Adams'
description of his automatic wage garnish system?
Mr. Murphy. Yes, sir, I did.
Mr. Horn. Is Treasury planning to build a similar system?
Mr. Murphy. I'm not sure whether it will be a similar
system but basically in the wage garnishment area, the act
gives the agencies the authority to use wage garnishment and I
think they're very excited about the prospects of that being a
very effective tool. Treasury is required to issue regulations,
and our schedule for that is to try to get regulations out for
comment in June. We have been working with the Department of
Justice and the Department of Education on those. We are in
favor of almost anything that collects more money, because we
are the collectors.
Mr. Horn. Good attitude. Good attitude.
Mr. Murphy. I will mention, though, that my understanding,
and I think Mr. Adams' point, was that, in order to collect
something by wage garnishment, you have to know who the
employer is so that you can garnish.
Mr. Horn. Right.
Mr. Murphy. And there are a number of data bases available
that from a collector's point of view. It would be very nice if
we could tap into that information so we can do matches.
Mr. Horn. Now, is there a problem in the law that you can't
access Social Security tapes or Labor tapes, given various
things, because if it is----
Mr. Murphy. It's my understanding that there are a host of
both Federal and State laws that restrict the availability of
information, the Privacy Act. Certainly, IRS has its
limitations. It is not allowed to disseminate that information
for purposes other than tax collection. Social Security has
some very explicit exceptions in their law as to who they can
give out information to.
I believe that some of these employment records that are
available out in the States are probably the States' tax
records, and I believe Mr. Adams said that he thought those
would be subject to State law. Obviously, some States are
willing to disseminate information for certain purposes.
Mr. Horn. Well, as I remember in the Debt Collection
Improvement Act, both Labor records and Health and Human
Service's parent locator service were specifically authorized.
Mr. Murphy. That's correct, sir.
Mr. Horn. So what's missing?
Mr. Murphy. I believe the sources of information that Mr.
Adams was referring to--I haven't been able to verify this, but
my assumption has been that he's talking about State tax
records. He's the State revenue collector. He has those records
available to him in his State, and I believe he has indicated
that a couple of the States have made them available.
Mr. Horn. Do we need a law that permits Treasury to access
the State records in terms of employment? Because you get
certain things on the State revenue and Federal revenue. We
need to know--maybe you want to think that through and let us
know, because the Ways and Means missing piece here hopefully
will come in the next few months and we can work it into that
bill.
Mr. Murphy. We would be happy to do that. We are certainly
interested in using the tools. I think what you'd have to weigh
are some of the privacy rights as well.
Mr. Horn. Yes, and I think that ought to be in order when
you owe money so the rest of us taxpayers do not pay more for
the deadbeats. The Federal Government writes off between $8
billion and $18 billion in non-tax debts each and every year--
and you have heard me on that subject a number of times--much
of which has not been subjected to collection action. And I
notice with interest, Secretary Hawke, you noted the role for
private collectors there.
Does the Department of the Treasury believe these debts
ought to be included in the administrative offset, and other
collection activities? Are agencies referring such debts?
Mr. Hawke. It seems to me, Mr. Chairman, that any debt that
is collectable ought to be included in the offset program. I
think the difficulty is determining at what point and under
what standards you decide that the debt is no longer
collectable and should be abandoned. But the fact that a debt
is delinquent for a long period of time does not automatically
mean that it shouldn't be included in the offset program.
Mr. Murphy. Just to add to that, Mr. Chairman, in the cases
where an agency writes off a debt and they actually close it
out, they report it to IRS as income on a 1099--at that point
we cease all collection efforts, offset, private collector, et
cetera. But if it hasn't been closed out, it is still possible
that, if it hasn't gone to a private collector before, we could
send it to one.
Mr. Horn. I'm glad you mentioned the 1099. I noticed in the
testimony it's labeled 1099C. Does that simply mean the third
version of that form, or what is the ``C'' aspect?
Mr. Hawke. I think the letters that are attached to 1099
indicate in general terms the source of the funds that are
being repaid. ``C'' probably refers to cancellation of debt.
Mr. Horn. That certainly becomes income on which they pay
taxes. And do we have any studies by GAO or the various
Inspectors General of how effective that is once it's put on
your tax bill? Well, staff tells me that after it goes over to
IRS, it is a 20 percent collect--that's 2-year old data, but we
need to get in the record at this point just how that system
works. Is it effective or is it boats passing in the night?
Because I think that certainly is one way to wake a few people
up as to their obligations.
Anything else you want to say on that?
Mr. Hawke. I might just add on that last point I had
occasion recently to pay a visit not only to the FMS processing
center in Philadelphia but the enormous IRS processing center,
and they gave me a demonstration of exactly how the 1099s are
cross-referenced in taxpayers' records, so that when returns
are reviewed, if a 1099 is not reflected in the return, it
should set off some lights.
Mr. Horn. Interesting. Where was that? In the Philadelphia
center?
Mr. Hawke. In the Philadelphia center.
Mr. Horn. Is that true in all centers?
Mr. Hawke. I think that is part of the normal process.
Mr. Horn. I see. OK. Now, how will Treasury ensure systems
compatibility when it is receiving debts from a number of
Federal agencies? Is this going to be a problem? The
compatibility in terms of systems, you're having other agency
plug into your system, I assume, and it is like the year 2,000
bit that we are worried about when these connections are made,
are they really submitting debt or submitting viruses? I'm not
sure which, but does it work through the system and how are we
working that out?
