[House Hearing, 107 Congress]
[From the U.S. Government Publishing Office]



 
      FEDERAL DEBT COLLECTION: IS THE GOVERNMENT MAKING PROGRESS?
=======================================================================

                                HEARING

                               before the

                 SUBCOMMITTEE ON GOVERNMENT EFFICIENCY,
                        FINANCIAL MANAGEMENT AND
                      INTERGOVERNMENTAL RELATIONS

                                 of the

                              COMMITTEE ON
                           GOVERNMENT REFORM

                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED SEVENTH CONGRESS

                             SECOND SESSION

                               __________

                           NOVEMBER 13, 2002

                               __________

                           Serial No. 107-239

                               __________

       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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                     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       MAJOR R. OWENS, New York
ILEANA ROS-LEHTINEN, Florida         EDOLPHUS TOWNS, New York
JOHN M. McHUGH, New York             PAUL E. KANJORSKI, Pennsylvania
STEPHEN HORN, California             CAROLYN B. MALONEY, New York
JOHN L. MICA, Florida                ELEANOR HOLMES NORTON, Washington, 
THOMAS M. DAVIS, Virginia                DC
MARK E. SOUDER, Indiana              ELIJAH E. CUMMINGS, Maryland
STEVEN C. LaTOURETTE, Ohio           DENNIS J. KUCINICH, Ohio
BOB BARR, Georgia                    ROD R. BLAGOJEVICH, Illinois
DAN MILLER, Florida                  DANNY K. DAVIS, Illinois
DOUG OSE, California                 JOHN F. TIERNEY, Massachusetts
RON LEWIS, Kentucky                  JIM TURNER, Texas
JO ANN DAVIS, Virginia               THOMAS H. ALLEN, Maine
TODD RUSSELL PLATTS, Pennsylvania    JANICE D. SCHAKOWSKY, Illinois
DAVE WELDON, Florida                 WM. LACY CLAY, Missouri
CHRIS CANNON, Utah                   DIANE E. WATSON, California
ADAM H. PUTNAM, Florida              STEPHEN F. LYNCH, Massachusetts
C.L. ``BUTCH'' OTTER, Idaho          ------ ------
EDWARD L. SCHROCK, Virginia                      ------
JOHN J. DUNCAN, Jr., Tennessee       BERNARD SANDERS, Vermont 
JOHN SULLIVAN, Oklahoma                  (Independent)


                      Kevin Binger, Staff Director
                 Daniel R. Moll, Deputy Staff Director
                     James C. Wilson, Chief Counsel
                     Robert A. Briggs, Chief Clerk
                 Phil Schiliro, Minority Staff Director

    Subcommittee on Government Efficiency, Financial Management and 
                      Intergovernmental Relations

                   STEPHEN HORN, California, Chairman
RON LEWIS, Kentucky                  JANICE D. SCHAKOWSKY, Illinois
DOUG OSE, California                 MAJOR R. OWENS, New York
ADAM H. PUTNAM, Florida              PAUL E. KANJORSKI, Pennsylvania
JOHN SULLIVAN, Oklahoma              CAROLYN B. MALONEY, New York

                               Ex Officio

DAN BURTON, Indiana                  HENRY A. WAXMAN, California
                      Bonnie Heald, Staff Director
                Dan Costello, Professional Staff Member
                          Chris Barkley, Clerk
          Mark Stephenson, Minority Professional Staff Member



                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on November 13, 2002................................     1
Statement of:
    Moseley, James R., Deputy Secretary, Department of 
      Agriculture, accompanied by Thomas C. Dorr, Under Secretary 
      for Rural Development, U.S. Department of Agriculture, and 
      Carolyn Cooksie, Deputy Administrator, Farm Loan Programs, 
      Farm Service Agency, U.S. Department of Agriculture; Gary 
      T. Engel, Director, Financial Management and Assurance, 
      U.S. General Accounting Office; and Richard L. Gregg, 
      Commissioner, Financial Management Service, Department of 
      the Treasury...............................................     5
Letters, statements, etc., submitted for the record by:
    Engel, Gary T., Director, Financial Management and Assurance, 
      U.S. General Accounting Office, prepared statement of......    16
    Gregg, Richard L., Commissioner, Financial Management 
      Service, Department of the Treasury, prepared statement of.    39
    Horn, Hon. Stephen, a Representative in Congress from the 
      State of California, prepared statement of.................     3
    Moseley, James R., Deputy Secretary, Department of 
      Agriculture, prepared statement of.........................     9
    Schakowsky, Hon. Janice D., a Representative in Congress from 
      the State of Illinois, prepared statement of...............    52


      FEDERAL DEBT COLLECTION: IS THE GOVERNMENT MAKING PROGRESS?

                              ----------                              


                      WEDNESDAY, NOVEMBER 13, 2002

                  House of Representatives,
  Subcommittee on Government Efficiency, Financial 
        Management and Intergovernmental Relations,
                            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.
    Present: Representatives Horn, Schakowsky and Owens.
    Staff present: Bonnie Heald, staff director; Henry Wray, 
senior counsel; Dan Daly, counsel; Dan Costello, professional 
staff member; Chris Barkley, clerk; Ursula Wojciechowski, staff 
assistant; Juliana French, intern; Dave McMillen, minority 
professional staff member; and Jean Gosa, minority assistant 
clerk.
    Mr. Horn. A quorum being present, the Subcommittee on 
Government Efficiency, Financial Management and 
Intergovernmental Relations will come to order.
    Our hearing today concerns a subject that has been one of 
the subcommittee's highest priorities over the years: improving 
debt collection in the Federal Government. The subcommittee 
developed legislation that was enacted as the Debt Collection 
Improvement Act of 1996. Since then, the subcommittee has held 
numerous hearings on how well the act has been implemented.
    Today's hearing will focus on what the Department of 
Agriculture has done to improve its debt collection performance 
since we last heard from the agency in December 2001. The 
Department's performance is particularly important because more 
than one-third of all non-tax debt that is owed to the Federal 
Government is owed to the Department of Agriculture. Our 
hearing will also look at governmentwide progress in 
implementing the Debt Collection Improvement Act.
    I'm pleased to note that the Agriculture Department has 
done much to improve its debt collection over the last year. 
Our witnesses will testify that the Department is giving much 
higher priority to debt collection than it had in the past and 
this heightened attention is paying off. However, the 
Department must sustain its attention to debt collection 
because many challenges remain.
    Implementation of the act is also improving governmentwide. 
Federal agencies are now referring most of their eligible debts 
to the Treasury Department, as required by the act. And the 
Treasury Department's collection results are improving each 
year. For example, Treasury has collected about $15 billion in 
delinquent debt through its offset program. The Treasury 
Department also has collected over $100 million through its 
contracts with private collection agencies. During fiscal year 
2002 alone, collections by private contractors amounted to $43 
million. This represents more than a 60 percent increase over 
fiscal year 2001.
    At the same time, we still have a long way to go before the 
Debt Collection Improvement Act will realize its full 
potential. Agencies should be referring all eligible debts to 
the Treasury Department, not just most of them. Agencies should 
greatly improve the timeliness of their referrals in order to 
meet the act's requirement that debts be referred once they 
have become more than 180 days delinquent. Finally, agencies 
should make much greater use of the full range of collection 
tools that the act provides.
    [The prepared statement of Hon. Stephen Horn follows:]
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    Mr. Horn. Our witnesses today are quite familiar to this 
subcommittee. I want to welcome each of you and commend you for 
your efforts.
    We'll start with the Honorable James R. Moseley, Deputy 
Secretary, Department of Agriculture. He is accompanied by the 
Honorable Thomas C. Dorr, Under Secretary for Rural 
Development, U.S. Department of Agriculture; and Carolyn 
Cooksie, Deputy Administrator, Farm Loan Programs, Farm Service 
Agency, U.S. Department of Agriculture.
    Gary T. Engel, Director, Financial Management and 
Assurance, U.S. General Accounting Office, and the person that 
has really put everything moving because of the secretaries of 
the Treasury and behind him.
    And Richard L. Gregg has done a tremendous job. 
Commissioner, Financial Management Service, Department of the 
Treasury.
    [Witnesses sworn.]
    Mr. Horn. So let us start now with Mr. Moseley.

