[House Hearing, 106 Congress]
[From the U.S. Government Publishing Office]




 OVERSIGHT OF THE IMPLEMENTATION OF THE DEBT COLLECTION IMPROVEMENT ACT

=======================================================================

                                HEARING

                               before the

                 SUBCOMMITTEE ON GOVERNMENT MANAGEMENT,
                      INFORMATION, AND TECHNOLOGY

                                 of the

                              COMMITTEE ON
                           GOVERNMENT REFORM

                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED SIXTH CONGRESS

                             SECOND SESSION

                               __________

                              JUNE 8, 2000

                               __________

                           Serial No. 106-216

                               __________

       Printed for the use of the Committee on Government Reform


  Available via the World Wide Web: http://www.gpo.gov/congress/house
                      http://www.house.gov/reform

                               ----------

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71-742                     WASHINGTON : 2001


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                     COMMITTEE ON GOVERNMENT REFORM

                     DAN BURTON, Indiana, Chairman
BENJAMIN A. GILMAN, New York         HENRY A. WAXMAN, California
CONSTANCE A. MORELLA, Maryland       TOM LANTOS, California
CHRISTOPHER SHAYS, Connecticut       ROBERT E. WISE, Jr., West Virginia
ILEANA ROS-LEHTINEN, Florida         MAJOR R. OWENS, New York
JOHN M. McHUGH, New York             EDOLPHUS TOWNS, New York
STEPHEN HORN, California             PAUL E. KANJORSKI, Pennsylvania
JOHN L. MICA, Florida                PATSY T. MINK, Hawaii
THOMAS M. DAVIS, Virginia            CAROLYN B. MALONEY, New York
DAVID M. McINTOSH, Indiana           ELEANOR HOLMES NORTON, Washington, 
MARK E. SOUDER, Indiana                  DC
JOE SCARBOROUGH, Florida             CHAKA FATTAH, Pennsylvania
STEVEN C. LaTOURETTE, Ohio           ELIJAH E. CUMMINGS, Maryland
MARSHALL ``MARK'' SANFORD, South     DENNIS J. KUCINICH, Ohio
    Carolina                         ROD R. BLAGOJEVICH, Illinois
BOB BARR, Georgia                    DANNY K. DAVIS, Illinois
DAN MILLER, Florida                  JOHN F. TIERNEY, Massachusetts
ASA HUTCHINSON, Arkansas             JIM TURNER, Texas
LEE TERRY, Nebraska                  THOMAS H. ALLEN, Maine
JUDY BIGGERT, Illinois               HAROLD E. FORD, Jr., Tennessee
GREG WALDEN, Oregon                  JANICE D. SCHAKOWSKY, Illinois
DOUG OSE, California                             ------
PAUL RYAN, Wisconsin                 BERNARD SANDERS, Vermont 
HELEN CHENOWETH-HAGE, Idaho              (Independent)
DAVID VITTER, Louisiana


                      Kevin Binger, Staff Director
                 Daniel R. Moll, Deputy Staff Director
           David A. Kass, Deputy Counsel and Parliamentarian
                    Lisa Smith Arafune, Chief Clerk
                 Phil Schiliro, Minority Staff Director
                                 ------                                

   Subcommittee on Government Management, Information, and Technology

                   STEPHEN HORN, California, Chairman
JUDY BIGGERT, Illinois               JIM TURNER, Texas
THOMAS M. DAVIS, Virginia            PAUL E. KANJORSKI, Pennsylvania
GREG WALDEN, Oregon                  MAJOR R. OWENS, New York
DOUG OSE, California                 PATSY T. MINK, Hawaii
PAUL RYAN, Wisconsin                 CAROLYN B. MALONEY, New York

                               Ex Officio

DAN BURTON, Indiana                  HENRY A. WAXMAN, California
          J. Russell George, Staff Director and Chief Counsel
                         Randy Kaplan, Counsel
                           Bryan Sisk, Clerk
                     Michelle Ash, Minority Counsel


                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on June 8, 2000.....................................     1
Statement of:
    Cloyd, Barry G., vice president, sales and marketing, C.B. 
      Accounts, Inc.; chairman, government services program, 
      American Collectors Association, Inc.......................    76
    Engel, Gary T., Associate Director of Government Wide 
      Accounting and Financial Management Issues, Accounting and 
      Information Management Division, General Accounting Office, 
      accompanied by Kenneth Rupar, Assistant Director...........     8
    Gregg, Richard L., Commissioner, Financial Management 
      Service, U.S. Department of the Treasury...................    45
    Jackson, Yvette S., Deputy Commissioner for Finance, 
      Assessment and Management, Social Security Administration..    67
    Powell, Edward A., Jr., Assistant Secretary for Financial 
      Management and Chief Financial Officer, Department of 
      Veterans Affairs...........................................    56
Letters, statements, etc., submitted for the record by:
    Cloyd, Barry G., vice president, sales and marketing, C.B. 
      Accounts, Inc.; chairman, government services program, 
      American Collectors Association, Inc., prepared statement 
      of.........................................................    80
    Engel, Gary T., Associate Director of Government Wide 
      Accounting and Financial Management Issues, Accounting and 
      Information Management Division, General Accounting Office, 
      prepared statement of......................................    11
    Gregg, Richard L., Commissioner, Financial Management 
      Service, U.S. Department of the Treasury, prepared 
      statement of...............................................    49
    Horn, Hon. Stephen, a Representative in Congress from the 
      State of California, prepared statement of.................     3
    Jackson, Yvette S., Deputy Commissioner for Finance, 
      Assessment and Management, Social Security Administration, 
      prepared statement of......................................    70
    Powell, Edward A., Jr., Assistant Secretary for Financial 
      Management and Chief Financial Officer, Department of 
      Veterans Affairs, prepared statement of....................    59
    Turner, Hon. Jim, a Representative in Congress from the State 
      of Texas, prepared statement of............................     6

 
 OVERSIGHT OF THE IMPLEMENTATION OF THE DEBT COLLECTION IMPROVEMENT ACT

                              ----------                              


                         THURSDAY, JUNE 8, 2000

                  House of Representatives,
Subcommittee on Government Management, Information, 
                                    and Technology,
                            Committee on Government Reform,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 10 a.m., in 
room 2154, Rayburn House Office Building, Hon. Stephen Horn 
(chairman of the subcommittee) presiding.
    Members present: Representatives Horn, Turner, Owens, Ose, 
and Maloney.
    Staff present: J. Russell George, staff director and chief 
counsel; Randy Kaplan, counsel; Bonnie Heald, director of 
communications; Bryan Sisk, clerk; Elizabeth Seong, staff 
assistant; Will Ackerly and Chris Dollar, interns; Michelle Ash 
and Trey Henderson, minority counsel; and Jean Gosa, minority 
assistant clerk.
    Mr. Horn. The Subcommittee on Government Management, 
Information, and Technology will come to order.
    The Debt Collection Improvement Act of 1996 created a 
process for Federal departments and agencies to collect tens of 
billions of dollars in delinquent non-tax related debts owed to 
the Federal Government. These delinquencies arise from a 
variety of Federal loan programs for home buyers, small 
business owners and students. The delinquencies also stem from 
agency overpayment made to Federal beneficiaries and vendors.
    This law created a variety of tools and programs designed 
to improve the Federal Government's dismal record of collecting 
its delinquent debts. The act centralized the debt collection 
process by requiring that Federal departments and agencies 
refer debts that are over 180 days delinquent to the Department 
of Treasury for collection.
    At a 1995 hearing to consider this legislation, our 
subcommittee learned that the Federal Government was owed 
almost $50 billion in non-tax related debts. Despite enactment 
of the law, however, that debt grew to $59.2 billion by the end 
of fiscal year 1999. The Treasury Department's Financial 
Management Service operates two programs aimed at collecting 
delinquent, non-tax related debt, an offset program and a 
cross-servicing program.
    Under the offset program, the Federal payments, including 
salary and benefit payments, can be intercepted to satisfy 
delinquent debts, such as defaulted home loans or small 
business loans. The Treasury Department's cross-servicing 
program allows the Department to collect directly from the 
debtor, or refer the debt to a private collection agency.
    For these programs to work, however, agencies must refer 
their delinquent debts to Treasury in a timely fashion. That's 
not always the case. The Department of Veterans Affairs, for 
example, has referred only 1 percent of the Department's 
eligible delinquent debts to the Department's cross-servicing 
program. The Social Security Administration has referred none 
of its eligible delinquent debts for cross-servicing 
collection.
    Today we will hear from witnesses who represent these 
agencies, as well as witnesses representing the Treasury 
Department's Financial Management Service who will discuss the 
implementation of the debt collection program. The General 
Accounting Office will also present the results of its 
comprehensive study of the cross-servicing program which was 
requested by this subcommittee.
    As part of this study the GAO reviewed the Treasury 
Department's efforts to promote timely debt referrals by 
Federal agencies. General Accounting Office investigators also 
reviewed the Department's allocation of delinquent debts to 
private collection agencies. In addition to our Government 
witnesses, we have a representative of the private collection 
agencies that are working with the Government in its debt 
collection effort.
    [The prepared statement of Hon. Stephen Horn follows:]