Mr. Murphy. Basically, we have a debt collection
computerized system, which we have the core of that system now,
and so we still have some manual processes as well as
automated, but we will be enhancing that as we buildup volume.
And there are linkages that we envision giving agencies some
options. Some can get on-line if they wish, while others might
want to deliver data to us by magnetic tape. We will try to
provide some options, but it will take a while to develop all
of those linkages. But they are important, and that is what
takes time in building systems.
Mr. Horn. For the record, when are you beginning the new
enforcement programs in the areas of debt collection and child
support enforcement, and what sort of public education campaign
do you envision to get the word out?
Mr. Murphy. As I mentioned, Mr. Chairman, we are working
with the individual States to work when they're ready to be
able to come in and via the offset system. We are hoping to do
a public awareness campaign there, and we are looking under
every stone for a few dollars to help finance that. We do want
to get the word out to the public, and we will be implementing
with individual States between now and probably January 1998.
Mr. Horn. Very good. Does that take extra authorization to
wage a public campaign in this area or do you have that
authority basically?
Mr. Murphy. Well, I believe HHS has done some public
awareness things and has had money appropriated to them for
some of those purposes. We just want to get the word out. We
can use public service announcements, free press, anything we
can.
Mr. Horn. Have the States been fairly receptive to this?
Mr. Murphy. The States have been quite interested. We've
had a number of conference calls with all the States. And for
each one of them, we have listed the concerns they have over
systems and operational matters. But a number of them are
anxious to get started as soon as possible. The basic factor is
how their system works and whether they can provide frequent
updates of the information.
Mr. Horn. Very good. Last night we received a letter from
David J. Kerwin of Arthur Andersen's Chicago office, and we
furnished that to your congressional liaison. It might be
something that you want to put in the record. But what it
boiled down to, as I understand it, is that they service a $6
billion student loan portfolio and Mr. Kerwin raised the
concern with respect to the contracts with the collection firms
that are under consideration by the Financial Management
Service allowing private contractors to retain accounts in
repayment unless they are terminated for cause. And as I say, I
have shared that with your staff. And ensure that the potential
situation he described is avoided. Can we assure that?
The subcommittee staff apparently spoke with Financial
Management Service staff and it appears to be the intent of the
FMS, but some aren't too convinced. And the Treasury and the
subcommittee staff work out if this is a baseless concern or is
it a legitimate concern? So we are going to put it in the
record without objection at this point, and what we would like
is the Treasury answer to this?
Mr. Murphy. Fine.
[The letter referred to follows:]
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Mr. Horn. Moving right along, we are all set. And let me
just look up a few more things in my annotated notes from
midnight. Well, I've asked the question, but let me ask you,
Secretary Hawke, I have been concerned about the IRS putting 5-
year-old debt in the test pilot that private collectors are
trying to get. And I guess my question is, isn't that
uncollectable?
Mr. Hawke. I would hesitate to generalize about the
collectability of 5-year-old debt, Mr. Chairman. I think it
depends very much on the circumstances. Certainly, if rigorous
collection efforts have been pursued and debt remains
delinquent after 5 years, that gives you a pretty dim view of
collectability.
Mr. Horn. I noticed in your sort of penultimate paragraph
on page 2, you note that you are going to collect delinquent
debt that is over 180 days old through collection and
Treasury's Financial Management Service or through private debt
collectors. I am also curious what the policy is with regard to
private debt collectors; what the thinking is, even if it isn't
a policy yet. Do you see a role there for that vast apparatus
around the country, be it tax attorneys or private debt
collectors, in helping us get the debt?
Mr. Hawke. Oh, very much so, Mr. Chairman. I think they are
very much a part of the process.
Mr. Horn. OK. Now, Mr. Murphy, I think I scrawled a few
things on several of your pages. Let me flip by. I would hate
to have you leave the room and say why didn't I ask that
question.
Yes, on page 5 of your statement, in the second bullet at
the top it says, Treasury is working with the Office of
Management and Budget and the large credit granting agencies to
establish debt sales programs for appropriate debt portfolios.
I'd just like to know sort of where are we now on those?
Mr. Murphy. The Federal Credit Policy Working Group has
been looking at that, and they have an interagency team which
is looking at best practices and what's been successful in the
past. And they have come up with recommendations as to the
strategy that ought to be used.
OMB has the lead role in that area and would be consulting
with Treasury on sales, and there are some agencies that are
actively considering asset sales.
Mr. Horn. Very good. On the advertisements which I'd
mentioned earlier? If you could give us a few examples. We'd
like to look at them and put them in the record if we can. We
are never sure what GPO can print and not print, but we will
test them, and if we can't get it in we at least would like to
look at it. And we thank you both for coming. It has been
excellent, solid, professional testimony, and I deeply
appreciate it. Thank you very much.
Mr. Hawke. Thank you, Mr. Chairman.
Mr. Murphy. Thank you, Mr. Chairman.
Mr. Horn. All right, we are making progress slowly. And
that is my fault. And we are on panel 4.
Mr. Strader is not here?
[Witnesses sworn.]
Mr. Horn. All five witnesses have sworn. We will go down
the line in the order in which you are seated. Ted David is the
Chief Financial Officer of the Department of Agriculture.
Welcome. We will begin with you.
STATEMENT OF TED DAVID, CHIEF FINANCIAL OFFICER, DEPARTMENT OF
AGRICULTURE
Mr. David. Thank you, Mr. Chairman. As you mentioned, I am
Irwin Ted David, the acting Chief Financial Officer of the
Department of Agriculture, and I very much appreciate the
opportunity to share with you the progress that USDA has made
in implementing the Debt Collection Improvement Act of 1996.