STATEMENTS OF JAMES R. MOSELEY, DEPUTY SECRETARY, DEPARTMENT OF 
AGRICULTURE, ACCOMPANIED BY THOMAS C. DORR, UNDER SECRETARY FOR 
RURAL DEVELOPMENT, U.S. DEPARTMENT OF AGRICULTURE, AND CAROLYN 
COOKSIE, DEPUTY ADMINISTRATOR, FARM LOAN PROGRAMS, FARM SERVICE 
    AGENCY, U.S. DEPARTMENT OF AGRICULTURE; GARY T. ENGEL, 
  DIRECTOR, FINANCIAL MANAGEMENT AND ASSURANCE, U.S. GENERAL 
    ACCOUNTING OFFICE; AND RICHARD L. GREGG, COMMISSIONER, 
    FINANCIAL MANAGEMENT SERVICE, DEPARTMENT OF THE TREASURY

    Mr. Moseley. Thank you, Mr. Chairman, and good morning.
    We want to thank you for the opportunity to be here this 
morning. We're just pleased to be here, considering the 
circumstances that occurred at the Department this morning, 
having to clear a couple of buildings because of a bomb 
difficulty that we had. But it is a pleasure to be here.
    We want to discuss the results of the Department's 
improvement in relation to implementing the Debt Collection 
Improvement Act since I testified before this subcommittee last 
December.
    As was indicated, I have Tom Dorr with me here today who is 
our Under Secretary for Rural Development, a very important 
part of this; and I wanted to let you know that Tom has an 
intense interest in this issue, as I do.
    I'd hoped to have Hunt Shipman, who is our Under Secretary 
for FFAS, but we had to change the hearing date and Hunt had to 
travel, so I have the very capable help of Carolyn Cooksie who 
has worked on these issues and understands the provisions in 
detail.
    I also want to take just a second to recognize another 
person that I know that you're familiar with and that's Ted 
McPherson. Ted is our Department CFO; and, frankly, Ted is one 
who has made some significant steps forward within the 
Department in terms of the reconciling of the Department's 
accounting principles. Now I recognize that this hearing today 
isn't about the Department's accounting, but Ted has helped in 
a significant way to lead us to an understanding of the 
magnitude of our outstanding loan balances, and he's helped 
move the Department forward in terms of managing our cash and 
the loan portion of the USDA portfolio. I'll tell you that it's 
been a very helpful inclusion of intellectual capital, and Ted 
is helping move this Department forward.
    While we are making progress in debt collection from 
delinquent borrowers, we fully respect, and we're trying to 
honor, the principles and the actions delineated in the debt 
collection act. The primary principle, I believe, based on the 
testimony that I gave you last year, is coming from the 
agricultural farmer and watching the circumstances in the 
1980's out there when there were some borrowers that walked 
away from their obligations. My belief as a result of that is 
that a loan is an obligation by the Federal Government to 
assist or to help an individual borrower. But with that 
commitment comes the expectation that the commitment that is 
made on behalf of the Federal Government will be paid back by 
the recipient.
    Of course, it's that repayment that is in question in this 
hearing and for which we as a government entity have a 
responsibility to insure that borrowers meet their 
responsibility to the taxpayer. That is the important 
obligation that we at USDA are continuing to make, commitments 
to ensure borrower compliance.
    I first want to give the subcommittee just kind of a brief 
profile of the components that make up our credit program, and 
then what I really want to do is focus on the actions that we 
continue to take to improve our performance in this area.
    As you well know, Mr. Chairman, every day USDA's programs 
serve the Nation's farmers, ranchers, our rural communities and 
those needing food assistance. If you look at it, we finance a 
broad array of programs: water and waste management systems and 
housing, electric and telephone utilities, rural businesses, 
farm ownership and operations, and emergency disaster 
assistance and relief.
    This is an extensive list. It's an extensive list of 
lending programs that makes USDA the Federal Government's 
single largest provider of direct credit. As of June 30, 2002, 
our $103 billion in debt obligations represented 35 percent of 
the $297 billion in non-tax debt owed to the Federal 
Government.
    Our current outstanding delinquent obligation at USDA is 
$6.1 billion, which does represent a decrease of about 30 
percent from the $8.8 billion that we reported in delinquencies 
in 1996. Of this $6.1 billion, $4.7 billion is precluded from 
these tools due to statutory or administrative requirements. In 
other words, these debts may involve bankruptcies or 
litigation, or a substantial portion is owed by foreign or 
sovereign entities from which collection is difficult and 
really requires other departments' assistance for us to recover 
loan losses. This leaves us then with about $1.4 billion that 
we can legitimately collect via the prescribed mechanisms in 
DCIA.
    In December 2001 I committed to this committee to making 
sure that USDA implemented the provisions of the Debt 
Collection Improvement Act and, more importantly, that we do it 
correctly. I pledged that we would be able to accomplish most 
of the then existing GAO recommendations by December 31, 2002. 
I also committed 60 percent of eligible USDA debt would be 
referred to the Treasury cross-servicing program by the end of 
fiscal year 2002. I also promised to monitor this progress and 
report back to you, and it's those commitments that I want to 
reflect on here today.
    So that raises the question: Where are we currently? Well, 
first of all, we've made some realistic improvements, just as I 
committed on behalf of the Department to do so almost a year 
ago. I am pleased to report that USDA has made substantial 
progress in developing new processes and procedures to 
implement most of the GAO recommendations found lacking in 
their report to you in the year 2001 and again in March 2002.
    For example, and perhaps most important, because it's a 
real measurable outcome, USDA's referral rate to the Treasury 
cross-servicing program was 58 percent through June 30, 2002, 
versus 14 percent in fiscal year 2001. We fully expect the 
referral rate will be over the commitment of 60 percent when we 
receive the final September 2000--September 30, 2002, year end 
report. This was something that I was expecting and hoped at 
that time would happen. But I have to confess I was trusting 
that the agencies would deliver it when I stated it.
    As I will say, both FSA and Rural Development have made 
substantial progress since our hearing last December. I'm not 
going to go through each accomplishment in detail because it's 
in the written testimony, but I would like to take just a 
second and highlight a few key areas.
    Both agencies have made commitments and then met them by 
implementing several changes as recommended by GAO. Let me give 
you a quick summary.
    FSA began quarterly referral of all eligible judgment loans 
to the Treasury cost-servicing program. They identified co-
debtors for all loan payments. I remember this was a serious 
issue a year ago and frankly it was one that I questioned why 
we weren't doing it.
    FSA also revised their oversight procedures to guide field 
offices in timely routine updates to the program loan 
accounting system. This helped our field staff know more 
quickly when to get a problem loan moving, thus limiting the 
timeframe from delinquency to referral. They revised loan 
application forms for establishing all the guaranteed loan 
losses as Federal debt rather than just the percent of 
obligation heretofore loaned by the Federal partner at closing.
    The Rural Housing Service discussed with Treasury the issue 
of report accelerated balances of delinquent single family 
housing direct loans, and they're going to comply with 
Treasury's decision to report the accelerated unpaid balance.
    More broadly, across USDA we established an administrative 
wage garnishment work group; and we're moving forward in 
developing a department-wide implementation plan.
    In short, I think substantial results have been achieved 
since last December, results that I hope indicate the interest 
of the Department to address these issues. But, as always, 
there's still more to accomplish. There's some remaining 
actions that require more detailed development and regulatory 
time lines.
    In my discussions with USDA staff, I've learned that we 
need to finalize a rule on guaranteed loans for single family 
housing so we can proceed to refer that area of unpaid debt to 
Treasury. My understanding is that we're going to get that done 
in mid-2003. That reflects in part my desire to have Under 
Secretary Dorr here with me today who has the lead for Rural 
Development. Just as Ted McPherson helped us as a result of his 
interest here last year, we have now have Tom appointed and 
he's one more member of the team who can help oversee this law 
and, most importantly, can get it done.
    We also need to keep focused on monitoring about what we're 
doing, just keeping an eye on the progress. Questions arise 
about how are we doing on tracking delinquencies, are we 
current and, more important, are we accurate? Are the referrals 
to Treasury what they should be and are they on time?
    It's a simple management concept, but I want to keep 
ourselves informed via our own monitoring about our improvement 
before we read about it in a GAO report. The bottom line is, 
though, that the Department has made a commitment to meeting 
the provisions of DCIA and moving to honoring that commitment 
in the past year. It seems we've improved, and it's been done 