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    Mr. Horn. We welcome our witnesses and we look forward to 
their testimony. And I now yield to the gentleman from Texas, 
the ranking member, Mr. Turner, for his opening statement.
    Mr. Turner. Thank you, Mr. Chairman.
    We know that billions of dollars in non-tax debt are owed 
to the Federal Government. Recognizing that our collection 
practices were inadequate, this subcommittee under the 
leadership of Chairman Horn in 1996 passed the Debt Collection 
Improvement Act. This law expanded existing tools and 
established new tools to assist the Government in collection of 
debt.
    I certainly want to commend the chairman, who's due much 
credit for the work that has been done in this area. Chairman 
Horn has been very diligent in trying to provide the Federal 
Government with greater capacity to collect debt.
    I also would like to commend the leadership of my colleague 
from New York, Congresswoman Carolyn Maloney, who has continued 
in her efforts, initiated back with the chairman, as the 
ranking Democrat on this subcommittee, in an effort to improve 
our debt collection practices.
    As a result of their efforts and the efforts of many people 
who are in this room today, we are beginning to reap the 
benefits of a more centralized debt collection system. Within 
the last 3 years, the Federal Government's centralized debt 
collection activities at the Financial Management Service has 
begun to work. In fiscal year 1999, increased management 
attention by program agencies and improved use of debt 
collection tools by the Treasury resulted in major advancements 
in our debt collection efforts.
    Collection by the Treasury on non-tax debt for the year 
totaled $2.6 billion. Tax refund offset collections totaled 
$2.6 billion as well. That is an increase of more than $570 
million over 1998.
    So far this year, we've collected $2.4 billion in non-tax 
collections through the offset of income tax refunds. Clearly, 
there has been improvement in the Government's debt collection 
efforts, and I commend the Treasury and the agencies for their 
work.
    However, as we will hear, many challenges remain ahead of 
us. I am concerned to learn many agencies have not done a 
thorough job of referring all of their eligible debt to the FMS 
for collection activities. Additionally, the delinquent debts 
agencies refer to FMS are generally much older than the 180 
days required by law, and therefore makes recovery more 
difficult.
    Questions have also arisen concerning the manner in which 
FMS is referring debts to the private collection agencies under 
contract with the Government. As a part of our oversight 
responsibility, this subcommittee is meeting today to discuss 
Federal agency implementation and compliance with the Debt 
Collection Act. It is my hope that as a result of this hearing 
we will be closer to meeting our goal of having an efficient, 
effective and equitable Federal debt collection system.
    Again, I commend the chairman for his focus on this issue, 
and I welcome each of our witnesses here today.
    [The prepared statement of Hon. Jim Turner follows:]

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    Mr. Horn. I thank the gentleman, and you'll be hearing 
about his legislation in the months ahead.
    And I now yield to the gentleman from New York, Major 
Owens, for an opening statement.
    Mr. Owens. No statement, Mr. Chairman.
    Mr. Horn. OK, thank you very much.
    You know, I think most of you have been here before. But 
the process here is that when we introduce you along this 
agenda line, your full written statement is automatically part 
of the record. We would like you to summarize that position in 
about 5 minutes so we can have a dialog between the Members and 
the witnesses and among the witnesses as to how we might 
improve the act and what we're doing either on the Hill and in 
the administration.
    And all witnesses, since this is a Government Reform 
Subcommittee, all witnesses have to take the oath in order to 
testify. So if you will stand, raise your right hands. And if 
there's any backup assistance, have them stand, too. Clerk will 
take their names. So let's get all the oaths at once.
    OK, we have one, two, three, four, five backup, one, two, 
three, four, five, six witnesses.
    [Witnesses sworn.]
    Mr. Horn. The clerk will note all have affirmed. And make 
sure we have the names.
    Thank you very much. And we will now start with Gary T. 
Engel, the Associate Director of Government Wide Accounting and 
Financial Management Issues of the Accounting and Information 
Management Division of the U.S. General Accounting Office, 
which are the eyes and ears of the legislative branch in both 
programmatic and fiscal matters and now debt matters. Mr. Engel 
is accompanied by Kenneth Rupar, the Assistant Director.
    Mr. Engel.

 STATEMENT OF GARY T. ENGEL, ASSOCIATE DIRECTOR OF GOVERNMENT 
WIDE ACCOUNTING AND FINANCIAL MANAGEMENT ISSUES, ACCOUNTING AND 
  INFORMATION MANAGEMENT DIVISION, GENERAL ACCOUNTING OFFICE, 
        ACCOMPANIED BY KENNETH RUPAR, ASSISTANT DIRECTOR

    Mr. Engel. Mr. Chairman and members of the subcommittee, 
good morning, thank you.
    It is a pleasure to be here today to discuss our review of 
Treasury's progress in implementing the cross-servicing 
provision of the Debt Collection Improvement Act of 1996. As 
you know, OMB has designated implementation of this 
legislation, which this subcommittee was highly instrumental in 
passing, one of the Government's priority management objectives 
to modernize and improve Federal financial management.
    You asked that we address the effectiveness of Treasury's 
use of the cross-servicing tool, which involves the transfer of 
non-tax debt over 180 days delinquent to Treasury's Financial 
Management Service. I will briefly focus on four issues. First, 
the success of FMS' program significantly depends on agencies 
identifying and promptly referring eligible debt. While FMS has 
taken several steps, including various outreach efforts, to 
encourage agencies to refer eligible debt, thus far the results 
have been limited.
    Since inception of the program in September 1996 through 
May 1999, almost half of the dollar amount of referred debts 
were over 4 years delinquent. Industry experience shows that 
the likelihood of recovering amounts owed decreases 
dramatically as debts age. The old adage that ``time is money'' 
is very relevant in the debt collection area.
    Collection possibilities are also hampered by the low 
percent of debts eligible for cross-servicing. Of the $59.2 
billion of delinquent debt reported as of September 30, 1999, 
about 89 percent has been excluded from cross-servicing 
requirements. FMS reported that through April 2000 only $3.7 
billion has been referred to it since inception of the program.
    Even when agencies referred debts, the debts were not 
always valid or legally enforceable, and thus not eligible for 
cross-servicing. Based on our analysis of 200 delinquent debts 
referred to FMS, we found 22 debts that were invalid or 
involved debtors that were either deceased or in bankruptcy.
    The second issue in question involved the Treasury's cross-
servicing process for collecting referred debts. Treasury has 
established standards for agencies wanting to be a debt 
collection center and has granted certain agencies waivers or 
exemptions which allow them to perform collection activity for 
certain of their own debts. In addition, three agencies applied 
to Treasury to be governmentwide debt collection centers. But, 
Treasury determined that these agencies did not have the needed 
capabilities, so they were denied approval.
    As such, today, FMS is the sole operator of a 
governmentwide cross-servicing debt collection center. FMS' 
center had well developed standard operating procedures. But, 
our tests showed that its staff did not always follow them. For 
96 of the 200 debts we reviewed, we found no evidence that FMS' 
collectors tried to contact the debtors who did not respond to 
demand letters. For 29 of the 46 demand letters in our sample 
that were returned as undeliverable, FMS' debt history files 
contained no evidence that FMS' collectors performed the 
required skip tracing to locate the debtors.
    Contributing to these results were some large influxes of 
debts that were received by FMS during our test period. 
Concerning collection agreements, we selected and reviewed 78 
compromised debts and typically found no evidence that FMS 
collectors adhered to key requirements, such as analyzing the 
debtor's ability to pay before agreeing to the compromise 
amount.
    FMS also often did not adhere to repayment agreement 
timeframes. Despite a 3-month repayment limit, the terms of 30 
of the 32 compromise agreements that we reviewed exceeded the 
limit, on average by 54 months.
    The third issue you were interested in involved how FMS 
distributed debts to private collection agencies. FMS intended 
its methodology for such distributions to be performance based. 
Distributions were generally made biweekly by placing all 
available debts into a pool and systematically distributing 
them. Our analysis of FMS' distribution of debts to PCAs from 
February 1998 through February 2000 showed that 1 of the 11 
PCAs had received a significantly higher percentage of the 
debts with smaller balances. This PCA also received a 
significantly higher percentage of the total number of debts 
that were less than 1 year delinquent.
    One contributing factor to these distribution results was 
that the debts within the distribution pools were generally not 
homogeneous. Collection industry experience, as well as FMS' 
collection experience, have shown that collection rates are 
generally higher on less delinquent debts and those with 
smaller dollar balances.
    Finally, fees charged by FMS to referring agencies have not 
covered FMS' estimated fiscal year 1999 cross-servicing costs. 
Based on our analysis, cross-servicing collections would have 
to be over seven times as much as that for fiscal year 1999 for 
this program to operate on a break-even basis.
    In summary, for FMS' cross-servicing program to become a 
fully implemented and mature program, challenges lie ahead that 
FMS as well as agencies must overcome. These challenges are 
magnified since, as delinquent debt ages, the likelihood of 
collection diminishes. To assist in addressing these issues, we 
plan to issue a report with recommendations.
    Mr. Chairman, this concludes my testimony. I would be 
pleased to answer any questions.
    [The prepared statement of Mr. Engel follows:]

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    Mr. Horn. Well, we appreciate the thoroughness with which 
you've looked at this matter, and we do look forward to any 
further recommendations you want to make.
    Next is Richard L. Gregg, the Commissioner of the Financial 
Management Service of the Department of the Treasury.