With me is Mr. Richard Guyer, director of our Fiscal Policy
Division in the office of the Chief Financial Officer. He is
responsible for overall debt management policy in USDA.
As I know you are very well aware, USDA programs touch
every American every day. If it is not in the clothes we wear,
then it is in the food we eat, the water we drink, the houses
we live in, the lunches our children eat in the schools, or the
recreation that we enjoy in our national forests. One of the
major USDA strategic goals is to expand economic and trade
opportunities for farmers and other rural residents. Fulfilling
this goal will provide stable agricultural earnings and a
productive rural economy, which will improve the quality of
life for rural America and for all Americans.
USDA fulfills its responsibilities to farmers and other
rural residents through a number of programs, guided by
statutory requirements, legislative mandates, and
administration initiatives. Meeting the needs of rural families
and communities is accomplished in part through a number of
farm and rural credit programs which provide financing for
water and wastewater systems, financing for decent affordable
housing, financing for electric and telephone utilities and
rural businesses, and financing of farm ownership and
operations, and emergency disaster assistance and relief.
These loan programs are designed to support our strategic
goal to improve the life in rural America. Thus, several of the
programs are targeted to low income individuals so that USDA is
often the lender of last resort. USDA also holds a large number
of noncredit, noncollateralized domestic debt. This debt arises
from food stamp overissuances, timber operations and crop
insurance overpayments, among others.
In this category we have a large number of debtors and a
relatively small debt load. On an overall basis as of September
30, 1996, USDA was owed a total of approximately $108 billion
in 4.4 million accounts. This is down from $115 billion in
1992.
Of this total, approximately $104 billion resulted from a
variety of our loan programs. USDA as of September 30, 1996 had
3.3 million delinquent accounts, which total approximately $8.8
billion, which is 8 percent of outstanding balances, which is
down from the 11 percent that existed in 1992. Of these
outstanding loan accounts nearly 3 million are due to food
stamp overpayments.
During fiscal 1996, USDA wrote off approximately $1.8
billion of delinquent loans, which is also down from 1992. USDA
programs, as you know, are among the biggest direct lenders of
Federal credit, with 53 percent of loans and 33 percent of
total debt owed to the Federal Government. In addition, we
guarantee loans valued at approximately $18 billion.
In fulfilling our responsibilities, we believe that each
and every debt should be repaid in accordance with the
requirements and regulations under which the loan was made or
the debt incurred, including the proper exercise of repayment
and servicing provisions specified by the enabling legislation
that created the programs.
The Debt Collection Improvement Act of 1996 provides new
and expanded tools to assist us in pursuing the collection
processes. In fact, USDA had implemented several of the
techniques incorporated in DCIA as early as 1985. We have made
significant progress in implementing or expanding the
provisions of the act, including establishing processes and
procedures for implementing Treasury's administrative offset
program; implementing the provisions of collecting taxpayer
identification numbers; reporting write-offs to IRS; revising
USDA's process for routinely adjusting civil monetary
penalties; reporting current and delinquent debt to credit
bureaus, and referring delinquent debt to collection agencies
for collection.
We believe that Treasury's administrative offset program
promises to be an excellent collection tool, which when fully
implemented will increase opportunities for collection.
However, we at USDA have experienced two barriers in
implementing this provision. First, we have to make changes in
our computer systems to enable us to transmit timely and
accurate information to Treasury. We also have to publish new
regulations or modify existing regulations of agencies' systems
of records to meet the requirements of the Privacy Act.
We do plan to start referring debts to Treasury for
administrative offset by July 1997, and we estimate that we may
be able to refer as much as $7 billion by the end of the year.
Until we are able to implement Treasury's administrative offset
program, we will continue to collect delinquent debt through
income tax refund and salary offset programs. During fiscal
1996, we collected $43 million through the income refund offset
program and our collections are even better in fiscal 1997.
Since 1986, we have collected over $267 million through this
program.
USDA also collects taxpayer identification numbers from our
vendors, our borrowers, our clients, and our debtors. In
February 1997, we issued a new departmental regulation
requiring USDA agencies to provide TIN numbers on all requests
for payments and discharges of indebtedness. One issue we have
encountered is in the verification of those TIN numbers. USDA
agencies have been reporting write-offs to the Internal Revenue
Service for inclusion in the debtor's taxable income since
1990. Our agency has reported over $714 million in 1995 write-
offs to IRS using the IRS form 1099C. USDA has also developed a
final rule to adjust civil monetary penalties imposed by USDA
agencies to incorporate inflation adjustments. This final rule
should be published in the Federal Register within the next 2
months.
USDA also plans to use Treasury's debt collection center
and private collection contracts and will continue to refer
delinquent debts to Justice for litigation where appropriate.
In addition, three USDA agencies have expressed interest in
becoming debt collection centers. They are in various stages of
making their proposals to Treasury to become such centers.
Mr. Horn. Would you mind putting them in the record at this
point? What are the three areas?
Mr. David. I believe they are our office, the Office of the
Chief Financial Officer; the Farm Service Agency; and the Rural
Development Agency.
Mr. Horn. Fine. Go ahead. We are running short of time
here.
Mr. David. Since 1985, USDA has routinely referred
delinquent consumer and commercial accounts to credit bureaus.
The total referred to date is $60 billion. In addition, as Mr.
Koskinen referred to before, all USDA credit granting agencies
plan to incorporate debt collection performance measures into
agency strategic and performance plans under the Government
Performance and Result Act.