with some important measurable outcomes. Yet, as I listen to 
others in the Department, I know that we have a few things that 
remain to be accomplished, and it's only logical that we need 
to stay focused and stay focused at the program level to get it 
done. We have the absolute commitment of the leadership. Now we 
need to make sure we turn that to the program level and 
accomplish it.
    Again, we thank you for the opportunity to report good 
progress, and we continue to pledge to you as a part of the 
overall management improvement asked for by the President that 
this issue commands the priority and therefore the attention of 
the Department.
    That concludes my remarks, Mr. Chairman; and we thank you 
for the opportunity.
    Mr. Horn. Well, thank you, because you have had wonderful 
progress. We now will use your people for the questioning.
    [The prepared statement of Mr. Moseley follows:]
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    Mr. Horn. We'll now move to the General Accounting Office, 
Gary Engel, Director of Financial Management and Assurance. Mr. 
Engel.
    Mr. Engel. Mr. Chairman, good morning. It's my pleasure to 
be here today to discuss progress that the Department of 
Agriculture has made addressing key challenges in its 
implementation of the Debt Collection Improvement Act of 1996. 
I will also describe the status of the Department of Treasury's 
use of a special financial incentive provision of the act to 
encourage agencies to improve their delinquent debt collection 
efforts.
    Almost a year ago I testified before this subcommittee that 
the Department of Agriculture, primarily the Rural Housing 
Service and the Farm Service Agency, faced challenges in 
implementing key provisions of DCIA. I stressed that agency 
implementation would have to improve vastly if the debt 
collection benefits of the act were to be more fully realized.
    Also during that hearing, Agriculture pledged to place a 
higher priority on delinquent debt collection and to implement 
the acts fully. After the hearing, GAO made recommendations to 
Agriculture to help the Department to implement the corrections 
that we had identified. My testimony today will provide an 
update on actions that Agriculture has taken to address these 
problems.
    Agriculture's full implementation of the key provisions of 
DCIA is critical to overall Federal non-tax debt collection. As 
a major Federal lending agency, the Department continues to 
hold a substantial amount of delinquent Federal non-tax debt. 
As of September 30, 2001, Agriculture reported holding about 
$6.2 billion of non-tax debt over 180 days delinquent, which is 
the very type of debt that the DCIA provides tools to collect. 
I am pleased to report today that recent actions taken by 
Agriculture demonstrate that, overall, the Department is 
placing a higher priority on DCIA implementation.
    The Rural Housing Service has worked to address systems 
limitations that hampered it from referring eligible debts to 
Treasury for cross-servicing in the past and is now promptly 
referring all such debts. In addition, the Rural Housing 
Service will begin reporting the entire unpaid principal 
balances on accelerated debt as delinquent. The agency is also 
working on making regulatory changes needed for it to refer 
losses on guaranteed loans to Treasury's Offset Program. 
However, these changes are not expected to occur until August 
2003.
    The Farm Service Agency has developed an action plan to 
improve its process and controls for identifying and referring 
eligible debts to Treasury. Our review of documents related to 
the plan indicates that the agency has made progress toward 
implementing the improvements, but work will need to continue 
well into fiscal year 2002.
    By December 2002, the Farm Service Agency also plans to 
begin reporting co-debtor information when referring delinquent 
debts for collection action, but a significant effort will be 
needed to refer all eligible co-debtors. Also by the end of 
this calendar year the Farm Service Agency expects to begin 
referring debts to Treasury's Offset Program on a quarterly 
rather than annual basis and to be able to refer eligible 
losses on guaranteed loans when such losses occur.
    Experts have previously testified before this subcommittee 
that the administrative wage garnishment can potentially be an 
extremely powerful debt collection tool. We found that 
Agriculture has taken steps toward agency-wide implementation 
of administrative wage garnishment, including completing its 
written implementation plan. The Department, however, still 
needs to carry out various elements of the plan, including 
specifying the types of debts that will be subject to 
administrative wage garnishment and finalizing an agreement 
with the Department of Veterans Affairs to conduct related 
hearings on Agriculture's behalf. Agriculture has also drafted 
regulations necessary for implementing administrative wage 
garnishment which may not be published until May 2003.
    Regarding the DCIA provision to refer agencies' financial 
incentives for collecting delinquent debt, Treasury established 
a debt collection improvement account and has twice requested 
appropriations authorizing expenditures from the account. Thus 
far, however, no expenditures have been authorized.
    While we support in principle the DCIA incentives for 
effective debt collection, the overall success of DCIA has not 
depended nor should it upon the availability or use of a 
financial incentive. Debt collection is a fundamental aspect of 
administering credit programs and DCIA contains specific 
requirements for Federal agencies that were designed to improve 
the collection of delinquent non-tax debt.
    As you know, debt collection has historically not been a 
high priority at some credit agencies. However, largely due to 
this subcommittee's effective oversight of agencies' DCIA 
implementation under your leadership, Mr. Chairman, the 
envisioned benefit of these requirements has begun to 
materialize.
    In summary, through Congress--in summary--excuse me--
through DCIA, Congress with key leadership from this 
subcommittee has provided agencies, including Agriculture, with 
a full array of tools to collect delinquent non-tax debt. It 
pleases me to testify today that Agriculture, an agency 
critical to collection of Federal non-tax debt, has recently 
taken and plans to continue to take steps that demonstrate a 
significantly increased commitment to implementation of DCIA. I 
must, however, emphasize that it will take a sustained 
commitment and priority by top management to fully address the 
remaining problems that we had identified.
    Mr. Chairman, this concludes my summary remarks. I would be 
pleased to answer any questions that you or other members of 
the subcommittee may have.
    Mr. Horn. I thank you on that presentation. I notice quite 
a few things here.
    [The prepared statement of Mr. Engel follows:]
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    Mr. Horn. Let's go to Commissioner Gregg, and then we'll go 
to questions.
    Mr. Gregg. Thank you, Mr. Chairman, members of the 
subcommittee. With your permission I'll submit my entire 
statement for the record and summarize it.
    Thank you for inviting me to testify this morning to 
provide an update on the Financial Management Service's 
implementation of the Debt Collection Improvement Act of 1996. 
As always, the subcommittee's and your strong personal support 
has helped Treasury Department in implementing a remarkably 
successful governmentwide debt collection program. It is a 
program that provides exceptional leadership across government, 
has significantly increased the collection of delinquent debts, 
and has greatly improved the government's ability to accurately 
report outstanding delinquent debt.
    Mr. Chairman, I understand that you're retiring at the end 
of this Congress; and I would like to take this opportunity to 
state that it has truly been a pleasure to work with you and 
your staff. I believe that you leave behind an important legacy 
in greatly improving the Government's debt collection, and I'd 
like to wish you all the best in the coming years.
    Mr. Horn. Well, thank you. And I hope you can get the tax 
crowd to do what you have done with the non-tax. They're in 
Treasury, and I gather they think we have a law. I don't know 
why. Just keep going. And I was very impressed by the private 
collection. Go ahead.
    Mr. Gregg. It is now apparent that Treasury's debt 
collection program is a fully mature one, and it's developed 
into an integral component of Federal financial management. You 
may be interested to know that the Treasury program has become 
a benchmark model. The United Kingdom and an Australian state 
government are both studying our policies and procedures as 
they develop their centralized debt collection programs.
    Today, Mr. Chairman, I will discuss our near-term and 
future program plans as well as update you on the overall 
progress. Before I discuss these two issues, I'd like to give 
you a brief report on the USDA's participation in the program, 
as well as share my views on the initiative commonly referred 
to as ``gainsharing.'' And, Mr. Chairman, I'd also like to 
submit for the record a report on the progress FMS made during 
fiscal 2002 in the debt collection program.
    I am pleased to report a substantial increase in the number 
of delinquent debt referrals from the USDA; and, specifically, 
I would single out the Rural Housing Service, from which we 
received approximately $231 million in cross-servicing 