    STATEMENT OF RICHARD L. GREGG, COMMISSIONER, FINANCIAL 
      MANAGEMENT SERVICE, U.S. DEPARTMENT OF THE TREASURY

    Mr. Gregg. Mr. Chairman and members of the subcommittee, 
thank you for giving me the opportunity to update you on the 
progress of the Financial Management Service in implementing 
the Debt Collection Improvement Act of 1996. As always, FMS is 
grateful for the subcommittee's support for its governmentwide 
debt collection program.
    I am pleased to report that during this past year, FMS has 
continued to make significant strides in carrying out the 
provisions of this landmark legislation. The Treasury 
Department is firmly committed to the successful operation of 
the governmentwide debt collection.
    Federal debt collection is a highly complex and ever 
expanding program, one that requires active participation and 
support from Federal program agencies, States and private 
collection agencies. In addition to carrying out the 
requirements of the DCIA, in January, FMS began collecting 
State income tax debt as mandated by the 1998 IRS Restructuring 
and Reform Act.
    Next month, FMS will initiate the continuous tax levy 
program as authorized by the 1997 Taxpayer Relief Act, to 
collect delinquent Federal tax debt. FMS developed these 
important programs, I might add, in conjunction with 
undertaking an intensive 2 year effort that successfully 
modified FMS' mission critical systems for a smooth and 
uninterrupted transition to the year 2000.
    Mr. Chairman, FMS has moved swiftly on each of these major 
collection initiatives and has concurrently implemented 
appropriate administrative safeguards and controls. 
Nevertheless, challenges do lie ahead. This morning, I will 
provide a status report on FMS' debt collection efforts using 
the Treasury Offset Program [TOP], and the cross-servicing 
program, including the important contract work of private 
collection agencies. Finally, I will discuss our most recent 
program enhancements aimed at increasing future collections.
    As I reported last year, the Tax Refund Offset and Treasury 
Offset Programs were successfully merged in January 1999. For 
calendar year 1999, collections through the offset of income 
tax refunds totaled $2.6 billion, an increase of more than $570 
million over 1998. An increase of this magnitude in such a 
short period of time, I believe, represents a most impressive 
achievement.
    This calendar year to date, we have collected almost $2.4 
billion. This figure includes almost $1.3 billion in delinquent 
child support payments and $1.1 billion in non-tax debt 
collections. Collecting $1.3 billion in overdue child support 
debts, Mr. Chairman, is a reflection of Secretary Summers' 
commitment to supporting our children and strengthening 
American families.
    The dollar amount of delinquent debt referred to TOP by the 
program agencies continues to increase. As of September 1999, 
$31.3 billion in Federal delinquent debt was eligible for 
referral. And as of May 31 of this year, $25.4 billion, or 81 
percent of that amount, has been referred. This represents an 
increase of $16.6 billion in referrals since 1997.
    The TOP Customer Assistance Center, located in Birmingham, 
AL, provides toll-free telephone customer service 7 days a 
week. During peak workload periods, up to 100 center 
representatives answer questions regarding tax refund and other 
offsets and provide agency contact information. The center has 
already responded to more than 2 million phone calls during the 
2000 tax season. Furthermore, FMS prides itself on its track 
record of timeliness, fairness and balance in responding to all 
inquiries.
    Mr. Chairman, I will now discuss the newest addition to the 
TOP system, the State income tax debt offset program. This 
program entails offsetting Federal income tax refunds to 
collect delinquent State income tax debt. Since launching the 
State income tax program in January of this year, seven States 
including Delaware, Illinois, Iowa, Kentucky, Maryland, 
Missouri, and New Jersey have referred $362 million in 
delinquent State income tax debts. As of May 31, 2000, 
collections have exceeded $20 million and participating States 
have been greatly enthusiastic and see enormous potential for 
growth. Additional States will be added as they become ready.
    Under cross-servicing, agencies refer debt to FMS for 
collection that have been delinquent for more than 180 days. 
Upon receiving debts for cross-servicing, FMS' Birmingham Debt 
Collection Center attempts to collect the delinquent debt by 
using a variety of approaches, including demand letters, 
telephone followup and administrative offset. If, at the end of 
30 days, the debt has not been collected or a repayment 
agreement has not been negotiated, it is referred to 1 of the 
11 private collection agencies on FMS' contract.
    Since the establishment of this program in September 1996, 
$63.4 million has been collected and repayment agreements total 
$160.4 million. As of May 31 of this year, fiscal year to date, 
total collections are $28.6 million, which is more than the 
$23.5 million that was collected in all of fiscal 1999.
    Currently, 62 percent, or $3.95 billion of the $6.4 billion 
of delinquent debt eligible for cross-servicing has been 
referred to FMS. This represents an increase of approximately 
$2 billion in referrals over fiscal 1998. Progress in 
increasing referrals has been slow; nevertheless, FMS will 
continue to press and encourage agencies on this front and we 
expect further progress. Attached is a report on the 10 
agencies with the largest dollar amounts eligible for cross-
servicing.
    Private collection agencies are an integral and critical 
part of the cross-servicing program. Referring debts to the 11 
PCAs under contract with the Treasury Department allows these 
agencies to bring their unique expertise, systems, and 
techniques to the cross-servicing program. These specialized 
skills and methods have not been, nor should they be, 
replicated by FMS' cross-servicing operation. The contract for 
the services of private collection agencies is, first and 
foremost, performance based. FMS continues to work diligently 
to ensure that the terms of the contract are met.
    As the members of the subcommittee are aware, the process 
by which delinquent debts are distributed by FMS to the PCAs 
has been the subject of some debate. While FMS is agreeable to 
considering alternative distribution procedures for future 
contracts, complying with the terms of the current contract, 
administering the contract efficiently, and maximizing 
collections are, without question, FMS' primary goals.
    As I stated earlier, all FMS debt collection programs 
include safeguards and controls. FMS monitors the actions of 
private collection agencies with call monitoring and onsite 
reviews. Private collection agencies collected $14.9 million 
during fiscal year 1999, and as of May 31 of this year, 
collections total $13.6 million for this fiscal year.
    Additionally worth noting are the efforts of private 
collection agencies in working with debtors to negotiate 
repayment agreements, resulting in agreements totaling $30 
million fiscal year to date and cumulatively $71.3 million.
    At this point, Mr. Chairman, I will focus my remarks on 
FMS' other new collection initiatives. FMS is moving forward on 
the implementation of the program to offset the remaining 
Federal salary payments. Based on the results of a test match 
conducted by FMS, between $48 million and $80 million can be 
collected through the offset of Federal salary payments. 
Beginning in March 2001, we expect to implement a phase-in of 
the Federal salary offset program.
    With respect to the offset of Social Security benefits, FMS 
estimates that annual collections will be between $37 million 
and $61 million. While FMS is currently prepared to move 
forward on implementation, we have been advised the by Social 
Security Administration that they will not be ready until 
February 2001. We will continue to meet with them to resolve 
implementation issues.
    On July 1, 2000, FMS and IRS will launch the continuous tax 
levy program. Under the provisions of the Taxpayer Relief Act 
of 1997, the IRS is authorized to collect overdue Federal tax 
debts from individuals and businesses that receive Federal 
payments by levying up to 15 percent of each payment until the 
debt is paid. Initially, IRS will levy vendor and Federal 
retiree payments disbursed by FMS, with the levy of Federal 
salary and Social Security benefit payments to follow.
    At full implementation, GAO projects annual collections of 
$478 million from the tax levey program, with an estimated 
annual collection of $312 million from levies of Social 
Security benefit payments. Although FMS has made the necessary 
preparations to move forward with the tax levy program, as of 
this date, we have not received a commitment from SSA on an 
implementation date.
    In addition to sharply reducing debt collections, the delay 
in implementing the programs to offset benefit payments and to 
levy benefit payments has significant consequences for overall 
operations of the program. Specifically, it will result in an 
$8 million reduction in reimbursable income to FMS for fiscal 
year 2001.
    Mr. Chairman, in conclusion, FMS' governmentwide debt 
collection program continues to experience solid growth. The 
dollar amount of collections has increased in all program 
areas, with total collections from fiscal year 1998 to the 
present amounting to $7.1 billion. FMS is making headway in 
increasing the delinquent debt referrals by program agencies. 
Furthermore, amounts projected to be collected by expanding the 
offset and cross-servicing programs to include tax levy, 
benefit offset, salary offset, and administrative wage 
garnishment should result in significant increases in 
collections of debt owed to the Federal Government. The efforts 
to date of FMS in the governmentwide debt collection arena 
clearly demonstrate our firm commitment carrying out the 
express intent and purposes of the DCIA.
    Again, thank you for the opportunity to testify. I would be 
happy to answer any questions.
    [The prepared statement of Mr. Gregg follows:]

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    Mr. Horn. Thank you very much, Commissioner. We appreciate 
that. There will be a few questions when we get through the 
panel.
    The next witness is the first of the agency witnesses. 
Edward A. Powell, Jr., is Assistant Secretary for Financial 
Management and Chief Financial Officer of the Department of 
Veterans Affairs. Welcome.

  STATEMENT OF EDWARD A. POWELL, JR., ASSISTANT SECRETARY FOR 
FINANCIAL MANAGEMENT AND CHIEF FINANCIAL OFFICER, DEPARTMENT OF 
                        VETERANS AFFAIRS