Such measures are in addition to the program-related
performance measures. I cited in my formal statement some of
the measures; I won't go through those right now.
In conclusion, USDA provides many programs, including
credit programs to assist the agricultural community and rural
America in improving the quality of life, improving their
economy, and maintaining a stable farm economy. We believe that
each and every debt should be repaid in accordance with the
conditions under which the loan was established, and the
program guidelines under which the debt was incurred.
USDA intends to use all the tools available to us to reduce
the number and amount of delinquent debt. The Debt Collection
Improvement Act provides a number of new tools which will
assist us in pursuing the collection processes.
We look forward to working with the Office of Management
and Budget, Treasury, and the other Federal departments and
agencies through the Federal Credit Policy Working Group along
with the Chief Financial Officers Council, to develop the
mechanisms to collect delinquent debt owed to the Federal
Government.
That concludes my prepared remarks, Mr. Chairman. I am
pleased to answer your questions at the appropriate time.
[The prepared statement of Mr. David follows:]
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Mr. Horn. Steven McNamara is the Assistant Inspector
General for Audit, U.S. Department of Education.
STATEMENT OF STEVEN McNAMARA, ASSISTANT INSPECTOR GENERAL FOR
AUDIT, DEPARTMENT OF EDUCATION
Mr. McNamara. Thank you, Mr. Chairman, for this opportunity
to testify on the implementation of the Debt Collection
Improvement Act. Like everyone else, I'll try to be brief and
submit my comments for the record.
I'm in a somewhat unique position, being the only member of
the IG community on this panel, so my perspective may be a
little bit different from some of the others that you have
heard today. Although we have not audited the Department's
response to your subcommittee and to the ranking member, we
have conducted a fair amount of work in the general area of
debt collection, and our review of the Department's response
and our knowledge based on the work that we have performed
leads us to conclude that the Department of Education is making
pretty good progress in implementing the Debt Collection
Improvement Act. In fact, Education was employing a number of
the mechanisms now under the act under previous statutory
authority, such as tax refund offsets, wage garnishment and a
number of matching agreements with other Federal agencies.
It occurs to me that, to take it to the next level, it is
going to call for the guidance and direction from the
Department of the Treasury, whom you heard from earlier,
particularly in the area of developing systems so that a lot of
information can be shared between and among the various
agencies in a cost-effective and efficient manner.
Mr. Chairman, I'd like to mention one specific audit we've
done. There are others listed in my testimony and you spoke of
them earlier. It was the match that we did with the IRS, where
we compared the income reported by students on their
applications for student aid with what they reported to the
IRS. As you mentioned, we found that over $100 million was
overawarded to individuals who were applying for Pell Grants,
and I might add that our approach was very conservative. We
didn't consider parents' income and we didn't take into
consideration a number of other sources. So the amount may be
far higher than the $100 million.
In some of these instances we had over 300 of these
individuals who reported making zero income when they applied
for student aid, when they made over $100,000 according to what
they reported to the IRS. One individual reported to the IRS
they made $1.3 million, but claimed zero income when they
applied for student aid.
These are areas, I think, Mr. Chairman, where we have
recommended that there is going to have to be legislation to
enable a match to be conducted. The IRS so far in dealing with
the Department is not willing to set up a match short of having
this legislation, and it needs to be on the front end where as
a prerequisite for receiving financial aid from the Federal
Government you would agree to allow us to match your income so
that we can verify what you say.
Mr. Horn. Well, you are absolutely correct, and we will
followup. Staff will sit down with Ways and Means staff and see
if we can't get it in their bill if it is moving. If it isn't
moving, we will do it ourselves.
Mr. McNamara. We appreciate your support and if there is
anything we can do or any briefings, we would be happy to
provide that.
Mr. Horn. Since you raised the subject, let me put in the
record at this point the Wall Street Journal article of March
11, 1997, pages A-1 and A-15, entitled ``Cheat Sheets: Student
applications for financial aid give lots of false answers. Tax
returns often conflict, but colleges don't try very hard to
stop fraud. Pell grants for the well off.''
[The information referred to follows:]
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Mr. Horn. Having been a college administrator that took a
great deal of pride in a very efficient financial aid office,
I'm obviously unhappy when 10 years later I see that sort of a
headline. We need to do something about it. You have got the
suggestions, and I commend the Department of Education for what
it's done over the last few years. It's really quite
significant. You are tracking down the delinquent debt.
Mr. McNamara. In closing, Mr. Chairman, I'd just like to
point out that any assessment of Ed's progress in implementing
the act has to take into account the nature of student loans.
They're inherently risky. There is no requirement for
collateral or creditworthiness. Students move around a lot. It
can make it difficult to locate them and collect. So Education
has to balance the social goals of providing access to
education and encouraging higher education with those of the
more strict business-like approach of the Debt Collection Act.
That concludes my summary statement.
[The prepared statement of Mr. McNamara follows:]
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Mr. Horn. We thank you for that fine statement and now we
have D. Mark Catlett, Assistant Secretary for Management and
Chief Financial Officer, Department of Veterans Affairs.
STATEMENT OF D. MARK CATLETT, ASSISTANT SECRETARY FOR
MANAGEMENT AND CHIEF FINANCIAL OFFICER, DEPARTMENT OF VETERANS
AFFAIRS
Mr. Catlett. Good morning, Mr. Chairman. It is my pleasure
to testify on behalf of the Department of Veterans Affairs on
our implementation of the Debt Collection Improvement Act,
DCIA. As VA Chief Financial Officer, I am working closely with
the Veterans Benefits Administration and the Veterans Health
Administration, within the Department, to take the steps
necessary to ensure our compliance with the requirements of
DCIA.