referrals in fiscal 2002. Through 2001, we had received only 
$8.5 million. The Farm Service Agency has also taken some 
recent positive steps in transferring debts to FMS. This fiscal 
year we received $130 million and last year we had only 
received $10 million--this fiscal year being 2002 compared to 
2001.
    The Food and Nutrition Service, I would add, continues to 
excel in their participation; and you may be assured that 
Treasury remains committed to working with USDA to eliminate 
any barriers to program participation.
    As you know, Mr. Chairman, DCIA also includes a provision 
designed to provide an incentive known as gainsharing for 
agencies to increase collections of delinquent debt by 
reimbursing them for certain expenses related to collection. 
Although no funds have actually been appropriated for 
gainsharing accounts for reimbursement purposes, Treasury has 
developed procedures that would enable us to activate the 
program if and when funds do become available.
    As you pointed out, since enactment of the DCIA, FMS has 
collected about $15 billion in delinquent debts; and since FMS 
was given responsibility for centralized collection of debt we 
have sharply increased collections through program changes, 
adding numerous payment streams and categories of debt and have 
actively worked with agencies to overcome obstacles. In fiscal 
2002 alone, Treasury collected $2.8 billion in delinquent debt, 
including $1.47 billion in past-due child support, $1.2 billion 
in Federal non-tax debt, and almost $180 million in State and 
Federal tax debt.
    Treasury has also worked hard to have agencies refer 
eligible debt in a timely manner. Last fall, at your 
suggestion, Secretary O'Neill wrote to the heads of all 
departments and agencies on the importance of debt referral. In 
the last year, FMS made improvements to the Treasury Report on 
Receivables which enables us to more actively monitor and 
evaluate agency referral and collection performance by 
generating computerized 5-year trend analysis reports. Also in 
the last year, more than 1,100 agency participants attended 
various FMS sessions on debt collection throughout the country.
    These actions have produced outstanding results. For both 
the Treasury Offset Program and cross-servicing, currently 93 
percent of debt identified as eligible has been referred. To 
put this in perspective, at the end of fiscal 99, agencies had 
referred to Treasury only 43 percent of their eligible 
delinquent cross-servicing debt.
    Mr. Chairman, I'd like at this time to give the 
subcommittee a progress report on some of Treasury's collection 
initiatives.
    With the cooperation of the Social Security Administration, 
the offset of benefit payments, which is an extraordinarily 
complex undertaking, continues to go smoothly. In fact, for 
fiscal 2002, FMS collected approximately $55 million in Federal 
non-tax debt through this program.
    As you know, Mr. Chairman, the House version of the welfare 
reform legislation includes a provision to authorize offsets of 
Federal payments including SSA payments to improve the 
collection of delinquent child support debt. FMS and HHS are 
working with the Senate in an effort to include a similar 
provision in the Senate version of the bill. An estimated $50 
to $100 million annually in lost child support collections are 
at stake. This provision would enable us to aggressively target 
the collection of these funds.
    With the good support of the IRS, implementation of the 
continuous Federal tax levy initiative continues to go 
smoothly. Of all the payments being levied, Social Security 
benefit payments account for most of the levies. For fiscal 
2002, approximately $60 million was collected.
    FMS implemented the program to collect delinquent State tax 
debt in 2000; and for fiscal 2002, $119 million was collected. 
Currently, 25 of the 41 States that collect State income tax 
and the District of Columbia are participating.
    Further, FMS has issued regulations to enable Federal 
program agencies to garnish private sector wages. FMS views 
administrative wage garnishment as a powerful collection tool 
with enormous potential. So that agencies can take full 
advantage of FMS's centralized processes and established 
safeguards, we strongly encourage them to use administrative 
wage garnishment through Treasury's cross-servicing program.
    As you're aware, Mr. Chairman, the present contract with 
private collection agencies went into effect October 1, 2001. 
We reduced the number of collectors from eleven to five and 
have seen solid improvement in performance and service. Since 
the inception of this program in early 1998, the PCAs have 
collected $109 million; and for fiscal 2002, PCAs collected $43 
million, which is up from $27 million in fiscal 2001.
    In 2001, FMS began phasing in Federal salary payment 
offsets. Of the five major salary paying agencies, the USDA's, 
National Finance Center and the Department of Interior, both of 
which process payroll for numerous Federal agencies, now 
participate. The U.S. Postal Service and Department of Defense 
have committed to participate by the end of this calendar year. 
In addition to collecting Federal non-tax debt, we have also 
begun to collect tax debt by levying Federal salaries. We 
collected $1.9 million for fiscal 2002.
    I am pleased to tell you of yet another element of our debt 
collection program that is close to fruition. FMS has completed 
system testing of the new offset of non-Treasury disbursed 
payments, and we're currently working with the Department of 
Defense and the U.S. Postal Service to test the transfer of 
data files between our respective systems. Debts in the FMS 
data base will be compared to DOD and Postal Service vendor 
payments, and when there is a match, DOD and the Postal Service 
will offset the payment. This will also be done for debts under 
continuous tax levy. We believe this initiative holds great 
promise and will significantly enhance debt collection, and we 
plan to implement the program next month.
    Barring delinquent debtors from obtaining Federal loans and 
loan guarantees is a high priority for FMS and for those 
Federal agencies with loan authority. FMS has been developing a 
system we call ``Debt Check'' that will allow lending agencies 
to access information from the FMS delinquent debtor data base 
so that government loans are not made to previously identified 
delinquent debtors. Debt Check is scheduled to be implemented 
as a Web-based initiative with agencies being phased in 
gradually.
    Mr. Chairman, in summary, Treasury's debt program is one 
that is both robust and effective and one that has consistently 
met or exceeded its performance measures.
    This concludes my remarks. I'll be happy to answer any 
questions that you or the subcommittee may have.
    Mr. Horn. Sure. Thank you.
    [The prepared statement of Mr. Gregg follows:]
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    Mr. Horn. I'm now going to yield time for Mrs. Schakowsky, 
the ranking person for this subcommittee; and I'd like her to 
start--she hasn't had a chance to get some overlook of her own, 
and we'd then like her to have at least 5 minutes, and then 
we'll go back and forth between us.
    Ms. Schakowsky. Thank you. I thank you, Mr. Chairman. The 
work that you've done, along with my good friend Congresswoman 
Carolyn Maloney, on debt collection since the 104th Congress is 
really showing results; and I congratulate you and all of us on 
that.
    The testimony from Treasury indicates that 93 percent of 
the debt that should be referred for collection is being 
referred, a dramatic increase from the 43 percent referral in 
1999. In fiscal year 2002, Treasury collected over $2.8 billion 
in delinquent debt; and a total of $15 billion has been 
collected since the law was passed. That is a significant 
accomplishment.
    Today we also heard that the situation at the Department of 
Agriculture has improved dramatically. The programs that last 
year were identified as troubled today are complying with the 
law. Both the Rural Housing Service and the Farm Service Agency 
have made major strides toward compliance. Both agencies still 
have significant room for improvement that will require, as 
noted by the GAO, ``sustained commitment by top management.''
    The results of this legislation are even more important 
today than when it was passed. The Bush administration is 
running the government by spending more than is coming in. 
Congress has not passed the appropriations bills necessary to 
fund the Government in part because the Bush tax cut has left 
us with no way to fund those bills without running up the 
deficit.
    This challenge will be even greater in the next Congress. 
It's clear that the recession that began shortly after 
President Bush took office still has the economy in its grips. 
Most experts predict that the last quarter of 2002 will show 
little if any growth in the economy. Public confidence in the 
economy is at a 9 year low. Consumer spending that has kept the 
economy from slipping into a double dip recession appears to be 
slowing. Car sales, despite all the zero interest loans, 
dropped dramatically in October to the lowest level since April 
1998.
    To make matters worse, jobs are disappearing left and 
right. Net private sector jobs fell by 29,000 in October, 
17,000 in September. Layoffs rose from 70,000 in September to 
176,000 in October. The length of unemployment is increasing, 
and the average number of hours worked is falling. Economists 
tell us that the most optimistic prediction is that we will 
repeat the jobless recovery of 1991 and 1992. Others are 