    Mr. Powell. Thank you, Congressman.
    Mr. Chairman and members of the subcommittee, it is my 
pleasure to testify on behalf of the Department of Veterans 
Affairs [VA] regarding VA's implementation of the Debt 
Collection Improvement Act [DCIA] of 1996.
    As a former banker and business owner, the issue of 
receivable collection is one I know to be of critical 
importance. It is clear the most important time to collect a 
receivable is during the first 90 days of its life. We have 
initiated a coordinated effort in VA directed at receivables 
management to consolidate all debt collection activity, with 
the exception of the vendee home loan program, into our Debt 
Management Center in Minneapolis, MN.
    VA has reduced its outstanding receivables from $4.7 
billion at the end of fiscal year 1991 to $3.3 billion as of 
the end of fiscal year 1999. Much of VA's success in benefit 
debt collection can be attributed to the DMC. Utilizing all 
available tools, including benefit and salary offset, credit 
bureau reporting and private collection agency referrals, 
compromises and litigation, write-offs and the Treasury's 
Offset Program. DMC has become the cornerstone of our debt 
management effort.
    Even though we have reduced our outstanding debt by 11 
percent last year, we continue to emphasize the importance of 
debt management. How we deal with our debt is in large part 
determined by the different types of debt generates. Of the 
$3.3 billion debt outstanding at the end of fiscal year 1999, 
$1.1 billion was delinquent and $937 million was more than 180 
days delinquent.
    $1.96 billion of the $3.3 billion outstanding are active 
vendee home loans. A vendee loan is a mortgage which is 
generated by the sale of foreclosed property under the Home 
Loan Guaranty Program. These mortgages are not delinquent debts 
per se, but assets of VA. Periodically, we package and sell 
vendee loans to the private markets, which eliminates the 
mortgage and any obligation owed to the Government.
    The remaining program debt is comprised of compensation and 
pension overpayments, defaulted home loans, which by the way 
are generally in transition to the vendee loan home program, 
readjustment benefit overpayments and receivables for the 
provision of medical care and services.
    My staff works closely with the Department of the 
Treasury's Financial Management Service to implement the 
provisions of the DCIA. We have worked with FMS to revise the 
report on receivables due from the public so it will provide 
better information on the implementation and effectiveness of 
the DCIA requirements, not just for VA, but for all Federal 
agencies. Last year we worked with FMS to refer most of 
eligible debt from VA to them for offset and to develop the 
programming and processes needed to refer those same debts for 
cross-servicing.
    VA has been a long time participant in all available 
administrative offset programs, including tax refund offset, 
Federal salary offset and benefit offset, and has effected many 
interagency matching programs. We continue to actively pursue 
Federal salary offset pending its inclusion in the TOP.
    Of the $937 million debt that was more than 180 days 
delinquent at the end of fiscal year 1999, approximately $329 
million was eligible for TOP and $460 million was eligible for 
cross-servicing. Many debts are eligible for both 
administrative offset and cross-servicing. The debts not 
eligible for referral for TOP or cross-servicing are exempt for 
a variety of reasons, including debt in bankruptcy or 
foreclosure proceedings, debt in VA's mandatory waiver/
appellate process, and debt statutorily barred from referral.
    As of December 8, 1999, VA referred $250 million for TOP. 
By the end of this fiscal year, VA expects to implement the new 
automated file formats required by Treasury and to be in 
compliance with the offset referral requirement of the DCIA.
    To date, VA's cross-servicing referrals to Treasury total 
$4 million worth of debt from the health professional 
scholarship program. We targeted these debts for referral 
because they are among the most collectible of VA's debts and 
the easiest to refer. Thus far, Treasury has collected 
approximately $225,000 of the $4 million referred since May 
1998.
    The DMC currently houses approximately 80 percent of VA 
debt over 180 days delinquent and eligible for cross-servicing. 
This debt will be referred for cross-servicing in September 
2000 when Treasury and the DMC will have completed the 
development of automated processes needed to update each 
other's databases. This has been a joint effort between us and 
Treasury and is progressing well.
    Although it is taking longer than we had hoped to refer the 
bulk of our portfolio for cross-servicing, we have continued to 
refer our debts for the Treasury offset program and for Federal 
salary offset, both of which have historically proven to be 
highly effective external sources for collection of VA debt. 
The subcommittee should know that the Debt Management Center is 
a highly efficient and effective operation which already 
executes all the functions required of a cross-servicing 
center. The DMC has generated an average of approximately $10 
of cash collections for every dollar of operating cost.
    The DMC's recent collection rates for overpayment debts are 
approximately 67 percent for compensation and pension debt and 
over 95 percent for education debt. We believe the DMC collects 
a high percentage of debt before it becomes seriously 
delinquent.
    As for the remaining 20 percent of eligible VA debt not 
managed by the DMC, VA staff and Treasury's FMS staff are now 
determining how we can best achieve referral. We are also 
considering whether VA should request the Secretary of the 
Treasury to exercise his authority to exempt most of this debt 
from the referral requirements, since it may not be cost 
effective to refer certain VA types for cross-servicing.
    For example, VA's first party medical debts are especially 
problematic and expensive to refer, as explained in my full 
written statement. The first party medical debt and the debt 
management of the DMC comprise most VA debt potentially 
eligible for referral. Therefore, once the DMC has referred its 
debt in September, VA will be over 90 percent compliant with 
the cross-servicing requirements of the DCIA. The remaining 
debt is made up of a few smaller benefit programs not managed 
by the DMC, and miscellaneous VHA debt such as vendor debt, 
employee debt and non-Federal sharing agreement debt. We plan 
to refer all appropriate debt for cross-servicing during the 
fiscal year 2001.
    This concludes my statement, and I will be happy to answer 
any questions that the subcommittee may have.
    [The prepared statement of Mr. Powell follows:]

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    Mr. Horn. Thank you very much. We appreciate that 
presentation. And we now move to the next agency and that's 
going to be represented by Yvette Jackson, the Deputy 
Commissioner for Finance, Assessment and Management of the 
Social Security Administration. Ms. Jackson.

    STATEMENT OF YVETTE S. JACKSON, DEPUTY COMMISSIONER FOR 
      FINANCE, ASSESSMENT AND MANAGEMENT, SOCIAL SECURITY 
                         ADMINISTRATION

    Ms. Jackson. Thank you, Mr. Chairman and members of the 
subcommittee.
    Thank you for the opportunity to come here today to discuss 
the Social Security Administration's efforts to implement the 
Debt Collection Improvement Act of 1996 that I will refer to as 
the DCIA. We particularly appreciate your leadership, Mr. 
Chairman, and that of this subcommittee, in enactment of this 
legislation which has enabled SSA to improve our debt 
management program.
    As you will see, we have already implemented a significant 
number of debt collection improvements. We will implement five 
more debt collection tools in the year 2001. When we finish 
with these tools, we will turn our attention to the remaining 
provisions to be implemented. The public's trust in the Social 
Security program is absolutely critical. Even a perception of a 
lack of program integrity can threaten this trust. SSA is 
dedicated to program stewardship and program integrity. We must 
remain vigilant if we are to fulfill our role as capable 
stewards of the public trust.
    SSA has undertaken significant initiatives over the past 
several years to prevent and detect Social Security program 
overpayments. Our stewardship responsibilities require that we 
recover as much of the debt owed as possible. We have a high 
degree of success in collecting debts owed by people on the 
rolls, achieving a collection rate of more than 90 percent. If 
the debtor is no longer on the rolls, the tools provided by the 
DCIA give us the enforcement capability we need to collect from 
delinquent debtors.
    SSA has made substantial progress toward implementing the 
debt collection tools authorized by the DCIA, as well as other 
legislation enacted during the 1990's. This has greatly 
improved SSA's ability to collect its debt.
    In January 1992, we began receiving our first collections 
from the tax refund offset in which debts are recovered 
directly from Federal tax refunds before the refunds are sent 
to taxpayers. We expanded the tax refund offset twice, in 1995 
and again in 1998, to add new classes of debtors, such as SSI 
debtors, and to make use of the Treasury offset program which 
allows us to collect delinquent debts from Federal payments in 
addition to tax refunds. These tools have resulted in 
collections of $370 million.
    In 1995, we began using credit bureau locator services to 
help track down delinquent debtors who moved and left no 
forwarding address. And in 1998, we began reporting our 
delinquent Social Security debtors to credit bureaus as a way 
of inducing them to repay their debts and therefore clear their 
credit records. To date we have located more than 200,000 
debtors using the credit bureau locator services.
    We have been busy over the last year developing the debt 
collection tools that we think will have the most payoff. Our 
choices are governed by deciding which tools will give us the 
most return earliest in the process of collecting the debt. Of 
course, for the last few years, much of our systems resources 
were devoted to the year 2000 changeover during which SSA 
reviewed all of its systems supported by more than 35 million 
lines of in-house computer code and all vendor products. We 
accomplished this changeover without additional resources.
    In January 2001, we will implement mandatory cross program 
recovery or the collection of an SSI debt from the debtor's 
Social Security benefits. We estimate that it will yield about 
$175 million in extra collections over the next 5 years.
    Also in January 2001, we plan to implement two additional 
tools to collect delinquent SSI debts. These tools are 
administrative offset, which is the collection of a delinquent 
debt from a Federal payment in addition to a tax refund, as 
well as credit bureau reporting.
    In February 2001, SSA, in partnership with the Financial 
Management Service, plans to implement benefit payment offset. 
This is the reduction of Social Security benefits to collect 
delinquent debts owed to other Federal agencies. While this 
tool will not contribute to SSA's debt collections, it will 
benefit the Federal Government by enabling the Treasury 
Department to collect an estimated $40 million to $60 million 
in delinquent debt. Treasury estimates that about 400,000 
Social Security beneficiaries per year will incur a reduction 
of their benefits as payment toward another Federal debt.
    We have been working with the Financial Management Service 
since July 1998 to develop a program that gives maximum 
collections at minimum cost to the Federal Government. As you 
can imagine, we had many issues to resolve, such as concerns 
about adequate notification of Social Security beneficiaries 
who will incur an offset. We want to make sure that the right 
people are offset for the correct amount. We also want to 
ensure that the people who are offset under this program 
understand why it is happening and who they can contact if they 
have questions.
    We have worked out these issues with the Financial 
Management Service and our agencies are in the final phase of 
our development of our payment benefit offset. In less than 1 
year, we expect payment benefit offset to start generating debt 
collections for the Federal Government.
    In June 2001, we plan to implement administrative wage 
garnishment, a DCIA authorized tool, as one more tool for 
collecting delinquent Social Security and SSI overpayments. In 
addition, we will focus on another DCIA provision, Federal 
salary offset. Treasury plans to incorporate Federal salary 
offset into the Treasury offset program after the third quarter 
of fiscal year 2001.
    We will also implement another DCIA provision, Treasury's 
cross-servicing program, in which Treasury acts as a debt 
collector for Federal agencies. An important aspect of cross-
servicing involves the use of private collection agencies which 
is on our list of debt collection tools to implement after we 
finish the tools that are currently being implemented.
    Interest charging is another provision of DCIA that we plan 
to implement. Our priorities are such that we will begin 
developing interest charging as early as the year 2002. While 
interest charging is a valuable tool, we believe it will yield 
collections in the form of voluntary payments by people who 
will perceive it as something to avoid.
    In conclusion, our agency has accomplished much in 
implementing the new debt collection tools authorized for us. 
SSA is committed to implementing the provisions of DCIA and 
other relevant debt collection laws. Our record of achievement 
in implementing the tax refund offset, administrative offset 
and credit bureau reporting shows our commitment to debt 
management.
    Thank you for the opportunity to testify before you today. 
I will be glad to answer any questions that you may have.
    [The prepared statement of Ms. Jackson follows:]

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    Mr. Horn. Thank you, Commissioner. That's very helpful.
    Our last witness this morning is Barry G. Cloyd, the 
chairman of the Government Services Program for the American 
Collectors Association, Inc.

