[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
U. S. GOVERNMENT PRINTING OFFICE
89-164 WASHINGTON : 2003
____________________________________________________________________________
For Sale by the Superintendent of Documents, U.S. Government Printing Office
Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; (202) 512-1800
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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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