predicting another recession. In short, it's likely to be a 
difficult winter for many Americans.
    Debt collection is one tool to fill the Government coffers, 
though it's no substitute for sound economic policy. Debt 
collection which shrinks a family's income into poverty or 
which puts a firm out of business is counterproductive. Debt 
collection that unrelentingly pursues those who can't pay is 
wasteful and misguided.
    I appreciate the testimony that we've heard, and I want to 
thank the witnesses for taking the time to appear before us.
    [The prepared statement of Hon. Janice D. Schakowsky 
follows:]
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    Ms. Schakowsky. I do have one question regarding the issue 
of child support. Would you explain--in Illinois, where I 
served in the State legislature, I saw child support as the 
collection--as the business of State government. I know 
Illinois ranks near the bottom, unfortunately. Hopefully, 
we'll--with the new Governor we're going to see some changes, 
but it's been a persistent problem.
    I understand how it would benefit the Federal Treasury if 
we do a better job of collecting child support. But what role 
does the Federal Government play in child support--in 
collecting child support?
    Mr. Gregg. We really work very closely with HHS and the 
States to collect child support to offset payments that we 
make. For example, for tax refunds, when we get referrals in 
from the States through HHS for delinquent child support we 
may--in fact, do--reduce the amount of the tax refunds that 
otherwise would have been made. So we're not the only source, 
but we are an important source. I think for fiscal 2002 we 
collected $1.4 billion in delinquent child support, and that's 
been pretty consistent for the last several years. So it's 
another tool that really helps the States in their role.
    Ms. Schakowsky. And is that the--are we maximizing our 
opportunities there, or do you see room for growth there as 
well?
    Mr. Gregg. Well, I think one thing that we would support 
would be to also provide to allow us to offset child support 
payments through the Social Security--for Social Security 
benefit payments, because there are some fairly significant 
amounts that could be collected--which sounds a little strange 
on the surface, but it nonetheless is the case. We could 
actually collect somewhere between $50 and $100 million 
additional if we had the authority to offset the Social 
Security payments.
    Ms. Schakowsky. And are you--in considering what the 
benefit is to the Treasury, do you look at things like food 
stamps or WIC or all of those that may not be needed to be paid 
out if the child support is collected? Is that part of the 
calculation?
    Mr. Gregg. Well, no. We basically rely on the referral from 
the States through the HHS that there's a delinquent child 
support debt. And if we have a payment that matches that, we 
offset it. Now if there's an issue on, you know, someone 
claiming that they can't afford to pay that, we really refer 
that back to HHS and the State.
    Ms. Schakowsky. OK. Thank you. That's all I have.
    Mr. Horn. I might add the day that the debt collection bill 
became law, when the President put his signature on it, I got a 
call from Commissioner Adams of Massachusetts. He said, you've 
made my day. And that's in line with Ms. Schakowsky, to make 
sure to track the deadbeat dads. This has been a side thing, 
but it's very important.
    Mr. Gregg. I might add, Mr. Chairman, that we have some of 
our staff here from our debt management service, and you know 
they're all very dedicated. But the fact is that it's one thing 
to collect Federal debt. It's another thing for them to see 
what they've done in the child support area. It really 
reinforces to them the importance of what they do.
    Mr. Horn. Well, let's go down the line a little. I'm sorry. 
Oh, Mr. Owens. I didn't see you. Yeah. Welcome.
    Mr. Owens. Thank you. Thank you, Mr. Chairman.
    Again, I want to salute you for your pursuit of this 
problem over the years. For more than half of my career in 
Congress I have been fascinated by this problem of debt 
collection, particularly within the Agriculture Department. I 
really want to salute you as a profile in courage, a profile in 
integrity, a profile of continuity. You've stuck with it, as 
you have with many other knotty problems of this kind. But I 
certainly am fascinated by the fact that such large amounts of 
money can be outstanding. You can fund whole categories of 
people. The welfare mothers in most of the States could be 
greatly helped if we just collect the debts from the 
Agriculture Department.
    The Agriculture Department does fascinate me because it 
seems to be the most recalcitrant and stubborn in terms of 
moving. Now there's a movement.
    I just want to clarify what I'm seeing here. When I first 
was introduced to the problem the outstanding debt was about 
$14 billion. The chart that appears at the end of your 
testimony, Secretary Moseley, do I read it correctly? We are 
now down from $14 billion to $6.1 billion. Is that--when you 
look at all these numbers, is that correct?
    Mr. Moseley. That is correct.
    Mr. Owens. What's really outstanding now is $6.1 billion.
    Mr. Moseley. That is correct.
    Mr. Owens. I think I was introduced to this problem about 
10 years ago. So in 10 years we've gone from $14 billion down 
to $6.1 billion. How does this occur? I mean, do people get put 
in prison after a certain period of time and they haven't paid 
their debts? Does any action other than trying to coerce them 
to pay the debt take place? And how do some loans get written 
off? You wrote off about $1 billion I see here, written off. 
What does ``written off'' mean? It just sat there so long you 
got tired of trying to collect it and that person goes scot 
free? Or did they have to go bankrupt before it was written 
off? What happened?
    There's two questions there.
    Mr. Moseley. Well, we--first of all, I probably will have 
to turn to, from a historical perspective, someone who's been 
around the Department for a long period of time. But I think 
it's obvious what we try to do is pursue the individual to make 
sure that the obligation is paid. If it's in litigation, if 
it's in bankruptcy, there's a--then we are prohibited under the 
guidance of this act to pursue during that timeframe. But once 
that's cleared up and it's free to refer it to Treasury, then 
it's based upon their pursuit to collect those funds. If 
there's nothing to collect, then that money has to be written 
off.
    Mr. Owens. If there's nothing to collect, the money is 
written off; and the individual is scot free, though. There's 
no penalty. Nobody goes to prison for having defrauded the 
government.
    Mr. Moseley. I'm going to turn this over.
    Ms. Cooksie. I don't know that anybody goes to prison for 
being delinquent on a debt or not paying it, but there 
certainly are things that happen. There are even at--first of 
all, we don't write down and write off debt until we know for 
sure there are no assets left to collect it. And that's a long 
process. At that point, if we write down the debt, if there is 
any future availability for that borrower to have any income or 
anything else, then we do do things like we set judgments 
against them and we do collection efforts that are ongoing. And 
DCIA has certainly made that easier for us to do that.
    But, you know, there is--the fact of life is that the law 
that governs farm loan programs is under the Con act. There's a 
statutory provision for write-off for farmers in certain 
conditions. So we have to follow those laws for write-off. So 
there are certainly some farmers whose loans are written off at 
the end of the day when we determine there are no assets left 
to collect it.
    Mr. Owens. What's always fascinated me is the large amounts 
of money we're talking about. You're not talking about chicken 
feed here. We're talking about millions of dollars, $1 billion 
written off. And in many cases when I was first introduced to 
this there were some farmers who had loans outstanding which 
were in the millions of dollars. So to hear that if they just 
hang out there long enough the whole thing is just written off 
is very disturbing.
    But the question is, the practices that led to this were 
often very strange, too. There were committees, committees made 
up of people who had the power to recommend these loans, credit 
committees or farm loans, I forget the exact name. And on some 
of these same committees some of the people who had the biggest 
debts were sitting there on the committees long after the debt 
had been sitting there for a while.
    Have steps been taken to end that kind of legal 
racketeering? Because it was not illegal for them to be there. 
The rules said that--no rules said they couldn't be there. So 
you had a person who is able to seem to me log roll and in 
terms of other people--and while his debts are there, you know, 
safely couched away. Are the rules now clear so that a person 
who is delinquent is at least not kept in a responsible, 
decisionmaking position in this program? I'd hope that anyone 
in the Federal Government or in the private sector, anybody 
with $1 million worth of debt not being paid would also be 
tagged for what he is. But let's just start with the Department 
of Agriculture.
    Ms. Cooksie. In FSA and farm loan programs we do--well, in 
FSA in General we do have county committees that you're aware--
they're elected committees in each county. There is this notion 
that is wrong, that county committees do feasibility and 