I believe the VA has long been a leader in the Federal debt
management community. Since 1991, the Veterans Benefits
Administration has operated a debt management center in Saint
Paul, MN, which controls and maintains an automated collections
system that has been in existence since 1975. The debt
management center utilizes every collection tool available to
Federal agencies in an operation that emphasizes both the
prevention and collection of debt.
Over the past year we have been moving closer to our goal
of consolidating all significant VA debt programs into one
centralized automated collection system. We have now made
significant progress toward automating the billing and payment
process of the first party medical receivables at centralized
sites, and we have laid the groundwork for consolidating the
management of these debts under the debt management center.
Enactment of DCIA provides Federal collection officials
with some new collection tools, and it also imposes on these
officials some new requirements. Let me expand briefly on some
of our responses to the earlier written inquiry by this
subcommittee.
Concerning administrative offsets and cross-servicing, VA
is preparing an initial referral from our debt management
center to Treasury of certain debts delinquent more than 180
days. We have released notification to the referral candidates
in March, and we will make the actual referrals to the Treasury
during this month of April. About 39,000 notices were released,
representing debts valued at $201 million.
Our debt management center is working with OMB and Treasury
to explore the possibility of becoming a cross-server of
government debt under the DCIA. In regards to this objective,
our debt management center will be submitting a debt collection
business plan to OMB, and on April 8, last week, we submitted a
cross-servicing application to the Department of Treasury.
These documents will serve as the basis for our upcoming
discussions with OMB and Treasury.
The debt management center has been successful in
collecting its own delinquent claims, using all appropriate
collection tools, such as Federal salary offset, tax refund
offset, and the use of credit reporting agencies and private
collection agencies.
The debt management center also has an extensive management
reporting system, all of which indicates, in my belief, the
debt management center's ability to collect the debts of other
agencies and to provide incremental servicing of any collection
function as necessary.
On debt sales, VA has a highly efficient process for
selling loans and generally executes three loan sales a year.
In the three sales for fiscal year 1996 plus the first sale in
this fiscal year, VA sold a total of 24,248 loans with a
balance of almost $1.7 billion.
On the tax identification number, in January 1997, the VA
notified commercial vendors who did not have TIN information on
file with us that they must supply such information in order to
receive payment. Of the more than 260,000 vendors with which we
conduct business, there were 46,000 for which we did not have
TIN information in January. Today, we have reduced that number
to less than 5,000.
VA currently maintains Social Security information for the
vast majority of our benefit payment recipients. In addition,
new applicants for VA benefits are now requested to provide
their Social Security numbers.
Again, in closing, I would like to thank you for the
opportunity to present our progress in the implementation of
the DCIA.
[The prepared statement of Mr. Catlett follows:]
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Mr. Horn. Well, I appreciate that testimony. We will have a
number of things to discuss later on all of these. Thank you
for summarizing.
Anne Donovan is from the Office of Child Support
Enforcement, Department of Health and Human Services, and I
believe you were going to be accompanied by Mr. Strader. I
don't know if he's here or not; is that correct?
Ms. Donovan. I was unaware I was being accompanied by him
until I saw your list, so I don't know. I am sorry.
Mr. Horn. Is he here at all?
Ms. Donovan. He's not here.
Mr. Horn. Go ahead.
STATEMENT OF ANNE DONOVAN, OFFICE OF CHILD SUPPORT ENFORCEMENT,
DEPARTMENT OF HEALTH AND HUMAN SERVICES
Ms. Donovan. Thank you. Good morning Mr. Chairman and
members of the subcommittee who are here. I am pleased to
appear before you today to testify on implementation of the
Debt Collection Improvement Act of 1996. My testimony will
focus on the use of the act to collect child support owed on
behalf of millions of our Nation's children.
The goal of the child support enforcement program is to
ensure that children are financially supported by both their
parents. Today, when high divorce rates translate into a host
of social problems, it is more important than ever to reaffirm
that both parents have a responsibility to support their
children.
As you have noted, Mr. Chairman, President Clinton has made
improving child support enforcement and increasing child
support collections a top priority. The Debt Collection
Improvement Act contains provisions that will significantly
assist States' efforts to that end and will complement the
enforcement tools included in the new welfare reform law, and
we thank you and Congresswoman Maloney and this committee for
that.
To ensure that the full force and effect of the Debt
Collection Improvement Act are brought to bear on parents that
refuse to support their children, the President issued
Executive Order 13019 on September 28, 1996, mandating
Executive agencies to take specific actions to implement the
law. The order requires all Federal departments and agencies to
take necessary and legal steps to deny Government loans, such
as small business loans, farm loans and home loans, to
nonsupporting parents. The order also calls for collection of
past due support through an administrative offset program which
can identify people who receive Federal payments and who owe
child support. This would allow support debts to be deducted,
for example, from fees paid to Government consultants and
vendors; funds that could otherwise be paid to families.
Since tax refunds and Federal salary payments have been
available for attachment to pay child support debts for many
years, we anticipate that the category of ``vendor
miscellaneous payments,'' where an individual payee can be
identified, will result in the bulk of child support offsets
under this program. An estimated 16,152,000 annual vendor
miscellaneous payments are scheduled to be in the system, and
Treasury estimates a significant amount of these payments have
potential for administrative offset for child support
enforcement purposes.