    STATEMENT OF BARRY G. CLOYD, VICE PRESIDENT, SALES AND 
 MARKETING, C.B. ACCOUNTS, INC.; CHAIRMAN, GOVERNMENT SERVICES 
         PROGRAM, AMERICAN COLLECTORS ASSOCIATION, INC.

    Mr. Cloyd. Thank you, Chairman Horn, subcommittee members, 
good morning.
    My name is Barry Cloyd, and I am vice president of sales 
and marketing for C.B. Accounts, Inc., which is a private debt 
collection agency based in Peoria, IL. I appear before you this 
morning as chairman of the Government Services Program [GSP], 
which was formed in 1996 to promote active participation by 
debt collectors in developing new collection opportunities in 
the specialized area of Government collections and to assist 
members serving Government entities.
    GSP is part of the American Collectors Association [ACA], 
which is an international trade association comprised of 5,000 
credit and collection organizations and companies. The 
Association's mission is to help members comply with a strict 
code of ethics and applicable State and Federal laws and 
regulations through a variety of means, including educational 
material, seminars, research, legislative updates and guidance 
with individual problems.
    On behalf of all ACA members, who represent approximately 
one half of third party collection agencies in the United 
States and their 65,000 employees, I want to express our 
appreciation to you, Mr. Chairman, for holding this hearing and 
for giving us the opportunity to present this statement.
    As you are well aware, Chairman Horn, the Debt Collection 
Improvement Act, which is Public Law 104-13, affects private 
collection agencies [PCAs], and the services they provide. The 
act was designed to accomplish three goals: maximize collection 
of delinquent debts owed to the Government by ensuring quick 
action to enforce recovery of debts and the use of all 
appropriate collection tools. No. 2, minimize debt collection 
costs by consolidating related functions and activities and 
utilizing interagency teams. No. 3, rely upon the experience 
and expertise of private sector professionals to provide debt 
collection services to Federal agencies.
    Now, PCAs work very hard to return money to Government 
agencies that could otherwise be lost. And most financial 
management, FMS contractors, are ACA members. Since the first 
Government contracts were placed with private collection 
agencies shortly after the Debt Collection Act of 1982, 
literally billions of dollars have been collected, including 
more than $3.2 billion for the Department of Education from 
fiscal year 1986 to the present.
    PCAs continue to improve the amount that they return to the 
Government, which of course also benefits American taxpayers. 
PCAs collected $265 million in fiscal year 1998, and in fiscal 
year 1999, they returned $536 million. And so far through 9 
months in fiscal year 2000, PCAs have collected $445 million 
and look well positioned to surpass last year's record.
    We would hope that DOE's success could be replicated by the 
Department of Treasury's FMS contract. The FMS, which has been 
working with PCAs since March 1998 reported that PCAs have 
collected slightly more than $30 million for the agency 
according to figures tallied through April 30, 2000. In 
addition, referrals of accounts total 272,127, with a value of 
more than $4 billion for those accounts.
    The important work of this subcommittee in fashioning the 
DCIA under your able leadership, Mr. Chairman, has been very 
significant. But we would respectfully suggest several 
modifications that we believe would allow PCAs to return more 
money to the Government and ultimately to the taxpayer.
    In preparing this testimony, ACA asked member agencies that 
had been under contract with FMS to provide suggestions for 
improving the implementation of and compliance with the DCIA. 
Those contractors suggested three important improvements for 
achieving better results from the DCIA relating to timeliness 
and number of accounts that are referred, current delays in 
resolving accounts, and the inefficiency of multiple 
contractors contacting the same debtor.
    First, we feel that accounts aren't being referred to PCAs 
on a timely basis. In order to maximize collection of 
delinquent debts, Federal agencies must comply with the DCIA 
and forward to the Department of Treasury all non-tax debt that 
is more than 180 days delinquent. At this time many accounts 
which ACA members receive are far more than 180 days old, so 
the ability to collect on them is greatly decreased.
    And as the old saying goes, which was echoed earlier this 
morning, time is money, and that saying couldn't be more 
appropriate for today's hearing. There is a direct correlation 
between the time a debt is turned over to a debt collector for 
collection and the amount of dollars that are recovered. Simply 
put, the longer a debt remains unpaid, the less likely recovery 
becomes.
    And per a recent Price Waterhouse survey, as well as my 
association's research, we find evidence for those statements. 
If an account is referred to a collection agency when it is 180 
days past due, it has a much better chance of being collected 
than if it's referred, say, 2 or 3 years later. A debt that is 
181 to 210 days delinquent has a 23 percent chance to be 
collected. But for items that are more than 421 days past due, 
the ability to collect decreases to 4 percent.
    Now, these results, which show how time affects debt 
collection, were backed by a portfolio analysis conducted by 
Price Waterhouse which found that only 1 percent of debts are 
collectible after 2 years of delinquency. Obviously, time plays 
an important role in the recovery of these debts.
    And another important factor to consider is approximately 
how many referring agencies are participating in the referrals 
of delinquent debt to the Department of Treasury. According to 
some estimates of ACA members that contract with Government 
agencies, the number of participating referring agencies is 
only around 40 percent. According to a June 5, 1998 General 
Accounting Office report, literally $26.4 billion of reported 
non-tax debt over 180 days delinquent has not been referred to 
Treasury and was unlikely to be referred in the near future.
    While our members feel that Treasury within its current 
boundaries is doing a very commendable job, they realize that 
the Department doesn't have the necessary power to enforce the 
DCIA. Accordingly, we believe that Treasury must be given 
enforcement power to bring non-participating referring agencies 
into compliance with the act's provision, stipulating that all 
non-tax debt over 180 days old be referred to Treasury for 
collection.
    Bringing more accounts to our members in a more timely 
manner will only work to the advantage of all parties involved. 
And this would clearly help the Government attain one of those 
goals of the act, to ensure quick action on recovery of debts. 
To be perfectly frank, the sooner PCAs receive delinquent 
accounts, the sooner they will be able to return delinquent 
money to Government agencies.
    Second, multiple contractors contacting the same debtor is 
of course inefficient.
    Another modification we respectfully suggest concerns the 
transfer of accounts. Now, we believe that multiple debts for 
the same debtor should be consolidated and placed with only one 
contractor. Placing a debtor's various debts with different 
contractors through the same or different referring agencies, 
which is currently the process, is unproductive. It's also 
confusing for debtors, because many different contractors are 
contacting them, which some debtors even interpret as 
harassment.
    Now, we strongly recommend that FMS adopt an account 
referral policy that consolidates all transfers for the same 
debtor and places them with a single contractor. We also 
suggest that any additional debts that are referred to FMS for 
these debtors should be flagged and referred to that same 
contractor so all of the debts can be maintained together. Very 
common practice, particularly in private and State sectors.
    Based on our members' extensive experiences, consolidating 
the debts would provide a much better chance to resolve that 
debt, as well as reduce the possibility of a complaint. And 
third, there are unnecessary delays in resolving accounts. PCAs 
must undergo a cumbersome process when seeking account 
information from referring Federal agencies. And as such, PCAs 
would like the authority to approve repayment agreements, and 
compromise directly with a referring agency. PCAs desire this 
direct contact with referring agencies, especially in regard to 
compromises, to ensure that cases will get resolved in a timely 
manner.
    As a case in point, if a debtor says that he or she has 
just entered a payment arrangement with a referring agency, the 
PCA would be able to quickly verify that claim and speed up the 
process. Several contractors have mentioned that it currently 
takes up to 6 months to resolve accounts, which makes the 
accounts more difficult to collect. The expedience a PCA can 
offer in this situation results in efficiency as well as good 
customer service, which is a primary focus of the very 
successful education contract.
    Contact with referring agencies would also result in debtor 
sensitivity and likely a higher percentage of collectible 
debts. Overall, resolving debts more quickly will allow PCAs to 
collect and return money sooner to Government agencies. If the 
recommendation for direct compromises with referring agencies 
cannot be met, we respectfully suggest that Federal agencies be 
strongly encouraged to respond on a more timely basis to 
inquiries they receive from PCAs via Treasury.
    We believe these changes, as well as the others I have 
mentioned earlier, would provide several benefits to both PCAs 
and to the Federal agencies they collect on behalf of. The 
improvements we recommend would meet the goals of the DCIA to 
maximize collection of delinquent debts allowed to Government 
agencies by ensuring quick action on accounts, and minimize 
collection cost through consolidation. In addition, we believe 
that these changes would promote increased competition among 
PCAs that contract with Government agencies.
    At the current time, we believe that healthy competition is 
not being fostered among contractors due to incomplete data and 
unequal distribution of accounts. By making the changes that 
ACA suggests, referred accounts would be distributed more 
evenly by volume and better partnerships would result.
    Thank you very much, Chairman Horn and subcommittee 
members, for the opportunity to present this testimony. I will 
be happy to answer any questions you may have.
    [The prepared statement of Mr. Cloyd follows:]