eligibility determinations for farm loans. That is not true. 
They do for some of the CCC programs on the program side of the 
house. But for farm loan programs county committees don't have 
any authority or say-so in eligibility or determinations for 
our farmers.
    So even if you're on the county committee you really--and 
with the farm bill that just passed, all of the other things 
that the county committees did under farm loans is basically 
gone now. So the relationship with farm loans and county 
committees is very little, the way the laws are written now.
    Mr. Owens. They used to be called farmers home loan 
mortgages. Does that no longer exist? And that includes this 
statute here?
    Ms. Cooksie. In 1995----
    Mr. Owens. Who's sat on the mortgage committees? You know--
--
    Ms. Cooksie. Farmers Home Administration disappeared in 
1995 with the reorganization bill.
    Mr. Owens. Yeah. I've been here since 1983, so----
    Ms. Cooksie. 1995.
    Mr. Owens. OK.
    Ms. Cooksie. The farm loan portion of it went to what is 
now Farm Service Agency. The housing portion of it went to what 
is now Rural Development.
    Mr. Owens. Under the old arrangement were the committees 
from the farmers home loan mortgages different from the county 
committees?
    Ms. Cooksie. Absolutely. They were not elected committees. 
They were appointed. In Farmers Home Administration the county 
committee system was quite different from the way it is 
established in FSA. They were not elected committees, committee 
members. They were appointed committee members, absolutely.
    Mr. Owens. They were appointed committee members and there 
were no rules that said if you have big debts you can't sit 
there, right?
    Ms. Cooksie. There are no rules, and even in the farm bill 
law that just passed it's clear that Congress expected that 
county committee members would be able to get loans from the 
government. We even now have extended it to Federal employees. 
So there is no rule that says if you're on a county committee 
you cannot participate in the program. But there is a division 
in farm loans because they don't really have any say-so in the 
farm loan programs now.
    Mr. Owens. Thank you.
    The awesome power of the farm lobby in this country is more 
than just fascinating. Less than 2 percent of the population, 
they have the biggest bureaucracy second only to the Pentagon 
here in Washington. And they walk away with--what's the present 
authorization of--legislation is $600 billion in farm 
subsidies, the highest amount. The cap that was put on is less 
than--is about $250,000 that can be received by one farmer, one 
unit, whatever they call it, quota, whatever. It's awesome how 
much the American people shell out to the farm industry, and 
they continue really not to move at a very fast pace in terms 
of dismantling some of what I call almost legal racketeering 
practices that have existed there.
    Thank you, Mr. Chairman.
    Mr. Horn. Thank you.
    Let me go back to Mr. Gregg a minute. You said that your 
office remains committed to working with the Department of 
Agriculture to eliminate any barriers to its participation in 
your debt collection programs. What barriers do you see in this 
regard and how will you help eliminate them?
    Mr. Gregg. I think given the commitment that we heard last 
December and still today, assuming that continues, I really 
don't see many barriers. And I think that's true across 
Government. If we had the kind of top-level commitment that 
we've had in Agriculture last year, many of the issues would go 
away. Because when it gets right down to it you have some 
funding issues and priorities and computer systems, but unless 
you have the commitment, the rest really doesn't matter very 
much.
    Beyond that, I think we stand ready and I think we've done 
some consulting with them on the administrative wage 
garnishment regulations. We have not only program people but 
attorneys that are very knowledgeable about the program, and I 
think they have helped other agencies in Agriculture. If issues 
come up and questions of whether or not a debt should be 
referred to us or not, then we look at it, you know, as really 
a cooperative effort to try to figure that out; and that's the 
kind of thing that we stand ready to do.
    Mr. Horn. What do you see as the remaining barriers to 
ensuring that all agencies make maximum use of the Debt 
Collection Improvement Act and how will you help agencies 
overcome them?
    Mr. Gregg. Well, I think when you launched this program, 
and not surprisingly so, agencies saw or thought that they saw 
that they were losing something, and they were concerned about 
their programs and their constituents. I think over time that 
most of that has gone away and they're taking a broader 
perspective that what they're trying to do is still administer 
their programs but also collect these debts.
    Again, I think that the kind of commitment we've seen from 
Agriculture is really what's needed, and probably a periodic 
hearing on agencies that are still not quite there would 
probably be a good idea going forward.
    Mr. Horn. I notice you grew up in South Dakota so you know 
what a farm looks like. I must say I get a tear when I see the 
sheriff on TV and he goes to shout, just knock off the barn and 
everything else. I don't know how that's equity that has 
changed, and I don't know if you just have a feeling on that--
because I wouldn't want somebody--I'd make sure that before 
they face them with putting them out and not being able to plow 
their land or get it to farm and market and so forth.
    Moving on here, how concerned are you that the act's 
gainsharing provision has yet to be used and what can be done 
to encourage its use?
    Mr. Gregg. I think that gainsharing could have been quite 
useful in 1997 and probably 1998. I think where we are today, 
I'm actually not very concerned that it hasn't been used. I 
think the agencies, over time, have shifted priorities and have 
made it work so the progress that we've made in the last couple 
of years, I would say that I'm not very concerned that 
gainsharing hasn't been authorized through appropriations.
    Mr. Horn. How would you rate the effectiveness and 
responsibility of the private collection agencies that you've 
worked with at the Treasury Department?
    Mr. Gregg. They've been a very important tool for us, and I 
think it's even gotten better in the last couple of years as 
we've reduced the number of PCAs from eleven to five and have 
worked very effectively with them. Like anything else, it kind 
of depends on the nature of the debt and where they fit into 
the process. But they've been very effective.
    Like anything else, you need to manage it. It's not that we 
just have a contract with them and turn them loose. They're 
managed. We monitor the complaints we might get in from debtors 
on whether or not they were treated appropriately. Overall, 
it's been extremely effective for us.
    Mr. Horn. In your role as Commissioner to the Treasury's 
Financial Management Service, if the IRS is finally getting its 
act together in terms of the pots they've had over the years, 
that--starting with back when we got for doing something about 
it, and that was $60 billion sitting around and then $100 
billion, would that come into your agency and manage it for 
IRS?
    Mr. Gregg. Well, we wouldn't manage it, but we have been 
working with IRS for the last, I don't know, I guess it's been 
a year and a half. They refer to us now tax debt and that's 
going quite well. There's still more potential there, but we've 
collected a fair amount in the last couple of years, and I 
think that will continue to grow. The working relationship 
between us and IRS is very good, and that's an important 
element of the program, even though it's not specifically under 
DCIA.
    Mr. Horn. The private collectors, how much of that is used 
on IRS liabilities? What can you say about that? Because in the 
past they wouldn't do it. About, oh, 8 years ago they gave us a 
phony presentation of when this would be moved, and it was 
already 5-year old debt, and that didn't hit anybody. This is 
before Commissioner Rossotti, but it was in that--going between 
commissioners. Do we have any problem like that right now?
    Mr. Gregg. The tax debt that we collect is all collected 
through levies. It is not subject to the cross-servicing 
program. I know that IRS and the Department of the Treasury are 
looking at the issue of whether or not to have IRS use PCAs, 
and I don't know how they are going to come out on that. But 
they are considering that.
    Mr. Horn. That is good, because there must easily be $20 
billion somewhere with a decent operation. You have an 
excellent operation, and they ought to be able to get out and 
get that $20 billion when everybody is saying, gee, look, we 
are doing this, we might do something with Social Security--
which we won't, any more than anyone else does--and to see if 
you can get that $20 billion would be helpful.
    What do you think? Do you think it is at the $20 billion 
mark or the $50 billion mark on the IRS? Or is that not in--I 
don't mean to put the thing on the----
    Mr. Gregg. I think you have seen that with Charles Rossotti 
and his deputy, Bob Wenzel, have certainly had increased focus 
on this. And I think through, their work, we were able to 
overcome some fairly tricky things on getting the tax debt 
referred to us for offset.
    You know, this past year, fiscal year 2002, we collected 
$60 million. I realize that is a small piece relative to what 
is outstanding, but I see that continuing to grow.
    Mr. Horn. We have, I believe, a figure that it is $100 