The Office of Child Support Enforcement has been working
closely with the Department of Treasury and has convened a
joint work group to identify and resolve potential
implementation problems. We have taken the initiative to ensure
that all State CSE agencies are fully apprised of the potential
for administrative offset, and we have worked hard to promote
the new program for all States which have the current systems
capability to utilize it.
We contacted all child support enforcement programs to
discuss implementation capability, a critical issue given
States' focus now on their new responsibilities under welfare
reform. States fell into categories: those which could begin
implementation immediately or within a few months, and those
which require significant systems modifications or needed
enabling legislation, signaling the need for a phased-in
approach.
However, we anticipate that all States would be able to
participate in the Treasury offset program by January 1998,
when the tax refund offset program will be merged with
Treasury's offset program at Treasury's Financial Management
Services. Federal tax refunds will then become one of the many
Federal payments offset in the Treasury offset program.
As a result of our activities, we have already begun to
identify cases which are eligible for administrative offset.
During the week of April 7th, as you heard, we issued pre-
offset notices for three States, Arizona, Kansas and South
Dakota, and offsets are scheduled to begin on May 12th.
This week pre-offset notices were sent out for Connecticut
and the District of Columbia, and offsets on behalf of those
cases should begin also in mid-May. Today, we received notice
from California that they were certifying half a million cases,
almost triple what we had received so far. Notices for them
will go out next week and offsets will begin in mid-May. A
number of other States will join the administrative offset this
year.
We will continue to work closely with the remaining States
to resolve the issues impeding their participation. The Office
of Child Support Enforcement was the first agency to
participate in the tax refund offset program for past due child
support collections, and to date we have collected over $7.4
billion. Last year the States submitted over 5.3 million cases
through the Office of Child Support Enforcement to the Internal
Revenue Service for offset, resulting in record breaking
collections totaling over $1.02 billion.
Given this experience, we are very excited about
participating with Treasury in this new program, and we want to
ensure that it's carefully planned and implemented with maximum
participation by the State child support agencies. We believe
that this collaborative partnership is essential to guarantee
that the program succeeds.
In conclusion, Mr. Chairman, this administration is fully
committed to utilizing the resources provided by the Debt
Collection Improvement Act for the enforcement of child
support. The Office of Child Support Enforcement will continue
to work closely with the Department of Treasury and our State
partners to ensure the full implementation of Executive Order
13019, which will certainly result in enhancing the collection
of desperately needed child support for the children of
America.
Thank you again, and to your subcommittee, for the
opportunity to testify, and I would be happy to answer any
questions.
[The prepared statement of Ms. Donovan follows:]
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Mr. Horn. Well, we thank you very much for coming. I am
going to pursue a few questions with each of you, and then in
the interest of time we will submit the rest to you and, if you
don't mind, file the answers for the record. We will put them
in at this point.
Let's start with you, Mr. McNamara, on education. Many of
the delinquencies in education are as a result of fly by-night
trade schools or fly by-night correspondence schools. Can the
Department implement performance measurements for trade schools
and correspondence schools which measure their success in
graduating and employing students and use that information as a
basis for cutting off schools that are abusing the process?
Mr. McNamara. Mr. Chairman, we think that would be an
excellent approach that would prevent many of these defaults
and would also prevent many of these students from becoming
victimized by the types of trade schools that you just
mentioned. We think that it is absolutely imperative. Our
Inspector General Tom Bloom always says what you measure you
get. If the Department, I think, started measuring performance
by these trade schools, you would see a significant increase.
This is going to take a change right now, and I think it is
something we are pushing for in reauthorization. We have not
yet seen what the Department's approach is going to be.
Mr. Horn. As I remember, you have got an 85/15 formula in
this area, don't you?
Mr. McNamara. Yes, sir.
Mr. Horn. Has that been of any help?
Mr. McNamara. We are looking into that right now. I think
GAO is doing some work. It is a little bit too early to tell. I
don't think we have seen much result from what we know now of
schools being kicked out as a result of failing the 85/15. I
don't know how effective it is working.
Mr. Horn. I didn't even know about it. As a university
president, I didn't know anything about it. I was walking
across the floor one day and Maxine Waters was on the floor
taking on the Education Committee, and what she said made sense
to me. So I joined her in taking on the Education Committee.
Mr. Ford was then the chairman and we forced a vote in the
103d--the Democratic Congress--and we lost. Guess why? I mean
there is a lot of PAC money floating around somewhere from
trade schools and others, and it is pretty disgusting.
So we will try to deal with that, and hopefully you will
get the authorization committee to deal with it and we will
take a look at it. That needs its own investigation, I think.
Mr. McNamara. During reauthorization, Mr. Chairman, there
are other areas that I have mentioned in my testimony in which
we think changes would also be of benefit to the Debt
Collection Improvement Act, the plus loan limits and some of
the others. The ICR contingent repayment has some possibility
of being costly as well, so these might all be issues that
should be looked into.
Mr. Horn. That's a good point. One other item that I was
interested in--apparently your office's audit work indicates
that the Government is losing $800,000 per day by giving out
loans to individuals who have defaulted on prior loans. Is that
correct?
Mr. McNamara. That is correct, Mr. Chairman, but we had
done an audit several years ago and we found that the lack of
an edit allowed that much money to be hemorrhaging. And it was
about $300 million a year, our estimate, and that turned out to
be conservative. The Department took prompt action to put the
edit in, and it started kicking out a lot of these individuals.
What we found in recent work is that the student aid
report, the document that goes to the college for the financial
aid administrator to make the award, is flagged, saying this
person has a previous default. What we are finding is that
there is a disturbing number of cases where these financial aid
administrators are awarding over top of this flag and people
who have previous defaults that haven't been taken care of are
receiving additional aid.