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    Mr. Horn. Well, we thank you, thank you for coming and 
making that perspective.
    We now go to the questions and answers. We're going to have 
5 minutes per member, alternating the membership between the 
majority and the minority. I will first yield 5 minutes for 
questioning to the ranking member, Mr. Turner of Texas.
    Mr. Turner. Thank you, Mr. Chairman.
    Mr. Engel, I want to address a portion of your testimony. 
It's pretty clear that we are collecting more of our 
outstanding Government debt. That's the good news. The bad news 
seems to appear on page 4 of your statement, and I believe you 
shared this with us in your oral presentation, which says the 
FMS has not covered its cross-servicing costs through related 
fees collected and is not likely to do so in the near future.
    Based on FMS' own estimated cross-servicing costs and using 
the current fee structure, and FMS fiscal year 1999 collection 
experience, we determined that collection volume would need to 
rise over sevenfold to put this operation on a full cost 
recovery basis. In common language, what are you saying there?
    Mr. Engel. What we're talking about there is that under the 
act, distribution centers such as FMS are allowed to charge 
fees to the referring agencies. Typically they'll charge 3 
percent if the debt that comes in ends up going to a private 
collection agency and there's a collection on it. If instead 
FMS collects on those funds, they charge the referring agency 
18 percent.
    What we were saying is that we went through and calculated, 
based on FMS' estimated costs to run the cross-servicing 
program, which for fiscal year 1999 was about $11 million, 
based on that and their collection experience as to which 
percent was collected by the private collection agencies and 
themselves, and using the fees that they charged at that time, 
that in order to cover the $11 million of costs, they would 
have to have about $173 million of collections, which was well 
more than what they actually collected during a year.
    Mr. Turner. So are you saying we're losing money on this 
deal?
    Mr. Engel. Well, not in total as it relates to collections 
coming in and total for the Federal Government and just what 
FMS' costs are. However, we only know what FMS' costs are for 
this program, you'd have to add to that agency costs. But what 
we're talking about is for their program itself, what it's 
costing them to run the program, the fees that they're 
charging, whether the fee rates could be increased or their 
costs could go down, something would have to happen for them to 
be able to break even and it would have to happen in quite a 
large amount, as we said, sevenfold, the collections would have 
to be.
    Mr. Turner. Well, do we need to consider some adjustments 
in the fees that are charged? Or are we simply considering 
those appropriate and the only answer is to increase the volume 
to show the agency's paying its way?
    Mr. Engel. Actually, FMS has had a contractor look at this 
area, not just in the cross-servicing. And there are some 
suggestions to consider increasing the fee rate.
    However, I think an important point to make is again that 
as we pointed out, much of the debt that's coming over is 
extremely old by the time it comes over. And as the American 
Collection Association representative has said, you can expect 
a very small fraction of those dollars to be collected because 
they are so old.
    So unless we start getting more current debts coming over 
from the agencies, it will be very difficult for FMS to 
generate the collections that would be needed to cover those 
costs. So I'd say a fee increase may be something to consider, 
but the fees would have to be increased, I think the one study 
that was done, one of the fees would have to increase from the 
18 percent they currently charge to 106 percent, which would be 
more than you're even collecting, which is obviously 
unrealistic.
    Mr. Gregg. If I might, Congressman Turner, may I respond to 
that?
    From my perspective at FMS, there's a couple issues. First 
of all, we're still rolling out this program. As I indicated in 
my testimony, we're about halfway there in the amount of 
referrals coming into cross-servicing. So that's one element. 
And as part of that element, there's a lot of cleanup work 
that's going on within FMS and with the private collection 
agencies on just how good some of that debt is.
    Now, in many cases, we don't collect a fee, but it actually 
is a benefit to the Government, because there's a lot better 
information on what's collectible and what's a good debt and 
what's not a good debt. So that's part of our process.
    The other thing from my perspective, is that our overall 
debt collection program, not just at the cross-servicing. And 
if you look at the total amount that we brought in last year, 
of $2.6 billion, and we're spending about $30 million, the 
return is great. Whether or not we should charge an additional 
fee or higher fee in cross-servicing, I'm not sure. We have to 
be careful not to go overboard there.
    But that's really part of the whole process. It's tied in 
very closely with our top system. From my perspective, just to 
look at the cross-servicing and the fee income you are only 
looking at part of the picture.
    Mr. Turner. Thank you. Thank you, Mr. Chairman.
    Mr. Horn. We'll have 5 minutes, I yield to myself for the 
purpose of questioning, and then we'll have Major Owens.
    This is directed to Commissioner Gregg. A few agencies, 
including the Department of Veterans Affairs, have applied to 
the Treasury to be debt collection centers. However, their 
applications have been denied. Currently, the Financial 
Management Service is the only agency with this status. Why 
were these agency applications denied?
    Mr. Gregg. The primary reason that they have been denied is 
based on our own reading of the DCIA, plus hearings that have 
taken place over the last 3 years. I think it was clear to us 
that a high standard had to be established in order to be debt 
collection centers. And we, in looking at different 
applications that we did receive, tried to apply those 
standards and make up our own determination whether or not we 
thought that they would either for their own debts or for 
governmentwide debts be an organization do an outstanding job. 
That's really the threshold that we set. We want someone who 
can do a good job.
    In some cases, we did authorize agencies to continue the 
work that they'd been doing, because we felt that they were 
doing well. For example, the Department of Education, has done, 
in my view, an outstanding job in collecting delinquent student 
debts and they continue to perform that work.
    In other cases, we didn't feel that agencies really had 
their act together, if you will, in coming to us. Because when 
we started asking questions about how well they were doing on 
their own debts, at least in some cases, they couldn't give us 
the information that made us comfortable that they'd be able to 
continue that role.
    So the standard has been high. And that we also have 
refined the process which was taking way too long when the 
program first started, to expedite it and set some clearer 
standards on what our expectations are.
    Mr. Horn. Well, I guess I want to ask the question here, 
what do you have to do to have a governmentwide debt collection 
center in the future if all of these applications have been 
turned down?
    Mr. Gregg. I think first of all it's to demonstrate that 
you can do an excellent job. I think it's a responsibility of 
the agencies to demonstrate to us and show that they can do 
that. The other thing is that this program is still in its 
early stages. And we're not opposed to granting additional debt 
collection centers, whether it's for their internal debts or 
for governmentwide debts.
    At the same time, there is an obligation on us as 
performing this governmentwide function to look at it very 
broadly. That's what we try to do.
    There's also an issue of first of all, walking before you 
run. The walking part is, have only half of the cross-servicing 
debt referred to us. And the process of going through that I 
think is very beneficial. Also, some of the debt we get is very 
old. I think if an agency came to us and made a very strong 
case and a good case to be a debt collection center for their 
own debts or for others, maybe we would approve it.
    Mr. Horn. Secretary Powell, how do you feel about the VA 
application to become a debt collection center, and do you 
think it was appropriately denied?
    Mr. Powell. I'm reminded I'm under oath, is that correct?
    Mr. Horn. That's right. [Laughter.]
    Mr. Powell. What Mr. Gregg has said, I don't take a great 
deal of exception with when we first applied. We've come a long 
way from that point, I think as evidenced in my testimony. I do 
think there's a case to be made for continuity in the 
collection efforts for some of these debts, as we heard. There 
is an issue of having multiple contact points disrupting the 
continuity.
    The VA in particular, as you know, is fairly sizable 
relative to most of the departments. We have significantly 
improved our debt collection efforts. We feel we are fully 
capable of being an effective debt collection center. TOP delay 
for us is really a software issue. It's not a lack of 
willingness on our part to comply.
    I think Treasury does a credible job. We have no argument 
with the effort that they make, especially on these very old 
debts. I think the point is well taken that as this program 
evolves, you'll see the process become more effective. I know 
from many arguments and discussions within CFO Council, there 
is a real problem distinguishing those debts that are 
collectible from those which actually should be written off, 
removing them from the Government's balance sheets as you would 
do in the private sector.
    I think over time, it would be appropriate for VA to 
reapply and make the case for certification as a debt 
collection center. That will take a natural course, and 
hopefully we will receive a favorable ruling.
    Mr. Horn. Well, do we know, Commissioner Gregg, the degree 
to which someone has to redo their denial? I mean, is it the 
supervision of the employees, if they haven't been trained yet, 
or just what is it that turns people down? Now, the aging debt 
you and I have talked about, because that to me is, I just 
can't believe it. But when they tried the first IRS bit, before 
the law, well, the law had just started, and they gave us 
several year old debts.
    Now, I'd like to know from GAO who's got most of the old 
debts. Is it the FMS, the Financial Management Service in 
Treasury? Is it some of the agencies that are just letting it 
accumulate? And we all agree, I think, the evidence shows that 
when you have ancient debt, don't expect to collect very much. 
Because everybody thinks it's a grant by that time, certainly 
if you're in the Department of Education, and they forget it's 
a loan.
    So what's your feeling on looking at it?
    Mr. Gregg. Well, as it relates to the debts that have been 
referred over to FMS, they do have a significant portion that 
is extremely old, as I had pointed out.
    Mr. Horn. So they're dumping it on the Treasury, you're 
saying?
    Mr. Gregg. Yes. Most of what is coming over to FMS is very 
old debt.
    Now, as far as how much debt is still sitting at the other 
agencies that have not yet been referred over, I can't really 
speak to the age of those. I don't know.
    Mr. Horn. Well, how do you feel, Commissioner Gregg? I 
mean, are you the dumping ground for the aged debt? [Laughter.]
    Mr. Gregg. Well, it goes with the territory. I think that 
you can't make progress in this area unless you go through what 
we're going through. If you have I don't know how many years of 
having debt sit there and some agencies take a very aggressive 
stand on collections, others not, and then pass the DCIA and 
expect a magical transformation, I think we'd all be misleading 
ourselves. I think from my perspective, whether it's considered 
a dumping ground or not isn't so important. But it's to look at 
the debt, figure out whether there is documentation actually go 