billion to be collected if you really go after it. And now they 
all say, well, we just can't do it and so forth. With you 
already doing it, I don't know why we can't push in that area; 
and that will be good for you. So----
    Mr. Gregg. Thank you.
    Mr. Horn. Well, you are such a good administrator. My gosh, 
here they are fiddling around over there and have been--when 
the word private collector drives them nuts. But to--we ought 
to try with it. You have seen that you get results. So we 
shouldn't--when we have got a good situation going right under 
everybody's noses, why we ought to try and see if we can do 
something.
    You say that four or five major Federal salary-paying 
agencies are participating or have committed to participate in 
the salary offset. What is the fifth agency, and why is it not 
participating?
    Mr. Gregg. The fifth one would be Veterans Affairs, and we 
have been working with them. I am not sure I can really say why 
it has taken that long, but I think one of the issues that they 
have been struggling with a bit are systems issues.
    But, as you may know, there is also a look, governmentwide, 
to consolidate the number of organizations that do the salary 
work. So I think maybe part of it is that they are kind of 
looking over their shoulder to see what is going to happen with 
that.
    Mr. Horn. Have you performed any reviews of the Treasury 
Department's cross-servicing program in order to determine 
whether it is cost-effective?
    Mr. Gregg. I think the cross-servicing program, if you look 
at it in the context of all of the work that we do in the debt 
collection area, is a very important part.
    Since we began cross-servicing, we have collected about 
$218 million. In addition to that, the amount of debt 
information that has been improved has been considerable, 
because, through that process, in some cases we go back to 
agencies and say, the documentation isn't there. You either 
have got to get the documentation or you have got to recognize 
that this debt isn't collectible.
    That whole process has taken place through our cross-
servicing office. If you look longer term, that is going to 
continue to improve the quality of the debt information that is 
being reported by us and by the agencies. So I think it is an 
extremely important facet of our overall program.
    Mr. Horn. Let's move to the General Accounting Office. Mr. 
Engel, how responsive has the Department of Agriculture been to 
your recommendations for improving its debt collection?
    Mr. Engel. Mr. Chairman, all of the recommendations that we 
made in our recent reports issued last year have been addressed 
at some level. In some circumstances the recommendation has 
been fully implemented and in others there is a ways to go. 
Overall, I think we are pleased with the response that we 
received. But, as I had said in my testimony, it will really 
require a sustained commitment and priority by management to 
follow through on those remaining problems that still have 
actions to be done.
    Mr. Horn. What do you see as the major remaining challenges 
to fully implement the Debt Collection Improvement Act at 
Agriculture?
    Mr. Engel. I would say there is still several major 
challenges. A lot of the recommendations that I had just 
mentioned have not been completed, need to be followed through. 
Some of the major areas would be in the codebtor, referring the 
codebtor information over on the direct farm loans. While 
progress is being made on those and many of the loans have been 
identified as to who the codebtor is, there is still a 
significant dollar amount of debts that have codebtors that 
would need to be identified and referred over.
    The Farm Service Agency, when we had performed our work 
last year, we had found problems with their processes for 
identifying the accuracy of information being reported over 
through their referrals. Efforts are under way in that area, 
but there are still several things that need to be 
accomplished.
    In the administrative wage garnishment area, as I had 
mentioned in my testimony, the agency has developed a written 
implementation plan. It has developed draft regulations, but 
there are still other procedures, working out arrangements with 
Veterans Affairs and things that we will need to get completed.
    But I really think that will be an effective tool. It is 
one that priorities should be put on to get those problems 
issued.
    Mr. Horn. What is the situation with--is it the computing--
whatever--for VA? What is the problem there?
    Mr. Engel. For VA? Veterans Affairs is going to assist them 
in holding the hearings. Under administrative wage garnishment, 
the debtor could ask for a hearing; and Veterans Affairs is 
someone that the Department of Agriculture is looking to have 
perform some of those hearings for them.
    Mr. Horn. So it is a human situation in terms of--is there 
a particular percentage that one has in benefits and they are 
sort of working away at that--because that sort or rings a lot 
of bells--and would hear a lot of Members of Congress worried 
about that?
    Mr. Engel. For administrative wage garnishment, the way it 
would work is that the 15 percent of disposable pay can be 
taken from the employer's--or the employee's pay until the full 
debt is collected. Now, the disposable pay takes into account 
taxes and some of the sensitive things, health insurance, would 
come out before you would come down to what disposable pay is.
    Mr. Horn. Is there a problem that you see between benefits? 
Some are under HHS? Some are the States? And so what is the 
problem in trying to get into those things and see if it is 
overpayments or underpayments or what?
    Mr. Engel. As far as the debts that are--what is causing 
the results?
    Mr. Horn. Right.
    Mr. Engel. In some cases, the debts may be overpayments 
that were made as part of the program. That just--they went 
through and made the payment, and it wouldn't be until later 
that they discovered that those were errors in payments.
    In some cases, I think you actually could have fraud 
involved in some of the erroneous payments that are being made. 
There are efforts out at the agencies, at HHS, I know, that are 
taking place to try to identify and gauge the magnitude of what 
those erroneous payments are.
    Mr. Horn. Is this with regard to large groups, HMOs, and so 
forth, or is it the poor individual one?
    Mr. Engel. Well, I do know some of the payments are in 
regards to Medicare. You know, Medicare providers and payments 
such as those. I am not that familiar with exactly what all the 
erroneous payments are.
    Mr. Horn. I think there has been a lot of misuse. Has GAO 
ever looked at that?
    Mr. Engel. I have not myself. But, yes, GAO has done some 
work in what is called the erroneous payments, improper 
payments area. I believe we have issued a report in the last 
year on that subject.
    Mr. Horn. Yes. We had a bill on the floor yesterday, and it 
passed. It will go to the President. And, hopefully, the 
various agencies will have to come in with what type of--the 
part of--which I think was--we sought two different types, OMB, 
GAO, so forth. And it sort of--we are trying to sort it out. 
But that will be in the law, and hopefully GAO will be able to 
give us the best shot going to that.
    Mr. Engel. Yes, sir. We can do that.
    Mr. Horn. OK. Do you have a program working on that in GAO?
    Mr. Engel. I do know there have been individuals that have 
worked in that area. I could get back to you on the specifics.
    Mr. Horn. OK. Fine.
    What do you think of Treasury's progress in implementing 
the cross-servicing program?
    Mr. Engel. The cross-servicing program is one--has been one 
that has had a lot of success. Back in 1999 Treasury was able 
to merge their tax refund program along with their tax offset 
program; and that has resulted, along with some subsequent 
enhancement to the program, in significant increases in the 
amount of collections resulting from tax refund offsets.
    In the offset area as well, there has been successful--as 
Mr. Gregg has said, Social Security payments are now being 
offset, and there has been a significant amount of collections 
resulting from those.
    The area in which I think Mr. Gregg had touched on that 
still needs to be followed through on is in the Federal salary 
offsets. There are still some agencies that we need to follow 
through and get all of those Federal salary offsets. I believe 
I heard him say today in the non-Treasury disbursing office 
payments, with the Department of Defense and the Postal 
Service, those are major payment streams that still need to 
come in and be incorporated into the Treasury offset program, 
which I believe I heard within the next month or so, which will 
be a positive sign.
    Mr. Horn. Why do you think the act's gain-sharing provision 
has yet to be used, and what can be done to encourage its use 
as cedent from the General Accounting Office?
    Mr. Engel. It is unclear why the act has not been used. 
However, I believe there may be some reasons for that. One 
could be that the knowledge out there of the agencies as to the 
provision itself and how the account would work, I am not sure 
how much is known out there. Also, the requirement for there to 
be appropriations through Treasury to fund the expenditure out 
of the account has not helped. As we know, SBA has requested 
twice to get funding; and both times that authorization was not 
provided.
    Another thing may be that other agencies have seen that 
SBA's attempts were unsuccessful and they have not made 
attempts themselves.