Mr. Horn. What do you suggest is the solution to that
problem? Can the Department under its administrative authority
just start cutting off aid or lowering it based on incompetence
among some financial aid administrators?
Mr. McNamara. We think the easiest way to fix it would be
if it hit the default match that a valid SAR not be issued, and
just come and say that Joe is default and no aid can be
issued----
Mr. Horn. When you say a SAR, translate that. What is it?
Mr. McNamara. A student aid report. This is the document
that comes to the college that shows how much student aid the
student is eligible for. And what we believe is there should
not be a valid student aid report issued if you're in default.
You should have to clear it up. There is some concern that this
would be an inconvenience to the student borrower, but our
position is that if you are in default you probably should bear
a little inconvenience.
Mr. Horn. Good attitude. Thank you very much for your
comments on that, and the rest we will just file with you, if
you would be good enough to answer them for the record.
Mr. Catlett, on the Veterans Administration, I have one
question which I always ask a person in your position. You are
not only the Chief Financial Officer, you are the Assistant
Secretary for Management. How much time do you spend being
Chief Financial Officer?
Mr. Catlett. Being Chief Financial Officer?
Mr. Horn. Yes, how much time in the 8-hour day do you spend
on Chief Financial Officer duties?
Mr. Catlett. Well, as you know, I'm CIO as well as the CFO,
and all of my time is spent on those two responsibilities. I'd
have trouble--I can do it for the record if you would like,
splitting between the two. But I don't know the distinction
that you are trying to make between the Assistant Secretary for
Management and the CFO.
Mr. Horn. Well, you are Assistant Secretary for Management.
Mr. Catlett. Yes, sir.
Mr. Horn. And you are Chief Financial Officer; is that
right?
Mr. Catlett. Yes, sir.
Mr. Horn. And you are Chief Information Officer?
Mr. Catlett. Yes, sir.
Mr. Horn. How many hours do you spend on each function
every day?
Mr. Catlett. I split those functions equally, as I look at
it, between the financial office responsibilities and the
information office responsibilities.
Mr. Horn. So you are doing the work of three people?
Mr. Catlett. Well, I view my job as the Assistant Secretary
for Management to be doing those two things, primarily.
Mr. Horn. Well, the reason I ask the question, I haven't
had to really deal with VA much, although I am going to hold a
joint hearing in the next few months, I might as well warn you,
on your computer situation, because we had some discussions
with the veterans' committee on that.
My frustration, and the same goes with the Treasury
Assistant Secretary CFO, I don't know if he is the CIO, too, is
that we are not getting the job done. There is no way one
person can do those three jobs and I don't understand why
cabinet officers permit that, and so you have got my bias right
up front.
Mr. Catlett. Yes, sir.
Mr. Horn. And the reason IRS is the basket case of the
administration is because Treasury has never spent the time to
focus in on their financial thing. They will not be able to
submit this Congress, which, under the law, 5 years ago, said,
by September 1997 you have to be able to get a balance sheet.
They don't have one. Guess why. Nobody is riding them on it.
Will the VA have a balance sheet by September?
Mr. Catlett. Yes, sir.
[The information referred to follows:]
[GRAPHIC] [TIFF OMITTED] 44176.100
[GRAPHIC] [TIFF OMITTED] 44176.101
Mr. Horn. OK. Well, great. We will take a look at it.
Anyhow, that whole conflict there of three officers that the
Congress has separately established just does not set well with
me. To me, one of those jobs is 18 hours a day, and three of
them, we don't have that many hours to worry about.
OK. The Veterans Health Administration, third party medical
debts, were they ever referred in the General Services
Administration contract for private collection agencies?
Mr. Catlett. No, sir, I don't believe so. And, again, as
you understand, we have an interesting situation. They are not
delinquent debt, even though we have a definition question
there. It is a receivable, and it is a contractual relationship
we have with that third party. We obviously have the
complication at the VA of having to bill our per diem rate and
receiving a payment less than that rate because of the
adjustments they make for Medicare adjustments and other things
that we do not and cannot collect. So, we will use private
collection agencies, but I don't believe we use the GSA
collection contract.
Mr. Horn. Do you intend to refer them to the Treasury,
Financial Management Service?
Mr. Catlett. The third party specifically we will not. All
of our other debts were referred there. If we have a
disagreement on the third party with our insurers, we will
generally refer that to our district counsel, and if it is
large enough, we refer it to the Department of Justice for
action.
Mr. Horn. We will followup on that with you. There are
perhaps a few more questions we need to ask there.
Is the Veterans Health Administration, VHA, reluctant to
refer debts to private collection agencies? What is your
understanding of the Veterans Health Administration policy,
within the VA?
Mr. Catlett. Well, again, I think that would apply to what
I call our first party debt, the debt of the veterans
themselves, and in most cases, many of those are very, very
small. Our average is just for the co-payment for
prescriptions, which is in the range, sometimes, of less than
$10. The average is less than $10. So, I don't think would be
very beneficial. For larger debts, yes, we will consider that,
and I would provide you for the record our action there, but in
large part, the debt of the individual veterans in our health
care is very, very small.
[The information referred to follows:]
The GSA contract under which VA refers debt to private
collection agencies specifies that only debts of $100 or more
may be referred. This threshold effectively eliminates most of
VA's first-party portfolio from consideration for referral to a
private collection agency. Once VA has consolidated the
management of first-party debt at our Debt Management Center,
we can refer to private collection agencies that small
percentage of debts that are over $100 and that VA is unable to
collect in house. Since private collection agencies have
historically been able to collect only about one and one half
percent of VA benefit debts that VA could not collect in house,
we do not expect that these referrals will generate a dramatic
increase in collections.