after the debt. In some cases that isn't there, and in some 
cases there are delinquencies that weren't identified.
    So I think it's an important process. And as I envision it, 
in the next few years, when we get through this and agencies 
are able to send their debts to us that are delinquent, 180 
days and do that quickly, then we'll be looking at a different 
picture. And I think this is, from my own view, something we 
have to work through.
    Mr. Horn. Well, I've overtaken my time here. But we might 
have an exchange in writing, for at this point in the record, 
without objection.
    I now yield 6 minutes to Major Owens, the gentleman from 
New York for questioning.
    Mr. Owens. When you collect debts, where does the money go, 
the money you've collected, what do you do with it?
    Mr. Gregg. It does back to the agencies.
    Mr. Owens. The agencies get the money back? So they have a 
great incentive for you to collect debts.
    Mr. Gregg. Well, it goes back, but I'm not sure that they 
can use it in their ongoing appropriations. It goes back so 
they can clear out their books. But I think for the most part, 
maybe with some exceptions, it goes back into the general fund 
of the Treasury and there may be some exceptions to that.
    Mr. Owens. Which is it now? It's an important question. 
Does it go to the general fund or can they just recycle it and 
spend it? Do they have any incentive for collection of debts?
    Mr. Gregg. It really does depend on the program. And I'll 
have to give you a specific answer in writing.
    Mr. Owens. Most of it goes to the general fund, doesn't it?
    Mr. Gregg. In some cases it does go to the general fund. 
But it has to go back to the agencies so they know the debt has 
been collected. In some cases, I think the agency can keep some 
of it.
    Mr. Owens. Does GAO know the answer to that question?
    Mr. Engel. Well, one thing I would add to that is that the 
amount that goes back to the agency is net of the fees that FMS 
charges the agencies.
    Mr. Owens. So they do have some incentive for cooperating 
in getting their debts collected, great incentive, the money 
goes back to them?
    Mr. Engel. The portion that they can apply toward the 
receivable itself, yes, they would want to have that money 
back.
    Mr. Horn. If I might help this question along, because I 
remember distinctly, we wanted to give an incentive, but I'm 
told that not too many agencies, if any, are taking that 
incentive, because they feel the appropriators will not give 
them the money for the next budget. And they don't really like 
that. So that's part of the problem, I think, and Major has his 
finger on the right one. And here's the Treasury with the 
general fund, they throw it in there, and the agency says, you 
know, I'd like to do it. We wanted an incentive for them to 
help improve the debt collection process and computing and 
everything else, telephones, you name it.
    Mr. Owens. Thank you, Mr. Chairman.
    Mr. Horn. You're welcome.
    Mr. Owens. Where do patterns of multiple debtors appear? 
What agencies is that like? Is that Agriculture, or do you have 
students who are multiple debtors in the Department of 
Education? There was a discussion of multiple debtors and how 
it's difficult to collect because several people will contact 
them. Where do those kinds of patterns appear?
    Mr. Gregg. Well, I think it can appear anywhere. There are 
24 CFO agencies and what our colleague from the PCA was saying 
is that we will refer debt to them from agencies, say from 
Veterans Affairs or from somebody else. And that same 
individual will owe a debt to the Small Business Administration 
and we might send it to another PCA.
    Mr. Owens. Oh, you mean a multiple debtor across agencies?
    Mr. Gregg. Yes.
    Mr. Owens. You don't mean within? Because we've seen 
situations in the Department of Agriculture where people who 
are delinquent sit on the credit committees and they were 
allowed to get additional loans. I call those multiple debtors, 
and that's what I thought you were talking about, within an 
agency. Is it likely a student who's delinquent can get more 
loans for graduate or post-graduate education in the Department 
of Education?
    Mr. Gregg. Well, I can't speak for the Department of 
Education, but I do know that is an issue that's been addressed 
by this subcommittee, the concern that once you have a debtor, 
whether or not they can continue to get loans from the 
Government.
    Mr. Owens. In New York City, we have something called a 
VINDEX system, where it's highly computerized, and if you get a 
grant or a contract, it runs through there and they can spit 
out any debt you owe to any agency of the city and you're 
stopped from getting an additional contract. We don't have 
anything similar to that for the Federal Government, 
centralized checking system where a debtor would be picked up? 
I know it doesn't apply to the Pentagon, but normal agencies.
    Mr. Gregg. Probably the closest thing that we have is the 
references to credit bureaus, if in fact they were checked.
    Mr. Owens. Private sector credit bureaus?
    Mr. Gregg. No, for Government debts, if providing the debts 
were reported to credit bureaus and that tool was used by 
agencies systematically in granting loans.
    Mr. Owens. So Federal agencies do report debts to credit 
bureaus?
    Mr. Gregg. In most cases, yes.
    Mr. Owens. Is that required, that they must do that?
    Mr. Engel. There's a bar provision within the act that 
individuals that have a delinquent debt to the Federal 
Government are not supposed to be given another loan until 
they've cleared that delinquent debt.
    Mr. Owens. That's a gentleman's agreement or understanding 
or is that a law?
    Mr. Engel. That's in law. The agencies are responsible for 
reporting in information that can be used by other agencies 
such as through credit bureau reports. HUD has a system called 
KAVERS, where they also track information from agencies as to 
delinquent debtors, that agencies can go to and they should be 
going in and looking and seeing, before they give a new loan, 
does that individual have an outstanding delinquent loan to the 
Federal Government. If they do, under the bar provision, they 
should not be.
    Mr. Owens. They've broken the law, if the Farm Credit 
Committee gives a loan to someone who's delinquent, they've 
broken the law, is that correct?
    Mr. Engel. Yes, they've broken that provision. Now, there 
are a few exclusions, and I think disaster loans and, there's a 
couple type of loans that are excluded. But that is what's 
supposed to happen.
    Mr. Owens. Is it possible to get a list of persons or 
corporations who owe the Department of Agriculture more than $1 
million? Can it be generated? A $1 million debtor, that's a 
pretty big debt, isn't it? Do some people owe as much as $1 
million?
    Mr. Gregg. Congressman, the Department of Treasury would 
not have that. Treasury would not. The debts that we get from 
any agencies are by definition supposedly delinquent of 180 
days or more.
    Mr. Owens. The Department of Agriculture would have it, 
right?
    Mr. Gregg. Yes.
    Mr. Owens. Is it possible to publicize those? Is there any 
provision of privacy rights that debtors have that would keep 
the public from knowing who owes large amounts of money?
    Mr. Horn. Well, that's a good suggestion, and Mr. Turner is 
drafting a bill now, you might want to do it. I think when we 
had this discussion before, the small farm area that I grew up 
in, if you didn't pay your taxes, the sheriff printed everybody 
who hadn't paid their taxes. So the next month, everybody paid 
their taxes. And I don't know whether that's done anywhere in 
the Government, where they've posted these.
    But what you're talking about, they're not the farmer 
that's really working his field, it's somebody that's got a 
loan out of them, which could be a ski lift, and those have 
known to be granted over in Agriculture, or it could be a 
mansion. With the mansion bit, it got me motivated to do 
something about it on these loans. Because this person in 
northern California had his mansion, defaulted on it, the right 
hand didn't know what the left was doing, went to Santa 
Barbara, rather tiny place, and they got another mansion.
    So I think you're on the right trail.
    Mr. Owens. Let me conclude with this line of questioning, I 
know I'm a little over my time.
    We've asked for documents in the past, and I'm not sure 
we've gotten them. We've been promised lists and summaries. But 
if it's possible to get a list of those who owe more than $1 
million, more than $100,000, is there some how in this very 
computerized bureaucracy that we can get such lists? For the 
Department of Education, I'd like to know how many individuals, 
is there any individual who owes more than $100,000, more than 
$25,000? And how many individuals owe less than $10,000? If you 
look at the amount for the Department of Education, it looks 
like they're one of the big places where we have a lot of crime 
being committed in terms of people not paying their loans.
    But I think that represents many, many individuals at very 
low rates.
    Mr. Horn. In the law, let me just read you these two 
sentences, perhaps, section 37(2)(o)(e), dissemination of 
information regarding identity of delinquent debtors. A, the 
head of any agency may, with the review of the Secretary of the 
Treasury, for the purpose of collecting any delinquent non-tax 
debt owed by any person, publish or otherwise publicly 
disseminate information regarding the identity of the person 
and the existence of the non-tax debt.
    So they have the authority to do that. And I now yield to 
the ranking member, the gentleman from Texas, Mr. Turner.
    Mr. Turner. Thank you, Mr. Chairman.
    Mr. Gregg, your report makes it clear that you have noted 
the complaints made by the private collection agencies 
regarding the distribution of the account debts among the 
various 11 contractors. And we've heard the testimony today 
from Mr. Cloyd, who represents the association of private 
collection agents, and he has shared with us his concern not 
only about the distribution based on the size of the debt and 
the age of the debt, but he's also brought up the point that 
debts owed by one debtor ought to be referred to the same 
agency.
    Those seem like very sensible suggestions. And I noted a 
reluctance, Mr. Gregg, in your testimony, what I interpreted as 
a reluctance, to make these changes, when you said, and I'm 
reading here from your statement, while FMS is agreeable to 
considering alternative distribution procedures for future 
contracts, complying with the terms of the current contract, 
administering the contract efficiently and maximizing 
collections are without question FMS' primary goals.
    Now, it seems to me that if one of your goals is to 
maximize collections, you're going to have to keep the 11 
private contractors who are out there on the playing field 
trying to collect these debts happy with the rules of the game. 
And it seems to me that it would be appropriate if what I'm 
hearing is correct, that all of the contractors agree that the 
current distribution of account of debts is unfair, that we 
would all be better off if we revised that distribution system 
immediately and corrected that problem and renewed the 
enthusiasm that I suspect may be lacking in these 11 
contractors to collect the debts of the Federal Government.
    Mr. Engel, what is your thought on that comment I made?
    Mr. Engel. Well, based upon our discussions with the 11 
PCAs, what I think they were looking for was what we term as a 
proportionate mix of accounts being sent to them. In other 
words, taking a look at the different characteristics such as 
age of debt, maybe the dollar amounts of the debt, maybe the 
particular agency that is being referred over. And they felt 
that more competition would be in place if there was a 
proportionate mix, so that each of them would be getting some 
proportion of those different types of characteristics of debt.
    There was no problem with it being performance based and 
that the better performer be rewarded with more of the 
proportion. But I think they were hoping to get debts where 
they might have as many small type debts, or a proportion of 