    I concur, I think, partially with Mr. Gregg. I don't see 
the incentive as something that at this point is maybe quite as 
critical. We do support the concept of an incentive, but I 
think the act itself has enough provisions that if the agencies 
would take a higher priority and fully implement all of the 
provisions that we would probably see more success.
    But one thing that could be done to try to get a better 
feel in the gain-sharing area is to have FMS or someone reach 
out to these agencies and see why it is they have not used it. 
I don't know if that has been done yet. But that is one way to 
find out exactly. Is it because they are not aware of it? Is it 
because of other reasons?
    Mr. Horn. If I remember the law when it was put in, there 
was an incentive for the agencies which would help them get new 
computing--new systems, whatever. How has that been going, and 
is it a percent we had on there?
    Mr. Engel. Yes, it is a percent.
    The way it works--and again no one has used it yet, because 
the two attempts have been unsuccessful. But the way it works 
is that there is a baseline which is typically 5 percent of the 
collections in the previous year or 5 percent of the collection 
the previous 4 years, whichever is greater, and then an 
agency's collections for the current year. Five percent of that 
is taken and subtracted from that baseline. That would be the 
amount that they would be subject to requesting to have funding 
for.
    The funding can be used for different types of 
expenditures--some of which you mentioned, Mr. Chairman--to 
improve EDP systems, to be used for the debt collection. It can 
be used for asset sales as part of debt collection, to train 
individuals on credit management and debt collection.
    Mr. Horn. Yes. I think that is a very important point, that 
people work on these things, and it is a good idea to keep 
management systems going of people to get at the top of this. 
And it seems to me we ought to----
    How do you feel, Commissioner, about this?
    Mr. Gregg. I generally like the idea of incentives. As I 
said, I think that maybe the--it is certainly not as important 
today as it was a few years ago.
    I think the issue, at least as I understand it, has been 
how the dollars would be scored. And I think in the case of the 
SBA they could have gotten some money, but it was going to come 
out of another one of their pockets, so they didn't see the 
great value in that.
    So it really gets down to that there has to be a separate 
appropriation made; and, you know, whether that is new money or 
whether that comes from within the agency's overall cap has 
been the underlying issue.
    Mr. Horn. Let us go back to Mr. Moseley. I was very pleased 
with your--what you have done with it, and I commend you and 
the Department of Agriculture with improved debt collection.
    What do you see as the most significant remaining 
challenges facing the Department in this area, and how will you 
deal with them?
    Mr. Moseley. Well, as I indicated in my oral remarks, we 
know that we have some work to do yet. We are partway there, we 
think we are a significant way there, but we have still have 
some work to do.
    As was pointed out by our colleagues here at the table, we 
still have this area of rulemaking for guaranteed loan losses, 
for single-family dwellings. We are in the process of trying to 
get that completed. We can't refer that debt until that is 
completed. As soon as that is done, then there should be an 
additional, fairly sizable portion of debt that gets referred.
    We also, as was pointed out, have to work on this issue of 
administrative wage garnishment. We have put together a working 
group within USDA. We have consulted across departments, 
agencies, and we are getting there. But we have to now push the 
ball over the line and try to get that completed. We still 
continue to see that as a fairly significant area that will 
help us in this whole thing.
    I think the final thing that I would comment on is, it is 
kind of broadly across the Department, but we have made some 
significant commitments in the area of technology in the last 
year. And as--it just appears to me, as we continue to move 
down this road, the technology is going to ease our ability to 
track and monitor and to accomplish this task. And so we have 
done a lot in terms of technology here. But if you start to 
visit with the CIO in the Department, he is pretty encouraging 
about some things that we can continue to do.
    So those are areas that we are going to continue to work on 
here in the next year; and, hopefully, a year from now, we will 
be able to make even a more complete report.
    Mr. Horn. The General Accounting Office notes that the 
Department of Agriculture needs to sustain its increased 
commitment to debt collection. How will you ensure that this 
happens?
    Mr. Moseley. Well, the first thing that you have to do is, 
quite frankly, you have leadership that says this is important. 
And I think we have demonstrated to you by the folks sitting 
here at the table and what we have accomplished in the last 
year that is an important value and that we are pursuing that.
    You have to also establish accountability. Someone has got 
to take responsibility for this.
    And then, once responsibility is accepted, you have got to 
make sure that the job gets done. So we have established some 
USDA-wide performance measures in this area.
    Then, once you get that done, you have got to turn those 
department-wide performance measures into program-level 
measures. And actually it gets down to the point where 
individuals have to be held accountable for what they are doing 
within the Department. So that becomes part of their 
performance evaluation.
    So you start at the top and you work it all of the way down 
to the individuals who are assigned this task.
    Mr. Horn. We have a little vote on the floor. But we will 
get there. You state that only $1.4 billion of the Department's 
$6.1 billion in delinquent debt is eligible for referral to the 
Treasury Department. So what are you doing to verify that no 
eligible debt is being excluded from referral to Treasury? How 
about it, Secretary?
    Ms. Cooksie. We have had to do a litany of things to make 
sure that is happening. The No. 1 thing we have had to do is 
train our field staffs in what DCI is and when to take off 
debts and when they don't.
    We have changed a whole litany of our directives in the 
regulations in our handbooks. And then we put some automation 
tools in place. Because, as the Deputy says, ultimately, that 
is going to be the best tool for us to track these accounts 
that need to be referred.
    The other thing that we have done in farm loan programs is 
that we have a bi-yearly review of every State and we have 
added the Debt Collection Act to that program review. So when 
we go out every other year to each State we see where they are 
physically, not just through the automation. So I think we have 
put some good measures in place to follow it through.
    Mr. Moseley. If I can also followup on that for a second, 
we have also asked the Office of Inspector General to monitor 
and to help us in this regard, and they have made that 
commitment. So not only are we at the program level trying to 
get it done, we also have our Inspector General that is looking 
at it to make sure that we are getting it done.
    Mr. Horn. Thank you.
    Well, I want to thank our witnesses today. When Deputy 
Secretary Moseley testified before us last December he made a 
commitment to turn things around at the Agriculture Department. 
By all indications, he has lived up to that commitment. I 
congratulate you for that, Mr. Moseley. We know that deputy 
secretaries run everything, so you have done a good job; and I 
hope that we can count on you to sustain that commitment in the 
future.
    Gary Engel and his colleagues at the General Accounting 
Office have provided invaluable assistance to the subcommittee 
and to the executive branch in terms of improving debt 
collection. I hope that the General Accounting Office will 
continue its vigorous oversight of Federal debt collection 
operations and its constructive recommendations for 
improvement.
    Last but not least, Commissioner Richard Gregg and his 
staff at the Financial Management Service has done an excellent 
job of implementing the Treasury Department's centralized debt 
collection responsibilities under the Debt Collection 
Improvement Act. I know that you and your colleagues will 
continue working hard on this effort.
    I might add that the Commissioner and I chatted about 2 
weeks ago that there would be an A-plus in some things, and he 
said I will take a look at it. I now take a look at him, and 
you are an A-plus. So, Commissioner, you have done a great job 
under that law. All of you have. So thank you very much.
    I want to note and thank the people that put this hearing 
together. Bonnie Heald is the staff director for the 
subcommittee, to my left here and your right. Henry Wray is 
senior counsel. And then a little further down the line, Dan 
Daly, counsel, and Dan Costello of the professional staff.
    Chris Barkley is our majority clerk, and Ursula 
Wojciechowski--is she here? Yeah. She is working too hard--and 
Juliana French.
    Then the minority staff is Dave McMillen, professional 
staff, and
Jean Gosa. She is also an expert on communications and 
technicians.
    Court reporters Tina Smith and Mark Stuart.
    Thank you very much.
    With that, we are adjourned.
    [Whereupon, at 11:30 a.m., the subcommittee was adjourned.]

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