Mr. Horn. What is the cutoff mark on when you decide to
collect the debt and when you don't? I mean, what level are we
talking of debt that you would deal with in referring for
collection?
Mr. Catlett. I will have to provide that for the record. In
terms of a collection agency, we will pursue the debt no matter
how small it is and we do that with the tools we have.
[The information referred to follows:]
As stated above, the GSA contract under which VA refers
debts to private collection agencies specifies that only debts
totaling at least $100 may be referred.
Mr. Horn. Well, I guess our curiosity when the staff
reviewed this is why has the Veterans Health Administration not
referred the debts to their own agency's debt management center
before, and the question obviously arose, is it because the
debt management center is in the Veterans Benefit
Administration, rather than the Veterans Health Administration?
Do we have a little turf problem there?
Mr. Catlett. We have been addressing that, Mr. Chairman. We
began referring that debt this year. We have a pilot under way,
and I will provide for the record the schedule for when we will
refer all of our first party debt to the debt management
center.
That process has begun. I would not agree with your
statement, but recognize your position that there has been an
issue of folks pursuing their efforts and their activities, and
our coordinating that, and the need to do that a little better.
We have recognized that and have begun that process, and the
referrals have begun. We have done a pilot in Pennsylvania and
we will expand that throughout this next year, and we will
provide for the record our schedule for referring all first
party debt to our debt management center.
Mr. Horn. Thank you. We will followup on that with various
questions.
[The information referred to follows:]
We are currently developing programming to refer first-
party medical receivables that are at least 90 days old to our
Debt Management Center. We are currently testing referrals from
our medical center in Altoona, Pennsylvania.
We are currently developing a model for a new debt
collection database system in order to evaluate the feasibility
of centralized management of all VA first-party debt. We plan
to have the data model and process model for this system
completed by October 1997. We will perform a cost benefit
analysis to determine if we should proceed with developing this
system. If the analysis is positive, we will then formulate a
time table for Department-wide implementation.
[GRAPHIC] [TIFF OMITTED] 44176.102
[GRAPHIC] [TIFF OMITTED] 44176.103
Mr. Horn. Now we are going to talk a little bit about
agriculture. The General Accounting Office, Mr. David, has
reported that certain agencies, including the Farmers Home
Administration and some State guarantee agencies in the student
loan program are not counting as delinquent some accounts for
which the Government has not received payment for years. These
billions of dollars in delinquencies would make the dismal debt
picture even worse. Are these delinquencies still unreported?
Is the U.S. Department of Agriculture complying with OMB
guidance on this issue?
Mr. David. To the best of my knowledge, we are complying
with all OMB guidance, but I would like to get additional
information on the specific referral and we will provide a more
detailed response for the record.
Mr. Horn. OK.
Then we have, Ms. Donovan. Commissioner Adams noted his
success in Massachusetts in collecting child support using wage
garnishment. Over two-thirds of Massachusetts' total child
support collections are collected in this matter. Is this a
tool we ought to have at the Federal level to collect child
support?
Ms. Donovan. We do have it, Mr. Chairman. We have mandatory
wage withholding in all cases.
Mr. Horn. I'm sorry, I didn't hear that.
Ms. Donovan. We have mandatory wage withholding now in all
cases, all States.
Mr. Horn. And you have no problem getting access to where
these people are?
Ms. Donovan. No, we don't.
Mr. Horn. So you would say in your case, you don't need any
additional law to use other agency records; is that right?
Ms. Donovan. With this expanded Federal parent locator
system that we are building, the national directory of new hire
information will be in there as well as information from all of
the State central registries of orders. We will have quarterly
wage data in the system. We will have unemployment insurance
information. So we will have plenty of information in that data
base. It still, as you know, is very difficult to find people
across State lines. Thirty percent of our case load are
interstate cases but these tools will help us enormously.
Mr. Horn. Well, we thank you very much. We might have a few
other questions to send you and we will put them in the record
at this point.
With that, I wonder if Commissioner Morris--you have been
sitting there quietly taking a few notes now and then. Would
you like to add anything for the record?
Mr. Morris. No, thank you, Mr. Chairman. I believe my boss,
Mr. Murphy, has covered the subject pretty well.
Mr. Horn. Such a wise decision. That is why I like your
agency.
I want to thank each of the witnesses for sharing with us
your experience. I wish you well. We are going to hold another
hearing just like this in 6 months and I hope we have a lot
more delinquent debt that is moved over and various varieties
of collection are being effectively run to get that in.
I now want to thank the following people on the staff, both
majority and the minority, for establishing this hearing. J.
Russell George, the staff director of the Subcommittee on
Government Management, Information, and Technology, does a
tremendous job. The gentleman on my left, Mark Brasher,
professional staff member, who is responsible for both the
original measure in getting it through at a staff level, and
also for the various hearings we have held. And John Hynes,
professional staff member, who I don't see here, but he has
worked to get this hearing suitably publicized, and Andrea
Miller, our hard working clerk over there in the corner.
And on the minority side, we have David McMillian,
professional staff member; Mark Stephenson, professional staff
member; and we have our faithful court reporters, Joe
Strickland and Katrina Wright. We thank you all. Thank you very
much, ladies and gentlemen.
We are adjourned.
[Whereupon, at 12:37 p.m., the subcommittee was adjourned.]
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