small type debts which have generally been shown to be a little 
easier to collect, or the less delinquent debt, which again has 
been a little easier to collect. They'd like to get a 
proportionate mix of that, so they're standing on a similar 
ground to their competitor.
    Mr. Turner. Well, it's of course important to preserve the 
performance based incentives that we have in the system. But it 
seems to me that the distribution of accounts as suggested by 
the private debt collectors is not inconsistent, in fact may be 
supportive of the performance based incentives that we are 
trying to pursue. Do you think they're mutually exclusive?
    Mr. Engel. No. No, I'm not saying that.
    Mr. Turner. And do you see any reason why the FMS should 
not proceed immediately to make that correction, to renew that 
enthusiasm and that incentive on the part of those 11 
collectors?
    Mr. Engel. No, I think that your advice of getting together 
with the PCAs to get a agreement as to what characteristics, if 
they're going to go down this, or what characteristics the PCAs 
agree should be used, I think that has to happen first. Because 
you wouldn't want to go and start devising something that then 
again half of the PCAs don't agree, or the characteristics that 
should be there.
    Mr. Turner. If FMS yielded to the suggestions of the 
private collectors, do you see anything that we could possibly 
lose from the point of view of the Federal taxpayer by 
following their suggestions in the way the accounts are 
distributed?
    Mr. Engel. Well, it's hard for me to say that because of 
the distribution there's been less collections than there would 
have been if the distribution was done differently. Again, I 
think the belief is, it fosters more competition if you feel 
that you're getting your share of the debts, and as you pointed 
out, are going to try harder.
    Mr. Turner. Mr. Gregg, is there any reason why you can't 
proceed immediately to make these suggested changes to renew 
the fairness of the system as it's perceived by the debt 
collectors?
    Mr. Gregg. Yes, Mr. Turner, there are a number of reasons. 
First of all, this contract has been looked at six ways to 
Sunday. And from my perspective, the good news is that we're 
complying with the contract as agreed upon by ourselves and the 
11 PCAs. That's very important. And it's been looked at very 
carefully.
    The other thing is that, as I had said in my opening 
statement, this is complex business. And we actually have a 
system set up for the way that debts are distributed today. And 
to change that, you don't just turn a switch, you have to go 
through and make programming changes.
    What I am willing to do, and we've been talking with the 
PCAs and with GAO, is to consider these suggestions when we 
renew the contract. Next year we'll have the opportunity to go 
out for bids again. And we will certainly consider all of these 
ideas in looking at how to structure this.
    I would like to make one point, however. And that is that I 
don't know whether you have all 11 PCAs that are unhappy with 
the way it's done. For those that are doing the best, I'm not 
so sure that they wouldn't think it's pretty good.
    But the other thing is that it's structured in a way where 
PCAs can actually improve their status. For example, back in 
the letter that the Department of Treasury sent you in October, 
one of the agencies, one of the PCAs listed there was at that 
time I think ranked No. 10 in how well they were doing. And 
currently, they're tied for first. And you have that, 
throughout the this fiscal year to date on how well the PCAs 
were doing.
    And I'm not suggesting that this is proof that a different 
kind of distribution methodology would be better. What I am 
saying is that it is complex. And the data that I have pulled, 
the PCA that was ranked first, and actually, this one's been 
ranked first since the beginning, it got out of the blocks very 
early, has the eighth highest average distribution of debt for 
this fiscal year, eighth highest distribution, average 
distribution of debt. The PCA ranked second has the 10th 
highest, 10 of 11.
    So again, I'm not saying that there couldn't be a 
correlation. But it is complex, and it's complex because we 
don't know which agencies are going to be referring debt to us 
at any given time. There's no schedule, as we had talked about 
earlier. We've been pushing to get debts, and suddenly a block 
of them show up. Part of our responsibility, and also something 
we talked about, is to move those quickly so that they don't 
age further.
    And that's one of the things we'll have to look at as we 
think about the new contract. We don't want to sit there 
waiting for a really good homogeneous blend of debts and let 
them age another 60 or 90 days. So those are the kinds of 
things that we would certainly want to consider as we prepare 
for this next contract.
    Mr. Turner. I think the complaint has been that the private 
collection agency that was ranked No. 1 was getting the smaller 
debts and the fresher debts. Let me just ask you if you'd be 
willing to do this. If all 11 collection agencies got together 
and came up with an agreement among themselves as to a fair 
system of distribution, would you be willing to sit down with 
them and try to implement that earlier than the renewal of a 
new contract? Because at some point, I think your agency needs 
to come to grips with this, or otherwise, we're going to start 
losing contractors. And I don't think that would be a healthy 
outcome, either.
    Mr. Gregg. I think that we have to be careful in doing 
that. This is a legal contract that we agreed to with the 11 
PCAs. And I'm not sure that we know enough and really could 
move any faster than the renewal of the contract before we take 
these into consideration and see who, actually we don't even 
know whether these same 11 current PCAs will be the ones that 
win out in the next contract.
    Mr. Turner. Thank you, Mr. Chairman.
    Mr. Horn. I think you raised a very good question and we 
need to maybe hold further hearings on this.
    Commissioner Jackson, let me ask you this. According to 
Financial Management Service, the Social Security 
Administration has not referred any of its delinquent debts to 
the Treasury for cross-servicing as required by the Debt 
Collection Improvement Act. Can you explain why Social Security 
isn't cooperating with the law?
    Ms. Jackson. Mr. Chairman, soon after Treasury issued its 
guidelines for Federal debt collection center designations, the 
Social Security Administration did submit an application to be 
designated as a debt collection center. We made that 
application on May 30, 1997.
    We received notification of the denial of our request on 
May 10, 1999, some 2 years later. We then pursued a request to 
have some of our debts, specifically our SSI debts and our 
debts owed by former child beneficiaries exempted, and we did 
receive approval of that waiver request on November 15, 1999. 
So these are very recent decisions that we received.
    At that point in time, we were very much embroiled in 
dedicating almost all of our systems activities to preparing 
for the year 2000 rollover, and in fact, we were basically 
barred from any new systems activity until after the rollover 
period, which continued through February of this year.
    We have continued to work with FMS, have made commitments, 
and have worked out our various systems program requirements 
with them. We will be testing over the next 6 months for the 
benefit offset program, and we will be actually implementing 
that in February 2001.
    We have also set up meetings, including going down to the 
Birmingham Debt Collection Center with FMS later on this month. 
So we are proceeding, but much of our delay in moving forward 
was based on our waiting for the final decision from Treasury 
on our request to be designated as a debt collection center for 
our own debts.
    Mr. Horn. Let me ask Secretary Powell, the Department of 
Veterans Affairs has referred only 1 percent of its eligible 
delinquent debt to the Treasury for cross-servicing. Why is it 
taking so long for this debt to be referred?
    Mr. Powell. Congressman, I believe, as I commented, one of 
the problems we've had has been the computer interface issue. 
Like SSI, this effort that was interrupted by the Y2K 
moratorium. We now have a September 1 deadline that I believe 
we are working toward, in which case, at which time that will 
be resolved. We would anticipate at that point in time that the 
flow of data would be much improved and much more seamless. And 
we fully expect to be compliant with the law in the relatively 
near future.
    Mr. Horn. What will happen to the Veterans Administration 
debt management center when all of its delinquent debts are 
referred to the Treasury?
    Mr. Powell. Well, we wouldn't be referring to them debts 
under 180 days old. As I mentioned, when you were asking the 
question about our designation as a collection center, we are 
very active with our management of our debts. We do a number of 
things to get in touch with our debtors immediately after the 
first 30 days. We begin contacting them and we begin a process 
of calling and notification. And we do experiment with PCAs as 
appropriate in certain locales.
    We have a number of debts that are also not eligible for 
cross-servicing, such as medical claims, because of their lack 
of specificity. There's oftentimes a negotiated amount that 
ends up being paid by the insurance companies. And we have with 
Treasury come to an agreement that those would not be eligible 
for cross-servicing.
    So we will still have functionality, and as I indicated, 
hopefully we will prevail in our application as well at some 
future date.
    Mr. Horn. Any particular view on this, Commissioner Gregg?
    Mr. Gregg. The issue on the nimbleness of which Treasury 
was reviewing debt collection requests is accurate. When I got 
to FMS in 1998, that process had really bogged down. I think it 
was a matter of other priorities. We have taken steps to 
certainly streamline that and make some clear criteria for 
agencies referring debt.
    From our perspective on the cross-servicing, we'd just as 
soon not see any debt. The idea of, and I don't know what's 
going to happen, but the idea of over time the agencies being 
able to collect all this within 180 days is really what we're 
all interested in. To the extent that that can happen, then it 
needs to come to us and we need to get it to the PCAs as 
quickly as we can.
    Mr. Horn. Well, I don't want to rush this today, but I 
think the best way I've heard now about the couple of places 
where the law is not being implemented, and we ought to deal 
with that, and I think we ought to deal with early time for the 
collectors, very frankly. And I think in the next few months, 
we'll call another hearing and maybe with a few different 
debtors here, if you will. And we will get back to what Major 
Owens has brought up on the publicity bit, and see where we're 
going.
    So I'm going to have, as was mentioned earlier, Mr. Ose had 
a markup, Mr. Turner had another commitment, both majority and 
minority have some questions they'd like to ask, and we'd like 
them, without objection, at this point in the record. So we'd 
appreciate it when they send them to you, back in your office.
    I would like to thank the following people that set up this 
hearing, Russell George, standing there, just came in, staff 
director, chief counsel. Randy Kaplan, to my left, your right, 
has responsibility for this matter. And so you'll be hearing a 
lot from him, as counsel to the subcommittee. Bonnie Heald, 
director of communications; Bryan Sisk, clerk; Elizabeth Seong, 
staff assistant; Will Ackerly, intern; Chris Dollar, first day 
at work, I think, intern, highly paid by us, namely nothing. 
[Laughter.]
    And minority staff, Trey Henderson, counsel; and Jean Gosa, 
minority clerk. And we've had the pleasure of the official 
reporter, Ruth Griffin, and thank you all.
    And with that, we're going to adjourn this hearing, and 
we'll pick it up about 3 months from now.
    [Whereupon, at 12:12 p.m., the subcommittee was adjourned.]

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